10-K

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

 [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

    [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

          FOR THE TRANSITION PERIOD FROM_____________ TO_____________

                         COMMISSION FILE NUMBER: 0-9023

   COMDIAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


              DELAWARE                                       94-2443673
     (STATE OR OTHER JURISDICTION OF                      (I.R.S. EMPLOYER
     (INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NUMBER)

   106 CATTLEMEN ROAD SARASOTA, FLORIDA                        34232
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                    (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (941)922-3800

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

               TITLE OF CLASS COMMON STOCK (PAR VALUE $0.01 EACH)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 18, 2002, was approximately $5,706,991 (See Item 5).  The
number of shares of Common Stock outstanding as of March 18,2002, was
9,204,824.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of Comdial's  Definitive  Proxy
Statement for its 2001 Annual  Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after December 31, 2001,
is incorporated by reference under Part III of this Form 10K.





                               TABLE OF CONTENTS

Part I
                                                                        
Item 1.                Business                                                3
                         (a) General Development of Business                   3
                         (b) Financial Information About Industry Segment     11
                         (c) Narrative Description of Business                12

Item 2.                Properties                                             17

Item 3.                Legal Proceedings                                      18

Item 4.                Submission of Matters to a Vote of Security Holders    19


Part II

Item 5.                Market for Registrant's Common Equity and Related
                       Stockholder Matters                                    20

Item 6.                Selected Financial Data                                20

Item 7.                Management's Discussion and Analysis of Financial
                       Condition and Results of Operations                    21

Item 7A.               Quantitative and Qualitative Disclosures About
                       Market Risk                                            33

Item 8.                Financial Statements and Supplementary Data            33

Item 9.                Changes in Accountants                                 60

Part III

Item 10.               Directors and Executive Officers of the Registrant     62

Item 11.               Executive Compensation                                 62

Item 12.               Security Ownership of Certain Beneficial Owners
                       and Management                                         62

Item 13.               Certain Relationships and Related Transactions         62

Part IV

Item 14.               Exhibits, Financial Statement Schedules, and
                       Reports on Form 8-K                                    63



                                       2


PART I

ITEM 1. BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

Comdial Corporation (together with its subsidiaries, "Comdial" or "the
Company"), is a Delaware corporation formerly based in Charlottesville,
Virginia. During the first quarter 2001, Comdial moved its corporate
headquarters to Sarasota, Florida. Comdial was originally incorporated in Oregon
in 1977 and was reincorporated in Delaware in 1982 when it acquired General
Dynamics Telephone Systems Center, Inc. (formerly known as Stromberg-Carlson
Telephone Systems, Inc.), a wholly owned subsidiary of General Dynamics
Corporation. Comdial's common stock is traded in the Nasdaq SmallCap Market(R)
of the National Association of Security Dealers Automated Quotation System
("Nasdaq(R)") under the symbol, "CMDL".

Comdial(R) designs and markets sophisticated voice communications solutions for
small to mid-sized offices. Comdial products consist of business telephone
systems, unified and voice messaging, call processing, and computer telephony
integration solutions. Comdial currently has an installed base of approximately
375,000 telephone systems, 4 million telephones and 80,000 messaging systems.

During 2001, Comdial was comprised of three major business segments:(1) voice
switching, (2) messaging, and (3) computer telephony integration ("CTI")
applications and other.

RECENT DEVELOPMENTS

On March 6, 2002,  Comdial and Bank of America entered into the First Amendment
to the Amended and Restated Credit Agreement (the "First Amendment") which
reduced the Revolver commitment to $8 million, reduced the Term Loan to
approximately $4.9 million and agreed to extend the $1.5 million in letters of
credit until March 31, 2003. Both the Revolver and the Term Loan mature March
31, 2003.

The First Amendment changed the schedule of principal payments on the Term Loan
balance.  The term note will start amortizing in September 2002 using a 36-month
amortization schedule.  The First Amendment also changed the applicable interest
rate to an interest rate based on the Prime Rate plus a specified margin.
Effective as of March 6, 2002, the interest rate is equal to the Prime Rate plus
four percent.  As of March 6, 2002, Comdial had no additional availability under
the Revolver or the Term Loan.

Comdial's indebtedness to Bank of America under the Credit Agreement, as amended
by the First Amendment is secured by liens on all of Comdial's properties and
assets.  The First Amendment modified the financial covenants relating to
consolidated net income and contained other covenants related to consolidated
net worth and cross default provisions.  The First Amendment also provided for
the waiver of all 2001 violations and defaults.

In addition to the terms discussed above, in connection with the First
Amendment, $10 million of outstanding debt of Comdial to Bank of America was
converted into Series B Alternate Rate Cumulative Convertible Redeemable
Preferred Stock, par value $10 per share (the "Preferred Stock").  Comdial
issued 1,000,000 shares of the Preferred Stock to Bank of America.  The
Preferred Stock can be converted at any time into a maximum of 1.5 million
shares of Comdial common stock. This conversion ratio will be reduced to as low
as 500,000 shares of common stock in the event Comdial elects to pay down the
Term Loan by up to $3 million in connection with new investment into the Company
by an outside investor. Comdial has a call option allowing it to buy out Bank of
America's Preferred Stock at par value, but Bank of America has no mandatory
redemption. The Preferred Stock has a 5 percent cumulative annual dividend if
paid with cash or 10 percent if paid in common stock, at the election of
Comdial. The shares of common stock issuable to Bank of America upon conversion
of the Preferred Stock and as payment of dividends are subject to certain demand
and piggyback registration rights pursuant to a registration rights agreement
which will require the Company to register such shares of common stock for
resale in the public market upon request.

In the first quarter of 2002, the Company reached agreements with certain
vendors and other creditors to forgive $7.1 million in current non-bank
obligations, net of fees payable to the debt management firm that the Company
hired to assist with these efforts. These liabilities included amounts owed to a
former distributor of the Company's products, several component parts suppliers
and a seller of industrial equipment. The gains on forgiveness of $4.6 million
will be recognized in 2002.

Included in the non-bank obligations reduction is $2.1 million related to a
promissory note that was canceled by a supplier upon Comdial returning the
original inventory purchased from the supplier. Upon return of the inventory,
Comdial entered into a purchase commitment with the supplier to repurchase the
inventory by January 2007, with a minimum monthly purchase amount of $25,000.
Also included in the non-bank obligations reduction is $0.5 million related to a
supplier canceling the amount owed by Comdial in exchange for a purchase
commitment of $0.8 million for product that Comdial must purchase by December
2002.

On March 21, 2002, the Company and Relational Funding Corporation and its
assignees (collectively "RFC") reached agreement to reduce the total payments
due under the operating and capital leases from a combined balance of
approximately $5.5 million to a payout schedule over 72 months totaling
approximately $2.3 million. For the first 30 months, the monthly payment is
$39,621, which then reduces to $25,282. In addition, Comdial agreed to provide
RFC warrants to purchase 175,000 shares of the common stock of the Company for
$0.61 per share, which have an estimated fair market value of approximately $0.1
million.

                                       3



RESTRUCTURING

In 2000, due to declining market conditions, unfavorable economic factors,
uncompetitive product costs, and excess inventory levels, the Board of Directors
and management deemed it necessary to develop a plan to restructure the Company.
This plan was approved by the Board of Directors, and implementation commenced
during the fourth quarter of 2000.   Significant terms of the restructuring plan
("the Plan") included outsourcing the manufacturing operations, reducing the
Company's workforce and selling the headquarters and manufacturing facility in
Virginia. The primary objectives of the Plan were:

1. Consolidation of business units
2. Reorganization of the management team
3. Reorganization of functional departments
4. Relocation/consolidation of headquarters operations
5. Outsourcing of the manufacturing operations
6. Sale of the Virginia manufacturing facility
7. Streamlining product lines
8. Achievement of overall cost savings and efficiencies

CONSOLIDATION, REORGANIZATION AND RELOCATION

During 2000, each of the four strategic business units within Comdial: CCC, KVT,
CES, and CBCC/Array, had its own engineering, finance, information technology
("IT"), marketing and administrative functions. Comdial determined that this
structure was not sufficiently effective with respect to the Company's strategic
objectives. Consequently, from a functional standpoint, CCC, KVT, and CES were
combined under the Comdial Corporate umbrella during the first quarter of 2001.
In conjunction with this combination, management and functional departments were
also  reorganized to create a more  efficient use of common  corporate
infrastructure and eliminate redundant functions.

After approving the Plan, management immediately began to identify potential
outsourcing partners and downsize its current workforce. Pursuant to the Plan,
152 employees were terminated effective December 15, 2000, another 222 employees
were notified as of December 28, 2000 that their positions would be eliminated
during 2001. As of December 31, 2001 a total of 342 employees have been
terminated as part of the Plan. (See Note 15 to the Consolidated Financial
Statements).

The relocation and consolidation of certain functions from Virginia to Florida
was substantially completed during the first quarter of 2001. The Company
achieved significant cost savings during 2001 due to the consolidation of
administrative, information technology, finance, and sales and marketing
functions.

OUTSOURCING MANUFACTURING OPERATIONS

In January 2001, the Company entered into an agreement with an overseas
manufacturer to produce a cost-competitive small key system to supplement the
Company's offerings.

In  February 2001,  the  Company  entered  into an  agreement  with a  domestic
manufacturer to outsource certain of its existing manufacturing  operations.
During 2001, the Company transitioned a significant portion of its manufacturing
operations to this manufacturer.

In August of 2001, the Company added a third manufacturing outsource partner,
also foreign-based, to allow for increased capacity of its telephone
manufacturing requirements.

                                       4



At the present time, the Company believes it has a sufficient number of
outsource manufacturers. However, the Company will continue to look at
alternative manufacturers to ensure it receives the best product value for its
customers.

The Company does not own any equity interests or provide any form of debt
financing to its outsourcing partners.

SALE OF VIRGINIA FACILITY

On March 9, 2001,  the Company sold its  Virginia  manufacturing  facility in a
sale leaseback.  The Company is leasing  approximately  120,000  square  feet of
space for low volume board production,  light assembly work, warehousing,
engineering, and technical services functions under a three year agreement.

STREAMLINING PRODUCT LINES AND COST SAVINGS

During the fourth quarter of 2000, the Company undertook a rigorous analysis of
the number of telephone and circuit boards it marketed to its customers. As a
result, Comdial has significantly reduced the number of telephone models
available by discontinuing items with low demand and/or redundant items. Low
demand versions of circuit cards used in the FX(tm) and DXP(tm) systems were
also eliminated. During 2001, Comdial streamlined the number of telephones
offered in conjunction with its digital systems from over 50 models to 8.
Likewise, the number of key system model numbers was also reduced from thirteen
to six. The Company has benefited as a result of this streamlining. More volume
concentrated on fewer products has reduced product cost and inventory levels,
while making the product lines easier to configure, warehouse and sell.

EVENTS OF SEPTEMBER 11, 2001 AFFECT COMDIAL SALES

On September 28, 2001, management and the Board approved and executed a second
restructuring plan in response to the downturn in the economy and the events of
September 11, 2001. This second plan was designed to achieve certain operational
and financial efficiencies throughout the organization.  The Company also
developed a contingency plan to quickly react if the disaster proved to cause
more serious economic effects to the company.

Significant terms of the second plan included downsizing the workforce in both
the Sarasota and Charlottesville  locations.  Accordingly,  reductions were made
across several departments including sales, finance, manufacturing, engineering,
and technical support. Thirty employees in total were notified that their
positions had been eliminated on September 28, 2001.

During the month of October, it became clear to management that further
restructuring was required and that the Company's contingency plan must be
implemented. Accordingly, a third restructuring plan was announced in November
2001. The Company decided to make some fundamental changes to the engineering
department, as well as cut expenses further in light of the events of September
11, and the effects that this event had on the sales of its products. The
Company announced that it would be outsourcing the entire production and
assembly work presently being conducted in Charlottesville. The Company
announced it would eliminate more than 75 positions between November 2001 and
April 2002 as it totally exits manufacturing.

                                       5


SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Some of the statements included or incorporated by reference into our
Securities and Exchange Commission filings, press releases, and shareholder
communications and other information provided periodically in writing or orally
by our officers, directors or agents,  including this Form 10-K, are forward-
looking statements that are subject to risks and  uncertainties. These forward-
looking statements are not historical facts but rather are based on certain
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "may", "will", "anticipates", "expects", "intends",
"plans", "believes", "seeks" and "estimates" and variations of these words and
similar expressions are intended to identify forward-looking statements.  Some
of the risks and uncertainties include, but are not limited to:

     .  any inability to stem continued operating losses and to generate
        positive cash flow;

     .  any adverse impact of competitors' products;

     .  delays in development of highly complex products;

     .  lower than anticipated product demand and lack of market acceptance;

     .  adverse market fluctuations caused by general economic conditions;

     .  any negative impact resulting from the outsourcing of manufacturing and
        the continued risks associated with outsourcing;

     .  any lack of success of our restructuring plans;

     .  any inability to meet our restructured debt obligations to Bank of
        America, N.A., including, without limitation, compliance with all
        applicable covenants;

     .  any inability to renegotiate on favorable terms or otherwise meet our
        obligations to suppliers and other creditors;

     .  the risk of de-listing from the Nasdaq SmallCap Market;

     .  unfavorable outcomes in any pending litigation;

     .  any inability to form or maintain key strategic alliances;

     .  our inability to raise capital when needed;

     .  any continued reductions in our liquidity and working capital;

     .  the significant dilutive effect on existing stockholders of issuances of
        stock to Bank of America and other creditors;

     .  any adverse impact to the market of our stock if Bank of America elects
        to sell a  material amount of shares;

     .  any negative impact resulting from our downsizing of our workforce;

     .  unanticipated liabilities or expenses;

     .  the availability and pricing of parts and components;

     .  other risks detailed from time to time in our filings with the
        Securities and Exchange Commission.

These risks could cause our actual results for 2002 and beyond to differ
materially from those expressed, implied or forecasted in any forward-looking
statement made by, or on behalf of, us. We undertake no obligation to publicly
update or revise the forward-looking statements made in this Form 10-K to
reflect events or circumstances after the date of this Form 10-K or to reflect
the occurrence of unanticipated events.

                                       6


OUTSOURCING RISKS

As part of its restructuring program, Comdial outsourced substantially all of
its manufacturing requirements.  Outsourced manufacturing is carried out in
three principal locations: Asia, Mexico and Florida.  It is expected that all
manufacturing will be outsourced by the end of the second quarter of 2002.
Outsourcing carries certain risks which include, but may not be limited to: the
financial solvency, labor concerns and general business condition of Comdial's
outsourcing contractors, political, legal and economic conditions, language and
cultural barriers, trade barriers, currency fluctuations and changes in
regulatory requirements related to foreign locations, risks of fire, flood or
acts of God affecting manufacturing facilities and Comdial's ability to meet its
financial obligations to our outsourcing contractors.  In addition, Comdial's
outsourcing contractors acquire component parts from various suppliers.  Similar
risks are involved in such procurement efforts.  Due to the Company's dependency
on outsourced manufacturing and the inherent difficulty in replacing outsourced
manufacturing capacity in an efficient or expeditious manner, the occurrence of
any condition preventing or hindering the manufacture or delivery of
manufactured goods by any one or more of its outsourcing contractors could have
a material adverse effect on Comdial's business and financial results.

INDUSTRY BACKGROUND

Comdial's primary business and product offerings fall into three categories: (1)
voice switching systems, (2) voice messaging systems, and (3) computer telephony
integration ("CTI") applications that incorporate voice messaging and voice
processing products with advanced computer technologies and/or Internet
applications. All of these businesses are focused on small- to medium-sized
offices, are highly competitive and are influenced by trends and events in
technology, regulation and the general economy.

VOICE SWITCHING SYSTEMS

Comdial produces and markets digital voice switching systems known as key/hybrid
systems.  Historically, voice-switching systems were categorized  as  either
key/hybrid systems or Private Branch Exchanges ("PBXs").  Key/hybrid systems are
typically purchased by small- to medium-sized offices of small to large
organizations with 3 to 500 employees per location or branch office, while
larger businesses with more than 500 employees in one location typically
purchase PBXs.  However, design advances in key/hybrid systems and PBXs in
recent years have blurred the distinction between the two systems.  As
key/hybrid systems continue to evolve, they increasingly encroach on the domain
of the traditional PBXs, and vice versa.

A basic business telephone system consists of: (a) a central switching unit, (b)
telephone instruments, (c) associated wiring and connection hardware, (d) system
software,  and  (e)  adjunct  devices  such  as  facsimile  machines  and  voice
processing systems.  Voice switching systems are measured in terms of "ports". A
port is an access  point on the switch to an outside  trunk or terminal  device.
Examples of terminal devices include telephones, facsimile machines, modems, and
voice mail ports. Examples of trunks include standard business lines and digital
lines such as ISDN and T-1,  as well as other  types of  circuits  provided by a
telephone company or an alternative service provider.  With the proliferation of
modems, facsimile machines, and voice mail systems, the demand for port capacity
in key/hybrid systems has grown.

Due to the voice and data convergence phenomenon, data access to Internet
Protocol (IP) networks and the Internet as a type of access point is becoming
increasingly important in voice switching systems. As part of this technology
change the emergence of IP-based terminal devices such as IP telephones are
becoming an important component in the Company's product portfolio.  Data access
points are available for trunks, terminal devices and networking.  The Company
accomplishes this with an IP media board that supports voice over IP (VoIP)
protocols.  The Company has developed an IP telephone, which is currently
manufactured by one of its outsourcing partners.

                                       7


The 2001 enterprise communications market size dramatically decreased by 24.3
percent in terms of number of systems shipped. Comdial's systems shipped
remained approximately flat year over year at -0.2 percent. The first half of
2001 resulted in a 12.6 percent decrease, while Comdial improved in the second
half by increasing units shipped by 14.3 percent year over year. For the year,
Comdial increased its market share by approximately 31.9 percent from
approximately 4.1 percent to 5.5 percent. The Company is ranked seventh behind
Avaya, Panasonic Company, Nortel, NEC, Inter-tel, and Toshiba, according to the
Phillips Infotech, Enterprise Communications Fourth Quarter 2001 Report.

The domestic demand for traditional key/hybrid switching systems, as projected
by Phillips Infotech, a leading industry market analyst firm, is expected to
decline 27.6 percent, decline 4.1 percent, and increase 3 percent in 2001, 2002,
and 2003, respectively.  Per the same firm, the key/hybrid market is expected to
generate revenues of approximately $1.53 billion, $1.45 billion, and $1.48
billion in 2001, 2002, and 2003, respectively.

The PBX switching systems market, where Comdial has no product offerings, is
expected to decline 27.2 percent, decline 5.1 percent, and remain unchanged in
2001, 2002, and 2003, respectively.  The PBX market is expected to generate
revenues of $2.89 billion, $2.71 billion, and $2.66 billion in 2001, 2002, and
2003, respectively, according to the Phillips Infotech, Enterprise
Communications Third Quarter 2001 Report.

The IP PBX switching market in terms of stations shipped, a market that Comdial
introduced new products to in late 2001, is expected to grow 202 percent, 40.8
percent, and 47.8 in 2001, 2002, and 2003, respectively.  This projected growth
translates into revenues of approximately $757 million, $984 million, and $1.37
billion in 2001, 2002, and 2003, respectively, according to the Phillips
Infotech, Enterprise Communications Third Quarter 2001 Report.

The year 2002 and 2003 projected declines in the key/hybrid and PBX markets are
primarily due to the adoption of IP PBX systems.  In 2001, Comdial gained market
share in the key/hybrid market and started selling in the emerging IP PBX
segment.  The Company believes it is well positioned to compete effectively in
both markets.  The Company's FX IITM product is classified as a converged IP
telephony system and provides customers with the option of deploying circuit
switched and/or packet switched solutions.  The FX II is Comdial's key entry to
the projected high growth IP PBX market.

                                       8


VOICE MESSAGING

As the market for voice processing systems has matured, a new variation known as
"unified messaging" has evolved. Unified messaging provides a means of storing
voice and fax messages along side email messages in a single location (such as
the "inbox" associated with Microsoft(R) Outlook(R) in-box). Unified messaging
enables a system user to play voice mail messages (using the sound capabilities
of their PC) at the same time the user is picking up their email messages. The
user can also annotate, store and forward voice messages in the same manner as
e-mail messages. Unified messaging also allows the user to listen to voice
messages via the telephone and also listen to e-mail messages via the telephone
through the use of sophisticated text-to-speech software. The unified messaging
"in-box" is a multimedia store for voice, fax and e-mail messages.  In 1999,
Comdial introduced iNTerchange(TM), its unified messaging system combining voice
mail, fax, and e-mail. Comdial's iNTerchange unified messaging system is
available in several sizes and configurations. iNTerchange integrates with
Microsoft(R) Exchange and other popular e-mail servers. According to IDC's
February 2001 press release, the number of UM mailboxes is projected to increase
from 1 million in 1999 to more than 38 million in 2004. Vendor revenues in this
market are expected to jump from $132 million to nearly $2 billion during this
time.  iNTerchange, in combination with Corporate Office(TM), Comdial's mid-
market offering, and Debut(TM), its entry-level product, constitute a complete
range of voice processing solutions. These products provide voice processing for
applications ranging in size from 2 to 64 ports. Most Comdial sales are in the 2
to 8 port range, corresponding with the needs of small to mid-size offices that
are Comdial's primary markets.

According to Phillips Infotech in terms of systems shipped, for the year ending
2000, Comdial with its subsidiary key voice was ranked fourth with 6.4 percent
market share behind Avays, Nortel, and Active Voice.  For the first half year
2001 (year-end 2001 figures have not yet been released), the Company was ranked
sixth with 4.3 percent market share behind Avays, Nortel, Panasonic, NHC (via
its acquisition of Active Voice), and Toshiba. Comdial believes that its second
half performance will boost its voice mail market standings.

COMPUTER TELEPHONY INTEGRATION SOLUTIONS AND OTHER

Comdial has also developed sophisticated desktop software applications designed
to run in a Microsoft Windows(R)/Outlook environment. Examples of these
applications include Impact Attendant(TM), Impact Group(TM), and Impact
Call(TM). All of these applications enable a PC user to visually monitor and
control (transfer, hold, etc.) phone calls. The call control capabilities of
these desktop applications are enabled by Comdial's "Enterprise" CTI link and
WideOpen Office(TM), a server based program. The market for CTI products is
very diverse and difficult to quantify. Most of Comdial's CTI sales derive from
sales of the Company's switching and/or voice messaging products. Comdial has
also  developed products targeted at vertical markets. Two examples include the
"Concierge(TM)", a hotel/motel targeted market, and "Avalon(TM)", an assisted
living targeted market. Comdial sold its Avalon business in 2001 (discussed in
greater detail in the following section) to a company focused exclusively in the
health care market, who will now be a reseller of other Comdial equipment.

STRATEGY
Comdial seeks to expand sales and profits by:

  1. Focusing on its core competencies in the switching and messaging markets
     and introducing feature-rich and competitively priced products;
  2. Leveraging the core competency in communications technology to develop and
     introduce advanced IP telephony products and solutions;
  3. Leveraging its expertise in messaging and offering technologically advanced
     solutions like unified messaging at a competitive price point;
  4. Increasing profitability and penetration of government and national account
     opportunities through a channel-centric strategy versus the Company's
     direct model;
  5. Expanding voice processing software sales in international markets; and
  6. Adding recurring revenue opportunities by offering bundled solutions to
     users, which integrate Comdial hardware and software products with various
     service offerings.

                                       9


PRODUCT OFFERINGS

Comdial currently offers digital business telephone systems, wired and wireless
terminals, computer and telephony software applications, voice processing and
unified messaging systems, Voice Over Internet Protocol ("VoIP"), and other
products along with a variety of product enhancements. Comdial believes that it
offers a competitive range of products enabling dealers to meet differing price
and feature requirements. Comdial strives to introduce new products that meet
the needs of a changing market.

Comdial currently provides the newly released DX-80(TM) and FX II(TM), plus the
Impact FX(TM), DXP and DSU(TM) switching products. In 2001, Comdial introduced
the DX-80 digital key system and the FX II digital key system. The DX-80 and the
FX II are expected to continue to cannibalize sales of the DXP and DSU, which
Comdial plans to retire in 2002.  The DX-80 is positioned for the lower end of
the small to medium office market and provides a unique set of features at a
very competitive price coupled with easy installation and operation.

The FX II appeals to a broad range of customers due to its robust advanced
feature set and scalability. Businesses with as few as 10 people can afford the
FX II. The FX II is Comdial's most current and sophisticated switching platform.
The FX II is expandable to 560 ports. The FXII differs from Comdial's other
switching platforms in that it is more "open" and more software-intensive. The
FX II is a rack mountable version of the FX platform. FX II is designed to
provide a lower initial cost of entry for customers who desire the sophisticated
features including IP gateway functionality, support for IP telephones and
digital trunk capabilities.  The rack mount design provides convenient
installation alongside other rack-mounted IT equipment. Alternatively, the FX II
can be wall mounted.

The introduction of the FX II provides Comdial with a competitive, feature-rich
product offering that is scaleable though chassis expansion and networking,
thereby servicing a broader range of customer size segments, which should result
in improved sales.

The FX II supports fiber connectivity for chassis expansion. Fiber connectivity
provides a fiber optic link between cabinets for optimal equipment placement in
environments that can benefit from multiple cabinets in the same application,
but separated by up to 2500 meters. Typical applications for fiber connectivity
are campus environments and multi-level buildings.

The FX II's networking capabilities allow multiple locations to share one
numbering plan and feature transparency throughout the network. This feature is
important for applications where multiple locations require total integration of
the communications system. For example, the FX II network design has enjoyed
success in the campus environment of educational facilities.

In addition to the networking feature based on dedicated telecom facilities, the
FX II also supports IP networking. IP networking allows the networking of
switching systems over data facilities. This is important as voice and data now
can share the same wide area or local area network reducing the total cost of
ownership of the system by leveraging the existing facilities instead of
separate facilities for data and telecom. Comdial provides for the use of
multiple compression algorithms to best suit the users application and bandwidth
requirements.

Comdial offers the iNTerchange(TM) unified messaging, Corporate Office, and
Debut voice messaging systems. Comdial also provides CTI based products that
work in conjunction with the FX and or DXP. These CTI products are "Concierge"
for the hospitality industry, Enhanced Customer Service features for informal
call centers, and QuickQ, which provides automatic call distributor ("ACD")
functionality designed for more sophisticated call centers. Sales of these
products constitute the majority of Comdial's CTI sales revenue.

                                       10


PRODUCT DEVELOPMENT / NEW PRODUCTS

Comdial currently has a number of new products and product enhancements either
in testing or scheduled for release during 2002. These include: new IMAP4
protocol support for iNTerchange, an enhanced IP telephone, a new voice
processing platform for the DX-80, more advanced call center functionality for
our Enhanced Customer Service feature, a new wireless telephone, a new CPU
enhancement designed for advanced next generation functionality, enhancements to
its line and station cards, as well as a next generation, open-standards-based
product designed around Session Initiation Protocol ("SIP") and Microsoft's .NET
initiative.

Throughout 2001 and beyond, Comdial plans to continue to evolve IP-based
capabilities for both the switching and voice processing product lines. The
Company plans to continue to enhance new technologies and incorporate them into
existing products based on the maturity of the technology and customer perceived
value-add.

PRODUCT DISTRIBUTION

The majority of Comdial's products are sold to the end-user through a network of
Comdial authorized dealers. The Company has authorized dealers in every major
metropolitan area in the U.S. These dealers purchase Comdial products from
Comdial-authorized distributors. Use of the distributors enables Comdial to
minimize receivables credit risk, sales administration and inventory. The
distributors also make Comdial products widely available on a same-day or next-
day basis. Comdial dealers benefit from having multiple sources from which they
can obtain product on short notice, which keeps down the cost of the product to
dealers and minimizes the need for dealers to maintain their own inventory.

Comdial is in the process of shifting most of its products into the distribution
channel. In January 2002, it introduced all of its voice messaging and unified
messaging products to the distributors as well as many telephony products that
Comdial sold direct. This enhances the position of Comdial with respect to its
warehousing, customer credit exposure and simplifies its dealer and rebate
programs. In addition, Comdial is engaged in discussions with its distributors
regarding how to migrate its direct national accounts and government sales to
the distribution channel. This strategy will further reduce Comdial's
receivables risk and increase geographic scope and coverage.

STRATEGIC ALLIANCES

Comdial plans to continue to evaluate strategic alliances where it can either
generate more customers or enhance its product lines and utilize its
distribution power through the dealer channel.


  (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

  During the fiscal years ended December 31, 2001, 2000, and 1999, substantially
all of Comdial's sales, net income (loss), and identifiable net assets were
attributable to the telecommunications industry. Additional information is
included in Note 12 to the consolidated financial statements.

                                       11


Product Sales Information:

The following table presents  certain  relevant  information  concerning
Comdial's business segments for the periods indicated:




- -----------------------------------------------------------
                                          
Years Ended December 31,
(In thousands)                    2001      2000       1999
- -----------------------------------------------------------

- -----------------------------------------------------------
Business segment sales:
Switching                      $53,511   $49,545   $ 81,868
Messaging                       15,183    28,014     38,907
CTI and other                    7,473    12,005     19,982
                               -------   -------   --------
            Net sales (a)      $76,167   $89,564   $140,757
                               =======   =======   ========
- -----------------------------------------------------------


(a) During 2001, the Company classified certain sales rebates and incentives as
a reduction of revenue. Previously, these incentives were classified as a
selling, general and administrative expense. The Company has also reclassified
such amounts for fiscal years 2000 and 1999 to conform to the 2001 presentation.
These and other reclassifications had no effect on operating or net income.

(C) NARRATIVE DESCRIPTION OF BUSINESS

PRODUCTS

Comdial has strategically changed its product portfolio. While the new product
portfolio consists of fewer product SKUs, it represents, in management's
opinion, the strongest most scalable product lineup ever offered by Comdial. By
significantly reducing the number of similar products and focusing on increasing
volume and lowering product costs, the Company intends to strengthen its ability
to provide stable profit margins in the future. We believe this also enhances
the Company's competitive position. This strategic product shift was the key
benefit of the restructuring plans.

Comdial offers a variety of communications products, including  switching
products, messaging systems, CTI solutions and other software applications.
Comdial's telecommunications products meet the requirements of three agencies:
(1) the Federal Communications Commission ("FCC"), (2) an independent laboratory
approved by the Occupational Safety and Health Act Commission ("OSHA") to
produce safety standards, and (3) a nationally recognized test laboratory that
performs product evaluations. Selected products are also registered with the
Canadian government and are Canadian safety certified.

SWITCHING
The following products comprised the majority of Switching sales:

The FX II is Comdial's most current and sophisticated switching platform and is
expandable to 560 ports. Since its introduction of the original FX in 1997,
Comdial has continually enhanced the FX Series. The FX II differs from Comdial's
other switching platforms due to its open, software-enhanced, scaleable
architecture. The introduction of the FX II increases Comdial's competitiveness
for a broader range of applications, thus expanding its market opportunity,
which should in turn produce incremental sales.

The DXP system, originally introduced in 1992, has had several major upgrades
over the years. The DXP was the first Comdial digital switching platform that
expanded to 560 ports. The Company expects sales of the FX II to continue
replacing sales of the DXP during 2002.

                                       12


The DSU (Digital Service Unit) system, originally introduced in 1990, has been
the mainstay of Comdial's key system offering. The DSU has been used as the
platform for three iterations of key system products: the Impact (using Impact
phones), Impact SCS (using Impact SCS phones) and the Impression(TM). The
Impression was discontinued during first quarter of 2001. The Company expects
sales of DX-80 and FX II to continue replacing sales of the DSU during 2002.
Impact telephones were introduced in 1992. These telephones offer a variety of
features, including an interactive liquid crystal display ("LCD"), programmable
feature keys, three color lighted status indicators, and subdued off-hook voice
announce for receiving intercom calls while on a telephone call. The phones are
offered in a variety of models, distinguished by the number of programmable
buttons, an optional display, and an optional speakerphone. Impact phones can be
used with the FX, DXP and DSU switching platforms, thus providing customers with
investment protection as they upgrade from one switch to another.

Impact SCS was introduced in 1997. Impact SCS retains many of the original
Impact telephone models, but has a new design and other distinguishing
capabilities such as a full-duplex speakerphone model, simultaneous voice and
data, large screen display and adjustable viewing angle. Impact phones can be
used with the FX, DXP and DSU switching platforms, again offering customers
investment protection when upgrading their switch.

The DX-80 is a new all-in-one digital key system with advanced features
including voice mail, live call screening, auto attendant, plus others. This new
system is competitively priced and has resulted in an increase in market share
in the small office market segment. The DX-80 was released in Q1 of 2001. In
spite of a difficult year for equipment sales, the DX-80 performed well in 2001.

MESSAGING

Debut was introduced in 1998 to meet the needs of small offices seeking basic
voice processing capabilities at an attractive price.

Corporate Office(TM), introduced in 1996, is the trade name of a PC-based voice
processing system. The product provides all standard voice processing features
such as auto attendant, voice store and forward, multiple greetings, and
individual voice mail boxes. Advanced features such as fax tone detection, audio
text (interactive response to user touch-tone commands), and Visual Call
Management(TM) (the ability to view voice messages from a PC)  are also
available. Corporate Office can be integrated with Comdial's digital telephone
systems so that display messages on liquid crystal display ("LCD") terminals
prompt user operations. The Company offers similar integration packages for
telephone  systems made by other companies. Corporate Office is offered  in 4 to
64 port configurations. Corporate Office is available in a variety of form
factors and utilizes various Microsoft operating systems. Voice storage capacity
is virtually unlimited, which is an advantage of PC-based design.

iNTerchange is a unified messaging system that was introduced in the third
quarter of 1999. This system was specifically designed to meet both small and
large company needs. It is a Microsoft Windows 2000(TM) based unified messaging
system that fits into any office's local area network ("LAN") and combines voice
mail, fax and e-mail capabilities. The system provides a way to better
prioritize messages with more efficient alternatives for receiving and
responding to each type of electronic messaging.

                                       13


COMPUTER TELEPHONE INTEGRATION ("CTI") SOLUTIONS AND OTHER SOFTWARE APPLICATIONS

QuickQ ACD, introduced in 1994, is an automatic call distributor ("ACD"),
designed for call center use. The QuickQ ACD answers and distributes incoming
calls rapidly and  efficiently,  helping to assure  maximum call center
productivity and superior customer response levels. The Company also has a call
center product for informal call centers called Enhanced Customer Service
("ECS"), which is integrated into Comdial's messaging systems. Informal call
centers are call centers that do not require some of the added sophistication of
QuickQ, but require sophisticated call routing and queuing. ECS provides an
entry-level call routing and queuing for informal call centers as part of our
messaging platform. The Company is enhancing ECS and expects to create a
superior version later in 2002.


DISCONTINUED VERTICAL MARKET PRODUCTS

Due to the restructuring of the business, the Company has decided to exit the
direct sales of Avalon vertical market application for the assisted living
market. The Company sold the Avalon business assets to Fidelity Telealarm in
October 2001.  It is expected that Fidelity will resell Comdial products
alongside its solutions. The Company has now completely exited this business,
which had negative financial results.

SALES AND MARKETING

Comdial markets its products through both direct and indirect channels. Indirect
channels include both one-tiered and two-tier distribution. Comdial's primary
channel of distribution to U.S. and Canadian markets is through five wholesale
distributors, which in turn, resell to hundreds of independent dealers.

Three supply houses collectively account for more than 65% of Comdial's net
sales. These are ALLTEL Supply, Inc. ("ALLTEL"), Graybar Electric Company, Inc.
("Graybar"), and Sprint/North Supply, Inc. ("North Supply"). In 2001, net sales
to ALLTEL, Graybar, and North Supply amounted to approximately $9.1 million
(12%), $29.8 million (39%), and $11.0 million (14%), respectively.

Comdial has established four classes of dealers that purchase Comdial's products
from distributors for sale to end-users. These are Platinum, Gold, Associate,
and General Interconnect. Comdial offers an incentive package for Platinum and
Gold dealers, including exclusive access to certain products, cash rebates
related to dealer purchase levels, cooperative advertising allowances, a measure
of territorial protection, toll free assistance, and training. Platinum and Gold
dealers have sales quotas, and Comdial's sales department monitors their
performance against these targets. Associate and General Interconnect dealers
purchase Comdial's products on an as-needed basis, and are not rewarded through
product rebates. Associate and General Interconnect dealers do not have quotas
but also do not have access to certain "Dealer Only" products, a reduced
cooperative advertising allowance, and other preferred dealer services that are
offered by Comdial.

Comdial supports its existing dealers and seeks to attract new dealers through
direct selling efforts, joint sales activities with distributors, and other new
dealer recruitment tactics.

Comdial has defined thirteen geographic sales territories, each of which include
a regional sales manager ("RSM") who is responsible for recruiting new dealers,
as well as managing existing dealers. Dealers are supported through thirteen
dedicated inside sales representatives, direct mail, and local product seminars
often organized by distributors. To stimulate demand, each RSM  makes joint
sales calls with dealers to end-users and trains dealer sales personnel in
product benefits. Product specialists at Comdial are available to help engineer
complex configurations and solve any technical problems.

                                       14


Comdial's dealers sell Comdial's products to end-users and provide after-sale
support. Comdial maintains a technical staff devoted to dealer technical
support. Comdial also generally provides a limited warranty on elements of its
products up to a maximum of 24 months.

Other indirect channels include OEM relationships, international sales, and
dealer direct sales for specific products.

In recent years, Comdial initiated a national accounts marketing program to
market its products to large multi-location end-users. The branch offices and
retail outlets that employ 5-500 employees are a good fit with Comdial's product
line. The program allows end-users to contract with one entity (Comdial or
designated partner) for sales, while achieving local installations and
maintenance from Comdial's network of independent dealers. This program is also
a key delivery vehicle for sophisticated computer telephony solutions sales that
often require advanced custom integration and superior knowledge and
understanding of end-user communications and business objectives. The National
Accounts Marketing Program allows Comdial to work directly with end-users to
assure that the best combination of Comdial and, if necessary, third party
products are incorporated into the final solution. Comdial employs dedicated
personnel to close national accounts' contracts, yet, leverages its regional
sales managers and dealer network to identify prospects.

Because the bulk of Comdial's sales are made under short-term sales orders
issued by customers on a month-to-month basis rather than under long-term supply
contracts, backlog is not considered material to Comdial's business.

ENGINEERING, RESEARCH AND DEVELOPMENT

Comdial believes that it must continue to introduce new products and enhance
existing products to maintain a competitive position in the marketplace.
Comdial's engineering department, working in collaboration with the marketing
and manufacturing departments, is responsible for design of new products and
enhancements. Significant amounts of engineering expenditures are dedicated to
new product development, with the balance used for cost reductions and
performance enhancements to existing products. Comdial strives to ensure
research and development resources are spent on projects that provide the best
return and have the most strategic value. This may at times mean utilizing
resources outside the company on a contract basis or partnering with other
companies to bring products and/or features faster to the market place.

Research and development costs for the fiscal years ended 2001, 2000 and 1999,
comprise the majority of engineering, research, and development costs, which
were $7.6 million, $6.3 million and $9.7 million, respectively. Comdial is
unable to segregate and quantify the amount of research and development costs
from other engineering costs for such fiscal years.

Some of the research and development costs associated with the development of
product software have been capitalized as incurred. The accounting for such
software follow the provisions of Statement of Financial Accounting Standards
("SFAS") No. 86. The amounts capitalized in 2001, 2000 and 1999 were $2.8
million, $4.4 million and $4.7 million, respectively. The amortization expense
of capitalized software development costs in 2001, 2000 and 1999 were $3.1
million, $3.3 million and $2.4 million, respectively.

                                       15


MANUFACTURING AND QUALITY CONTROL

Comdial has streamlined its product offerings in 2000 and 2001 by eliminating
products and models that were redundant and/or low volume, thereby simplifying
outsourcing and reducing the associated risk. This action also has the added
benefit of concentrating more volume on the remaining models, which is expected
to have a positive effect on cost, efficiency and quality. During 2001, Comdial
successfully completed substantially all of its outsourcing objectives. The
Company believes that outsourcing the manufacturing of its products will return
benefits in the form of lower costs, higher margins and competitively priced
products. While 2001 has been a restructuring year for the Company, the
outsourcing of the majority of its products has already resulted in significant
benefits to the Company. The Company has experienced minor disruptions in its
supply chain during this process. The quality of the products produced by its
outsourcing partners has been good and the Company expects to maintain or
improve the quality over time.

COMPETITION

The market for Comdial's switching and voice-processing products is highly
competitive. Comdial competes with over 25 suppliers of small business telephone
systems, many of which have significantly greater resources. Examples are Avaya,
Nortel Networks, Cisco, 3Com, NEC, Inter-tel, Vodavi, Panasonic, and Toshiba
Corporation. Key competitive factors in the sale of telephone systems and
related applications include performance, features, reliability, service and
support, name recognition, distribution capability, and price. Comdial believes
that it competes favorably in its market with respect to the performance,
features, reliability, distribution capability, and price of its systems, as
well as the level of service and support that Comdial provides. In marketing its
telephone systems, Comdial also emphasizes system expandability, quality, and
high technology features including the IP and CTI capabilities of its products.

Comdial expects that competition will continue to be intense in the markets it
serves, and there can be no assurance that Comdial will be able to continue to
compete successfully in the marketplace or that Comdial will be able to maintain
its current dealer network.

INTELLECTUAL PROPERTY

From time to time,  Comdial has been subject to proceedings  alleging
infringement by Comdial of  intellectual  property  rights of  others.  Such
proceedings  could require  Comdial  to expend  significant  sums in
litigation,  pay  significant damages,  develop  non-infringing   technology,
or  acquire  licenses  to  the technology that is the subject of the asserted
infringement,  any of which could have a material adverse effect on Comdial's
business.  Moreover,  Comdial relies upon  copyright,  trademark,  patents  and
trade  secret  protection  to protect Comdial's  proprietary  rights in its
products.  There can be no assurance  that these  protections  will be  adequate
to deter  misappropriation  of  Comdial's technologies or independent third-
party development of similar technologies.

                                       16


The business telecommunications industry is characterized by rapid technological
change.  Industry participants often find it necessary to develop products and
features similar to those introduced by others, with incomplete knowledge of
whether patent  protection  may have  been  applied  for or may  ultimately  be
obtained by competitors or others. The telecommunications manufacturing industry
has historically witnessed  numerous  allegations of patent  infringement  and
considerable  related litigation among competitors.  Comdial itself has received
claims  of  patent   infringement  from  several  parties  that  sometimes  seek
substantial sums. In response to prior infringement claims, Comdial has pursued
and  obtained   nonexclusive  licenses  entitling  Comdial  to  utilize  certain
fundamental  patented  functions  that  are  widely  licensed  and  used  in the
telecommunications  manufacturing industry. These licenses will either expire at
the end of the patent  license or the end of an  agreed-to  period.  The Company
holds  certain  licenses  with  Avaya Inc., however, at this time the Company
has informed Avaya it is not in a position to pay the fees that Avaya claims are
owed pursuant to the licenses.

EMPLOYEES

As of December 31, 2001,  Comdial,  including  subsidiaries,  had 258  full-time
employees, of whom 51 were engaged in manufacturing,  35 in engineering, 115 in
sales and support, and 57 in general management and administration. During 2000
and 2001, Comdial initiated restructuring   programs   that  included
outsourcing  the manufacturing of most  of its products.  As a result, the
Company  experienced a reduction in its workforce by 303 employees during 2001.
During the first half of 2002, Comdial expects to reduce the workforce by more
than 50 people.  Continued assessment of cost efficiencies may necessitate
additional headcount reductions.

ITEM 2.  PROPERTIES

In March 2001, the Company sold its Charlottesville,  Virginia,  headquarters
and  manufacturing  facility to Seminole Trail Properties,  LLC ("STP"). The
purchase price for the property was $11.4 million, all of which was collected in
2001.

The Company is leasing  back a portion of the  facility through  August 31,
2003,  for low volume  board  production,  light  assembly, engineering,  and
technical services functions.  Lease payment obligations total $2.6 million over
the 30 month lease term.

The  total  gain on the  sale of the  facility  amounted  to  $5.1  million.
The Company  immediately recognized a gain of $2.9 million in 2001 which is the
amount by which the gain exceeds  the  present  value of the  minimum  lease
payments  to be made by the Company from the closing date through August 30,
2003.  The remaining amount of the gain of $2.2  million has been  deferred  due
to the  leaseback  and is being amortized over 30 months, the term of the lease,
as a reduction of rent expense. During 2001, the Company amortized  $1.1 million
as a reduction of rent expense.  As of December 31, 2001, the balance of the
deferred gain amounts to $1.1 million.

In addition, the Company leases approximately 60,000 square feet of office and
warehouse space in Sarasota, Florida, which serves as its corporate
headquarters.  This lease expires in January 2010.

                                       17


ITEM 3. LEGAL PROCEEDINGS

Comdial currently and from time to time is involved in litigation arising in the
ordinary course of its business.  Those that the Company believes may have a
significant impact on it are described below.  Comdial can give no assurance
that the resolution of any particular claim or proceeding would not have a
material adverse effect on its results of operations, cash flows or financial
condition.

On March 5, 2001, William Grover, formerly a senior vice president of Comdial,
filed suit in state court in Charlottesville, Virginia alleging breach of an
employment contract and defamation, and seeking compensatory, punitive and
exemplary damages in the total amount of $1.9 million, plus interest.  Among
other things, Mr. Grover claims that the for-cause termination of his employment
was unjustified and that he is therefore entitled to all benefits accrued to him
pursuant to the Company's executive retirement plan.  The Company removed this
case to the federal district court for the Western District of Virginia, because
Mr. Grover's state law claims against Comdial are preempted by federal law,
specifically ERISA.  Presently, Mr. Grover is seeking to remand the case back to
state court.  Comdial believes that it has adequate substantive and procedural
defenses against all claims made against Comdial in this matter.

On October 5, 2000, William G. Mustain resigned as president and chief executive
officer of Comdial.  On the same date, Comdial agreed to pay Mr. Mustain his
normal salary for the remainder of 2000 plus severance in the amount of $0.1
million per year for three years beginning on January 1, 2001.  Mr. Mustain was
also entitled to be paid approximately $1.7 million in three installments over a
15 month period plus certain fringe benefits under Comdial's Retirement Benefit
Restoration Plan (the "Plan").  In 2001, Comdial made the initial payment of
$0.6 million under the Plan.  However, on June 30, 2001, Comdial notified Mr.
Mustain that it would not make payment of the second $0.6 million installment
due under the Plan because of its financial condition, as permitted under the
terms of the agreement with Mr. Mustain.  On December 27, 2001, Comdial reached
agreement with Mr. Mustain on modified terms with respect to the remaining
amounts due to him.  In lieu of those remaining amounts due of $1.1 million, we
agreed to pay Mr. Mustain a total of approximately $0.3 million payable in five
annual installments commencing in 2004.  No gain will be recognized until the
Plan is liquidated.  Comdial also agreed to continue to pay Mr. Mustain the
aforementioned severance pay through the three-year severance period that
expires on December 31, 2003.

On September 28, 2001, Baisch & Skinner, Inc. ("Baisch") filed suit against
Comdial and a second defendant, Barron Communications, Inc. ("Barron") in St.
Louis County, Missouri, alleging multiple counts of breach of contract and
breach of warranty in connection with an agreement involving the installation by
Barron of a communications system at Baisch's place of business.  The suit seeks
$78,000 in compensatory damages and unspecified incidental and consequential
damages, interest and costs.  Comdial believes it has ample defenses to the
claims alleged in this matter.  The matter is currently in the discovery phase.

                                       18


On October 2, 2001, ePHONE Telecom, Inc. filed for arbitration against Comdial
in Washington, DC, alleging fraud in the inducement, among other things, arising
from the alleged breach of an asset purchase and software license agreement.
ePHONE is seeking rescission of the agreement and a return of the full amount of
$2.7 million paid to us thereunder.  On March 20, 2002, ePHONE requested leave
to clarify its original claim by asserting $5.0 million in compensatory damages
and $5.0 million in punitive damages in addition to the damages described above.
No ruling has been made on that request.  Comdial will vigorously defend itself
against ePHONE's allegations and it has filed counterclaims against ePHONE for
an amount in excess of $2.0 million based on ePHONE's failure to make minimum
royalty payments due under the agreement and for loss of future revenues based
on ePHONE's breach of the agreement and the resulting termination thereof.
Comdial believes it has ample defenses to the claims alleged against Comdial in
this matter.

On November 2, 2001, Comdial reached a settlement of a lawsuit filed against the
Company by Rates Technology Inc. ("RTI") in the Eastern District of New York
alleging that certain of its products had infringed an expired patent held by
RTI.  According to the settlement agreement, Comdial agreed to pay an amount not
in excess of $0.5 million pursuant to a promissory note payable in quarterly
installments through August 2004 in exchange for dismissal of the suit against
Comdial and King Technologies, Inc. ("King").  King had been named as an
additional defendant in the suit under an amendment by RTI to its initial
complaint.  The specific financial terms of the settlement are confidential.  On
February 13, 2002, Comdial reached agreement with RTI on modified payment terms
under the aforementioned promissory note.  The note has been paid in full.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of 2001 to a vote of Comdial's
security holders.

                                       19


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of March 18, 2002 there were 1,192 record holders of Comdial's Common Stock.

Quarterly Common Stock Information

The  following  table  sets  forth,  for the  periods  shown,  the  high and low
closing stock prices during the quarter in the  over-the-counter  market for
Comdial's Common  Stock,  as  reported by the  National  Association  of
Security  Dealers Automated  Quotation System ("Nasdaq").  Comdial's Common
Stock is traded on the Nasdaq SmallCap Market(R) under Comdial's symbol, CMDL.





                                  
                         2001            2000
Fiscal Quarters      High    Low     High     Low
First Quarter        $2.37   $1.06   $21.63   $9.00
Second Quarter        1.34    0.79    14.06    4.44
Third Quarter         1.02    0.61     5.38    2.03
Fourth Quarter        0.65    0.28     2.25    1.00
- ---------------------------------------------------


Comdial has never paid a dividend on its Common Stock and its Board of Directors
currently  does not intend to change the policy of not paying cash  dividends on
Common Stock.

ITEM 6.  SELECTED FINANCIAL DATA

FIVE YEAR FINANCIAL DATA

Selected Consolidated Statements of Operations Data For the Years Ended December
31 In thousands, except per share amounts



                                             2001       2000       1999       1998        1997
                                           --------------------------------------------------------
                                                                        
Net sales (a)                              $76,167    $89,564   $140,757    $123,639   $ 110,819
(Loss) income before income taxes          (21,799)   (47,864)    10,033       6,295       5,218
Net (loss) income                          (21,799)   (63,264)     7,343      17,032       5,069
(Loss) Earnings per share:
Basic                                        (2.37)     (6.89)      0.82        1.93        0.58
Diluted                                      (2.37)     (6.89)      0.82        1.88        0.58
- ---------------------------------------------------------------------------------------------------


Selected Consolidated Balance Sheet Data
December 31,
In thousands                                 2001       2000       1999       1998        1997
- -----------------------------------------------------------------------------------------------

Current assets                              $22,440    $33,152    $72,077    $50,854    $37,107
Total assets                                 43,092     71,178    133,074    108,990     79,264
Current liabilities                          20,634     41,145     23,833     19,734     21,196
Long-term debt and other
 long-term liabilities                       32,742     18,518     38,633     26,624     13,998
Stockholders' (deficit) equity              (10,284)    11,515     70,608     62,632     44,070



(a) During 2001,  the Company  classified  certain sales rebates and incentives
as a reduction of revenue. Previously, these incentives were classified as a
selling, general and administrative  expense.  The Company has also reclassified
such amounts for fiscal years 2000, 1999, 1998 and 1997 to conform to the 2001
presentation. These and other reclassifications had no effect on operating or
net income.

                                       20


ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS

Critical Accounting Policies and Estimates

The consolidated financial statements of the Company are prepared in accordance
with accounting principles generally accepted in the United States, which
requires the use of estimates and assumptions (see Note 1 to the consolidated
financial statements). Management believes the following critical accounting
policies, among others, affect its more significant judgments and estimates used
in the preparation of its consolidated financial statements.

Revenue Recognition

We recognize revenue using the guidance from SEC Staff Accounting Bulletin No.
101 "Revenue Recognition in Financial Statements" and the AICPA Statement of
Position No. 97-2, as amended, on "Software Revenue Recognition." Certain of our
sales have multiple elements, such as product and installation, and we allocate
the revenues using the relative fair values of the elements and recognize them
separately. We allow certain of our customers to return unsold product when they
meet Company-established criteria as outlined in the Company's trade terms.
Under these guidelines, we estimate the amount of product returns based upon
actual historical return rates and any additional unique information and reduce
our revenue by these estimated future returns. Returned products which are
recorded as inventories are valued based upon expected realizability. If the
historical data we use to calculate these estimates does not properly reflect
future returns, these estimates could be revised.

Rebates and Incentives

We record estimated reductions to revenue for customer programs and incentive
offerings including special pricing agreements, promotions and other volume-
based incentives. If market conditions were to decline, we may take actions to
increase rebates and incentive offerings possibly resulting in incremental
reduction of revenue at the time the incentive is offered.

Warranty

We provide a two-year warranty to our customers, and as of 2001 we are using a
third party to perform much of this warranty. Our outsource manufacturing
partners are now responsible for the first year of this warranty. We provide for
the estimated cost of product warranties at the time the revenue is recognized.
While we engage in various product quality programs and processes, our warranty
obligation may be affected by product failure rates, the ability of our
outsource manufacturers to satisfy warranty claims and the cost of warranty from
our third party. The outcome of these items could differ from our estimates and
revisions to the warranty estimates could be required.

Allowance for Doubtful Accounts

We provide allowances for doubtful accounts for estimated losses from the
inability of our customers to satisfy their accounts as originally contemplated
at the time of sale. We calculate these allowances based on detail review of
certain individual customer accounts, historical rates and our estimation of the
overall economic conditions affecting our customer base. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.

                                       21


Inventory

We measure our inventories at lower of cost or market. For those items which we
manufacture, cost is determined using standards which we believe approximate
first-in, first-out (FIFO) method including material, labor and overhead. We
also provide allowances for excess and obsolete inventory equal to the
difference between the cost of our inventory and the estimated market value
based upon assumptions about product life cycles, product demand and market
conditions. If actual product life cycles, product demand, or market conditions
are less favorable than those projected by management, additional inventory
allowances or writedowns maybe required.

Deferred Income Taxes

We estimate our actual current tax exposures together with our temporary
differences resulting from differing treatment of items for accounting and tax
purposes. These temporary differences result in deferred tax assets and
liabilities. We then must assess the likelihood that our deferred tax assets
will be recovered from future taxable income and to the extent that we believe
that recovery is not likely, based on the guidance in FAS 109, "Accounting for
Income Taxes," we establish a valuation allowance. As of December 31, 2001 and
2000, all net deferred tax assets were reduced by a valuation allowance. In
later years, after the Company ceases to have cumulative tax losses for three
years, management will need to assess the continuing need for a full or partial
valuation allowance. Significant judgment is required in this calculation and
changes in this assessment could result in income tax benefits, in later
periods, or the continued provision of valuation allowances until the
realizability is more likely than not.

Long-lived Assets, including Goodwill and Other Intangibles

We assess the impairment of our long-lived assets (such as Property and
Equipment, Goodwill and other Intangibles) whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Some
factors we consider important which could trigger an impairment review include
the following:

    . Significant underperformance relative to expected historical or projected
      future operating results

    . Significant changes in our strategic business plans, including changes in
      product mix

    . Significant negative information such as litigation or other claims or
      negative industry or economic trends

When we determine that the carrying value of these assets may not be recoverable
based on the above and other factors, we measure any impairment based on a
projected discounted cash flow method using a discount rate commensurate with
the risk inherent in our current business model. FAS 142 states that goodwill
will no longer be amortized, however the FAS also requires some changes in this
assessment which may result in impairments different from those resulting from
our present assessment.

                                       22


Retirement and Other Postretirement Benefit Plans

Prior to the fourth quarter 2000, we provided a defined pension benefit and
other postretirement benefits to our employees. In the fourth quarter of 2000,
we froze these plans. We accrue benefit obligations based on an independent
actuarial valuation. This valuation has a number of variables, not only to
estimate our benefit obligation, but also to provide us with minimum funding
requirement for the retirement plan. The actuarial estimates include the
expected rate of return on the retirement plan assets, the rate of compensation
increases to eligible employees, the interest rate used to discount estimated
future payments to retirement participants and the assumed health care cost
trend rates. Differences in actual experience as compared to these estimates or
future changes in these estimates could require us to make changes to these
benefit accruals.

Commitments and Contingencies

Management's current assessment of it's the claims which have been asserted
against the Company is based on our review of the claim, our defenses and
consultation with certain of our external legal counsel. Changes in this
assessment could result as more information is obtained or as management decides
that a settlement is more advantageous to the Company than a protracted legal
process. These changes in our estimates of the outcome could require us to make
changes in our conclusions or our accruals for these contingencies.


The following discussion is intended to assist the reader in understanding and
evaluating the financial condition and results of operations of Comdial
Corporation and its subsidiaries ("Comdial"). This review should be read in
conjunction with the consolidated financial statements and accompanying notes.
This analysis attempts to identify trends and material changes that occurred
during the periods presented. Prior years have been reclassified to conform to
the 2001 reporting basis (see Note 1 to the Consolidated Financial Statements).

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements included or incorporated by reference into our Securities
and Exchange Commission filings, press releases, and shareholder communications
and other information provided periodically in writing or orally by our
officers, directors or agents, including this Form 10-K, are forward-looking
statements that are subject to risks and uncertainties. These forward-looking
statements are not historical facts but rather are based on certain
expectations, estimates and projections about our industry, our beliefs and our
assumptions. These risks could cause our actual results for 2002 and beyond to
differ materially from those expressed, implied or forecasted in any forward-
looking statement made by, or on behalf of, us. The risks and uncertainties
include, but are not limited to, those discussed in "Safe Harbor Statement Under
the Private Securities Litigation Reform Act of 1995" set forth in Part I above.

                                       23


SEGMENT REPORTING

RESULTS OF OPERATIONS

Selected  consolidated  statements of operations for the last three years are as
follows:


- ---------------------------------------------------------------------------------
In thousands                                         2001        2000        1999
- ---------------------------------------------------------------------------------
                                                                
Business segment net sales:

Switching                                        $ 53,511    $ 49,545    $ 81,868
Messaging                                          15,183      28,014      38,907
CTI & Other                                         7,473      12,005      19,982
                                                 --------    --------    --------
       Net sales                                   76,167      89,564     140,757
Cost of goods sold                                 53,053      77,715      85,554
                                                 --------    --------    --------
Gross profit                                       23,114      11,849      55,203
Selling, general & administrative                  29,892      36,621      30,336
Engineering, research & development                 7,603       6,283       9,735
Goodwill amortization                               1,942       3,195       3,180
Restructuring                                         486       2,355           -
Impairment of long-lived assets                     3,224       7,425           -
Gain on disposal of assets                         (1,447)          -           -
Interest expense                                    2,759       2,902       1,633
Miscellaneous expense - net                           454         932         286
                                                 --------    --------    --------
(Loss) income before income taxes                 (21,799)    (47,864)     10,033
Income tax expense                                      -      15,400       2,690
                                                 --------    --------    --------
Net (loss) income                                $(21,799)   $(63,264)   $  7,343
                                                 ========    ========    ========

(Loss) earnings per share:
                    Basic                          $(2.37)     $(6.89)      $0.82
                                                 ========    ========    ========
- ---------------------------------------------------------------------------------

The following  table reflects the gross profit margins for the various  business
segments of Comdial.  See Note 12 to the Consolidated  Financial  Statements for
further clarification of business segments.
                                                    2001        2000        1999
                                                 --------    --------    --------
   Business Segment:
      Switching                                  $ 13,702    $  5,646    $ 29,148
      Messaging                                     8,967      13,248      21,943
      CTI & Other                                     445      (7,045)      4,112
                                                 --------    --------    --------
       Gross profit margin                       $ 23,114    $ 11,849    $ 55,203
                                                 ========    ========    ========
- ---------------------------------------------------------------------------------


2001 COMPARED WITH 2000

Net sales as reported for 2001 decreased by 15% to $76.2 million, compared with
$89.6 million in 2000. The primary factors in the decrease of sales were the
market contraction, the product mix change and the decrease in the sales price.
Switching sales increased due to the introduction of new key systems that were
very competitively priced, but messaging declined sharply. Furthermore, CTI and
other decreased primarily due to the elimination of the Avalon product for the
assisted living market.

In 2001, net sales for switching increased 8% from $49.5 million in 2000 to
$53.5 million in 2001. Switching product sales were aided by the introduction of
a new low-end key system, the DX-80, and the higher-end system, the FX II.
Comdial also initiated certain promotional pricing for some of its products and
lowered the price of the phones across the board to improve the value to its
customers.

Messaging sales decreased 46%, from $28.0 million in 2000 to $15.2 million in
2001. The Company believes there are three major reasons why messaging revenues
declined from last year. The Company was compelled to lower prices due to
extreme competitive pressure on messaging prices across the product line to
compete in the marketplace. The Company also introduced a new low cost switching
platform, the DX-80. The in-skin voice mail in the DX-80 is priced less than
some of Comdial's other voice mail systems due to the lower overall costs of the
platform. Lastly, the Company has sold a significant portion of its messaging
products to customers who had non-Comdial switching platforms. Recently, other
switch platform manufacturers have released their own versions of voice mail and
this has reduced the opportunities for Comdial to sell its messaging systems on
the non-Comdial platforms.

                                       24


CTI and Other sales decreased 38% from $12.0 million to $7.5  million. This
decrease is primarily attributable to Comdial's decision to exit the assisted
living market, previously served by its Avalon product.

Comdial provides reserves to cover product obsolescence for its products and
changes to those reserves impact gross profit. For the years 2001 and 2000,
provisions for obsolescence totaled $2.5 million and $3.7 million, respectively.
The reserve for obsolescence and valuation for 2000 was higher primarily due to
increased product discontinuance. Another factor which caused the inventory
obsolescence provision to be higher in 2000 was the decision to reduce the
number of phone models and key systems, which rendered some raw materials and
components obsolete. Future reserves will be dependent on management's estimates
of the recoverability of inventory costs and shifts in product demands.

Gross profit, as a percentage of sales for 2001, was 30% compared with 13% for
2000. In 2001, gross profit increased by 95% to $23.4 million compared with
$11.8 million for 2000. This increase was mostly due to outsourcing the
manufacturing operations as well as specific factors that negatively impacted
the year 2000. Outsourcing resulted in lower product costs due to the
consolidation of the product lines so that volumes were higher and therefore
production was done more efficiently and cost effectively. Also, the DX-80,
which is a low-end key system and has therefore more commodity like features, is
now outsourced from the Far East, which provides less expensive labor and
production costs. In addition, fiscal 2000 gross profit was impacted by several
negative factors: 1) reduced efficiency caused by the furloughs that Comdial
initiated throughout the year to reduce inventory levels within the plant as
well as the supply houses; 2) a larger provision for inventory obsolescence than
2001; 3) pursuant to its Restructuring Plan, Comdial charged $1.5 million to
cost of sales for discontinued product inventory in the fourth quarter of 2000;
and 4) due to the outsourcing of its manufacturing operations, Comdial recorded
an additional adjustment of $2.4 million to mark down certain of its inventory
to the lower of cost or market.

Switching gross margin increased from 11% in 2000 to 26% in 2001. This increase
was mostly due to outsourcing the manufacturing operations as well as the
absence of many of the specific factors that impacted the year 2000, as
explained above.

Messaging gross margin increased from 47% in 2000 to 59% in 2001. This increase
in gross margin was a result of product mix changes that resulted in increased
sales of our Windows based unified messaging products as well as cost reductions
due to downsizing and restructuring.

Gross margin for CTI and Other increased in 2001 to 6% compared to a negative
59% in 2000. During 2001 Comdial intentionally reduced the sales to the assisted
living market and reduced the number of people working on these projects and
therefore increasing the gross margin. During the latter half of 2001, Comdial
made a concerted effort to complete outstanding projects as it planned to exit
this business. This had a negative impact on the margin even though for the year
the gross margin exceeded 2000 significantly.

Other costs including operating expenses, goodwill amortization, interest
expense, other miscellaneous expenses, and income tax expenses or benefits are
not allocated to the three segments. Comdial does not maintain information that
would allow these costs to be broken into the various product segments and most
of the costs are shared in nature.

                                       25


Selling, general and administrative expenses ("SG&A") decreased in 2001 by 18%
to $29.9 million compared with $36.6 million for 2000. SG&A expenses, as a
percentage of sales for 2001, decreased to 39% compared with 41% for 2000. This
decrease resulted from downsizing the work force and relocating the headquarters
from Charlottesville to Sarasota. The consolidation of administrative,
information technology, finance and sales and marketing functions created a more
efficient use of corporate infrastructure and eliminated redundant costs.

Engineering, research and development expenses increased in 2001 by 21% to $7.6
million compared with $6.3 million for 2000. Engineering expenses, as a
percentage of sales for 2001, increased to 10% compared with 7% for 2000. This
increase was primarily due to engineers spending more time on non-capitalizable
projects associated with new products that had been put into production.

Goodwill amortization expense in 2001 decreased by 39% to $1.9 million in 2001
compared with $3.2 million in 2000. The decrease was due to the write-down of
the Array goodwill that was recorded in 2001 as well as 2000. See discussion
below regarding Impairment of Long-Lived Assets.

Restructuring expense was $0.4 million for 2001. On September 28, 2001, as a
result of the downturn in the economy and the events of September 11, 2001,
management and the Board approved and executed a second restructuring plan.
Significant terms of the second plan included downsizing the workforce in both
the Sarasota and Charlottesville locations. Thirty employees in total were
terminated. During the month of October 2001, it became clear to management that
further restructuring was required and the Company implemented a further
contingency plan. During November 2001, it was announced that the Company would
eliminate more than 75 positions between November 2001 and April 2002. As of
December 31, 2001, the Company has a remaining obligation of $0.5 million
related to severance and related benefits which will be paid out in 2002.

Interest expense decreased in 2001 by 5% to $2.8 million compared with $2.9
million for 2000. This decrease was due to the pay-down of certain debt during
2001, offset by increases in interest rates.

Miscellaneous expense decreased by 51% for 2001 to $.5 million, compared with
$0.9 million for 2000. In 2000, the Company recognized a $0.4 million loss due
to the curtailment of its pension plans in September 2000.

Impairments of Long-Lived Assets - In accordance with SFAS No. 121, "Impairment
of Long-Lived Assets and Other Assets to Be Disposed of", the Company evaluates
long lived assets for impairment whenever events or changes in circumstance
indicate that the carrying amount of an asset may not be recoverable. In light
of the restructuring and the initiative to outsource manufacturing, the Company
identified certain of its fixed assets related to its manufacturing operations,
purchased software, capitalized software development costs, and the goodwill
related to its purchase of Array as assets that were impaired. This was based on
an analysis of discounted and undiscounted (as applicable) cash flows, which
were no longer deemed adequate to support the value of the assets associated
with the business. The impairments, included in Impairments of Long-Lived Assets
on the consolidated income statement are discussed below:

                                       26


Property and Equipment Impairment - As a result of the outsourcing of the
manufacturing operations, the majority of the manufacturing assets are expected
to be sold or otherwise disposed of in 2002. The Company's projected
undiscounted cash flows related to those assets is less than the net book value
of the assets associated with the business. Such analysis resulted in impairment
loss of fixed assets in the amount of $1.0 million for 2001 and $0.3 million for
2000.

Capitalized Software Impairment - As part of Comdial's decision to outsource
manufacturing and reduce the number of product lines to a more appropriate
level, certain capitalized software development costs were impaired. Capitalized
software development costs relating to product lines that are to be discontinued
were considered impaired due to the Company's inability to realize any future
benefit from these assets. The impairment loss of capitalized software amounted
to $1.4 million in 2001 and $0.4 million in 2000.

Goodwill Impairment - Comdial sold the majority of the assets of Array Telecom
Corp. to ePHONE Telecom, Inc. and entered into a licensing agreement with ePHONE
on March 31, 2000. In light of the sale, Comdial performed an impairment
analysis on the projected cash flows of the remaining assets in 2000 and
determined that the goodwill associated with the Array assets was impaired. The
impairment of the goodwill was based on an analysis of projected undiscounted
cash flows, which were no longer deemed adequate to support the value of the
goodwill associated with the business. Comdial recorded an impairment write-off
of $2.8 million related to goodwill in 2000. In addition, in October 2001,
ePHONE filed for arbitration against the Company alleging fraud in the
inducement, among other things, and seeking return of the $2.7 million paid to
Comdial plus additional compensatory and punitive damages. The Company has filed
counterclaims against ePHONE, claiming that ePHONE has not paid us the minimum
royalties due under the license agreement, having paid just $0.09 million of
$0.2 million due for the period prior to May 2001 and none of the $0.1 million
in quarterly royalty payments due commencing in May 2001. Additionally, Comdial
is seeking $1.9 million in lost revenue based on the termination of the license
agreement brought about by ePHONE's breach. While the arbitration proceeding is
pending, Comdial concluded the remaining goodwill was impaired and recognized a
loss of $0.8 million in 2001. Comdial continues to defer certain gains totaling
$1.3 million at December 31, 2001 from the sale of the assets in 2000, pending
resolution of the arbitration.

Loss before income taxes, as a result of the foregoing, amounted to $21.8
million in 2001 as compared with a loss of $47.9 million before income taxes in
2000. Major factors contributing to the loss for 2001 include restructuring and
asset impairments, and other factors such as increased bad debt reserves and
inventory write-offs due to product discontinuance.

Income tax expense for 2001 was $0 in 2001 compared with $15.4 million for 2000.
The tax expense recognized in 2000 was primarily due to the provision for a full
valuation allowance of $34.1 million against the deferred tax assets (see Note 7
to the Consolidated Financial Statements). No income tax benefit has been
recognized in 2001 due to the cumulative losses for tax purposes, as prescribed
by SFAS No. 109, "Accounting for Income Taxes".


2000 COMPARED WITH 1999

Net sales as reported for 2000 decreased by 36% to $89.6 million, compared with
$140.8 million in 1999. The primary factors in the decrease of sales were the
reduction of inventory levels at the distributors and the market contraction.
Early in 2000, market conditions declined, and Comdial's sales were adversely
affected by the combined decision of Comdial and the distributors to reduce
their inventory levels. Comdial sought to respond to adverse sales conditions by
offering a more concise product line that is more responsive to customer needs.

                                       27


In 2000, net sales for switching decreased 39% from $81.9 million to $49.5
million. The primary factors in this decrease were the decrease in inventory
levels at the distributors, and the market contraction as noted above.

Messaging sales decreased 28%, from $38.9 million in 1999 to $28.0 million in
2000. This decrease was predominantly tied to the decrease in switching sales,
as the messaging product is sold to the same supply houses and a significant
number of the same dealers as the switching product.

CTI and other sales decreased 40% from $20.0 million to $12.0 million. This
decrease is attributable to the poor growth in the assisted living market, as
well as the overall downturn in the economy.

Comdial provides reserves to cover product obsolescence for all its products and
changes to those reserves impact gross profit. For the years 2000 and 1999
provisions for obsolescence totaled $3.7 million and $0.5 million, respectively.
The reserve for obsolescence for 2000 was higher primarily due to increased
product discontinuance. Future reserves will be dependent on management's
estimates of the recoverability of inventory costs.

Also in 2000, Comdial established a warranty reserve in the amount of $0.8
million. Prior to 2000, Comdial reserved for expected returns through the use of
an exchange authorization reserve, and it is management's best estimate that
such exchange authorization reserve covered most of the costs that the Company
incurred with respect to warranty expenses. However, as the Company upgrades its
method of tracking such information, via improved systems, management recorded a
reserve specifically for warranty claims.

In 2000, international sales decreased by 38% to $1.6 million compared with $2.6
million for 1999. Due to homologation issues dealing with the sale of digital
products, Comdial has, for the time being, suspended its efforts in developing
further international markets for hardware products. Homologation is the process
of securing regulatory, safety, and network compliance approvals for the sale of
telecommunications equipment in foreign countries. As many countries have
different standards than the United States, this typically involves additional
engineering modifications and compliance testing. However, Comdial plans to
continue to expand its sales of voice mail products in the international market.

Gross profit, as a percentage of sales for 2000, was 13% compared with 39% for
1999. In 2000, gross profit decreased by 79% to $11.8 million compared with
$55.2 million for 1999. This decrease was attributable to several factors: 1)
reduced efficiency caused by the furloughs that Comdial initiated throughout the
year to reduce inventory levels within the plant as well as the distributors; 2)
the increase in the provision for inventory obsolescence; 3) pursuant to its
Restructuring Plan, Comdial charged $1.5 million to cost of sales for
discontinued product inventory in the fourth quarter of 2000; and 4) due to the
outsourcing of its manufacturing operations, Comdial recorded an additional
adjustment to cost of sales and reduced its ending inventory balances by $2.4
million to adjust inventory to the lower of cost or market.

Switching gross margin declined from 36% to 11%. This decrease is due primarily
to the furloughing during the year, the increased obsolescence reserves and
lower of cost or market adjustment of $2.4 million taken against inventory. In
addition, Comdial offered several pricing programs during the year to stimulate
sales.

Messaging gross margin decreased from 56% in 1999 to 47% in 2000. Relocation of
the manufacturing group to its new facility resulted in additional one-time
costs due to initial set-up.

                                       28


The gross margin for CTI and Other decreased from 21% to a negative 59%. As more
of Comdial's competitors enter the market, Comdial has begun experiencing
significant market pressure on its pricing in certain of its vertical market
product lines, which adversely affected margins.

Furthermore, during 2000, Comdial began recording installation services expense
in cost of sales, rather than as a selling expense. Amounts in the 1999
consolidated financial statements have been reclassified to conform to the 2000
presentation. This resulted in net sales increasing $2.4 million for 1999. Cost
of goods sold was increased by $3.2 million for 1999. Selling, general and
administrative costs decreased by $0.8 million for 1999. These reclassifications
had no effect on previously reported consolidated net income.

Other costs including operating expenses, goodwill amortization, interest
expense, other miscellaneous expenses, and income tax expenses or benefits
cannot be allocated to the three segments. Comdial does not maintain information
that would allow these costs to be broken into the various product segments and
most of the costs are universal in nature.

Selling, general and administrative expenses ("SG&A") increased in 2000 by 21%
to $36.6 million compared with $30.3 million for 1999. SG&A expenses, as a
percentage of sales for 2000, increased to 41% compared with 22% for 1999. The
primary reasons for the increase were (1) increase in bad debt reserves of $2.5
million, based on the deterioration of the business climate in certain markets
in which Comdial sells; (2) increased personnel costs for national accounts for
the majority of the year; and (3) increased administration costs, including
costs for consultants, investment banking services and general legal fees.

Engineering, research and development expenses decreased in 2000 by 35% to $6.3
million compared with $9.7 million for 1999. Engineering expenses, as a
percentage of sales remained consistent at 7% for 2000 and 1999.

Goodwill amortization expense in 2000 remained consistent with that of 1999. The
Company reviewed goodwill for potential impairment as of December 31, 2000, and
determined that goodwill associated with the purchase of Array was impaired. See
discussion below regarding Impairment of Long-Lived Assets.

Interest expense increased in 2000 by 81% to $2.9 million compared with $1.6
million for 1999. This increase is twofold: 1) interest expenses increased due
to higher average debt levels with Bank of America, N.A. ("Bank of America"),
coupled with higher interest rates when compared to 1999 (see Note 6 to the
Consolidated Financial Statements), and 2) interest expense associated with
capital leases increased by approximately $.3 million in 2000 based on higher
balances of capital lease debt for all of 2000. Note that the capital leases
that were recorded as of December 31, 1999 had only been in place for one to
three months of 1999. Additional capital leases in the amount of $1.3 million
were entered into in early 2000.

Miscellaneous expense increased by 200% for 2000 to $.9 million, compared with
$0.3 million for 1999. This increase was primarily due to $1.0 million of write-
offs related to investments in dealers and notes receivable from dealers. In
addition, the Company recognized a $0.4 million loss due to the curtailment of
its pension plans in September 2000.

                                       29


Restructuring - In the fourth quarter of 2000 the Board of Directors' approved
management's plan to restructure the Company (the "Plan"). Pursuant to the Plan,
152 employees were laid off effective December 15, 2000; another 222 employees
were notified prior to the end of 2000 that their positions would be eliminated
in fiscal 2001. As of December 31, 2000, Comdial accrued severance of $1.9
million and related benefits of $0.5 million, for a total restructuring cost of
$2.4 million related to the Plan.

Impairments of Long-Lived Assets - In accordance with SFAS No. 121, "Impairment
of Long-Lived Assets and Other Assets to Be Disposed of", the Company evaluates
long lived assets for impairment whenever events or changes in circumstance
indicate that the carrying amount of an asset may not be recoverable. In light
of the restructuring and the initiative to outsource manufacturing, the Company
identified certain of its fixed assets related to its manufacturing operations,
purchased software, capitalized software development costs, and the goodwill
related to its purchase of Array as assets that were impaired. This was based on
an analysis of discounted and undiscounted (as applicable) cash flows, which
were no longer deemed adequate to support the value of the assets associated
with the business. The impairments, included in Impairments of Long-Lived Assets
on the consolidated income statement are discussed below:

Purchased Software Impairment - In connection with the downsizing of Comdial's
entire operations, Comdial abandoned a systems implementation project that began
in 1999. As a result, Comdial wrote-off purchased software and other related
costs in the amount of $3.9 million in 2000. The Company financed the purchase
of the software through a series of five-year capital lease obligations, which
are a continuing obligation of the Company.

Property and Equipment Impairment - As a result of the outsourcing of the
manufacturing operations, the majority of the manufacturing assets are expected
to be sold or otherwise disposed of. The Company determined that the projected
undiscounted cash flows related to those assets were not adequate to support the
value of the assets associated with the business. Such analysis resulted in a
write-down of fixed assets in the amount of $0.3 million as of December 31,
2000.

Capitalized Software Impairment - As part of Comdial's decision to outsource
manufacturing and reduce the number of product lines, certain capitalized
software development costs were deemed to be impaired. Software development
costs previously capitalized relating to product lines that are to be
discontinued were written off due to the Company's inability to realize any
future benefit from these assets. The write-off of capitalized software amounted
to $.4 million.

Goodwill - The Company sold the majority of the assets of Array and entered into
a licensing agreement with ePHONE Telecom, Inc. in March 2000. In light of the
sale, the Company performed an impairment analysis on the projected cash flows
of the remaining assets and determined that the goodwill associated with its
purchase of Array, was, in fact, impaired. The impairment of the goodwill was
based on an analysis of projected undiscounted cash flows, which were no longer
deemed adequate to support the value of the goodwill associated with the
business. The Company recorded an impairment write-off of $2.8 million related
to goodwill.

Loss before income taxes, as a result of the foregoing, amounted to $47.9
million as compared with $10.0 million of income before income taxes in 1999.
Major factors contributing to the loss for 2000 include restructuring and asset
impairments, totaling $9.8 million, as described above. Other factors include
increased bad debt reserves, establishment of a warranty reserve specifically
for warranty claims, inventory write-offs due to product discontinuance, and
increased reserves for expected returns.

                                       30


Income tax expense for 2000 amounted to $15.4 million, compared with $2.7
million for 1999. The tax expense recognized in 2000 was primarily due to the
provision for a full valuation allowance of $34.1 million against the deferred
tax assets. The tax expense recognized in 1999 was reduced primarily due to the
utilization of deferred tax benefits of $2.1 million that were generated from
net operating losses ("NOLs") in previous years (see Note 7 to the Consolidated
Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

The following  table sets forth  Comdial's  cash and cash  equivalents,  current
maturities on debt, and working capital at the dates indicated:

- --------------------------------------------------------
December 31,
In thousands                             2001      2000
- --------------------------------------------------------
    Cash and cash equivalents          $1,239   $ 2,428
    Current maturities of debt          2,596    24,848
    Working capital (deficiency)        1,806    (7,993)
- --------------------------------------------------------

The Company believes its current cash levels and cash flows from operations will
be adequate to fund operations and meet its debt service requirements for at
least the next twelve months. However, to the extent that additional funds are
required in the future to address working capital needs and to provide funding
for capital expenditures, expansion of the business or additional acquisitions,
the Company will need to seek additional financing. There can be no assurance
that additional funding will be available when required or on acceptable terms.
If such additional financing is not available to the Company when required, it
could have a material adverse effect on the Company's financial condition and
results of operations.

Through November 22, 2000, all operating cash needs were funded through a $50
million revolving credit facility provided by Bank of America. As of November
22, 2000, Comdial and Bank of America, N.A. entered into an Amended and Restated
Credit Agreement restructuring the terms of the Credit Agreement with the Bank
dated October 22, 1998. This agreement is now funding all operational
requirements as needed. Comdial reports the credit facility activity on a net
basis on the Consolidated Statements of Cash Flows. Comdial considers
outstanding checks to be a bank overdraft. As of December 31, 2001, Comdial's
cash and cash equivalents were lower than December 31, 2000 by $1.2 million, due
primarily to the timing of deposits and payments made at year-end.

Accounts Receivable at December 31, 2001, decreased by $2.9 million compared
with December 31, 2000, primarily due to the decreased level of sales during the
year, as well as improved collections. Comdial also increased its bad debt
reserves by $2.2 million in the fourth quarter of 2001 due to declining economic
conditions affecting primarily dealers and vertical market customers for the
Company's Avalon and Concierge products.

Inventory at December 31, 2001, decreased by $5.9 million compared with December
31, 2000, due, in part, to additional reserves for discontinued product lines
and obsolescence of $2.5 million. In addition, as a result of the Company's
decision to outsource the majority of its manufacturing operation, and its plan
to restructure, the Company reduced its overall inventory levels at December 31,
2001.

Other assets decreased by $2.3 million primarily due to current year
amortization of capitalized assets and the write-off of $1.4 million of
capitalized software development and contract research and development.

                                       31


Capital additions, excluding additions to capitalized software, for 2001 were
approximately $0.2 million. Capital additions were funded by cash generated from
operations and borrowings from the revolver. Cash expenditures for capital
additions for 2001, 2000, and 1999 amounted to $0.2 million, $2.6 million, and
$3.9 million, respectively. Management anticipates that approximately $0.1
million will be spent on capital additions and $1.0 million will be spent on
software development activities during 2002. The significant decrease in capital
additions in the future is the result of outsourcing manufacturing, reducing the
need for capital equipment. In addition, Comdial has substantially reduced
headcount, therefore reducing the amount of information technology expenditures
that were previously incurred by the Company.

Accounts payable at December 31, 2001, increased by $3.7 million when compared
to December 31, 2000. This increase was primarily due to timing of payment to
vendors.

Working capital increased to $1.8 million at December 31, 2001 compared with a
working capital deficiency of $8.0 million at December 31, 2000. This increase
is primarily due to the reclassification of $22.4 million of bank debt from
current to long-term. See Note 6.

LONG-TERM DEBT, INCLUDING CURRENT MATURITIES

In 1998, Comdial and Bank of America, N.A. ("Bank of America") formerly
NationsBank, N.A., entered into a credit agreement providing Comdial with a
revolving credit facility and a letter of credit subfacility.

On November 22, 2000 and again on April 10, 2001, the credit agreement was
amended.

On March 6, 2002, Comdial and Bank of America entered into the First Amendment
to the Amended and Restated Credit Agreement (the "First Amendment") which
reduced the Revolver commitment to $8 million, reduced the Term Loan to
approximately $4.9 million and agreed to extend the $1.5 million in letters of
credit until March 31, 2003. Both the Revolver and the Term Loan mature March
31, 2002.

The First Amendment changed the schedule of principal payments on the Term Loan
balance. The term note will start amortizing in September 2002 using a 36-month
amortization schedule. The First Amendment also changed the applicable interest
rate to an interest rate based on the Prime Rate plus a specified margin.
Effective as of March 6, 2002, the interest rate is equal to the Prime Rate plus
four percent. As of March 6, 2002, Comdial had no additional availability under
the Revolver or the Term Loan.

Comdial's indebtedness to Bank of America under the Credit Agreement, as amended
by the First Amendment is secured by liens on all of Comdial's properties and
assets. The First Amendment modified the financial covenants relating to
consolidated net income and contained other covenants related to consolidated
net worth and cross default provisions. The First Amendment also provided for
the waiver of all 2001 violations and defaults.

In addition to the terms discussed above, in connection with the First
Amendment, $10 million of outstanding debt of Comdial to Bank of America was
converted into Series B Alternate Rate Cumulative Convertible Redeemable
Preferred Stock, par value $10 per share (the "Preferred Stock"). Comdial issued
1,000,000 shares of the Preferred Stock to Bank of America. The Preferred Stock
can be converted at any time into a maximum of 1.5 million shares of Comdial
common stock. This conversion ratio will be reduced to as low as 500,000 shares
of common stock in the event Comdial elects to pay down the Term Loan by up to
$3 million, in connection with new investment into the Company by an outside
investor. Comdial has a call option allowing it to buy out Bank of America's
Preferred Stock at par value, but Bank of America has no mandatory redemption.
The Preferred Stock has a 5 percent cumulative annual dividend if paid with cash
or 10 percent if paid in common stock, at the election of Comdial. The shares of
common stock issuable to Bank of America upon conversion of the Preferred Stock
and as payment of dividends are subject to certain demand and piggyback
registration rights pursuant to a registration rights agreement which will
require the Company to register such shares of common stock for resale in the
public market upon request.
                                       32


OTHER FINANCIAL INFORMATION

During fiscal years 2001, 2000 and 1999, primarily all of Comdial's sales, net
income, and identifiable net assets were attributable to the telecommunications
industry.


CURRENT PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets. SFAS No. 142 is required to be applied in fiscal years beginning after
December 15, 2001. The Company expects to realize an annual increase in pre-tax
income of $1.5 million due to the cessation of amortization on the goodwill.

In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
Accounting for Asset Retirement Costs ("SFAS No. 143"). This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement is required to be applied in fiscal years beginning after
June 15, 2002. The adoption of this Statement is not expected to have a material
impact on the Company's operations.

In August 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144"). Statement 144 provides guidance on differentiating between assets held
and used and assets to be disposed of. This Statement is required to be applied
in fiscal years beginning after December 15, 2001. The adoption of this
Statement is not expected to have a material impact on the Company's operations.

During 2001, the Emerging Issues Task Force reached a consensus on Issue 00-25,
Consideration from a Vendor to a Reseller. This consensus creates a presumption
that all consideration paid by a vendor to a reseller should be classified as a
reduction of revenue in the vendor's income statement (instead of an expense)
unless certain criteria are met. Accordingly, the Company has classified certain
sales rebates and incentives as a reduction of revenue.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Comdial believes that it does not have any material exposure to market risk
associated with activities in derivative financial instruments, other financial
instruments and derivative commodity instruments. The Company has debt
obligations that are sensitive to changes in the prime lending rate. The Company
estimates that an increase in interest rates of 1% would reduce income before
taxes by approximately $230,000 per year.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                       33


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors of Comdial Corporation:

We have audited the accompanying consolidated balance sheet of Comdial
Corporation ("the Company") as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. Our audit also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Comdial
Corporation at December 31, 2001, and the consolidated results of their
operations and their cash flows the year then ended, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

                                                       /s/ ERNST & YOUNG LLP
Tampa, Florida
March 28, 2002

                                       34


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Comdial Corporation
Charlottesville, Virginia

We have audited the accompanying consolidated balance sheets of Comdial
Corporation and subsidiaries ("Comdial") as of December 31, 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 2000. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)2. These financial statements and financial statement schedule are the
responsibility of Comdial's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comdial Corporation and
subsidiaries as of December 31, 2000, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.


/s/ DELOITTE & TOUCHE LLP
Richmond, Virginia
April 10, 2001


                                       35





- ---------------------------------------------------------------------------------------------
Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------
                                                                              December 31,
                                                                           2001         2000
In thousands, except par value
- ---------------------------------------------------------------------------------------------
                                                                             
Assets
     Current assets
        Cash and cash equivalents                                     $   1,239    $   2,428
        Accounts receivable (less allowance for
            doubtful accounts:  2001 - $3,533; 2000 - $2,834)            10,915       13,829
        Inventories                                                       9,527       15,431
        Prepaid expenses and other current assets                           759        1,464
- ---------------------------------------------------------------------------------------------
            Total current assets                                         22,440       33,152
- ---------------------------------------------------------------------------------------------
     Property and equipment - net                                         5,839       18,753
     Goodwill                                                             3,375        6,149
     Capitalized software development costs - net                         7,790        9,448
     Other assets                                                         3,648        3,676
- ---------------------------------------------------------------------------------------------
            Total assets                                              $  43,092    $  71,178
=============================================================================================

Liabilities and Stockholders' Equity (Deficit)
     Current liabilities
        Accounts payable                                              $  11,266    $   7,522
        Accrued payroll and related expenses                              1,778        4,391
        Accrued promotional allowances                                    2,336        1,324
        Other accrued liabilities                                         2,658        3,060
        Current maturities of debt                                        2,596       24,848
- ---------------------------------------------------------------------------------------------
            Total current liabilities                                    20,634       41,145
- ---------------------------------------------------------------------------------------------
     Long-term debt                                                      26,912       13,561
     Other long-term liabilities                                          5,830        4,957
- ---------------------------------------------------------------------------------------------
            Total liabilities                                            53,376       59,663

     Stockholders' equity (deficit)
        Common stock, $0.01 par value
             (Authorized 30,000 shares; issued and
             outstanding: 2001 - 9,337; 2000 - 9,329)                        93           93
        Paid-in capital                                                 123,427      123,427
        Treasury stock, 132 shares, at cost                              (1,296)      (1,296)
        Accumulated deficit                                            (132,508)    (110,709)
- ---------------------------------------------------------------------------------------------
            Total stockholders' equity (deficit)                        (10,284)      11,515
- ---------------------------------------------------------------------------------------------
            Total liabilities and stockholders' equity (deficit)      $  43,092    $  71,178
=============================================================================================
       The accompanying notes are an integral part of these financial statements.



                                       36


- --------------------------------------------------------------------------------
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
                                                     Years Ended December 31,
                                                   2001         2000        1999
In thousands, except per share amounts
- --------------------------------------------------------------------------------
Net Sales                                     $  76,167    $  89,564    $140,757
Cost of goods sold                               53,053       77,715      85,554
- --------------------------------------------------------------------------------
Gross profit                                     23,114       11,849      55,203
- --------------------------------------------------------------------------------

Operating expenses
     Selling, general & administrative           29,892       36,621      30,336
     Engineering, research & development          7,603        6,283       9,735
     Goodwill amortization                        1,942        3,195       3,180
     Restructuring                                  486        2,355           -
     Impairments of long-lived assets             3,224        7,425           -
- --------------------------------------------------------------------------------
        Operating (loss) income                 (20,033)     (44,030)     11,952
- --------------------------------------------------------------------------------

Other expense
     Interest expense                             2,759        2,902       1,633
     Gain on disposal of assets                  (1,447)           -           -
     Miscellaneous expense - net                    454          932         286
- --------------------------------------------------------------------------------
(Loss) income before income taxes               (21,799)     (47,864)     10,033
Income tax expense                                    -       15,400       2,690
- --------------------------------------------------------------------------------
        Net (loss) income                      ($21,799)    ($63,264)   $  7,343
================================================================================

(Loss) earnings per share:
  Basic                                          $(2.37)     $ (6.89)   $   0.82
================================================================================
  Diluted                                        $(2.37)     $ (6.89)   $   0.82
================================================================================

Weighted average common shares outstanding:
  Basic                                           9,211        9,188       8,948
  Diluted                                         9,211        9,188       8,989

  The accompanying notes are an integral part of these financial statements.



                                       37





- --------------------------------------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------------------------------------
                                                                                Deferred Stock
                                                        Common Stock              Incentive
                                                        ------------          -------------------      Paid-in
In thousands                                          Shares    Amount          Shares    Amount       Capital
- --------------------------------------------------------------------------------------------------------------
                                                                                       
Balance at January 1, 1999                             8,966      $89             8         $ 84      $118,489
 Proceeds from sale of common stock
  Notes receivable
  Stock options exercised                                 10                                                20
 Deferred stock compensation                                                      6           47
 Incentive stock issued                                    8        1                                       53
 Stock option compensation                                                                                  41
 Contingency stock issued for
  KVT acquisition                                         72        1                                      303
  Array acquisition                                                                                        162
 Net income
- --------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                           9,056       91            14          131       119,068
 Proceeds from sale of common stock
  Notes receivable
  Stock options exercised                                262        2                                    2,136
 Treasury stock purchased
 Deferred stock compensation                                                      4           78
 Incentive stock issued                                   11                                               169
 Stock option compensation expense                                                                       1,845
 Net loss
- --------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                           9,329       93            18          209       123,218
 Stock options exercised                                   8                                                 8
 Deferred stock compensation                                                     (8)          (8)
 Net loss
- --------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                           9,337      $93            10         $201      $123,226
==============================================================================================================







                                                        Treasury Stock       Receivable
                                                      -----------------      on Sale      Accumulated
In thousands                                          Shares     Amount      of Stock       Deficit      Total
- ---------------------------------------------------------------------------------------------------------------
                                                                                       
 Balance at January 1, 1999                             (116)   $(1,087)      $(156)      $ (54,788)  $ 62,631
      Proceeds from sale of common stock
      Notes receivable                                                            6                          6
      Stock options exercised                                                                               20
      Deferred stock compensation                                                                           47
      Incentive stock issued                                                                                54
      Stock option compensation)                                                                            41
      Contingency stock issued for                                                                           -
         KVT acquisition                                                                                   304
         Array acquisition                                                                                 162
      Net income                                                                              7,343      7,343
- ---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1999                           (116)    (1,087)       (150)        (47,445)    70,608
      Proceeds from sale of common stock
         Notes receivable                                 (9)      (149)        150                          1
         Stock options exercised                                     (6)                                 2,132
      Treasury stock purchased                            (7)       (54)                                   (54)
      Deferred stock compensation                                                                           78
      Incentive stock issued                                                                               169
      Stock option compensation expense                                                                  1,845
      Net loss                                                                              (63,264)   (63,264)
- ---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 2000                           (132)    (1,296)          -        (110,709)    11,515
      Stock options exercised                                                                                8
      Deferred stock compensation                                                                           (8)
      Net loss                                                                              (21,799)   (21,799)
- ---------------------------------------------------------------------------------------------------------------
 Balance at December 31, 2001                           (132)   $(1,296)      $-          $(132,508)  $(10,284)
===============================================================================================================

               The accompanying notes are an integral part of these financial statements.



                                       38





Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------
                                                                                 Years Ended December 31,
In thousands                                                                   2001        2000        1999
- ------------------------------------------------------------------------------------------------------------
                                                                                          
Cash flows from operating activities:
    Net (loss) income                                                      $(21,799)   $(63,264)   $  7,343
    Adjustments to reconcile net (loss) income to
     operating cash flows
     Depreciation and amortization                                            8,353      11,236       9,642
     Impairments of long-lived assets                                         3,224       7,425           -
     Bad debt expense                                                         2,288       2,793         194
     Inventory obsolescence and valuation provision                           2,475       2,116         487
     Deferred taxes                                                               -      15,456       2,147
     Gain on sale of assets                                                  (1,447)          -           -
    Changes in working capital components:
     Accounts receivable                                                        626      23,078     (16,888)
     Inventory                                                                5,529       5,280      (1,880)
     Prepaid expenses and other assets                                          420       2,502      (5,560)
     Accounts payable                                                         5,384      (7,613)      4,101
     Other liabilities                                                       (3,392)        443       2,387
     Other equity                                                                 -       2,035         619
- ------------------------------------------------------------------------------------------------------------
       Net cash provided by (used by) operating activities                    1,661       1,487       2,592
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Acquisition cost for Array                                                    -           -          (5)
    Proceeds received from sale of ePHONE assets                                  -         648           -
    Proceeds received from sale of American Phone
       Center assets                                                          1,400           -           -
    Proceeds received from sale of property and equipment                    11,453         891           1
    Capital expenditures                                                       (294)     (5,130)     (4,953)
    Capitalized software additions                                           (2,768)     (4,400)     (4,700)
- ------------------------------------------------------------------------------------------------------------
       Net cash provided by (used by) investing activities                    9,791      (7,991)     (9,657)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Net (repayments) borrowings under revolver agreement                    (12,221)      5,528       7,464
    Proceeds from issuance of common stock                                        -       2,136          20
    Principal payments on notes payable                                        (389)          -           -
    Principal payments under capital lease obligations                          (31)       (649)       (101)
- ------------------------------------------------------------------------------------------------------------
       Net cash (used by) provided by financing activities                  (12,641)      7,015       7,383
- ------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                         (1,189)        511         318
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                                2,428       1,917       1,599
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                   $  1,239    $  2,428    $  1,917
============================================================================================================

- ------------------------------------------------------------------------------------------------------------
Supplemental information - Cash paid during the year for:
    Income taxes                                                           $      -    $    508    $    503
    Interest                                                                  2,719       2,902       1,633
- ------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non-Cash Investing and Financing Activities:
    Accounts payable converted to notes payable                            $  1,640    $      -    $      -
    Assets acquired through capital lease transactions                            -       1,264       2,800
    Contingency stock issued for acquisitions                                     -           -         466
- ------------------------------------------------------------------------------------------------------------



  The accompanying notes are an integral part of these financial statements.

                                       39


Notes to Consolidated Financial Statements
For the Years Ended December 31, 2001, 2000 and 1999

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Comdial
Corporation and its subsidiaries (together, "Comdial" or the "Company"). All
significant intercompany accounts and transactions have been eliminated.

NATURE OF OPERATIONS

Comdial is a United States ("U.S.") based developer and distributor of business
communication systems. Comdial's principal customers are small to mid-sized
offices throughout the U.S. and certain international markets. The distribution
network consists of major distributors and direct sales to dealers, national
account customers and government entities. Beginning in fiscal 2001, the Company
has outsourced the majority of its manufacturing operations to three suppliers.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("GAAP") requires management to make
certain estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and the disclosure of contingent assets and
liabilities at the date of the financial statements and for the reporting
periods. The most significant estimates relate to the allowance for doubtful
accounts, inventory obsolescence, warranty reserves, allowance for product
returns, intangible asset valuations and lives, employee benefit plans, and the
valuation of deferred tax assets. These estimates may be adjusted as more
current information becomes available, and any adjustment could be significant.

CASH AND CASH EQUIVALENTS

Cash equivalents are defined as short-term liquid investments with maturities,
at the time of purchase, of less than 90 days that are readily convertible into
cash. Under Comdial's current cash management policy, borrowings from the
revolving credit facility are used for general operating purposes. The revolving
credit facility is reduced by cash receipts that are not needed for daily
operations. Bank overdrafts of $2.1 million are included in accounts payable at
December 31, 2000. Bank overdrafts are outstanding checks that have not (1)
cleared the bank or (2) been funded by the revolving credit facility. The
revolving credit facility activity is reported on a net basis in the
Consolidated Statements of Cash Flows.

INVENTORIES

Inventories are stated at the lower of cost (standard in the case of
manufactured goods or purchased cost for finished goods purchased from outsource
manufacturers) or market. Cost approximates first-in, first-out method.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost less impairment losses, if
applicable. Depreciation is computed using the straight-line method for all
buildings, land improvements, machinery and equipment, and capitalized lease
property over their estimated useful lives or lease term, if shorter.
Expenditures for maintenance and repairs of property and equipment are charged
to expense. Improvements and repairs, which extend economic lives, are
capitalized.

In 2000, Comdial expensed certain computer hardware and software due to the
rapid change in technology that has affected a need for continual replacements.
In 2000, some of the major expenditures for computer hardware and software were
financed through operating and capital leases.

                                       40


The estimated useful lives of the Company's property and equipment are as
follows:

Buildings                                              30 years
Land Improvements                                      15 years
Machinery and Equipment                                 7 years
Computer Hardware Equipment and Tooling                 5 years
Leasehold Improvements                                  5 years
Computer Software for Internal Use                      3 years

INTANGIBLES

The cost in excess of the fair value of net assets of businesses acquired
(goodwill) is amortized over periods ranging from 2 to 10 years. At December 31,
2001 and 2000, the Company had goodwill of $3.4 million and $6.1 million, net of
accumulated amortization of $14.0 million and $16.7 million, respectively. The
Company recognized amortization expense of $1.9 million, $3.2 million and $3.2
million in 2001, 2000 and 1999, respectively.

The Company evaluates periodically the propriety of the carrying amount of
intangible assets, including goodwill, as well as the amortization period to
determine whether current events or circumstances warrant adjustments to the
carrying value and/or revised estimates of useful lives. This evaluation
consists of the projection of undiscounted operating cash flows before
depreciation, amortization, nonrecurring changes and interest over the remaining
amortization periods of the related intangible assets. If such projections
indicate that undiscounted operating cash flows, as adjusted, is not expected to
be adequate to recover the carrying amounts of the related intangible assets, a
loss is recognized to the extent that the carrying value of the asset exceeds
its fair value. At this time, the Company believes that no impairment of
goodwill or other intangible assets has occurred, other than as recorded and
disclosed in Note 16, and that no reduction of the estimated useful lives is
warranted.
LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment as circumstances change that might
affect those assets. Impairment loss is not recognized unless a portion of the
carrying amount of an asset is no longer recoverable based on a review of the
asset's expected future undiscounted cash flows.

During 2001 and 2000, as a result of the Company's restructuring and the
initiative to outsource manufacturing, the Company identified certain long-lived
assets that were impaired. In addition, a portion of the Company's goodwill was
deemed impaired. See Note 16.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS

In 2001, 2000 and 1999, Comdial incurred costs associated with the development
of software related to Comdial's various products, including development
performed by outside contract engineers. The accounting for such software costs
is in accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed". Costs capitalized in accordance with SFAS No. 86 are
amortized using the straight-line method over their useful lives, which are
estimated by the Company to be three years. This three year straight-line method
causes greater expense for each period versus using the revenue method. The
total amount of unamortized software development costs is $7.8 million and $9.4
million, respectively, at December 31, 2001 and 2000. Accumulated amortization
of software development costs is $8.6 million and $6.7 million, respectively, at
December 31, 2001 and 2000. Total software development costs of $2.8 million,
$4.4 million and $4.7 million were capitalized in the years ended December 31,
2001, 2000 and 1999, respectively. Amortization of capitalized software
development costs of $3.1 million, $3.3 million and $2.4 million was recorded in
the years ended December 31, 2001, 2000 and 1999, respectively.

                                       41


As a result of the discontinuance of certain of its product lines in 2001 and
2000, the Company recognized an impairment loss on the associated capitalized
software development costs. See Note 16.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs for the fiscal years ended 2001, 2000 and 1999,
comprise the majority of engineering, research, and development costs, which
were $7.6 million, $6.3 million and $9.7 million, respectively. Comdial is
unable to segregate and quantify the amount of research and development costs
from other engineering costs for such fiscal years.

POSTRETIREMENT BENEFITS OTHER THAN PENSION

Comdial accrues estimated costs relating to postretirement health care and life
insurance benefits. In 2001, Comdial recognized no income or expense compared to
income of $12,000 during 2000 and expense of $137,000 during 1999. See Note 10.

REVENUE RECOGNITION

The Company recognizes revenue using the guidance from Staff Accounting Bulletin
No. 101 (SAB 101), "Revenue Recognition in Financial Statements" and AICPA
Statement of Position 97-2, "Software Revenue Recognition." Accordingly, revenue
is recognized when all of the following four criteria are met: (1) persuasive
evidence of an arrangement exists; (2) delivery of the products and/or services
has occurred; (3) the selling price is both fixed and determinable and (4)
collectibility is reasonably assured. Certain of Comdial's sales have multiple
elements, such as product and installation, and the Company allocates the
revenues from these contracts to the elements and recognizes them separately.
Generally, the Company recognizes revenues based on their respective fair values
on product sales at the time of shipment. The Company accrues a provision for
estimated returns concurrent with revenue recognition and classifies certain
sales rebates and incentives to its dealers and distributors as a reduction of
revenue. Comdial recognizes service revenue upon completion of the repairs or
installation.

The Company recognizes shipping and handling fees as revenue, and the related
expenses as a component of cost of sales. All internal handling charges are
charged to selling, general and administrative expenses.

ADVERTISING COSTS

Costs related to advertising are generally expensed as incurred. Advertising
expense was $0.4 million, $1.0 million and $1.4 million in 2001, 2000 and 1999,
respectively.

ACCOUNTING FOR STOCK-BASED COMPENSATION

Comdial accounts for stock-based compensation using the intrinsic value method
under Accounting Principles Board ("APB") Opinion No. 25. Comdial has disclosed
in Note 11 to the consolidated financial statements pro forma net income and
earnings per share, as if Comdial had applied the fair value method for stock
options and similar equity instruments, in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation".

Until March 2001, the 1992 Stock Incentive Plan (the "Stock Plan") had features
that permitted option recipients to tender shares as partial or full
consideration of the exercise price, which caused the Stock Plan to be
classified as a variable plan. Under variable plan accounting, compensation
expense is measured, as of each reporting date, as the amount by which the
quoted market price of the shares of the Company's stock covered by the option
grant exceeds the exercise price; compensation expense is recognized over the
option's vesting period. Changes, either increases or decreases, in the quoted
market price of the Company's shares between the date of grant and the date of
exercise result in a change in the measure of compensation expense. After the
March 2001 amendment, the Stock Plan became a fixed plan.

                                       42


The other option plans are accounted for as fixed plans. Accordingly, no
compensation cost has been recognized for the Company's fixed stock option plans
other than the performance based options that are part of the plan for the
Company's directors.

The Company recognized compensation expense in the amount of $0, $847,000 and
$511,000 for its variable stock option plan for the years ended December 31,
2001, 2000 and 1999, respectively. The compensation expense recognized for its
director's performance-based stock options was $0, $130,000, and $85,000 for
2001, 2000 and 1999, respectively.

Income Taxes

Comdial uses the liability method of accounting for income taxes, which is based
on the differences between the financial statement and tax basis of assets and
liabilities multiplied by the enacted tax rates that are known to be in effect
when the differences reverse. The measurement of deferred tax assets is impacted
by the amount of any tax benefits where, based on available evidence, the
likelihood of realization can be established. Comdial has incurred cumulative
operating losses through 2001 for financial statement and tax reporting purposes
and has adjusted its valuation allowance account to equal the net deferred tax
asset (see Note 7). Tax credits, if any, will be utilized to reduce current and
future income tax expense and payments.

EARNINGS (LOSS) PER COMMON SHARE

Basic EPS is computed by dividing net income (loss) by the weighted average
number of common shares outstanding. Diluted EPS is computed by dividing income
by the weighted average number of common and potentially dilutive common shares
outstanding during the period. See Note 8.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, and accrued liabilities approximate fair value due to the short-term
maturities of these assets and liabilities. The Company has evaluated the fair
value of its debt at December 31, 2001 and estimated it to be between $20
million and $22 million, due to the restructuring of its long-term debt. See
Note 6.

RECLASSIFICATIONS

The Company has reclassified certain amounts for 2000 and 1999 to conform to the
2001 presentation. These and other reclassifications had no effect on operating
or net income.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets. SFAS No. 142 is required to be applied in fiscal years beginning after
December 15, 2001. The Company expects to realize an annual increase in pre-tax
income of $1.5 million due to the cessation of amortization on the goodwill. The
adoption of this Statement is not expected to have a material impact on the
Company's operations.

In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
Accounting for Asset Retirement Costs ("SFAS No. 143"). This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This Statement is required to be applied in fiscal years beginning after
June 15, 2002. The adoption of this Statement is not expected to have a material
impact on the Company's operations.

                                       43


In August 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144"). Statement 144 provides guidance on differentiating between assets held
and used and assets to be disposed of. This Statement is required to be applied
in fiscal years beginning after December 15, 2001. The adoption of this
Statement is not expected to have a material impact on the Company's operations.

During 2001, the Emerging Issues Task Force reached a consensus on Issue 00-25,
Consideration from a Vendor to a Reseller. This consensus creates a presumption
that all consideration paid by a vendor to a reseller should be classified as a
reduction of revenue in the vendor's income statement (instead of an expense)
unless certain criteria are met. Accordingly, the Company has classified certain
sales rebates and incentives as a reduction of revenue.

NOTE 2. ACQUISITIONS & DISPOSALS

SALE OF AVALON BUSINESS

In October 2001, Comdial entered into an agreement to sell its Avalon product
line and certain related assets to a third party for approximately $125,000.
Significant terms of the contract include conditional exclusivity of the rights
and technology associated with the Avalon product, license fees to be paid to
Comdial over a three-year period, and assignment of in-process customer
contracts. Due to losses on assignments of in-process customer contracts, the
Company recognized a loss of $81,000 in 2001 related to the sale, which is
recognized in gain on sale of assets in the accompanying statements of
operations.

SALE OF AMERICAN PHONE CENTERS, INC.

In May 2001, the Company sold certain assets of its subsidiary, American Phone
Centers ("APC"), for $1.4 million, all of which was collected in 2001. Included
in the sale were the following assets: inventory, equipment, excess and
discontinued products and certain intellectual property rights associated with
APC. A sales and marketing executive of Comdial owns approximately 5% of the
buyer. In addition, 53 of the Company's employees became employees of the buyer.
The Company and the buyer entered into two ancillary agreements related to
repair of products and the sale of discontinued products. The Repair Agreement
authorizes the buyer to perform certain non-warranty repair work on Comdial
products. Under the Discontinued Product Agreement, the buyer is authorized to
sell certain discontinued Comdial products. The Company recognized a loss of
$45,000 on the sale during 2001, which is recognized in gain on sale of assets
in the accompanying statements of operations.

SALE/LEASEBACK OF MANUFACTURING FACILITY

In March 2001, the Company sold its Charlottesville, Virginia, headquarters and
manufacturing facility. The purchase price for the property was $11.4 million,
all of which was collected in 2001. The Company is leasing back a portion of the
facility through August 30, 2003, for low volume board production, light
assembly, engineering, and technical services functions. Over the 30 month
period, lease payment obligations total $2.6 million.

The total gain on the sale of the facility amounted to $5.1 million. The Company
immediately recognized a gain of $2.9 million in 2001 which is the amount by
which the gain exceeds the present value of the minimum lease payments to be
made by the Company from the closing date through August 30, 2003. The remaining
amount of the gain of $2.2 million has been deferred due to the leaseback and is
being amortized over three years, the term of the lease, as a reduction of rent
expense. During 2001, the Company amortized $1.1 million as a reduction of rent
expense. As of December 31, 2001, the balance of the deferred gain amounts to
$1.1 million.

                                       44


SALE OF ARRAY ASSETS

In March 2000, the Company entered into a Strategic Alliance agreement with
ePHONE Telecom, Inc. ("ePHONE") related to the business of its wholly-owned
subsidiary, Array Telecom Corporation. Pursuant to the agreement, the Company
sold certain fixed assets and products, and provided a license in certain
intellectual property for a five-year term to ePHONE. The agreement also allowed
ePHONE to utilize the name "Array" and provided ePHONE with access to its
distribution channels. ePHONE paid Array on the closing date $2.7 million in
cash and is required to pay royalty fees to the Company based on certain gross
sales over a five-year period. The Company had been recognizing the gain of $1.9
million into income over a five-year period from the date of closing. Due to
ePHONE filing for arbitration against the Company on October 2, 2001 and the
subsequent termination of the agreement (see Note 13), Comdial ceased to
recognize any gain during the fourth quarter of 2001. As of December 31, 2001,
the balance of the deferred gain amounts to $1.3 million.

NOTE 3.  INVENTORIES

Inventory consists of the following:
- ----------------------------------------------------------
December 31,
In thousands                                2001      2000
- ----------------------------------------------------------
     Finished goods                       $5,040   $ 7,064
     Work-in-process                           -        80
     Materials and supplies                4,487     8,287
                                          ------   -------
       Total                              $9,527   $15,431
                                          ======   =======
- ----------------------------------------------------------

Comdial provides reserves to cover product obsolescence and those reserves
impact gross margin. Reserves for inventory obsolescence amounted to $4.0
million and $5.4 million as of December 31, 2001 and 2000, respectively. Future
reserves will be dependent on management's estimates of the recoverability of
costs from inventory.

In the fourth quarter of 2000, the Company decided to outsource the majority of
its manufacturing operations. As a result, the Company recorded a lower of cost
or market adjustment of its inventory in the amount of $2.4 million to reduce
the carrying value of its materials inventory.

The Company purchases substantially all of its finished goods from three
outsource manufacturers.

NOTE 4.  PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

- -----------------------------------------------------------------
December 31,
In thousands                                     2001        2000
- -----------------------------------------------------------------
Buildings  and leasehold improvements        $    618    $ 11,905
Land and land improvements                          -         692
Machinery and equipment                        11,174      32,501
Computer hardware equipment and tooling         4,400       7,830
Computer software for internal use              3,354       3,291
Less accumulated depreciation                 (13,707)    (37,466)
                                             --------    --------
 Property and equipment - Net                $  5,839    $ 18,753
                                             ========    ========
- -----------------------------------------------------------------

Depreciation expense charged to operations for the years 2001, 2000 and 1999,
was $3.0 million, $4.4 million and $3.6 million, respectively.

                                       45


Due to the Company's decision to outsource the majority of its manufacturing
operations, management determined through an impairment analysis that certain of
its fixed assets associated with manufacturing were impaired. Accordingly, the
Company recognized impairment losses on its property and equipment of $1.0
million and $0.3 million in fiscal 2001 and 2000, respectively. See Note 16.

NOTE 5. LEASE OBLIGATIONS

Comdial has various capital and operating lease obligations. Future minimum
lease commitments for capitalized leases and aggregate minimum rental
commitments under operating lease agreements that have initial non-cancelable
lease terms in excess of one year are as follows:

- -------------------------------------------------------------------------------
Year Ending December 31,        Capital      Operating
In thousands                     Leases        Leases
- -------------------------------------------------------------------------------
  2002                           $  313       $2,941
  2003                              329        2,186
  2004                            2,748          734
  2005                            1,797          727
  2006                                -          726
  thereafter                          -        1,512
                                 ------       ------
Total minimum lease
 commitments                     $5,187       $8,826
                                 ======       ======
 Less amounts representing
  interest and other costs       (2,049)
                                -------
 Principal portion of
  minimum lease commitments
  at December 31, 2001
  including current amounts
  of $42                         $3,138
                                 ======
- -------------------------------------------------------------------------------

Assets recorded under capital leases (included in property and equipment in the
accompanying Consolidated Balance Sheets) are as follows:

- -------------------------------------------------------------------------------
December 31,
In thousands                         2001      2000
- --------------------------------------------------------------------------------
    Capitalized software           $  -       $  669
    Less accumulated
     amortization                     -          (77)
                                   -------    ------
     Capitalized software - Net    $  -       $  592
                                   =======    ======
- --------------------------------------------------------------------------------

For 2000, Comdial entered into new capital lease obligations that amounted to
approximately $1.3 million. All capital lease balances as of December 31, 2001
and 2000, are for software originally planned to be used internally.
Amortization of assets recorded under capital leases is included in depreciation
expense. During the fourth quarter of 2000, the Company determined that certain
assets associated with these capital lease obligations were impaired (See Note
16). The capital lease amounts associated with the impaired assets continue to
remain recorded as an obligation of the Company.

Operating leases are for office space and factory and office equipment. Total
rent expense for operating leases, including rentals which are cancelable on
short-term notice, for the years ended December 31, 2001, 2000 and 1999, were
$1.6 million, $3.7 million and $2.7 million, respectively.

                                       46


NOTE 6.  DEBT

Long-term debt consists of the following:
- ---------------------------------------------------------------------------
December 31,
In thousands                                        2001               2000
- ---------------------------------------------------------------------------
   Revolver (1)                                  $16,500            $16,624
   Term Loan (1)                                   6,404             18,500
   Capital Leases (2)                              3,578              3,285
   Notes Payable (3)                                 947                  -
   Promissory Note (4)                             2,079                  -
                                                 -------            -------
     Total Debt                                  $29,508             38,409
   Less current maturities on debt                 2,596             24,848
                                                 -------            -------
     Total long-term debt                         26,912            $13,561
                                                 =======            =======
- ---------------------------------------------------------------------------

(1)  Both the Revolver and the Term Loan, made pursuant to the Credit Agreement
     with Bank of America, carried an interest rate based on Prime plus a 300
     basis points margin. As of December 31, 2001, Comdial's borrowing rate was
     8.00%, which includes the additional applicable margins.

     The Company could use the Revolver with Bank of America for working capital
     and for other general corporate purposes. As of December 31, 2001, the
     Company had no additional availability under the Revolver or the Term Loan.

     As of April 10, 2001, Comdial and Bank of America, N.A. ("Bank of America")
     agreed to new terms related to its revolving credit facility and Term Loan.
     The terms as set forth in the Amended and Restated Agreement were as
     follows:

        .  The revolving credit facility ("the Revolver") remained at $16.5
           million. Comdial was allowed to utilize the facility provided that
           the collateral was not less than $13.5 million through September 30,
           2001, $14.0 million through October 31, 2001, and $16.0 million
           through November 30, 2001. Furthermore, the facility's maturity had
           been extended until March 31, 2002.

        .  The Term Loan principal payment of $2.5 million due September 30,
           2001 was replaced by an amount necessary to reduce the debt to $5
           million. The expected amount was $1.3 million. The remaining balance
           of the term loan of approximately $5.0 million was due as follows:
           $2.5 million on December 20, 2001 and $2.5 million on March 31, 2002.

        .  The Earnings Before Income Taxes and Depreciation and Amortization
           ("EBITDA") covenant was replaced by a minimum EBITDA for June 30,
           September 30, and December 31, 2001 equivalent to $1.9 million, $6.0
           million, and $9.7 million, respectively. The EBITDA covenant was
           measured on a cumulative basis from April 1, 2001.

     The Company did not make the required principal payment of $1.3 million on
     September 30, 2001. In December  2001, Bank of America and the Company
     agreed to waive the December 31, 2001 principal payment as well as the
     minimum EBITDA covenant for the third and fourth quarters of 2001 until
     January 15, 2002 and then extended it again until February 28, 2002.

                                       47



     On March 6, 2002, Comdial and Bank of America entered into the First
     Amendment to the Amended and Restated Credit Agreement (the "First
     Amendment") which reduced the Revolver commitment to $8 million, reduced
     the Term Loan to approximately $4.9 million and agreed to extend the $1.5
     million in letters of credit until March 31, 2003. Both the Revolver and
     the Term Loan mature March 31, 2003.

     The First Amendment changed the schedule of principal payments on the Term
     Loan balance. The term note will start amortizing in September 2002 using a
     36-month amortization schedule. The First Amendment also changed the
     applicable interest rate to an interest rate based on the Prime Rate plus a
     specified margin. Effective as of March 6, 2002, the interest rate is equal
     to the Prime Rate plus four percent. As of March 6, 2002, Comdial had no
     additional availability under the Revolver or the Term Loan.

     Comdial's indebtedness to Bank of America under the Credit Agreement, as
     amended by the First Amendment, is secured by liens on all of Comdial's
     properties and assets. The First Amendment modified the financial covenants
     relating to consolidated net income and contained other covenants related
     to consolidated net worth and cross default provisions. The First Amendment
     also provided for the waiver of all 2001 violations and defaults.

     In addition to the terms discussed above, in connection with the First
     Amendment, $10 million of outstanding debt of Comdial to Bank of America
     was converted into Series B Alternate Rate Cumulative Convertible
     Redeemable Preferred Stock, par value $10 per share (the "Preferred
     Stock"). Comdial issued 1,000,000 shares of the Preferred Stock to Bank of
     America. The Preferred Stock can be converted at any time into a maximum of
     1.5 million shares of Comdial common stock. This conversion ratio will be
     reduced to as low as 500,000 shares of common stock in the event Comdial
     elects to pay down the term note by up to $3 million in connection with new
     investment into the Company by an outside investor. Comdial has a call
     option allowing it to buy out Bank of America's Preferred Stock at par
     value, but Bank of America has no mandatory redemption. The Preferred Stock
     has a 5 percent cumulative annual dividend if paid with cash or 10 percent
     if paid in common stock, at the election of Comdial. The shares of common
     stock issuable to Bank of America upon conversion of the Preferred Stock
     and as payment of dividends are subject to certain demand and piggyback
     registration rights pursuant to a registration rights agreement which will
     require the Company to register such shares of common stock for resale in
     the public market upon request.

     Due to the restructuring discussed above, $22.4 million due to Bank of
     America has been excluded from current liabilities at December 31, 2001, in
     accordance with SFAS No. 6, "Classification of Short-Term Obligations
     Expected to be Refinanced".

(2)  The Company has a Master Lease Agreement with Relational Funding
     Corporation and its assignees (collectively "RFC"). This agreement covers
     certain leases related to an abandoned software implementation and hardware
     for internal use. Effective August 1, 2001, the Company and RFC entered
     into an agreement to restructure the payment schedule for both the
     operating and capital leases as follows: Beginning August 1, 2001, the
     operating and capital lease monthly payments were reduced from $150,000 to
     $75,000 per month. The monthly operating lease payments were reduced by 25%
     and the capital lease payments by 75%. The difference between the original
     payments and the reduced payments will be deferred until the end of each of
     the lease terms at which time all deferred amounts and accrued interest
     related to such will be due. Interest on the deferred amounts will be
     accrued at a rate of 10% per annum. As of December 31, 2001 the Company was
     in default on its payments to RFC. On March 21, 2002, the Company and RFC
     reached agreement to reduce the total payments due under the operating and
     capital leases from a combined balance of approximately $5.5 million to a
     payout schedule over 72 months totaling approximately $2.3 million. For the
     first 30 months, the monthly payment is $39,621, which then reduces to
     $25,282. In addition, Comdial agreed to provide RFC warrants to purchase
     175,000 shares of the common stock of the Company for $0.61 per share,
     which have an estimated fair market value of approximately $0.1
     million.

                                       48



   (3) The Company has unsecured notes payable in the amount of $0.9 million
       outstanding as of December 31, 2001. The notes have interest rates
       ranging from 0% to 14.5%. Monthly principal and interest payments on the
       notes total $60,000. One of the notes has quarterly principal payments of
       $25,000 plus interest. Maturity dates on the notes range from December
       2001 to September 2004. As of March 2002, the notes have been
       renegotiated to an outstanding balance of $0.2 million.

   (4) On October 12, 2001, the Company signed a promissory note with one of its
       suppliers that converts $2.1 million in accounts payable owed to the
       supplier to a long-term note. The note bears interest at 7.5% per annum.
       Principal and interest payments are due monthly through June 2003. In
       February 2002, this note was canceled (see Note 17).

NOTE 7.  INCOME TAXES

The components of the income tax expense  (benefit) for the following years
ended December 31 are as follows:

- ------------------------------------------------------
In thousands                  2001      2000      1999
- ------------------------------------------------------
     Current -  Federal      $   -   $   (40)   $  410
                State            -       (16)      133
     Deferred - Federal          -    14,200     1,573
                State            -     1,256       574
                             -----   -------    ------
       Total provision       $   -   $15,400    $2,690
                             =====   =======    ======
- ------------------------------------------------------

The income tax provision  reconciled to the tax computed at statutory  rates for
the years ended December 31, is summarized as follows:

- -------------------------------------------------------------------------------
In thousands                                    2001        2000        1999
- -------------------------------------------------------------------------------
    Federal tax at statutory rate
    (35% in 2001, 2000, and 1999)             $(7,408)   $(16,752)   $  3,512
    State income taxes (net of federal tax
      benefit)                                 (  779)        806         764
    Nondeductible charges                          52          40         707
    Other adjustments                          (  143)        197        (124)
    Expiring business credits                                  66         504
    Adjustment of valuation allowance           8,278      31,043      (2,673)
                                              -------    --------    --------
      Income tax provision                    $    -     $ 15,400    $  2,690
                                              =======    ========    ========
- --------------------------------------------------------------------------------

No net deferred tax assets have been recognized in the accompanying Consolidated
Balance Sheets at December 31, 2001 and 2000, respectively. The components of
the net deferred tax assets (liabilities) at December 31, 2001 and 2000 are as
follows:

- -------------------------------------------------------------------------------
Deferred Assets (Liabilities)                            December 31,
In thousands                                      2001                  2000
- --------------------------------------------------------------------------------
     Net loss carryforwards                     $20,839              $ 13,918
     Tax credit carryforwards                     1,411                 1,411
     Inventory                                    1,774                 3,274
     Pension                                          -                   128
     Postretirement                                 281                   287
     Compensation and benefits                    1,357                 1,818
     Capitalized software development costs       1,746                 2,838
     Other deferred tax assets                    3,257                 1,510
     Goodwill                                     5,407                 5,151
     Research and development expenditures        6,786                 4,515
     Allowance for bad debts                      1,331                 1,067
                                                -------              --------
        Total deferred tax assets                44,189                35,917

     Fixed asset depreciation                    (1,771)               (1,776)
                                                -------              --------
        Total deferred tax liabilities           (1,771)               (1,776)

     Net deferred tax assets                     42,418                34,141
     Less:  Valuation allowance                 (42,418)              (34,141)
                                               --------              --------
        Total                                  $      -              $      -
                                               ========              ========
- -------------------------------------------------------------------------------

                                       49


Comdial periodically reviews the requirements for a valuation allowance and
makes adjustments to such allowances when changes in circumstances result in
changes in management's judgment about the future realization of deferred tax
assets. Due to the three-year cumulative basis losses, the Company recorded a
valuation allowance equal to its net deferred tax assets of $42.4 million and
$34.1 million for the years ended December 31, 2001 and 2000, respectively.
For the years ended December 31, 2001, 2000 and 1999, the Company recorded an
increase of its valuation allowance of $8.3 million, $33.8 million, and a
decrease of $2.7 million, respectively.

At December 31, 2001 Comdial had net operating loss and credit carryovers of
approximately $55.9 million expiring beginning in 2002 through the year 2021.

NOTE 8:  EARNINGS (LOSS) PER SHARE

Unexercised options to purchase 1,021,990; 1,051,653 and 1,079,788 shares of
common stock for the years ended December 31, 2001, 2000 and 1999, respectively,
were not included in the computations of diluted loss per share because assumed
conversion would be antidilutive.

The following table discloses the annual EPS information for the years ended
December 31, 2001, 2000 and 1999.




- -------------------------------------------------------------------------------------
                                                                      
In thousands except per share data                         2001        2000      1999
- -------------------------------------------------------------------------------------

   Basic:
   Net loss                                            ($21,799)   ($63,264)   $7,343
                                                        =======     =======    ======
   Weighted average number of common
    shares outstanding during the period                  9,201       9,170     8,934
   Add - Deferred shares                                     10          18        14
                                                        -------     -------    ------
   Weighted average number of shares used in cal-
    culation of basic earnings per common share           9,211       9,188     8,948
                                                        =======     =======     =====

   Basic EPS                                             ($2.37)     ($6.89)   $  .82
                                                        =======     =======    ======
   Diluted:
   Net loss                                            ($21,799)   ($63,264)   $7,343
                                                        =======     =======    ======

   Weighted average number of shares used in cal-
    culation of basic earnings per common share           9,211       9,188     8,948
   Effect of dilutive stock options                           -           -        41
                                                        -------     -------    ------

 Weighted average number of shares used in cal-
 culation of diluted earnings per common share            9,211       9,188     8,989
                                                        =======     =======    ======

Diluted EPS                                              ($2.37)     ($6.89)   $  .82
                                                        =======     =======    ======


During the years ended December 31, 2001, 2000 and 1999, 8,500, 262,040, and
8,228 options were exercised at a weighted average exercise price of $0, $8.15,
and $2.34, respectively.

NOTE 9.  PENSION AND SAVINGS PLANS

Comdial currently has two pension plans that provide benefits based on years of
service and an employee's compensation during the employment period. One plan is
a qualified plan for all employees of Comdial and the other, which was initiated
in April 1999, is a non-qualified plan ("Retirement Benefit Restoration Plan").
The non-qualified plan is strictly for executive officers and/or highly
compensated employees who are designated as a participant of the plan by the
Compensation Committee of Comdial. The non-qualified plan is not funded.

                                       50


The calculation of pension benefits prior to 1993 was based on provisions of two
previous pension plans. One plan provided pension benefits based on years of
service and an employee's compensation during the employment period. The other
plan provided benefits based on years of service only. The funding policy for
the plans was to make the minimum annual contributions required by applicable
regulations. Assets of the plans are generally invested in equities and fixed
income instruments.

In July 2000, the Company froze the Retirement Benefit Restoration Plan, and in
September 2000, the Company froze the qualified pension plan, thereby
eliminating any further benefit accrual by employees in either of the plans.
This action by the Company resulted in a one-time curtailment loss of $0.5
million. In addition, the Company recognized a settlement gain of $0.1 million
on the payment of lump-sum retirement benefits to certain of its employees under
the Retirement Benefit Restoration Plan, in 2000.




The following table sets forth the change in projected benefit obligations of
the pension plans during 2001 and 2000.

- ------------------------------------------------------------------------------------------------------------------------------
In thousands                                                                               2001                          2000
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                                
    Benefit obligation at beginning of year                                            $ 25,603                       $25,786
    Service cost                                                                              -                         1,051
    Interest cost                                                                         1,870                         1,938
    Actuarial loss (gain)                                                               (   494)                        1,019
    Benefits paid                                                                       ( 1,546)                       (1,776)
    Curtailment adjustment                                                                    -                        (2,559)
    Settlement adjustment                                                                     -                           144
                                                                                       --------                       -------
       Benefit obligation at end of year                                               $ 25,433                       $25,603
                                                                                       ========                       =======
- -----------------------------------------------------------------------------------------------------------------------------


The following tables sets forth the change in plan assets of the pension plans
and amounts recognized in Comdial's Consolidated Balance Sheets at December 31,
2001 and 2000.

- ---------------------------------------------------------------------------
In thousands                                               2001       2000
- ---------------------------------------------------------------------------
    Fair value of plan assets at beginning of year      $25,170    $24,080
    Actual return on plan assets                          1,873        907
    Employer contribution                                     -      1,959
    Benefits paid                                        (1,546)    (1,776)
                                                        -------    -------
       Fair value of plan assets at end of year         $25,479    $25,170
                                                        =======    =======

Funded status                                           $    64    $  (433)
Unrecognized actuarial gain                                (253)       (71)
Unrecognized prior service cost                               -          -
                                                        -------    -------
Net amount recognized                                   $ ( 189)   $  (504)
                                                        =======    =======
Amounts recognized in the Consolidated Balance
    Sheets consist of:
    Prepaid benefit cost                                $ 2,147    $ 1,678
    Accrued benefit liability                            (2,336)    (2,182)
                                                        -------    -------
      Net amount recognized                             $  (189)   $  (504)
                                                        =======    =======
- -------------------------------------------------------------------------------

The Retirement Benefit Restoration Plan has projected benefit obligations of
$1.2 million and $2.0 million at December 31, 2001 and 2000, respectively, with
no plan assets.


Assumptions used in accounting for the plans as of December 31 were as follows:

                                          2001          2000          1999
- -------------------------------------------------------------------------------
 Discount rate                            7.25%         7.50%         8.00%
 Expected return on plan assets           9.00%         9.00%         9.00%
 Rate of compensation increase             N/A          4.50%         4.50%
- -------------------------------------------------------------------------------

                                       51


Net periodic pension cost (benefit) for 2001, 2000 and 1999 included the
following components:

- -------------------------------------------------------------------------------
In thousands                               2001          2000          1999
- -------------------------------------------------------------------------------
 Service cost                            $    -        $ 1,051       $ 1,758
 Interest cost                            1,870          1,938         1,692
 Expected return on plan assets               -         (2,050)       (1,777)
 Amortization of prior service cost      (2,185)           186           124
 Settlement gain                              -           (112)            -
 Curtailment loss                             -            464             -
 Recognized actuarial loss (gain)             -            (17)           68
                                        -------        -------       -------
  Net periodic pension cost (benefit)   $ ( 315)       $ 1,460       $ 1,865
                                        =======        =======       =======
- -------------------------------------------------------------------------------

In addition to these pension benefits, Comdial contributes to a 401(k) plan,
based on employee's contributions. Participants can contribute from 1% to 17% of
their salary and Comdial will match contributions equal to 50% of the
participant's contribution up to the first 6%. Comdial's total expense for the
matching portion of the 401(k) plan for 2001, 2000 and 1999 was $0.4 million,
$0.6 million and $0.6 million, respectively.

NOTE 10.  POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Comdial provides certain health care coverage (until age 65), which is
subsidized by the retiree through insurance premiums paid to Comdial, and life
insurance benefits for substantially all of its retired employees. The effect of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," on operating income for 2001 was income of $0, compared to income for
2000 of $12,000 and expense for 1999 of $137,000. The postretirement benefit
obligation is not funded and does not include any provisions for securities,
settlement, curtailment, or special termination benefits. In 1993, when SFAS No.
106 went into effect, Comdial elected to amortize the cumulative effect of this
obligation over 20 years (see unrecognized transition obligation in the table
below).

During fiscal 2000, Comdial eliminated this benefit, except to the extent
employees had already earned them, and ceased to accrue any additional
postretirement benefits under the program previously accounted for in accordance
with SFAS No. 106. The postretirement benefit obligation was reduced by $0.7
million with a corresponding decrease to the unrecognized transition obligation.
The effects of this transaction on fiscal 2000 earnings were negligible.

The following table sets forth the change in postretirement  benefit obligations
and amounts recognized in Comdial's  Consolidated Balance Sheets at December 31,
2001 and 2000.

- --------------------------------------------------------------
In thousands                                   2001      2000
- --------------------------------------------------------------
 Benefit obligation at beginning of year      $ 388    $1,074
 Service cost                                     4         4
 Interest cost                                   29        27
 Plan participants' contributions                 5        13
 Actuarial loss/(gain)                            6        17
 Benefits paid                                  (20)      (40)
 Curtailment effect                               -      (707)
                                              -----    ------
Benefit obligation at December 31             $ 412    $  388
                                              =====    ======
- -------------------------------------------------------------

                                       52


The following  tables set forth the change in plan assets of the  postretirement
benefits and amounts  recognized  in Comdial's  Consolidated  Balance  Sheets at
December 31, 2001 and 2000.

- -------------------------------------------------------------------------------
In thousands                                                2001     2000
- -------------------------------------------------------------------------------
  Fair value of plan assets at beginning of year           $   -     $   -
  Employer contribution                                       15        27
  Plan participants' contributions                             5        13
  Benefits paid                                             ( 20)      (40)
                                                           -----     -----
   Fair value of plan assets at December 31                $  -      $   -
                                                           =====     =====

Funded status                                              $(412)    $(388)
  Unrecognized transition obligation                         401       438
  Unrecognized actuarial gain                               (735)     (812)
                                                           -----     -----
Accrued benefit cost                                       $(746)    $(762)
                                                           =====     =====

- --------------------------------------------------------------------------------

Assumptions used in accounting for the plans as of December 31 were as follows:
- -------------------------------------------------------------------------------
                                                     2001      2000    1999
- -------------------------------------------------------------------------------
 Discount rate                                       7.25%     7.50%   8.00%
- -------------------------------------------------------------------------------

For measurement purposes, a 6.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2001. The rate was assumed to
decrease gradually to 5.25% for 2005 and remain at that level thereafter.

Net periodic  postretirement  (benefit) cost for 2001, 2000, and 1999,  included
the following components:

- -------------------------------------------------------------------------------
In thousands                         2001              2000              1999
- -------------------------------------------------------------------------------
    Service cost                    $   3              $   4             $  37
    Interest cost                      29                 27                74
    Amortization of unrecognized
     transition obligation             37                 37                91
    One-time curtailment income         -                 (6)
    Recognized actuarial gain         (69)               (74)              (65)
                                    -----              -----             -----
        Net postretirement
          (benefit) cost            $   -               ($12)            $ 137
                                    =====              =====             =====
- -------------------------------------------------------------------------------

Assumed health care cost trend rates could have a significant effect on the
amounts reported for the health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects:
- -------------------------------------------------------------------------------
In thousands
                                               One-percentage    One-percentage
                                               Point Increase    Point Decrease
Effect on total of service and interest            $   1               ($1)
    cost components
Effect on postretirement benefit obligation        $  27              ($27)
- -------------------------------------------------------------------------------

                                       53


NOTE 11.  STOCK-BASED COMPENSATION PLANS

As of December 31, 2001, Comdial had two stock-based compensation plans. The
1992 Stock Incentive Plan (the "Incentive Plan") provides for stock options to
purchase shares of Common Stock which may be granted to officers, directors and
certain key employees as additional compensation. Pursuant to the terms of the
1992 Non-employee Directors Stock Incentive Plan (the "Directors Stock Incentive
Plan"), each non-employee director shall be awarded 3,333 shares of Comdial's
Common Stock for each fiscal year Comdial reports income. In January 1997, in
accordance with the terms of the Directors Stock Incentive Plan, the board of
directors adopted a resolution suspending 833 of the 3,333 shares of Comdial's
common stock automatically awarded to non-employee directors under such
circumstances. In 2000, each non-employee director was awarded 2,500 shares
related to income earned by Comdial for fiscal year 1999. No amounts were
awarded for 2000 or 2001. The plans are composed of stock options, restricted
stock, nonstatutory stock, and incentive stock. Comdial's incentive plans are
administered by the Compensation Committee of Comdial's Board of Directors.

As of December 31, 2001, there were 2.0 million shares of Comdial's Common Stock
reserved for issuance under the Incentive Plan that was approved by the
stockholders in 1996, including 0.2 million shares of Comdial's Common Stock
reserved for issuance under the Directors Stock Incentive Plan. Of this amount,
0.5 million shares had not been granted under either plan. Comdial has
previously accepted notes relating to the non-qualified stock options exercised
by officers and employees. These notes receivable relating to stock purchases
amounted to $0, $0 and $150,000 at December 31, 2001, 2000 and 1999,
respectively, and have been deducted from Stockholders' Equity (Deficit).

Options granted in 2001 and 2000 have a maximum term of ten years and vest in
installments of 50%, 25% and 25% per year on each of the first through the third
anniversaries of the grant date. Options issued in 1999 vest in installments of
33% per year on each of the first through the third anniversaries of the grant
date. All options granted through the Incentive Plan are granted at an exercise
price equal to the market price of Comdial's Common Stock on the grant date.


Information regarding stock options granted under the Incentive Plan is
summarized below:


- -------------------------------------------------------------------------------------------------------------------
                                                      2001      (1)        2000       (1)         1999       (1)
- -------------------------------------------------------------------------------------------------------------------
                                                                                           
Options outstanding,
    January 1;                                    1,051,653    $5.42     1,079,788    $8.66     1,104,213    $8.93
    Granted                                         724,852      .77       728,500     3.34       220,433     7.51
    Exercised                                        (8,500)     .00      (262,040)    8.15        (8,228)    2.34
    Terminated                                     (746,015)    5.51      (494,595)    8.21      (236,630)    9.08
                                                 ----------    -----    ----------    -----    ----------    -----
       Options outstanding,
       December 31;                               1,021,990     2.95     1,051,653     5.31     1,079,788     8.66
                                                 ==========    =====    ==========    =====    ==========    =====
    Options exercisable,
    December 31;                                    406,437     2.97       265,755     8.96       598,468     8.57
    Per share ranges of options outstanding
       at December 31                            $0.28 - $13.50         $1.41 - $13.50         $1.41-$13.50
    Dates through which options outstanding
      at December 31,
       were exercisable                          1/2002 - 12/2011       1/2001-12/2010         1/2000-12/2009

(1)  Weighted-average exercise price at grant date.

                                       54


The following table summarizes  information concerning currently outstanding and
exercisable options at December 31, 2001:



                               Options Outstanding                   Options Exercisable
                   -----------------------------------------     ---------------------------
                                     Weighted-
                        Number        Average     Weighted-        Number       Weighted-
Range of              Outstanding    Remaining     Average       Exercisable     Average
Exercise                  at        Contractual   Exercise           at         Exercise
 Prices                12/31/01        Life          Price         12/31/01      Price
- --------------------------------------------------------------------------------------------
                                                             
$  0.28 to  1.35         434,936         9.4       $  0.40         199,436       $  0.27
$  1.35 to  2.70         368,087         8.5          1.88          84,066          1.87
$  2.70 to  4.05          10,001          .3          3.00          10,001          3.00
$  5.40 to  6.75           3,833         2.8          5.79           3,833          5.79
$  6.75 to  8.10          32,716         6.1          7.57          24,164          7.55
$  8.10 to  9.45          32,261         4.2          8.87          32,261          8.87
$  9.45 to 10.80           4,000         2.1         10.59           4,000         10.59
$ 10.80 to 12.15          28,926         6.0         10.94          28,926         10.94
$ 12.15 to 13.50         107,250         8.2         12.54          19,750         12.73
                       ---------     -------                      --------
0.28 to 13.50          1,021,990         8.5       $  2.95         406,437       $  2.97
                       =========    ========       =======        ========       =======


The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:


- --------------------------------------------------------------------------------------------
                                         2001            2000          1999
- --------------------------------------------------------------------------------------------
                                                                
  Risk-free interest rate               3.039%          6.03%           5.15%
  Expected life                          7.36           5.10             6.5
  Expected volatility                   110.3%            87%             65%
  Expected dividends                     none            none            none
- --------------------------------------------------------------------------------------------


If compensation cost for Comdial's Stock Incentive Plans had been determined
based on the fair value at the grant dates for awards under the plan, consistent
with the method prescribed by SFAS No. 123, Comdial's net income (loss) and
earnings (loss) per share would have been shown in the pro forma amounts
indicated below:


 --------------------------------------------------------------------------------------------
                                                                       
In thousands except per share amounts            2001          2000         1999

  Net (loss) income:    As reported              $(21,799)   $(63,264)      $ 7,343
                        Additional
                          Compensation
                          expense                   1,055       1,360         1,327
                        Pro forma                $(22,854)   $(64,624)      $ 6,016

  Basic (loss) earnings per share:
                        As reported              $  (2.37)   $  (6.89)      $  0.82
                        Pro forma                   (2.48)   $  (7.03)      $  0.67
  Diluted (loss) earnings per share:
                        As reported              $  (2.37)   $  (6.89)      $  0.82
                        Pro forma                   (2.48)   $  (7.03)      $  0.67
- --------------------------------------------------------------------------------------------

The weighted average fair value of options granted in which the option price
equaled the fair market value of the Company's stock on the date of grant is
$0.51, $2.74 and $6.14 for the years ending December 31, 2001, 2000 and 1999
respectively.

NOTE 12.  SEGMENT INFORMATION

During 2001 and 2000, substantially all of the Company's sales, net income, and
identifiable net assets were attributable to the telecommunications industry
with over 98% of sales occurring in the United States.

                                       55


In the fourth quarter of 2000, the Company adopted a Restructuring Plan, the
principal terms of which are discussed in Note 15 below. In 2001, pursuant to
this plan, the Company discontinued the prior organization and consolidated its
Strategic Business Unit ("SBU") segments that were defined as Comdial Convergent
Communications Corporation, Comdial Enterprise Solutions, Inc., Key Voice
Technologies, Comdial Business Communications Corporation and Array. The
consolidation of these business units resulted in the organization of product
segments to correspond with the industry background of primary business and
product offerings which fall into three categories: (1) voice switching systems
for small to mid-size businesses, (2) voice messaging systems, and (3) computer
telephony integration ("CTI") applications and other. Each of these categories
is considered a business segment, and with respect to their financial
performance, the costs associated with these segments can only be quantified and
identified to the gross profit level for each segment. These three product
segments comprise substantially all of Comdial's sales to the telecommunications
market.

The information in the following tables is derived directly from the segments
internal financial reporting used for management purposes. Unallocated costs
include operating expenses, goodwill amortization, interest expense, other
miscellaneous expenses, and income tax expense. Comdial does not maintain
information that would allow assets, liabilities, or unallocated costs to be
broken down into the various product segments as most of these items are shared
in nature.

The following tables show segment information for the years ended December 31:


- ---------------------------------------------------------------------
                                                   
(In thousands)                         2001         2000         1999
- ---------------------------------------------------------------------
Business Segment Net Sales
 Switching                        $  53,511    $  49,545     $ 81,868
 Messaging                           15,183       28,014       38,907
 CTI & Other                          7,473       12,005       19,982
                                  ---------    ---------     --------
  Net sales                       $  76,167    $  89,564     $140,757
                                  =========    =========     ========
- ---------------------------------------------------------------------
 (In thousands)                        2001         2000         1999
- ---------------------------------------------------------------------
Business Segment Profit
 Switching                        $  13,702    $   5,646     $ 29,148
 Messaging                            8,967       13,248       21,943
 CTI & Other                            445       (7,045)       4,112
                                  ---------    ---------     --------
  Gross profit                       23,114       11,849       55,203
 Operating expenses                  43,147       55,879       43,251
 Interest expense, net                2,759        2,902        1,633
 Miscellaneous expense - net            454          932          286
Gain on sale of assets              ( 1,447)           -            -
                                  ---------    ---------     --------
  Loss before income taxes         ($21,799)    ($47,864)    $ 10,033
                                  =========    =========     ========


- --------------------------------------------------------------------------------
Comdial had sales in excess of 10% of net sales to three customers as follows:


- ----------------------------------------------------------------------
                                                     
In thousands                               2001       2000       1999
- ----------------------------------------------------------------------
 Sales:
    ALLTEL Supply, Inc.                 $ 9,148    $14,563    $24,393
    Graybar Electric Company, Inc.       29,770     24,683     34,750
    Sprint/North Supply, Inc.            11,007     16,035     25,323

 Percentage of net sales:
    ALLTEL Supply, Inc.                      12%        16%        17%
    Graybar Electric Company, Inc.           39%        28%        25%
    Sprint/North Supply, Inc.                14%        18%        18%

Net sales of all three:
    Switching                            46,272    $49,894    $75,517
    Messaging                             3,653      5,387      8,949
                                        -------    -------    -------
    Net sales                           $49,925    $55,281    $84,466
                                        =======    =======    =======

- --------------------------------------------------------------------------------

                                       56


NOTE 13. COMMITMENTS AND CONTINGENT LIABILITIES

Comdial currently and from time to time is involved in litigation arising in the
ordinary course of its business. Those that the Company believes may have a
significant impact on it are described below. Comdial can give no assurance that
the resolution of any particular claim or proceeding would not have a material
adverse effect on its results of operations, cash flows or financial condition.

On March 5, 2001, William Grover, formerly a senior vice president of Comdial,
filed suit in state court in Charlottesville, Virginia alleging breach of an
employment contract and defamation, and seeking compensatory, punitive and
exemplary damages in the total amount of $1.9 million, plus interest. Among
other things, Mr. Grover claims that the for-cause termination of his employment
was unjustified and that he is therefore entitled to all benefits accrued to him
pursuant to the Company's executive retirement plan. The Company removed this
case to the federal district court for the Western District of Virginia, because
Mr. Grover's state law claims against Comdial are preempted by federal law,
specifically ERISA. Presently, Mr. Grover is seeking to remand the case back to
state court. Comdial believes it has adequate substantive and procedural
defenses against all claims made against Comdial in this matter and no amounts
have been accrued.

On October 5, 2000, William G. Mustain resigned as president and chief executive
officer of Comdial. On the same date, Comdial agreed to pay Mr. Mustain his
normal salary for the remainder of 2000 plus severance in the amount of $0.1
million per year for three years beginning on January 1, 2001. Mr. Mustain was
also entitled to be paid approximately $1.7 million in three installments over a
15 month period plus certain fringe benefits under Comdial's Retirement Benefit
Restoration Plan (the "Plan"). In 2001, Comdial made the initial payment of $0.6
million under the Plan. However, on June 30, 2001, Comdial notified Mr. Mustain
that it would not make payment of the second $0.6 million installment due under
the Plan because of its financial condition, as permitted under the terms of the
agreement with Mr. Mustain. On December 27, 2001, Comdial reached agreement with
Mr. Mustain on modified terms with respect to the remaining amounts due to him.
In lieu of those remaining amounts due of $1.1 million, Comdial agreed to pay
Mr. Mustain a total of approximately $0.3 million, payable in five annual
installments commencing in 2004. No gain will be recognized until the Plan is
liquidated. Comdial also agreed to continue to pay Mr. Mustain the
aforementioned severance pay through the three-year severance period that
expires on December 31, 2003. All amounts due Mr. Mustain have been accrued as
of December 31, 2001.

On September 28, 2001, Baisch & Skinner, Inc. ("Baisch") filed suit against
Comdial and a second defendant, Barron Communications, Inc. ("Barron") in St.
Louis County, Missouri, alleging multiple counts of breach of contract and
breach of warranty in connection with an agreement involving the installation by
Barron of a communications system at Baisch's place of business. The suit seeks
$78,000 in compensatory damages and unspecified incidental and consequential
damages, interest and costs. Comdial believes it has ample defenses to the
claims alleged in this matter. The matter is currently in the discovery phase.
No amounts have been accrued.

On October 2, 2001, ePHONE Telecom, Inc. filed for arbitration against Comdial
in Washington, DC, alleging fraud in the inducement, among other things, arising
from the alleged breach of an asset purchase and software license agreement.
ePHONE is seeking rescission of the agreement and a return of the full amount of
$2.7 million paid to us thereunder. Comdial will vigorously defend itself
against ePHONE's allegations and it has filed counterclaims against ePHONE for
an amount in excess of $2.0 million based on ePHONE's failure to make minimum
royalty payments due under the agreement and for loss of future revenues based
on ePHONE's breach of the agreement and the resulting termination thereof. On
March 20, 2002, ePHONE requested leave to clarify its original claim by
asserting $5.0 million in compensatory damages and $5.0 million in punitive
damages in addition to the damages described above. No ruling has been made on
that request. Comdial believes it has ample defenses to the claims alleged
against Comdial in this matter. No amounts have been accrued.

                                       57


On November 2, 2001, Comdial reached a settlement of a lawsuit filed against the
Company by Rates Technology Inc. ("RTI") in the Eastern District of New York
alleging that certain of its products had infringed an expired patent held by
RTI. According to the settlement agreement, Comdial agreed to pay an amount not
in excess of $0.5 million pursuant to a promissory note payable in quarterly
installments through August 2004 in exchange for dismissal of the suit against
Comdial and King Technologies, Inc. ("King"). King had been named as an
additional defendant in the suit under an amendment by RTI to its initial
complaint. The specific financial terms of the settlement are confidential. As
of December 31, 2001, the settlement amount had been accrued. On February 13,
2002, Comdial reached agreement with RTI on modified payment terms under the
aforementioned promissory note. The note has been paid in full.

NOTE 14.  QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents the Company's quarterly financial data for the last two
years:

- ----------------------------------------------------------------
In thousands except                       First         Second
per share amounts                        Quarter        Quarter
- ----------------------------------------------------------------
2001
    Net Sales                            $18,115       $ 20,261
    Gross profit                           7,801          7,915
    Goodwill amortization                    671            425
    Interest expense                         690            598
    Net loss                              (1,092)        (2,766)
    Net loss per
    common share: Basic                    (0.12)         (0.30)
                  Diluted                  (0.12)         (0.30)
- ----------------------------------------------------------------
2000
    Net Sales                            $30,266       $ 18,506
    Gross profit                          11,843          1,546
    Goodwill amortization                    799            798
    Interest expense                         607            616
    Net loss                              (2,333)        (4,848)
    Net loss per
    common share: Basic                    (0.26)         (0.53)
                  Diluted                  (0.26)         (0.53)
- ----------------------------------------------------------------

In thousands except                      Third         Fourth
  per share amounts                      Quarter       Quarter
- ----------------------------------------------------------------
2001
    Net Sales                            $22,882       $ 14,909
    Gross profit                           7,342             56
    Goodwill amortization                    423            423
    Interest expense                         834            637
    Net loss                              (2,997)       (14,944)
    Net loss per
    common share: Basic                    (0.33)         (1.62)
                  Diluted                  (0.33)         (1.62)


- ----------------------------------------------------------------

2000
    Net Sales                            $24,049       $ 16,743
    Gross profit                           4,277         (5,817)
    Goodwill amortization                    799            799
    Interest expense                         745            934
    Net loss                              (5,137)       (50,946)
    Net loss per
    common share: Basic                    (0.56)         (5.53)
                  Diluted                  (0.56)         (5.53)
- ----------------------------------------------------------------

Previously reported quarterly information has been revised to reflect certain
reclassifications. These reclassifications had no effect on previously reported
consolidated net income. See Note 1.

NOTE 15.  RESTRUCTURING

In 2000, due to declining market conditions, unfavorable economic factors,
uncompetitive product costs, and excess inventory levels, the Board of Directors
and management deemed it necessary to develop a plan to restructure the Company.
This plan was approved by the Board of Directors, and implementation commenced
during the fourth quarter of 2000.

                                       58


Significant terms of the restructuring plan ("the Plan") included outsourcing
the manufacturing operations, reducing the Company's workforce and selling the
headquarters and manufacturing facility. Pursuant to the Plan, 152 employees
were terminated effective December 15, 2000; another 222 employees were notified
as of December 28, 2000 that their positions would be eliminated in fiscal 2001.
The employees to be terminated were part of the manufacturing function and
related general and administrative positions in Charlottesville, Virginia. As of
December 31, 2001, a total of 342 employees have been terminated as part of the
Plan and the remaining 32 employees are expected to leave by April 2002.

On September 28, 2001, as a result of the downturn in the economy and the events
of September 11, 2001, management and the Board approved and executed a second
restructuring plan. The plan was designed to achieve certain operational and
financial efficiencies throughout the organization. A contingency plan was also
developed to quickly react if the disaster proved to cause more serious economic
effects to the company. Significant terms of the second plan included downsizing
the workforce in both the Sarasota and Charlottesville locations. Accordingly,
reductions were made across several departments including sales, finance,
manufacturing, engineering, and technical support. Thirty employees in total
were terminated. Employees were notified as of September 28, 2001 that their
positions had been eliminated.

During the month of October, the Company decided that further restructuring was
required. During November 2001, a third restructuring plan was announced. The
Company decided to make changes to the engineering department, as well as cut
expenses further in light of the events of September 11 and the effects that
this event had on the sales of its products. The Company announced that it would
be outsourcing the entire production and assembly work in Charlottesville.
During November 2001, it was announced that the Company would eliminate more
than 75 positions between November 2001 and April 2002 as it executes this exit
from manufacturing.

As of December 31, 2000, the Company accrued severance and related benefits in
the amount of $2.4 million related to the Plan. During 2001, the Company accrued
an additional $0.8 million of severance and related benefits for the September
and November restructurings. During 2001, the Company made cash severance
payments of $2.3 million relating to the 2000 and 2001 restructurings. During
2001, $0.4 million was reduced from the restructuring accrual for employees who
terminated their employment voluntarily before their severance date and,
therefore, received no severance pay. As of December 31, 2001, the Company has a
remaining obligation of $0.5 million related to severance and related benefits,
which will be paid during 2002. These amounts are included in accrued payroll
and related expenses in the accompanying December 31, 2001 consolidated
financial statements.


NOTE 16. IMPAIRMENT OF LONG-LIVED ASSETS

During 2001 and 2000, Comdial recorded impairment losses on long-lived assets,
including goodwill, of $3.2 million and $7.4 million, respectively. Asset
impairments for 2001 and 2000 of $1.0 million and $0.3 million, respectively,
were required related to the manufacturing equipment that will be disposed as a
result of the outsourcing of Company's manufacturing operations. The asset
impairments were measured by the excess of the carrying value of the assets over
the fair value of the assets. Fair value of the assets was determined by
independent valuations and quoted market prices. The Company expects to realize
an annual savings of $0.3 million due to the cessation of depreciation on the
assets held for disposal.

                                       59


Other impairment losses consisted of capitalized software development costs in
the amount of $1.4 million and $0.4 million for 2001 and 2000, respectively,
related to discontinued products. These losses were based on a comparison of the
projected undiscounted cash flows to the carrying value of these assets. In
2000, $3.9 million of software purchased for internal use that was no longer
going to be utilized due to the Company's downsizing was written off.

In March 2000, the Company sold the assets of its wholly owned subsidiary,
Array. Pursuant to the sale of the assets, the Company licensed its technology
to ePHONE. The Company was to receive royalty fees based on certain gross sales
over a five-year period. The Company determined that the present value of the
future cash flows related to the licensing agreement was less than the carrying
value of the goodwill. Accordingly, the Company recorded a $2.8 million
impairment loss on goodwill during 2000. Due to ePHONE filing arbitration
against the Company on October 2, 2001 (see Note 13), Comdial deemed the
remaining goodwill balance of $0.8 million in 2001 to be impaired and recorded a
loss for this amount.

NOTE 17. SUBSEQUENT EVENTS

See Note 6 for subsequent events related to long-term debt.

In the first quarter of 2002, the Company reached agreements with certain
vendors and other creditors to forgive $7.1 million in current non-bank
obligations, net of fees payable to the debt management firm that the Company
hired to assist with these efforts. These liabilities included amounts owed to a
former distributor of the Company's products, several component parts suppliers
and a seller of industrial equipment. The gains on forgiveness of $4.6 million
will be recognized in 2002.

Included in the non-bank obligations reduction is $2.1 million related to a
promissory note that was canceled by a supplier upon Comdial returning the
original inventory purchased from the supplier. Upon return of the inventory,
Comdial entered into a purchase commitment with the supplier to repurchase the
inventory by January 2007, with a minimum monthly purchase amount of $25,000.
Also included in the non-bank obligations reduction is $0.5 million related to a
supplier canceling the amount owed by Comdial in exchange for a purchase
commitment of $0.8 million for product that Comdial must purchase by December
2002.

ITEM 9.  CHANGES IN ACCOUNTANTS

On April 24, 2001, the Registrant dismissed Deloitte & Touche LLP as its
independent auditors.

The reports of Deloitte & Touche LLP on the financial statements for the past
two years did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or accounting
principles.

Furthermore, except for the two matters reported below, during the two most
recent fiscal years and the subsequent interim period, there were no
disagreements with Deloitte & Touche LLP on matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure that,
if not resolved to their satisfaction, would have caused Deloitte & Touche LLP
to make reference to the subject matter of the disagreement(s) in their report.

                                       60


In connection with the audit of the Registrant's consolidated financial
statements for the year ended December 31, 2000, there was a disagreement
between management and Deloitte & Touche LLP related to the accounting for its
1992 Incentive Stock Option Plan ("the 1992 Plan"). Management recorded
adjustments related to this plan in the 2000 consolidated financial statements
and also restated the 1998 and 1999 consolidated financial statements, as
described in its Annual Report on Form 10-K for 2000 and, as a result, Deloitte
& Touche LLP indicated that this disagreement was satisfactorily resolved.

Also in connection with the audit of the Registrant's consolidated financial
statements for the year ended December 31, 2000, there was a disagreement
related to the accounting for income taxes in 2000. Management recorded
adjustments related to this matter in the 2000 consolidated financial statements
and, as a result, Deloitte & Touche LLP indicated that this disagreement was
satisfactorily resolved.

The Audit Committee of the Company's Board of Directors discussed the subject
matter of both disagreements with Deloitte & Touche LLP.

On May 1, 2001, the Registrant engaged Ernst & Young LLP as its independent
auditors. The Company has authorized Deloitte & Touche LLP to respond fully to
the inquiries of Ernst & Young, LLP concerning the subject matter of the
foregoing disagreements. The decision to change auditors was approved by the
Registrant's Board of Directors on April 23, 2001.

                                       61


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors and Executive Officers of the Registrant is
incorporated by reference under the caption "Election of Directors" and
"Executive Officers of Comdial" of Comdial's definitive proxy statement for the
annual meeting of stockholders.

ITEM 11.  EXECUTIVE COMPENSATION
Executive compensation and management transactions information is incorporated
by reference under the caption "Executive Compensation" of Comdial's definitive
proxy statement for the annual meeting of stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information is incorporated by reference under the captions "Securities
Ownership of Certain Beneficial Owners and Management" of Comdial's definitive
proxy statement for the annual meeting of stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information is incorporated by reference under the caption "Family
Relationships" and "Certain Relationships and Related Transactions" of Comdial's
definitive proxy statement for the annual meeting of stockholders.

                                       62


Part IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)
1.    Audited Consolidated Financial Statements of Comdial Corporation and its
        Subsidiaries

            Report of Ernst & Young LLP
            Report of Deloitte & Touche LLP

            Financial Statements:
            Consolidated Balance Sheets -
              December 31, 2001 and 2000
            Consolidated Statements of Operations -
              Years ended December 31, 2001, 2000
              and 1999
            Consolidated Statements of Stockholders' Equity (Deficit) -
              Years ended December 31, 2001, 2000
              and 1999
            Consolidated Statements of Cash Flows -
              Years ended  December 31, 2001, 2000
              and 1999
            Notes to Consolidated Financial Statements -
              Years ended December 31, 2001, 2000 and 1999


2.    Financial Statements - Supplemental Schedules:

        Schedule II - Valuation and Qualifying Accounts

        All other schedules are omitted because they are not applicable, not
        required, or because the required information is included in the
        consolidated financial statements or notes.

3.    Exhibits Included herein:

        (3)  Articles of Incorporation and Bylaws:

           3.1    Certificate of Incorporation of Comdial Corporation. (Exhibits
                  (a) Item 3.1 to Item 6 of Registrant's Form 10-Q for the
                  period ended July 2, 1995.) *

           3.2    Certificate of Amendment of the Certificate of Incorporation
                  of Comdial Corporation as filed with the Secretary of State of
                  the State of Delaware on February 1, 1994. (Exhibit 3.2 to
                  Registrant's Form 10-Q for the period ended July 2, 1995.)*

           3.3    Bylaws of Comdial Corporation. (Exhibit 3.3 to Registrant's
                  Form 10-K for the year ended December 31, 1993.)*

       (10)  Material Contracts:

          10.1    Registrant's 1992 Stock Incentive Plan and 1992 Non-employee
                  Directors Stock Incentive Plan. (Exhibits 28.1 and 28.2 of
                  Registrant's Form S-8 dated October 21, 1992.)*

          10.2    Amendment No. 1 to the Registrant's 1992 Stock Incentive Plan
                  and 1992 Non-employee Directors Stock Incentive Plan. (Exhibit
                  10.1 and 10.2 of Registrant's Form 10-Q dated September 28,
                  1997.)*

          10.3    Amendment No. 2 to the Registrant's 1992 Stock Incentive Plan
                  and 1992 Non-employee Directors Stock Incentive Plan. (Exhibit
                  10.2 of Registrant's Form 10-Q dated June 30, 1996.)*

          10.4    Amendment No. 3 to the Registrant's 1992 Stock Incentive Plan
                  and 1992 Non-employee Directors Stock Incentive Plan. (Exhibit
                  10.3 of Registrant's Form 10-Q dated June 30, 1996.)*

          10.5    Amendment to Amendment No. 3 to the Registrant's 1992 Non-
                  employee Directors Stock Incentive Plan. (Exhibit 10.5 to
                  Registrant's Form 10-K for the year ended December 31, 1997.)*

          10.6    Amendment No. 4 to the Registrant's 1992 Stock Incentive Plan.
                  (Exhibit 10.6 to Registrant's Form 10-K for the year ended
                  December 31, 1997.)*

          10.7    Amendment No. 4 to the Registrant's 1992 Non-employee
                  Directors Stock Incentive Plan. (Exhibit 10.7 to Registrant's
                  Form 10-K for the year ended December 31, 1997.)*

                                       63


          10.8    The Registrant's Executive Stock Ownership Plan effective
                  January 1, 1996. (Exhibit 10.10 to Registrant's Form 10-K for
                  the year ended December 31, 1995.)*


          10.9    Amendment No. 1 to the Registrant's Executive Stock Ownership
                  Plan dated July 31, 1997. (Exhibit 10.17 to Registrant's Form
                  10-K for the year ended December 31,

         10.10    Amendment No. 2 to the Registrant's Executive Stock Ownership
                  Plan dated January 1, 1998. (Exhibit 10.18 to Registrant's
                  Form 10-K for the year ended December 31, 1997.)*

         10.11    The Registrant's Executive Severance Plan dated August 31,
                  1995. (Exhibit 10.11 to Registrant's Form 10-K for the year
                  ended December 31, 1995.)*

         10.12    Amendment No. 1 to the Registrant's Executive Severance Plan
                  dated July 31, 1997. (Exhibit 10.19 to Registrant's Form 10-K
                  for the year ended December 31, 1997.)*

         10.13    Development and Purchase Agreement dated February 21, 1997
                  among Registrant and Harris Corporation. (Exhibit 10.20 to
                  Registrant's Form 10-K for the year ended December 31, 1997.)*

         10.14    FastCall Purchase Agreement dated December 31, 1997 among
                  Aurora Systems, Inc. and Spanlink Communications, Inc.
                  (Exhibit 10.21 to Registrant's Form 10-K for the year ended
                  December 31, 1997.)*

         10.15    Asset Purchase Agreement dated July 14, 1998 among the
                  Registrant and Array Telecom Inc. and Array Systems Computing
                  Inc. (Exhibit 10.2 to Registrant's Form 10-Q for the quarter
                  ended June 28, 1998.)*

         10.16    Second Amendment to Comdial's 401(k) Plan dated November 29,
                  1998. (Exhibit 10.25 to Registrant's Form 10-K for the year
                  ended December 31, 1998.)*

         10.17    Third Amendment to Comdial's 401(k) Plan dated February 8,
                  1999.(Exhibit 10.17 to Registrant's Form 10-K for the year
                  ended December 31, 1999)*

         10.18    Credit Agreement dated October 22, 1998 among Registrant and
                  NationsBank, N.A. (Exhibit 10.26 to Registrant's Form 10-K for
                  the year ended December 31, 1998.)*

         10.19    Comdial's Retirement Benefit Restoration Plan (Exhibit 10.19
                  to Registrant's Form 10-K for the year ended December 31,
                  1999)*

         10.20    Strategic Alliance Agreement dated March 31, 2000 between the
                  Registrant and ePHONE Telecom, Inc. (Exhibit 10.1 to
                  Registrant's Form 10-Q for the quarter ended April 2, 2000)*

         10.21    Patent License Agreement dated March 17, 2000 between the
                  Registrant and Lucent Technologies GRL Corporation (Exhibit
                  10.2 to Registrant's Form 10-Q for the quarter ended April 2,
                  2000)*

         10.22    Amendment No. 5 to the Registrant's 1992 Stock Incentive Plan
                  (Exhibit 99.1 to Registrant's Form S-8 dated November 15,
                  2000)*

         10.23    Amended and Restated Credit Agreement dated November 22, 2000
                  (Exhibit 10.23 to Registrant's Form 10-K for the year ended
                  December 31, 2000.)*



         10.24    Agreement of Sale and Purchase dated March 9, 2001 between the
                  Registrant and Seminole Trail Properties, LLC (Exhibit 3.1 to
                  Registrant's Form 8-K filed March 26, 2001)*

         10.25    Deed of Lease dated March 9, 2001 between Seminole Trail
                  Properties, LLC and the Registrant (Exhibit 10.1 to
                  Registrant's Form 8-K filed March 26, 2001)*

         10.26    Amended and Restated Credit Agreement dated April 10, 2001
                  (Exhibit 10.23 to Registrant's Form 10-K for the year ended
                  December 31, 2000.)*

         10.27    First Amendment to Amended and Restated Credit Agreement dated
                  March 6, 2002 between the Registrant and Bank of America, N.A.

         10.28    Certificate of Designation of Series B Alternate Rate
                  Cumulative Convertible Redeemable Preferred Stock dated
                  March 6, 2002


                                       64


         10.29    Registration Rights Agreement dated March 6, 2002 between the
                  Registrant and Bank of America, N.A.

         10.30    Preferred Stock Investment Agreement dated March 6, 2002
                  between the Registrant and Bank of America, N.A.

* INCORPORATED BY REFERENCE HEREIN.

     (21)  Subsidiaries of the Registrant

     (23)  Consent of Ernst and Young LLP
           Consent of Deloitte & Touche LLP

     (24)  Power of Attorney


(b)  Reports on Form 8-K:

  During the quarter ended December 31, 2001, Comdial filed no current reports
on Form 8-K.

                                       65


                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 29th day of March,
2002.

                                                 COMDIAL CORPORATION

                                                   By: /s/ Paul K. Suijk
                                                  ------------------------------
                                                   Paul K. Suijk
                                                   Senior Vice President and
                                                   Chief Financial Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature                            Title                    Date
- ---------                            -----                    ----

        *                          Director               March 29, 2002
- --------------------
Robert P. Collins


        *                          Director               March 29, 2002
- --------------------
Nickolas A. Branica


        *                          Director               March 29, 2002
- --------------------
David P. Berg

        *                          Director               March 29, 2002
- --------------------
Sanford Schlitt


* By: /s/ Ralph R. Dyer
      -----------------
  Ralph R. Dyer, as attorney
  in fact pursuant to the power
  of attorney contained in
  Exhibit 24 of this Form 10-K.

                                       66


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COMDIAL CORPORATION
DECEMBER 31, 2001
In Thousands


- ----------------------------------------------------------------------------------------------------------------------------------
COL. A                                        COL. B              COL. C              COL. D       COL. E
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                   
Description                                                      Additions
                                            Balance at          Charged to          Charged to                    Balance
                                            Beginning           Costs and             Other                        at End
                                            of Period            Expense             Accounts      Deductions     of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001:

Deducted from asset accounts:
Allowance for doubtful accounts              $ 2,834           $    2,288                           ($1,589)*        $    3,533
Reserve for sales returns                      2,447                   -                            ( 2,224)**              223
Reserve for inventory obsolescence             5,355                2,475                           ( 3,808)***           4,022
Deferred tax asset valuation allowance        34,141                8,277                                 -              42,418
                                            --------           ----------                        ----------          ----------
                    Total                   $ 44,777           $   13,040                           ($7,621)         $   50,196
                                            ========           ==========                        ==========          ==========
Year Ended December 31, 2000:

Deducted from asset accounts:
Allowance for doubtful accounts              $   302            $   2,793                             ($261)*        $    2,834
Reserve for sales returns                        418                2,029                                 -               2,447
 Reserve for inventory obsolescence            3,239                3,734                            (1,618)***           5,355
 Deferred tax asset valuation allowance          300               33,841                                 -              34,141
                                             -------             --------                        ----------          ----------
                      Total                  $ 4,259             $ 42,397                           ($1,879)         $   44,777
                                             =======             ========                        ==========          ==========

Year Ended December 31, 1999:

Deducted from asset accounts:
Allowance for doubtful accounts              $   198             $    194                              ($90)*        $      302
Reserve for sales returns                        401                   17                                 -                 418
Reserve for inventory obsolescence             3,362                  487                              (610)***           3,239
Deferred tax asset valuation allowance         2,966               (2,666)                                -                 300
                                             -------             --------                        ----------          ----------
                    Total                    $ 6,927              ($1,968)                            ($700)         $    4,259
                                             =======             ========                        ==========          ==========

*    Write off uncollectible accounts
**   Return of inventory
***  Write off obsolete inventory

                                       67

EX-10.27

                                                                   Exhibit 10.27

            FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

            THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"First Amendment") is dated as of this 6th day of March, 2002, by and between
COMDIAL CORPORATION (the "Company"), a Delaware corporation with an office at
106 Cattlemen Road, Sarasota, Florida 34232 and BANK OF AMERICA, N.A. (the
"Bank"), a national banking association with an office at 100 N. Tampa Street,
Suite 1700, Tampa, Florida 33602.

            The Company and the Bank are parties to an Amended and Restated
Credit Agreement dated as of November 22, 2000 (the "Credit Agreement"),
pursuant to which the Bank agreed, subject to the terms and conditions contained
in the Credit Agreement, to extend a revolving credit facility in the initial
aggregate principal amount not to exceed at any time outstanding $21,500,000, to
provide for a $5,000,000 letter of credit subfacility and to extend an
$18,500,000 term loan facility. The Company and the Bank are also parties to a
letter agreement dated April 10, 2001 (the "April 10 Letter"), pursuant to which
the Bank agreed to modify certain terms of the Credit Agreement as provided
therein. The Company, the Guarantors (as defined in the Credit Agreement) and
the Bank are also parties to a Forbearance Agreement dated as of January 28,
2002 (the "Forbearance Agreement"), pursuant to which the Bank agreed to forbear
from the exercise of certain of its rights and remedies under the Loan Documents
(as defined in the Credit Agreement) for a period of time as specified therein
so that the Company and the Bank could discuss the possibility of restructuring
the Indebtedness (as defined in the Forbearance Agreement).

            The Bank and the Company have agreed to restructure the Indebtedness
so as to (i) exchange $10,000,000 of the Indebtedness for preferred stock of the
Company to be issued to the Bank pursuant to this First Amendment and the
Comdial Corporation Certificate of Designation of Series B Alternate Rate
Cumulative Convertible Redeemable Preferred Stock dated March 6, 2002 (the
"Certificate of Designation"), the Registration Rights Agreement dated March 6,
2002, by and between the Company and the Bank (the "Registration Rights
Agreement"), and the Preferred Stock Investment Agreement dated March 6, 2002,
by and between the Company and the Bank (the "Preferred Stock Investment
Agreement"); (ii) reduce the Revolving Credit Commitment (as defined in the
Credit Agreement) and the amount outstanding under the Revolving Credit Loans
(as defined in the Credit Agreement) to an amount equal to $8,000,000; (iii)
reduce the Term Loan (as defined in the Credit Agreement) to an amount equal to
$4,903,874.69; (iv) reduce the L/C Obligations (as defined in the Credit
Agreement) to an amount equal to $1,500,000; and (v) amend the covenants
contained in the Credit Agreement as set forth herein. The Company has agreed to
all of these terms and conditions. The Certificate of Designation, the
Registration Rights Agreement and the Preferred Stock Investment Agreement shall
collectively be referred to as the "Equity Documents."

            Accordingly, the Company and the Bank hereby agree as follows:

            1. Capitalized terms used in this First Amendment and not otherwise
defined herein shall have the meanings assigned thereto in the Credit Agreement.


            2. The definition of the term, "Borrowing Base," contained in
Section 1.1 of the Credit Agreement is hereby deleted in its entirety and the
following definition is substituted in its place:

                  "Borrowing Base" means, for any day, the sum of (i) eighty
                   --------------
            percent (80%) of the aggregate Net Unpaid Balance of all Eligible
            Accounts plus (ii) fifty percent (50%) of the value of all Eligible
            Inventory , provided that sub-clause (ii) shall never exceed (A)
            $4,000,000 for the period commencing on March 6, 2002 to and
            including May 30, 2002, (B) $3,000,000 for the period commencing on
            May 31, 2002 to and including August 30, 2002 and (C) $2,000,000 at
            all times thereafter.

            3. The definition of the term, "Default Rate," contained in Section
1.1 of the Credit Agreement is hereby deleted in its entirety and the following
definition is substituted in its place:

                  "Default Rate" means a rate of interest equal to the Prime
                   ------------
            Rate plus six percent (6%) per annum, with such rate to change as of
            the date of each change in the Prime Rate.

            4. The definition of the term, "L/C Fee," contained in Section 1.1
of the Credit Agreement is hereby deleted in its entirety and the following
definition is substituted in its place:

                  "L/C Fee" means, with respect to the Tecom Letter of Credit,
                   -------
            $35,000, and, with respect to the Maxi Switch Letter of Credit,
            $15,000.

            5. The definition of the term, "Revolving Credit Commitment,"
contained in Section 1.1 of the Credit Agreement is hereby deleted in its
entirety and the following definition is substituted in its place:

                  "Revolving Credit Commitment" means Twenty-One Million Five
                   ---------------------------
            Hundred Thousand Dollars ($21,500,000) for the period from the
            Closing Date to and including December 30, 2000, Sixteen Million
            Five Hundred Thousand Dollars ($16,500,000) for the period from
            December 31, 2000 to and including March 5, 2002 and Eight Million
            Dollars ($8,000,000) for the period from March 6, 2002 to the
            Revolving Credit Termination Date.

            6. The definition of the term, "Revolving Credit Termination Date,"
contained in Section 1.1 of the Credit Agreement is hereby deleted in its
entirety and the following definition is substituted in its place:

                  "Revolving Credit Termination Date" means the earlier to occur
                   ---------------------------------
            of (i) March 31, 2003 and (ii) the date on which the Revolving
            Credit Commitment is terminated pursuant to Section 11.


                                       -2-


            7. The following defined terms are hereby inserted in the
appropriate alphabetical order in Section 1.1 of the Credit Agreement:

                  "Bank's  Consultant" shall mean Carl Marks Consulting Group,
                   ------------------
            LLC.

                  "Budgeted Consolidated EBITDA" means the projected
                   ----------------------------
            Consolidated EBITDA for a particular calendar month (i) in 2002, as
            set forth in the Comdial Corporation Budgeted Income Statement for
            2002 for such month delivered to the Bank by the Company on February
            27, 2002 and (ii) in 2003, as set forth in the projected income
            statement for the Company and its Subsidiaries for such month
            delivered to the Bank no later than October 1, 2002 in accordance
            with Section 8.19(b).

                  "Capital Expenditures" shall mean, for any period, capital
                   --------------------
            expenditures of the Company and its Subsidiaries for such period.

                  "Cumulative Consolidated EBITDA" means, for any period, ninety
                   ------------------------------
            percent (90%) of the sum of Budgeted Consolidated EBITDA for the
            period commencing on April 1, 2002 to and including the date of
            measurement.

                  "Equity Documents" shall mean, collectively, the Comdial
                   ----------------
            Corporation Certificate of Designation of Series B Alternate Rate
            Cumulative Convertible Redeemable Preferred Stock dated March 6,
            2002, the Registration Rights Agreement dated March 6, 2002, by and
            between the Company and the Bank (the "Registration Rights
            Agreement"), and the Preferred Stock Investment Agreement dated
            March 6, 2002, by and between the Company and the Bank, and all
            amendments, restatements and other modifications to such documents.

                  "Maxi Switch Letter of Credit" means letter of credit number
                   ----------------------------
            3039893 in the face amount of $300,000 issued by the Bank for the
            account of the Company and for the benefit of Maxi Switch, Inc.,
            which letter of credit is scheduled to expire on March 31, 2002.

                  "Tecom Letter of Credit" means letter of credit number 3035219
                   ----------------------
            in the face amount of $1,200,000 issued by the Bank for the account
            of the Company and for the benefit of Tecom Co., Ltd., which letter
            of credit is scheduled to expire on March 31, 2002.

            8. Section 2.1 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  2.1 Revolving Credit Loans. Upon the terms and subject to the
                      ----------------------
            conditions contained in this Agreement, the Bank agrees to make
            loans (herein referred to collectively as the "Revolving Credit
            Loans") to the Company from time to time during the period from the
            date of this Agreement until the Revolving Credit Termination Date;
            provided that (i) for the period commencing on the Closing Date to
            and including March 5, 2002, the aggregate principal amount of


                                       -3-


            all outstanding Revolving Credit Loans does not at any time exceed
            the lesser of (a) the Revolving Credit Commitment minus the L/C
            Obligations and (b) the Borrowing Base minus the L/C Obligations,
            and (ii) for the period commencing on March 6, 2002 to and including
            the Revolving Credit Termination Date, the aggregate principal
            amount of all outstanding Revolving Credit Loans does not exceed the
            lesser of (a) the Revolving Credit Commitment and (b) the Borrowing
            Base.

            9. The first sentence of Section 2.2 of the Credit Agreement is
hereby deleted in its entirety and the following sentences are substituted in
its place:

            The obligation of the Company to repay the Revolving Credit Loans
            will be evidenced by the Company's promissory note payable to the
            order of the Bank at its office at 8300 Greensboro Drive, Suite 800,
            McLean, Virginia 22102, or such other place as the holder may from
            time to time designate, (i) for the period commencing on the Closing
            Date to and including March 5, 2002, in substantially the form of
            Exhibit A attached hereto with the blanks therein appropriately
            ---------
            completed, dated as of the date of the initial Revolving Credit Loan
            and payable on the Revolving Credit Termination Date (the "Revolving
            Credit Note") and (ii) for the period commencing on March 6, 2002
            and thereafter, in substantially the form of Exhibit A-1 attached
                                                         -----------
            hereto with the blanks therein appropriately completed, dated as of
            March 6, 2002 and payable on the Revolving Credit Termination Date
            (the "Replacement Revolving Credit Note"). Upon the execution and
            delivery of the Replacement Revolving Credit Note, the Replacement
            Revolving Credit Note will supercede and replace the Revolving
            Credit Note and, from and after such date, all references to the
            Revolving Credit Note in this Agreement and the Loan Documents shall
            be deemed to be references to the Replacement Revolving Credit Note.

            10. Section 3.1 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  3.1 Letter of Credit Facility. In accordance with the terms
                      -------------------------
            and conditions contained in this Agreement and in the applicable L/C
            Applications, the Bank has issued the Maxi Switch Letter of Credit
            and the Tecom Letter of Credit (herein referred to collectively as
            the "Letters of Credit") for the account of the Company, and, upon
            the terms and subject to the conditions contained in this Agreement
            and the applicable L/C Applications, the Bank agrees to extend the
            expiration date of each of the Maxi Switch Letter of Credit and the
            Tecom Letter of Credit to March 31, 2003. The Company acknowledges
            and agrees that the Bank has no obligation to issue any other
            Letters of Credit.

            11. The first two sentences of Section 3.3 of the Credit Agreement
are hereby deleted in their entirety and the following sentence is substituted
in their place:

            The Company will pay the L/C Fee to the Bank on March 6, 2002, which
            fee will be fully earned and nonrefundable once paid.


                                      -4-


            12. Section 3.4 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  3.4 Reimbursement Obligations. The Company will pay to the
                      -------------------------
            Bank promptly upon demand any and all amounts paid by the Bank under
            any Letter of Credit, as provided in the applicable L/C Application,
            together with interest on such amount from the date such amount was
            paid by the Bank to the date it receives payment in federal or other
            immediately available funds at the Prime Rate plus four percent (4%)
            per annum, with such rate to be reset on each day on which there is
            a change to the Prime Rate. Such interest shall be computed for the
            actual number of days elapsed over a year of 360 days.

            13. Section 3.5 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  3.5 Expiration of Letters of Credit. Unless the Bank shall
                      -------------------------------
            agree otherwise, all Letters of Credit shall expire on or before
            March 31, 2003.

            14. Section 4.2 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

            The obligation of the Company to repay the Term Loan will be
            evidenced by the Company's promissory note payable to the order of
            the Bank at its office at 8300 Greensboro Drive, Suite 800, McLean,
            Virginia 22102, or such other place as the holder may from time to
            time designate, (i) for the period commencing on the Closing Date to
            and including March 5, 2002, in substantially the form of Exhibit B
                                                                      ---------
            attached hereto with the blanks therein appropriately completed,
            dated as of the date of the single advance under the Term Loan (the
            "Term Loan Note") and (ii) for the period commencing on March 6,
            2002 and thereafter, in substantially the form of Exhibit B-1
                                                              -----------
            attached hereto with the blanks therein appropriately completed,
            dated as of March 6, 2002 (the "Replacement Term Loan Note"). Upon
            the execution and delivery of the Replacement Term Loan Note, the
            Replacement Term Loan Note will supercede and replace the Term Loan
            Note and, from and after such date, all references to the Term Loan
            Note in this Agreement and the Loan Documents shall be deemed to be
            references to the Replacement Term Loan Note. For the period
            commencing on the Closing Date to and including August 31, 2002,
            installments of interest on the Term Loan Note shall be due and
            payable commencing on November 30, 2000 and continuing on the last
            day of each month thereafter to and including August 31, 2002. For
            the period commencing on the Closing Date to and including August
            31, 2002, installments of principal on the Term Loan Note shall be
            due and payable on the following dates in the following amounts:
            June 30, 2001, $2,500,000; September 30, 2001, $2,500,000; and
            December 31, 2001, $2,500,000. For the period commencing on
            September 1, 2002 and continuing to and including February 28, 2003,
            installments of principal and interest, each in an amount equal to
            the


                                      -5-


            amount necessary to fully amortize the principal balance of the Term
            Loan Note as of September 1, 2002 at an interest rate equal to the
            interest rate provided in Section 5 over an assumed 36-month period,
            shall be due and payable commencing on September 30, 2002 and
            continuing on the last day of each month thereafter to and including
            February 28, 2003. A final installment of the entire unpaid
            principal balance of the Term Loan Note together with all accrued
            interest thereon shall be due and payable on March 31, 2003. The
            Company acknowledges and agrees that, because the Term Loan Note
            will bear interest based on the Prime Rate, the Bank shall have the
            right to adjust the amount of the principal and interest
            installments due after an increase in the Prime Rate during the
            period commencing on March 6, 2002 and continuing to and including
            February 28, 2003. The Company further acknowledges and agrees that,
            although a 36-month period will be used to determine the amount of
            the first seven (7) installments of principal and interest due on
            the Term Loan Note during the period commencing on January 1, 2002
            and continuing to and including February 28, 2003, if not sooner
            paid, the entire unpaid principal balance of the Term Loan Note
            together with all accrued interest thereon shall be immediately due
            and payable on March 31, 2003.

            15. Section 4.4(a)(1) of the Credit Agreement is hereby deleted in
its entirety and the following provision is substituted in its place:

                  (a)(1) [Reserved].

            16. Section 5.2 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  5.2 Interest Rates. The outstanding principal balance of the
                      --------------
            Revolving Credit Loans and the Term Loan as they exist from time to
            time commencing on the Closing Date and continuing to and including
            March 30, 2001 will (subject to Section 5.3) bear interest at an
            annual rate equal to the LIBOR Daily Floating Rate plus three
            percent (3%), with such rate to be initially set by the Bank on the
            Closing Date and with such rate to be reset on each day during such
            period on which there is a change to the LIBOR Daily Floating Rate.
            The outstanding principal balance of the Revolving Credit Loans and
            the Term Loan as they exist from time to time commencing on March
            31, 2001 and continuing to and including January 14, 2002 will
            (subject to Section 5.3) bear interest at an annual rate equal to
            the Prime Rate plus three percent (3%), with such rate to be reset
            on each day on which there is a change to the Prime Rate. The
            outstanding principal balance of the Revolving Credit Loans and the
            Term Loan as they exist from time to time commencing on January 15,
            2002 and continuing until the Revolving Credit Loans and the Term
            Loan are paid in full will (subject to Section 5.3) bear interest at
            an annual rate equal to the Prime Rate plus four percent (4%), with
            such rate to be reset on each day on which there is a change to the
            Prime Rate. Interest on the Revolving Credit Loans and on the Term
            Loan


                                      -6-


            will be computed on the basis of the actual number of days elapsed
            over a year of 360 days.

            17. Sections 8.1(a) and 8.1(b) of the Credit Agreement are hereby
deleted in their entirety and the following provisions are substituted in their
respective places:

                  (a) as soon as available, but in no event more than forty-five
            (45) days after the end of each of the Company's fiscal quarters,
            consolidated and consolidating balance sheets of the Company and its
            Subsidiaries as of the end of such quarter and consolidated and
            consolidating income statements of the Company and its Subsidiaries
            to the end of such quarter, each in reasonable detail and in form
            and substance satisfactory to the Bank, prepared in accordance with
            GAAP and certified by the chief financial officer of the Company,
            provided that the Company may deliver, in lieu of the foregoing
            quarterly financial statements, the quarterly report of the Company
            for the applicable fiscal quarter on Form 10-Q filed with the SEC,
            but only as long as the financial statements contained in such
            quarterly report are substantially the same in content as the
            financial statements referred to above in this Section 8.1(a); with
            such quarterly financial statements to be accompanied by (i)
            consolidated and consolidating balance sheets and consolidated and
            consolidating income statements with respect to Material
            Subsidiaries for which there has been any material financial
            activity during the applicable quarter, prepared in the ordinary
            course of the Company's business, and (ii) a compliance certificate,
            in form and detail satisfactory to the Bank and signed by the chief
            financial officer of the Company, which provides a detailed
            calculation of the financial covenants contained herein as of the
            applicable fiscal quarter end and a statement as to whether the
            Company is in compliance with all of the terms and conditions of
            this Agreement;

                  (b) as soon as available, but in no event more than ninety
            (90) days after the end of each of the Company's fiscal years, a
            copy of the annual consolidated and consolidating financial
            statements of the Company and its Subsidiaries in reasonable detail
            and in form and substance satisfactory to the Bank, prepared in
            accordance with GAAP and audited by certified public accountants of
            national standing or otherwise satisfactory to the Bank, which
            financial statements shall include consolidated and consolidating
            balance sheets of the Company and its Subsidiaries as of the end of
            such fiscal year, consolidated and consolidating statements of
            income and retained earnings of the Company and its Subsidiaries for
            such fiscal year, consolidated and consolidating statements of cash
            flows for the Company and its Subsidiaries for such fiscal year, a
            reconciliation of net worth, and all normal and reasonable financial
            notes, provided that the Company may deliver, in lieu of the
            foregoing annual financial statements, the annual report of the
            Company for the applicable fiscal year on Form 10-K filed with the
            SEC, but only as long as the financial statements contained in such
            annual report are substantially the same in content as the financial
            statements referred to above in this Section 8.1(b); with such
            annual financial statements to be accompanied by a compliance
            certificate, in form and


                                      -7-


            detail satisfactory to the Bank and signed by the chief financial
            officer of the Company, which provides a detailed calculation of the
            financial covenants contained herein as of the applicable fiscal
            year end and a statement as to whether the Company is in compliance
            with all of the terms and conditions of this Agreement;

            18. Section 8.1(f) of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  (f) (1) As soon as available and in any event within fifteen
            (15) days after the end of each fiscal month of the Company, a
            Borrowing Base Certificate executed by the chief financial officer
            of the Company setting forth the Borrowing Base and the Term Loan
            Collateral Value as of the last Business Day of such month, and, if
            the Company or any of its Subsidiaries engaged in any Asset Sales
            during such month in which the value of the assets so sold was less
            than $50,000 or which, when aggregated with the value of all other
            assets sold in connection with other Assets Sales occurring during
            the same fiscal month of the Company, had a value greater than
            $200,000, such Borrowing Base Certificate shall include an
            itemization of the assets sold during such month, the value of such
            assets, and the net consideration received for such assets; and (2)
            as soon as available and in any event by 5:00 pm eastern time on
            March 4, 2002 and not later than 5:00 pm eastern time on each Monday
            thereafter: (i) a Borrowing Base Certificate current as of the
            Friday immediately preceding such Monday prepared by and executed in
            accordance with the requirements of Section 8.1(f)(1) and containing
            all of the information required to be contained in the Borrowing
            Base Certificate required by Section 8.1(f)(1), (ii) a sales report
            in form and substance acceptable to the Bank in its sole discretion
            current as of the Friday immediately preceding such Monday that
            describes all sales of Inventory and other goods by the Company or
            any of its Subsidiaries by the following three (3) customer types:
            supply houses, dealers and national accounts, (iii) a report in form
            and substance acceptable to the Bank in its sole discretion current
            as of the Friday immediately preceding such Monday that identifies
            any officers or key employees that have terminated employment with
            the Company or any of its Subsidiaries or have notified the Company
            or any of its Subsidiaries of such officer's or employee's intention
            to do so, (iv) a report in form and substance acceptable to the Bank
            in its sole discretion current as of the Friday immediately
            preceding such Monday that identifies any material customers of the
            Company or any of its Subsidiaries that have ceased purchasing
            Inventory or other goods from the Company or any of its Subsidiaries
            or that have notified the Company or any of its Subsidiaries of such
            material customer's intention to do so, and (v) a report in form and
            substance acceptable to the Bank in its sole discretion that
            describes the status of the Company's efforts to acquire or be
            acquired by another person or legal entity and the status of the
            Company's efforts to refinance the Revolving Credit Loans and the
            Term Loan.

            19. Section 8.16 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:


                                      -8-


                  8.16 Establishment of Lock-Box Account and Notification to
                       -----------------------------------------------------
            Account Debtors. On or before April 30, 2002, the Company shall
            ---------------
            execute and deliver to the Bank all documents required by the Bank
            to establish and administer a lock-box account for the Accounts.
            Immediately after such lock-box account has been established, the
            Company and each Material Subsidiary shall promptly notify each
            Account Debtor in respect of any Account that any payments due or to
            become due in respect of such Account are to be made in the name of
            the Company or such Material Subsidiary to such address and post
            office box as shall be specified by the Bank.

            20. Section 8 of the Credit Agreement is hereby amended by inserting
the following new sections immediately following Section 8.18:

                  8.19 Implementation of Procedures and Systems.
                       ----------------------------------------

                  (a) In no event later than February 28, 2002, the Company and
            its Subsidiaries shall implement procedures and systems that are
            necessary to provide the Bank with the following financial
            information, all of which information shall be in form and substance
            acceptable to the Bank in its sole discretion:

                        (i) a projected income statement for the Company for
            each calendar month in calendar year 2002 and for calendar year 2002
            taken as a whole, which procedures and systems shall have the
            ability to (A) be updated monthly, (B) create revised projected
            income statements for each calendar month in calendar year 2002 and
            for calendar year 2002 taken as a whole, and (C) provide an analysis
            that compares the actual income and expenses for each line item in
            each such projection for the month then ended and year to date to
            the income and expenses that had been projected for the period being
            measured. Commencing on March 15, 2002 and continuing on the
            fifteenth (15th) day after the end of each calendar month
            thereafter, the Company shall provide such reports to the Bank by
            5:00 pm eastern time on such fifteenth day after the end of each
            calendar month, each such report being current as of the end of the
            immediately preceding calendar month.

                        (ii) a projected cash flow statement for the period
            commencing on the date of measurement and terminating thirteen weeks
            thereafter, which procedures and systems shall have the ability to
            (A) be updated weekly, (B) create revised projected cash flow
            statements for the period commencing on the date of measurement and
            terminating thirteen week thereafter, and (C) provide an analysis
            that compares the actual income and expenses for each line item in
            each such projection for the week then ended to the income and
            expenses that had been projected for such week. Commencing on the
            March 11, 2002 and continuing on each Monday thereafter, the Company
            shall provide such reports to the Bank by 5:00 pm eastern time on
            each such Monday, each such report being current as of the Friday
            immediately preceding each such Monday.


                                      -9-


                        (iii) a weekly cash receipts statement that summarizes
            all cash receipts, compares the actual cash receipts to the cash
            receipts that had been projected for that week, and identifies the
            amount of cash on hand. Commencing on March 11, 2002 and continuing
            on each Monday thereafter, the Company shall provide such reports to
            the Bank by 5:00 pm eastern time on each such Monday, each such
            report being current as of the Friday immediately preceding each
            such Monday.

                  (b) In no event later than October 1, 2002, the Company and
            its Subsidiaries shall implement procedures and systems that are
            necessary to provide the Bank with a projected income statement for
            the Company for each calendar month in calendar year 2003 and for
            calendar year 2003 taken as a whole, which procedures and systems
            shall have the ability to (A) be updated monthly, (B) create revised
            projected income statements for each calendar month in calendar year
            2003 and for calendar year 2003 taken as a whole, and (C) provide an
            analysis that compares the actual income and expenses for each line
            item in each such projection for the month then ended and year to
            date to the income and expenses that had been projected for the
            period being measured, all of which information shall be in form and
            substance acceptable to the Bank in its sole discretion. Commencing
            on January 15, 2003 and continuing on the fifteenth (15th) day after
            the end of each calendar month thereafter, the Company shall provide
            such reports to the Bank by 5:00 pm eastern time on such fifteenth
            day after the end of each calendar month, each such report being
            current as of the end of the immediately preceding calendar month.

                  8.20 Expense Reduction Report. Commencing on March 11, 2002
                       ------------------------
            and continuing on the first day of each calendar month thereafter,
            the Company shall provide to the Bank by 5:00 pm eastern time on
            each such day a report in form and substance acceptable to the Bank
            in its sole discretion that describes the progress the Company and
            its Subsidiaries have made in implementing and executing the plan to
            reduce the Company's and its Subsidiaries' consolidated operating
            expenses to an amount not greater than the Company's and its
            Subsidiaries' consolidated operating income, each such report being
            current as of the end of the immediately preceding calendar month.

                  8.21 Bank's Consultant. The Company shall cooperate fully with
                       -----------------
            the Bank's Consultant, which cooperation shall include, without
            limitation, allowing the Bank's Consultant reasonable access to
            observe the Company's and its Subsidiaries' respective operations
            and the opportunity to inspect their respective financial and other
            reports and projections. Furthermore, the Company hereby agrees to
            pay all costs and expenses arising from or in connection with the
            Bank's Consultant in accordance with the consulting agreement
            between the Company and the Bank's Consultant dated as of
            ________________ ___, 2002 and attached hereto as Exhibit I (the
                                                              ---------
            "Consulting Agreement"), and the Company hereby


                                      -10-


            irrevocably authorizes the Bank to charge any and all accounts of
            the Company maintained at the Bank for the amount of such costs and
            expenses as and when due in accordance with the Consulting
            Agreement. Any portion of such fees not paid when due shall bear
            interest at the Default Rate until paid in full.

            21. Section 9.2 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  9.2 Minimum EBITDA. The Company will not permit Consolidated
                      --------------
            EBITDA or Consolidated EBITDA to Budgeted Consolidated EBITDA to be
            less than the following amounts or percentages, as applicable,
            measured as of the end of the fiscal quarters of the Company shown
            below for the periods shown below:


                                      -11-




- ----------------------------------------------------------------------------------------
                       Budgeted               Minimum                Cumulative
Measurement Period     Consolidated EBITDA    Consolidated EBITDA    Consolidated EBITDA
========================================================================================
                                                            
March 1, 2002 to       <$2,649.00>            <$3,311.00>            N/A
and including
March 31, 2002
- ----------------------------------------------------------------------------------------
April 1, 2002 to       $280,060.00            $224,048.00            $249,670.00
and including
April 30, 2002
- ----------------------------------------------------------------------------------------
May 1, 2002 to and     $650,027.00            $520,022.00            $834,694.00
including May 31,
2002
- ----------------------------------------------------------------------------------------
June 1, 2002 to        $437,952.00            350,362.00             $1,228,851.00
and including June
30, 2002
- ----------------------------------------------------------------------------------------
July 1, 2002 to        $646,124.00            $516,899.00            $1,810,363.00
and including July
31, 2002
- ----------------------------------------------------------------------------------------
August 1, 2002 to      $604,371.00            $483,497.00            $2,354,297.00
and including
August 31, 2002
- ----------------------------------------------------------------------------------------
September 1, 2002      $391.872.00            $313,498.00            $2,706,981.00
to and including
September 30, 2002
- ----------------------------------------------------------------------------------------
October 1, 2002 to     $973,413.00            $778,730.00            $3,583,053.00
and including
October 31, 2002
- ----------------------------------------------------------------------------------------
November 1, 2002       $574,828.00            $459,862.00            $4,100,398.00
to and including
November 30, 2002
- ----------------------------------------------------------------------------------------
December 1, 2002       $617,179.00            $493,743.00            $4,655,859.00
to and including
December 31, 2002
- ----------------------------------------------------------------------------------------
January 1, 2003 to     [As set forth in       [80% of Budgeted       [90% of the sum
and including          the projected          Consolidated EBITDA    of Budgeted
January 31, 2003       income statement       for the period         Consolidated
                       required by Section    January 1, 2003 to     EBITDA for the
                       8.19(b) for the        and including          period April 1,
                       period January 1,      January 31, 2003]      2002 to and
                       2003 to and                                   including
                       including January                             January 31, 2003]
                       31, 2003]
- ----------------------------------------------------------------------------------------
February 1, 2003       [As set forth in       [80% of Budgeted       [90% of the sum
to and including       the projected          Consolidated EBITDA    of Budgeted
February 28, 2003      income statement       for the period         Consolidated
                       required by Section    February 28, 2003      EBITDA for the
                       8.19(b) for the        to and including       period April 1,
                       period February 1,     February 28, 2003]     2002 to and
                       2003 to and                                   including
                       including February                            February 28,
                       28, 2003]                                     2003]
- ----------------------------------------------------------------------------------------



                                      -12-


            22. Section 10.3 of the Credit Agreement is hereby amended by
deleting clause (i) and renumbering clauses (ii), (iii) and (iv) as clauses (i),
(ii) and (iii) respectively.

            23. Section 10.4 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  10.4 Acquisitions. Acquire, or permit any Subsidiary to
                       ------------
            acquire, in one transaction or a series of transactions, all or any
            substantial part of the capital stock (or other ownership interests)
            or assets of any other Person.

            24. Section 10 of the Credit Agreement is hereby amended by
inserting the following new section immediately following Section 10.9:

                  10.10 Capital Expenditures. Expend, or permit any of its
                        --------------------
            Subsidiaries to expend, for Capital Expenditures an amount in excess
            of $300,000 during any fiscal quarter of the Company occurring
            during the period January 1, 2002 to and including March 31, 2003.

            25. Sections 11.9 and 11.10 of the Credit Agreement are hereby
deleted in their entirety and the following two provisions are substituted in
their respective places:

                  11.9 Any default shall be made in the performance of any other
            obligation incurred in connection with any indebtedness for borrowed
            money of the Company or any Material Subsidiary aggregating $25,000
            or more, if the effect of such default is to permit the holder of
            such indebtedness (or a trustee on behalf of such holder) to cause
            it to become due prior to its stated maturity or to do so with the
            giving of notice or passage of time, or both, or any such
            indebtedness becomes due prior to its stated maturity or shall not
            be paid when due; or

                  11.10 One or more final judgments for the payment of money
            aggregating in excess of $25,000 which is or are not adequately
            insured or indemnified against shall be rendered at any time against
            the Company or any Material Subsidiary and the same shall remain
            undischarged for a period of thirty (30) days during which time
            execution shall not be effectively stayed; or

            26. Section 11.13 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  11.13 A default or an event of default shall have occurred
            under any of the other Loan Documents or under any of the Equity
            Documents; provided, however, that no such default shall constitute
            an Event of Default hereunder if the default is remedied to the
            Bank's satisfaction within any applicable grace or cure period;


                                      -13-


            27. Section 13.4 of the Credit Agreement is hereby deleted in its
entirety and the following provision is substituted in its place:

                  13.4 Notices. All notices, requests and other communications
                       -------
            to either party hereunder will be in writing and will be given at
            its address or telecopy number set forth below or such other address
            or telecopy number as such party may hereafter specify in writing
            for this purpose by notice to the other party:

                  If to the Company:

                  Comdial Corporation
                  106 Cattleman Road
                  Sarasota, Florida 34232
                  Attention: Chief Financial Officer
                  Telecopy Number: (941) 925-7989

                  With a copy to:

                  Shumaker, Loop & Kendrick, LLP
                  Bank of America Plaza
                  101 East Kennedy Boulevard
                  Suite 2800
                  Tampa, Florida 33602
                  Attention: Darrell C. Smith, Esquire
                  Telecopy Number: (813) 229-1660

                  If to the Bank:

                  Bank of America, N.A.
                  100 N. Tampa Street, Suite 1700
                  Tampa, Florida 33602
                  Attention: Daniel Langelier
                  Telecopy Number: (813) 276-7813

                  With a copy to:

                  Troutman Sanders LLP
                  1111 East Main Street, 20th Floor
                  Richmond, Virginia 23219
                  Attention: Thomas E. duB. Fauls, Esquire
                  Telecopy Number: (804) 697-1339

                  Each such notice, request or other communication will be
            effective if delivered by hand delivery or sent by telecopy,
            recognized overnight courier service or certified mail, return
            receipt requested, and shall be presumed to be


                                      -14-


            received by a party hereto (i) on the date of delivery if delivered
            by hand or sent by telecopy, (ii) on the next Business Day if sent
            by recognized overnight courier service, charges prepaid, and (iii)
            on the third Business Day following the date sent by certified mail,
            return receipt requested, postage prepaid.

            28. The Bank hereby waives all Defaults and Events of Default that
existed (i) under the Term Loan Note because of the Company's failure to pay
timely the principal installments that were due on each of September 30, 2001
and December 31, 2001, (ii) under Section 9.1 of the Credit Agreement for the
period ending December 31, 2000, (iii) under Section 9.2 of the Credit Agreement
for the periods ending March 31, 2001, June 30, 2001, September 30, 2001 and
December 31, 2001 and (iv) under Section 8.16 because the Company failed to
establish a lock-box by December 31, 2000, but the Bank expressly does not waive
any other Defaults or Events of Default that have occurred or exist as of the
date of this First Amendment or any Defaults or Events of Default that may occur
or exist after the date of this First Amendment under the Credit Agreement, as
amended by this First Amendment, or any of the other Loan Documents.

            29. Simultaneously upon the satisfaction of all of the conditions
precedent set forth in paragraph 33 of this First Amendment and the Bank's
execution and delivery of this First Amendment, the Company and the Bank agree
that the Bank shall exchange (A)(i) $7,500,000 of the indebtedness under the
Revolving Credit Loans (so that the resulting principal balance outstanding
under the Revolving Credit Loans shall be, as of the date of this First
Amendment, $8,000,000), which Revolving Credit Loans shall hereafter be
evidenced by the Replacement Revolving Credit Note, and (ii) $2,500,000 of the
indebtedness under the Term Loan (so that the resulting principal balance
outstanding under the Term Loan shall be, as of the date hereof, $4,903,874.69),
which Term Loan shall hereafter be evidenced by the Replacement Term Loan Note,
for (B) 1,000,000 shares of Series B Alternate Rate Cumulative Convertible
Redeemable Preferred Stock issued by the Company pursuant to the Equity
Documents.

            30. The Company hereby absolutely and unconditionally agrees to pay
to the Bank a fee (the "Restructuring Fee") in the amount of $150,000 in
immediately available funds with respect to this First Amendment, which
Restructuring Fee the Company hereby acknowledges and agrees is fully earned as
of the date of this First Amendment and not subject to diminution for any
reason. The Restructuring Fee shall be payable as follows: $50,000 on the date
of this First Amendment, $50,000 on April 5, 2002, and $50,000 on May 5, 2002.
If the Company shall fail to pay any portion of the Restructuring Fee in
accordance with the immediately preceding sentence, such failure shall be an
Event of Default that is not subject to any grace or cure period and the Bank
shall have all of the rights and remedies set forth in the Credit Agreement, as
amended by this First Amendment, and the other Loan Documents.

            31. The Credit Agreement is hereby amended to add a new exhibit,
which exhibit shall be in the form of Exhibit A-1 attached to this First
Amendment and shall be labeled Exhibit A-1. The Credit Agreement is hereby
                               -----------
amended to add a second new exhibit, which second exhibit shall be in the form
of Exhibit B-1 attached to this First Amendment and shall be labeled Exhibit
                                                                     -------
B-1. The Credit Agreement is hereby amended to add a third new exhibit, which
- ---


                                      -15-


third exhibit shall be in the form of Exhibit I attached to this First Amendment
                                      ---------
and shall be labeled Exhibit I.
                     ---------

            32. The Company hereby represents and warrants to the Bank (which
representations and warranties shall survive the execution and delivery of this
First Amendment) that, as of the date of the execution of this First Amendment:

                  (a) It is in compliance with all of the terms, covenants and
conditions of the Credit Agreement, as amended by this First Amendment, and each
of the other Loan Documents.

                  (b) There exists no Default or Event of Default under the
Credit Agreement, as amended by this First Amendment, that has not been
expressly waived pursuant to this First Amendment.

                  (c) Except as set forth on Schedule 1 attached hereto, the
                                             ----------
representations and warranties contained in Section 6 of the Credit Agreement
are, except to the extent that they relate solely to an earlier date, true with
the same effect as though such representations and warranties had been made on
the date of this First Amendment; and the Company further represents and
warrants that each of American Telecommunications Corp., Comdial Consumer
Communications Corporation, Comdial Custom Manufacturing Inc., Comdial
Technology Corporation, Comdial Video Telephony Inc., Telecom Technologies Inc.
and Comdial Convergent Communications, Inc. was dissolved in December, 2001.

                  (d) Each of the Company and its Subsidiaries has full
corporate power and authority and has taken all necessary corporate action to
authorize the execution, delivery and performance of this First Amendment, the
new promissory notes (in the forms attached hereto as Exhibit A-1 and Exhibit
                                                      -----------     -------
B-1, respectively, the "Replacement Revolving Credit Note" and the "Replacement
- ---
Term Loan Note," respectively), the acknowledgment of company and guarantors
attached hereto and made a part hereof as Exhibit C (the "Acknowledgment") and
                                          ---------
the Equity Documents to which it is a party. No consent or approval of the
shareholders of the Company (except for any such approval as may be required by
NASDAQ in connection with the conversion of the Series B Preferred Stock (as
defined in the Certificate of Designation)) or any of its Subsidiaries or
consent or approval of, notice to or filing with, any Governmental Authority,
securities exchange or other securities self-regulatory organization (except for
any such consent, approval, notice, or filing as may be required by the
Securities and Exchange Commission or NASDAQ in connection with the conversion
of the Series B Preferred Stock), is required as a condition to the validity of
or the performance by the Company or any of its Subsidiaries of its obligations
under this First Amendment, either of the promissory notes described in the
immediately preceding sentence, the Acknowledgment or the Equity Documents.

                  (e) This First Amendment, the Replacement Revolving Credit
Note, the Replacement Term Loan Note, the Acknowledgment and the Equity
Documents have been duly executed and delivered by the duly authorized officers
of the Company and each of its Subsidiaries party thereto, and each such
document constitutes the legal, valid and binding obligation of the Company and
the applicable Subsidiaries which are parties thereto, and is


                                      -16-


enforceable in accordance with their respective terms, except to the extent such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization and moratorium laws and similar laws relating generally to the
enforcement of creditors' rights.

                  (f) Except as disclosed on Schedule 1 attached hereto, there
                                             ----------
are no proceedings pending or, to the knowledge of the Company, threatened
before any court or administrative agency that would reasonably be expected, in
any particular case or in the aggregate, to have a material adverse effect upon
the ability of the Company or any of its Subsidiaries to perform any of its
obligations under the Credit Agreement, as amended by this First Amendment, the
Replacement Revolving Credit Note, the Replacement Term Loan Note, the
Acknowledgment, any of the other Loan Documents or any of the Equity Documents,
or could reasonably be expected to have a Material Adverse Effect.

                  (g) The execution, delivery and performance by the Company and
its Subsidiaries of this First Amendment, the Replacement Revolving Credit Note,
the Replacement Term Loan Note, the Acknowledgment and the Equity Documents in
accordance with their respective terms do not (i) require any approval of,
notice to or filing with any Governmental Authority, securities exchange or
other securities self-regulatory organization (except for any such approval,
notice, or filing as may be required by the Securities and Exchange Commission
or NASDAQ in connection with the conversion of the Series B Preferred Stock), or
violate any federal, state or local law, rule or ordinance relating to the
Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or
constitute a default under the charter, bylaws or preference stock provisions of
the Company or any of its Subsidiaries or any mortgage, indenture, contract or
agreement binding on the Company or any of its Subsidiaries or affecting any of
their respective properties or any approval of any Governmental Authority
relating to the Company or any of its Subsidiaries, or (iii) result in or
require the creation or imposition of any lien, security interest, charge or
other encumbrance (collectively, "Liens") upon or with respect to any property
now owned or hereafter acquired by the Company or any of its Subsidiaries other
than Liens arising under the Loan Documents.

                  (h) This First Amendment and the Equity Documents are not
being made or entered into with the intent to hinder, delay or defraud any
person or entity.

                  (i) Except as set forth on Schedule 1 attached hereto, no
                                             ----------
action or proceeding under any federal or state insolvency or debtor relief law,
including without limitation a voluntary or involuntary petition for bankruptcy
under any chapter of the Federal Bankruptcy Code, has been instituted or, to the
Company's knowledge, threatened against the Company or any of its Subsidiaries.

            33. The Bank's agreement to enter into this First Amendment is
subject to the following conditions precedent:

                  (a) The Company shall have executed and delivered to the Bank
this First Amendment.


                                      -17-


                  (b) The Company shall have executed and delivered the
Replacement Revolving Credit Note and the Replacement Term Loan Note in the
forms of Exhibit A-1 and Exhibit B-1, respectively, attached hereto with the
blanks therein appropriately completed.

                  (c) The Company shall have delivered to the Bank (i) certified
copies of the resolutions of its board of directors and the boards of directors
of its Subsidiaries authorizing and approving this First Amendment, the
Replacement Revolving Credit Note, the Replacement Term Loan Note, the
Acknowledgment and the Equity Documents and (ii) a certificate of incumbency for
the Company executed by the secretary of the Company and a certificate of
incumbency for each of its Subsidiaries setting forth the names of the officers
of the Company and the Subsidiaries, as applicable, that are authorized to
execute any of this First Amendment, the Replacement Revolving Credit Note, the
Replacement Term Loan Note, the Acknowledgment or the Equity Documents, together
with a specimen signature for each such officer.

                  (d) The Company and each of the Company's Subsidiaries shall
have executed and delivered to the Bank the Acknowledgment.

                  (e) The Bank shall have received favorable opinions of counsel
to the Company and the Subsidiaries addressed to the Bank, dated as of the date
hereof and satisfactory in form and substance to the Bank, as to the good
standing of each of the Company and its Subsidiaries in its state of
incorporation, the authority of each of the Company and its Subsidiaries to
transact business in the State of Florida, the due authorization, execution,
delivery and enforceability of this First Amendment, the Replacement Revolving
Credit Note, the Replacement Term Loan Note, the Acknowledgment, the Equity
Documents, certain matters associated with the Equity Documents, and such other
matters as the Bank shall request.

                  (f) The Bank shall have received payment in immediately
available funds of (i) an amount equal to all accrued but unpaid interest on the
Revolving Credit Note as of March 6, 2002, (ii) an amount equal to all accrued
but unpaid interest on the Term Loan Note as of March 6, 2002, (iii) the $50,000
portion of the Restructuring Fee that is due and payable on the date of this
First Amendment and (vi) the $50,000 L/C Fee that is due and payable on March 6,
2002.

                  (g) The Company shall have executed and delivered, and shall
have caused to be executed and delivered, all of the Equity Documents and all
other documents, instruments, opinions and other papers that the Bank deems
necessary or advisable be delivered to it or filed in connection with the
consummation of the transactions contemplated by the Equity Documents, the
Certificate of Designation shall have been adopted and become effective under
the laws of the State of Delaware, and all other conditions and matters set
forth as conditions precedent in the Equity Documents shall have occurred and be
acceptable to the Bank.

                  (h) The Company shall have paid all out-of-pocket expenses
incurred by the Bank in connection with the structuring, negotiating and
preparing of this First Amendment, the Replacement Revolving Credit Note, the
Replacement Term Loan Note, the Acknowledgment, the Equity Documents, and all
documents, instruments, agreements, opinions


                                      -18-


and other papers associated with the Equity Documents, including but not limited
to the fees and disbursements of counsel to the Bank.

                  (i) The Company and the Material Subsidiaries shall have
executed and delivered a closing statement, an aviation/international waters
closing affidavit and a tax indemnity agreement, each in form and substance
acceptable to the Bank.

                  (j) The Company shall have executed and delivered a pledge
agreement substantially in the form of the Pledge Agreement, a blank stock power
and the original share certificate or certificates for the capital stock of
Comdial Business Communications Corporation, all of which documents shall be in
form and substance acceptable to the Bank.

            34. The Company and the Bank hereby agree that this First Amendment
supercedes and replaces the April 10 Letter, and that the April 10 Letter is of
no further force or effect.

            35. Except as expressly amended hereby, the terms of the Credit
Agreement shall remain in full force and effect in all respects, and the Company
hereby reaffirms its obligations under the Credit Agreement, as amended by this
First Amendment, and each of the other Loan Documents. The Company hereby waives
any claim, cause of action, defense, counterclaim, setoff or recoupment of any
kind or nature that it may have or assert against the Bank arising from or in
connection with the Credit Agreement, as amended by this First Amendment, the
Revolving Credit Note, the Term Loan Note, the Acknowledgment, any of the other
Loan Documents, the Equity Documents or the transactions contemplated thereby or
hereby that exist on the date hereof or arise from facts or actions occurring
prior to or on the date of this First Amendment. Nothing contained in this First
Amendment shall be construed to constitute a novation with respect to any of the
obligations of the Company or any of its Subsidiaries described in the Credit
Agreement or the other Loan Documents.

            36. All references to the Credit Agreement in any of the Loan
Documents, or any other documents or instruments that refer to the Credit
Agreement, shall be deemed to be references to the Credit Agreement as amended
by this First Amendment.

            37. This First Amendment, the Replacement Revolving Credit Note, the
Replacement Term Loan Note and the Acknowledgment shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Virginia, without reference to the conflicts or choice of law principles
thereof.

            38. This First Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.

            39. This First Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
Company shall not have the right to assign any of its rights or obligations
under or delegate any of its duties under the Credit


                                      -19-


Agreement, as amended by this First Amendment, the Replacement Revolving Credit
Note, the Replacement Term Loan Note, the Acknowledgment or any of the other
Loan Documents.

            40. The Company and the Lenders hereby acknowledge and agree that
any controversy or claim between or among the parties to the Credit Agreement,
as amended by this First Amendment, the Replacement Revolving Credit Note, the
Replacement Term Loan Note, any of the other Loan Documents or the Equity
Documents, including but not limited to those arising out of or related to this
First Amendment or the Acknowledgment, shall be determined by binding
arbitration as described in Section 13.10 of the Credit Agreement. As provided
in the Credit Agreement, the Company hereby acknowledges and agrees that nothing
in Section 13.10 of the Credit Agreement shall be deemed to limit the right of
the Bank to obtain from a court provisional or ancillary remedies such as (but
not limited to) injunctive relief (including without limitation specific
performance as described in Section 14 of the Registration Rights Agreement),
writ of possession or the appointment of a trustee.

            41. The Credit Agreement, as amended by this First Amendment, the
Replacement Revolving Credit Note, the Replacement Term Loan Note, the
Acknowledgment and the other Loan Documents represent the final agreement among
the Company, its Subsidiaries and the Bank with respect to the subject matter
hereof, and may not be contradicted, modified or supplemented in any way by
evidence of any prior or contemporaneous written or oral agreements of the
Company, any of its Subsidiaries or the Bank.

                  [Remainder of page intentionally left blank]


                                      -20-


      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers under seal, all as of the day and
year first written above.

                                    COMDIAL CORPORATION


                                    By: /s/ Paul J. Suijk               SEAL)
                                    Name: Paul J. Suijk
                                    Title: Senior Vice President/Chief
                                    Financial Officer

Witness:


/s/ Ralph R. Dyer
Name: Ralph R. Dyer

                                    BANK OF AMERICA, N.A.


                                    By: /s/ Daniel Langelier            SEAL)
                                    Name: Daniel Langelier
                                    Title: Senior Vice President

Witness:


/s/ Ralph R. Dyer
Name: Ralph R. Dyer
#1035255v6


                                      -21-


                              REVOLVING CREDIT NOTE
                              ---------------------

$8,000,000.00                                                      March 6, 2002

      FOR VALUE RECEIVED, COMDIAL CORPORATION (the "Company"), a Delaware
corporation, promises to pay to the order of BANK OF AMERICA, N.A. (the "Bank")
at its office at 100 N. Tampa Street, Tampa, Florida 33602, or at such other
place as the noteholder may from time to time designate in writing, the sum of
EIGHT MILLION DOLLARS ($8,000,000.00) or such lesser amount as may have been
advanced hereunder and remain unpaid on the Revolving Credit Termination Date
(as defined in the Credit Agreement, as hereinafter defined), and to pay
interest on the unpaid balance of such sum from the date hereof at the rate or
rates, on the dates and upon the other terms and conditions contained in the
Credit Agreement.

      This Note evidences a borrowing under, is subject to the terms and
conditions of, is entitled to the benefits of, and is the Revolving Credit Note
defined in, the Amended and Restated Credit Agreement dated as of November 22,
2000, by and between the Company and the Bank, as amended by a First Amendment
to Amended and Restated Credit Agreement dated as of March 6, 2002 (as so
amended, the "Credit Agreement"). The Credit Agreement contains, among other
things, provisions for the time, place and manner of payment of this Note, the
determination of the interest rate borne by this Note, and the mandatory
repayment of this Note under certain circumstances.

      The events of default hereunder are the same as those described in the
Credit Agreement which are incorporated herein by this reference. In the event
of the occurrence of any or all of such events, the entire unpaid principal
balance of this Note together with all accrued interest may automatically
become, or may be declared, immediately due and payable in the manner and with
the effect as provided in the Credit Agreement.

      The Company agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if after default this Note is placed in the hands of
an attorney for collection, or if after default the holder finds it necessary or
desirable to secure the services or advice of an attorney with regard to
collection.

      Presentment, demand, protest and notice of dishonor are hereby waived by
all makers and endorsers hereon.

      This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Virginia, without reference to the conflicts or choice of
law principals thereof.


      IN WITNESS WHEREOF, COMDIAL CORPORATION has caused its name to be signed
to this Note by its duly authorized officer as of the date first above written.

                                COMDIAL CORPORATION


                                By: /s/ Paul K. Suijk
                                Name: Paul K. Suijk
                                Title: Chief Financial Officer

#1035630v2
200160.545


                                      -2-


                                 TERM LOAN NOTE
                                 --------------

$4,903,874.69                                                      March 6, 2002

      FOR VALUE RECEIVED, COMDIAL CORPORATION (the "Company"), a Delaware
corporation, promises to pay to the order of BANK OF AMERICA, N.A. (the "Bank")
at its office at 100 N. Tampa Street, Tampa, Florida 33602, or at such other
place as the noteholder may from time to time designate in writing, at the times
and in the manner provided in the Credit Agreement (as hereinafter defined), the
sum of FOUR MILLION NINE HUNDRED THREE THOUSAND EIGHT HUNDRED SEVENTY-FOUR AND
69/100 DOLLARS ($4,903,874.69), and to pay interest on the unpaid balance of
such sum from the date hereof at the rate or rates, on the dates and upon the
other terms and conditions contained in the Credit Agreement.

      This Note evidences a borrowing under, is subject to the terms and
conditions of, is entitled to the benefits of, and is the Term Loan Note defined
in, the Amended and Restated Credit Agreement dated as of November 22, 2000, by
and between the Company and the Bank, as amended by a First Amendment to Amended
and Restated Credit Agreement dated as of March 6, 2002 (as so amended, the
"Credit Agreement"). The Credit Agreement contains, among other things,
provisions for the time, place and manner of payment of this Note, the
determination of the interest rate borne by this Note, and the mandatory
repayment of this Note under certain circumstances.

      The events of default hereunder are the same as those described in the
Credit Agreement which are incorporated herein by this reference. In the event
of the occurrence of any or all of such events, the entire unpaid principal
balance of this Note together with all accrued interest may automatically
become, or may be declared, immediately due and payable in the manner and with
the effect as provided in the Credit Agreement.

      The Company agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if after default this Note is placed in the hands of
an attorney for collection, or if after default the holder finds it necessary or
desirable to secure the services or advice of an attorney with regard to
collection.

      Presentment, demand, protest and notice of dishonor are hereby waived by
all makers and endorsers hereon.

      This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Virginia, without reference to the conflicts or choice of
law principals thereof.


      IN WITNESS WHEREOF, COMDIAL CORPORATION has caused its name to be signed
to this Note by its duly authorized officer as of the date first above written.

                                            COMDIAL CORPORATION


                                            By: /s/ Paul K. Suijk
                                            Name: Paul K. Suijk
                                            Title: Chief Financial Officer

#1035637v2
200160.545


                                      -2-

EX-10.28

                                                                   EXHIBIT 10.28

                               COMDIAL CORPORATION

                           CERTIFICATE OF DESIGNATION

                                       OF

            SERIES B ALTERNATE RATE CUMULATIVE CONVERTIBLE REDEEMABLE

                                 PREFERRED STOCK

      Comdial Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
certifies that pursuant to the authority contained in Article THIRD of its
Certificate of Incorporation, as amended, and in accordance with the provisions
of Section 151 of the General Corporation Law of the State of Delaware, its
Board of Directors, at a meeting duly convened and held on March 6, 2002,
adopted the following resolution creating a series of its Preferred Stock, par
value $10.00, designated as Series B Alternate Rate Cumulative Convertible
Redeemable Preferred Stock:

      RESOLVED, that a series of the class of authorized Preferred Stock, par
value $10.00, of the Company be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations and restrictions thereof are as follows:

      Section 1. Designation and Amount. The shares of such series shall be
designated as the "Series B Alternate Rate Cumulative Convertible Redeemable
Preferred Stock" (hereinafter "Series B Preferred Stock") and the number of
shares constituting such series shall be 1,000,000 and no more.

      Section 2. Dividends and Distributions.

            (a) Subject to paragraph (b) of this Section 2, the holders of
shares of Series B Preferred Stock, in preference to the holders of shares of
the Company's Common Stock, par value $0.01 per share ("Common Stock"), shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds of the Company legally available for the payment of dividends, quarterly
dividends per share payable in cash in the following amounts: $0.125 on the last
day of March, $0.125 on the last day of June, $0.125 on the last day of
September, and $0.125 on the last day of December in each year (each such date
being referred to as a "Quarterly Dividend Payment Date") commencing on the
first Quarterly Dividend Payment Date which is after the date of issue of such
shares of Series B Preferred Stock; provided, however, that with respect to such
                                    -----------------
first Quarterly Dividend Payment Date, the holders of shares of Series B
Preferred Stock shall be entitled pursuant to this paragraph (a) to receive the
pro rata portion of such quarterly dividend on the basis of the number of days
elapsed between the date of issue and the first Quarterly Dividend Payment Date.
Such dividends shall be cumulative and shall accrue from the date of issue until
paid in cash.


                                       1


            (b) Alternatively, in lieu of paying a dividend on the Series B
Preferred Stock in cash, the Company shall have the option of paying any such
dividend, when paid, in shares of the Company's Common Stock at a rate equal to
two times the cash dividend rate provided in Section 2(a) above, and in any such
case the value of shares of Common Stock paid as a dividend on the Series B
Preferred Stock shall be determined as provided for in the following paragraphs:

      If the Company elects to issue the dividend in shares of Common Stock
rather than cash, the Company shall issue the holder the number of shares of
Common Stock having an aggregate Current Market Value equal to two times the
amount of the dividend payable to the holder had the Company elected that the
dividend be paid in cash, provided, however, the Company may not elect to issue
                          -----------------
dividends in shares of Common Stock if such issuance would result in the holders
of Series B Preferred Stock owning an amount of the outstanding common stock of
the Company on an as-converted basis that would require the Company to obtain
stockholder approval under NASDAQ Rule 4350(i). The "Current Market Value" for a
share of the Common Stock shall be determined as follows:

                  (i) if the Common Stock shall be listed (or admitted to
unlisted trading privileges) on any single national securities exchange, then
the Current Market Value shall be computed on the basis of the last reported
sale price of the Common Stock on such exchange on the third Business Day prior
to the Quarterly Dividend Payment Date, or if no such sale shall have occurred
on such day, then on the next Business Day prior thereto on which day a sale
occurred; or

                  (ii) if the Common Stock shall not be so listed (or admitted
to unlisted trading privileges) and bid and asked prices therefor in the
over-the-counter market shall be reported by NASDAQ, including the Nasdaq
National Market and the Nasdaq SmallCap Market, then the Current Market Value
shall be the average of the closing bid and asked prices for the five trading
days ending on the third Business Day prior to the Quarterly Dividend Payment
Date; or

                  (iii) if the Common Stock shall be listed (or admitted to
unlisted trading privileges) on more than one national securities exchange or
one or more national securities exchanges and in the over-the-counter market,
then the Current Market Value shall, if different as a result of calculation
under the applicable method(s) described above in (i) and (ii) above, be deemed
to be the higher number calculated in connection therewith; or

                  (iv) if the shares of Common Stock are traded over the
counter, but not on any national securities exchange and not in the NASDAQ
National Market System or the Nasdaq SmallCap Market System, then the Current
Market Value shall be the average of the mean bid and asked prices per share for
the five trading days ending on the third Business Day prior to the Quarterly
Dividend Payment Date, as reported by Pink Sheets LLC, or an equivalent
generally accepted reporting service; or


                                       2


                  (v) if the Common Stock shall not be so listed, admitted to
unlisted trading privileges, or traded over the counter, and such bid and asked
prices shall not be so reported, then the Current Market Value shall be the
average of the mean bid and asked prices per share for the last ten trading days
on which bid and asked prices were reported prior to the third Business Day
prior to the Quarterly Dividend Payment Date.

      The Company shall not be required to issue fractional shares of Common
Stock in connection with its election to pay the dividend in shares of Common
Stock. If any fraction of a share of Common Stock would be issuable upon the
payment of the dividend (or any specified portion thereof), the Company shall
pay an amount in cash equal to the product of (a) such fraction and (b) the
Current Market Value of a share of the Common Stock, determined as set forth
above.

            (c) Dividends paid on shares of Series B Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis to
all such shares of Series B Preferred Stock at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares of
Series B Preferred Stock entitled to receive payments of a dividend declared
thereon, which record date shall be no more than 60 days nor less than ten days
prior to the date fixed for the payment thereof.

            (d) The holders of shares of Series B Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided in
this Certificate of Designation of Series B Alternate Rate Cumulative
Convertible Redeemable Preferred Stock.

      Section 3. Required Approval. The shares of Series B Preferred Stock shall
not have any voting powers, either general or special, except as required by
applicable law and shall have approval rights as follows:

            (a) Without the approval of the holders of at least 67% of the
shares of Series B Preferred Stock at the time outstanding, the Company shall
not amend its Certificate of Incorporation to, adopt a certificate of
designation to, or otherwise (i) create any class of stock or issue any series
of Preferred Stock or any other equity security ranking prior to or in parity
with the Series B Preferred Stock as to dividends or upon liquidation; provided,
                                                                       --------
however, that such approval shall not be required if the creation or issuance of
- -------
the class or series of equity securities ranking prior to or in parity with the
Series B Preferred Stock as to dividends or upon liquidation is created or
issued in an Approved Transaction, as defined in Section 8 herein; or (ii) alter
or change any of the preferences, privileges, rights or powers of the holders of
the Series B Preferred Stock so as to affect adversely such preferences,
privileges, rights or powers.

            (b) In the event that any four consecutive quarterly dividends upon
the Series B Preferred Stock which the holders of the Series B Preferred Stock
are entitled to receive hereunder shall be in arrears and unpaid either in cash
or in-kind, the holders of Series B Preferred Stock shall have the exclusive and
special right, voting separately as a class, to elect two (2) members of the
Board of Directors or such greater number of members as is necessary to


                                       3


equal at least 20% of the total number of members of the Board of Directors at
all times thereafter.

      Section 4. Certain Restrictions. Whenever quarterly dividends payable on
shares of Series B Preferred Stock pursuant to the terms of Section 2 are in
arrears, then thereafter and until all accrued and unpaid dividends on shares of
Series B Preferred Stock outstanding shall have been paid in full or declared
and set apart for payment, the Company shall not declare or pay dividends on, or
make any other distributions on any shares of any series or class other than
Series B Preferred Stock or purchase, redeem or otherwise acquire any shares of
any series or class other than Series B Preferred Stock; provided, however, that
                                                         -----------------
such restrictions shall be deemed to be waived by the holders of the outstanding
shares of the Series B Preferred Stock if the declaration or payment of
dividends or distributions, or the repurchase, redemption or other acquisition,
is with regard to a series or class of capital stock issued in an Approved
Transaction.

      Section 5. Redemption.

            (a) The outstanding shares of Series B Preferred Stock may be
redeemed at the option of the Company, in whole or in part, at any time upon not
less than 30 days nor more than 90 days prior written notice to all holders of
record of shares of Series B Preferred Stock to be so redeemed, at a redemption
price equal to all accumulated but unpaid dividends to and including the date
fixed for redemption of such shares (the "Redemption Date") plus an amount (the
"Applicable Amount") equal to (i) during the four calendar years after the year
of issuance of the Series B Preferred Stock, $10.00 per share or (ii) during
each calendar year after the fourth year, an amount equal to the Applicable
Amount in the preceding year plus $0.50 per share; provided that the redemption
price per share for any transaction which results in the total number of shares
of Series B Preferred Stock that have been redeemed (including the shares
redeemed in such transaction) equaling at least ten percent (10%) of the total
number of shares of Series B Preferred Stock which were originally issued, and
for all subsequent transactions, shall be the same price as was in effect during
the year preceding the transaction which results in the redemption of at least
ten percent (10%) of the originally issued Series B Preferred Stock. Subject to
delivery of certificates for the shares to be redeemed, the Company shall pay
the Applicable Amount plus all accumulated but unpaid dividends on the
Redemption Date.

            (b) Unless default shall be made in the payment in full of the
redemption price and any accumulated and unpaid dividends, dividends on the
shares of Series B Preferred Stock called for redemption shall cease to
accumulate on the Redemption Date, and al1 rights of the holders of such shares
as stockholders of the Company by reason of the ownership of such shares shall
cease on the Redemption Date, except the right to receive the amount payable
upon redemption of such shares on presentation and surrender of the respective
certificates representing such shares. After the Redemption Date, such shares
shall not be deemed to be outstanding and shall not be transferable on the books
of the Company except to the Company.

            (c) At any time on or after the Redemption Date, the respective
holders of record of shares of Series B Preferred Stock to be redeemed shall be
entitled to receive the redemption price upon actual delivery to the Company of
certificates for the shares to be redeemed, such certificates, if required by
the Company, to be properly stamped for transfer and


                                       4


duly endorsed in blank or accompanied by proper instruments of transfer thereof
duly executed in blank.

      Section 6. Liquidation, Dissolution or Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of shares of the Series B Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its stockholders, before any payment shall be made to the holders of any
other class or series of capital stock of the Company, an amount equal to $10.00
per share plus an amount equal to all dividends accrued thereon to and including
the date of payment; provided, however, the holders of the Series B Preferred
Stock shall be deemed to have waived such priority of payment with regard to
another class or series of capital stock issued in an Approved Transaction.

      Section 7. Conversion.

            (a) Conversion Ratio. Each share of Series B Preferred Stock shall
be convertible at any time at the option of the holder thereof, into shares of
Common Stock. Subject to the other terms of this Section 7, the number of shares
of Common Stock deliverable upon conversion of one share of Series B Preferred
Stock shall be one and one-half (1.5) shares of Common Stock, provided, however,
in the event that while shares of Series B Preferred Stock are held by Bank of
America, N.A. or a nominee thereof the Company issues new shares of equity
securities to investors for new funding and a portion of the proceeds is used to
make a reduction in the outstanding principal amount of the Company's Term Loan,
the conversion ratio shall be adjusted as follows:

 Term Loan             Conversion            Pre Conversion           No. Shares
  Paydown                 Ratio                  Equity                Of Common
  -------                 -----                  ------                ---------
     $0                   1.5:1                  16.30%                1,500,000

$1.0 million              1.4:1                  15.22%                1,400,000

$1.5 million              1.3:1                  14.13%                1,300,000

$2.0 million              1.2:1                  13.04%                1,200,000

$2.5 million              1.0:1                  10.87%                1,000,000

$3.0 million              0.5:1                   5.43%                  500,000

For the purposes of this Section 7(a), the "Term Loan" shall mean the term loan
payable to Bank of America, N.A. in the original principal amount of
$4,903,874.69, due March 31, 2003, evidenced by a Term Loan Note dated March 6,
2002, as such term loan note may be amended, modified, renewed or replaced.

            (b) Exercise of Conversion Privilege. Each holder of outstanding
shares of Series B Preferred Stock may exercise the conversion right provided in
paragraph (a) above as to all or any portion of the shares he holds by
delivering to the Company during regular business hours, at the principal office
of the Company or at such other place as may be designated in


                                       5


writing by the Company, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or endorsed or assigned to the
Company (if required by it), accompanied by written notice stating that the
holder elects to convert such shares and stating the name or names (with address
and applicable social security or other tax identification number) in which the
certificate or certificates for shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected on the date (the "Conversion
Date") when such delivery is made. As promptly as practicable thereafter the
Company shall issue and deliver to or upon the written order of such holder, at
such office or other place designated by the Company, a certificate or
certificates for the number of shares of Common Stock to which he is entitled
and a check or other order for the payment of cash due with respect to any
fraction of a share, as provided in paragraph (c) below. The person in whose
name the certificate or certificates for shares of Common Stock are to be issued
shall be deemed to have become a shareholder of record on the Conversion Date,
unless the transfer books of the Company are closed on that date, in which event
he shall be deemed to have become a shareholder of record on the next succeeding
date on which the transfer books are open; but the Conversion Price shall be
that in effect on the Conversion Date.

            (c) No Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock upon conversion of shares of Series B
Preferred Stock. If more than one share of Series B Preferred Stock shall be
surrendered for conversion at any time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the total number of shares of Series B Preferred Stock so surrendered.
If any fractional interest in a share of Common Stock would be deliverable upon
conversion, the Company shall make an adjustment therefor in cash based on the
Current Market Value of one share of Common Stock on the Conversion Date. The
"Current Market Value" for purposes of this paragraph shall be determined as set
forth in Section 2(b), except that each reference to "Quarterly Dividend Payment
Date" in Section 2(b) shall mean "Conversion Date" for purposes of this
paragraph.

            (d) Taxes Payable on Conversion. The issuance of shares of Common
Stock on conversion of outstanding shares of Series B Preferred Stock shall be
made by the Company without charge for expenses or for any tax in respect of the
issuance of such shares of Common Stock, but the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in any name other than that of
the holder of record on the books of the Company of the outstanding shares of
Series B Preferred Stock converted, and the Company shall not be required to
issue or deliver any certificate for shares of Common Stock unless and until the
person requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.

            (e) Conversion Price Adjustments. The Conversion Price of the Series
B Preferred Stock shall be subject to adjustment from time to time as follows:

                  (i) (A) If the Company shall issue any Additional Stock (as
defined below) without consideration or for a consideration per share that is
less than the Market Price in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price


                                       6


shall forthwith (except as otherwise provided in this clause (i)) be adjusted as
to equal the price determined by the following formula:

      NP =  OP x  (P x N) + C
                 -------------
                 (P x (N + n))
where

      NP =  new Conversion Price,

      OP =  old Conversion Price,

      P  =  Market Price in effect immediately prior to the issuance of
            Additional Stock,

      N =   the number of shares of Common Stock outstanding immediately prior
            to the issuance of Additional Stock (including for this purpose the
            number of shares of Common Stock issuable upon conversion of the
            Series B Preferred Stock at the Conversion Price in effect
            immediately prior to such issuance),

      C =   the aggregate consideration to be received by the Company for the
            Additional Stock, and

      n =   the number of shares of Additional Stock to be issued.

      The "Market Price" shall mean the Current Market Value as defined in
Section 2(b) hereof, with the date of measurement under sub-clauses (i) to and
including (v) of Section 2(b) being, for the purposes of this Section 7(e), the
third Business Day prior to the Issuance Date of such Additional Stock rather
than the third Business Day prior to the Quarterly Dividend Payment Date.

                        (B) No adjustment of the Conversion Price for the Series
B Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments that are thereby not required to be made shall be
carried forward and shall be taken into account in any subsequent adjustment.
Except to the limited extent provided for in Subsection 7(e)(i)(E)(3), no
adjustment of the Conversion Price pursuant to this Subsection 7(e)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.

                        (C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts , commissions or other expenses
allowed, paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.

                        (D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.


                                       7


                        (E) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities (which are not
excluded from the definition of Additional Stock), the following provisions
shall apply:

                              (1) subject to subparagraph (4) below, the
aggregate maximum number of shares of Common Stock deliverable upon exercise of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Subsections 7(e)(i)(C) and 7(e)(i)(D)), if any, received by the Company upon the
issuance of such options or rights plus the additional consideration, if any, to
be received by the Company upon the exercise of such options or rights for the
Common Stock covered thereby;

                              (2) subject to subparagraph (4) below, the
aggregate maximum number of shares of Common Stock deliverable upon conversion
of or in exchange for any such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to subscribe for such convertible
or exchangeable securities and the subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such convertible or exchangeable
securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Company for
any such convertible or exchangeable securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by the
Company upon the conversion or exchange of such securities or the exercise of
any related options or rights (the consideration in each case to be determined
in the manner provided in Subsections 7(e)(i)(C) and 7(e)(i)(D));

                              (3) in the event of any increase in the number
shares of Common Stock deliverable upon exercise of such options or rights or
upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have been obtained had
the adjustment that was made upon the issuance of such options, rights or
securities not converted prior to such change or the options or rights related
to such securities not converted prior to such change been made upon the basis
of such change, but no further adjustment shall be made for the actual issuance
of Common Stock upon the exercise of any such options or rights or the
conversion or exchange of such securities; and

                              (4) upon the expiration of any such options or
rights, the termination of any such right s to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment that was made
upon the issuance of such options, rights or securities or options or rights
related to such securities been made upon the basis of the issuance of only the
number of shares of Common


                                       8


Stock actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.

                  (ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Subsection 7(e)(i)(E)) on any
date ("Issuance Date"), other than:

                        (A) Common Stock issued pursuant to a transaction
described in Subsection 7(e)(iii) hereof,

                        (B) Common Stock issuable or issued to directors,
employees or consultants of the Company directly or pursuant to a stock option
or other plan,

                        (C) Common Stock issued or issuable upon conversion of
any outstanding Series B Preferred Stock, and

                        (D) Common Stock issued in an Approved Transaction.

                  (iii) If the Company should at any time or from time to time
after the Issuance Date fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the applicable
Conversion Price of the Series B Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Series B Preferred Stock shall be increased in proportion to such
increase of outstanding shares.

                  (iv) If the number of shares of Common Stock outstanding at
any time after the Issuance Date is decreased by a combination or reverse stock
split of the outstanding shares of Common Stock, then, following the record date
of such combination or reverse stock split, the applicable Conversion Price of
the Series B Preferred Stock shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each share of Series B
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.

                  (v) In case of any consolidation or merger of the Company with
or into another corporation or the conveyance of all or substantially all of the
assets of the Company to another corporation, adequate provision shall be made
by the Company or by the successor or purchasing business entity so that each
share of Series B Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock deliverable upon conversion of such Series
B Preferred Stock immediately before the effectiveness of such consolidation,
merger or conveyance, would


                                       9


have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment (as determined by the Board of Directors of
the Company) shall be made in the application of the provisions herein set forth
with respect to changes in and other adjustment of the Conversion Price of the
Series B Preferred Stock) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series B Preferred Stock.

            (f) Other Distributions. If the Company shall declare a distribution
payable to holders of Common Stock in securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in Subsection 7(e) (iii), then,
in each such case for the purpose of this Subsection 7(f), the holders of the
Series B Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Company into which their shares of Series B Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Company entitled to receive such distribution.

            (g) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination, merger, sale of assets or other transaction provided for elsewhere
in this Section 7), provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion immediately before the effectiveness of such
recapitalization would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 7 with respect to the rights of the holders of the Series B
Preferred Stock after the recapitalization to the end that the provisions of
this Section 7 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series B Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.

            (h) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 7 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred Stock against impairment.

            (i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series B Preferred
Stock pursuant to this Section 7, the Company, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B Preferred Stock, by first class
mail, postage prepaid, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is


                                       10


based, including a statement setting forth (A) the consideration received or to
be received by the Company for any Additional Stock, (B) the Conversion Price
then in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of the Series B Preferred Stock.

            (j) Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
each holder of Series B Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.

            (k) Notices. Any notice required by the provisions of this Section 7
to be given to the holder of shares of Series B Preferred Stock shall be deemed
given when personally delivered to such holder or five business days after the
same has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Company.

            (l) Effect of Conversion After Certain Record Dates. If any shares
of Series B Preferred Stock are converted into shares of Common Stock after the
record date for the happening of any of the events described in subparagraphs
(i), (ii) or (iii) of Section 7(e) but before the happening of such event the
Company may defer, until the happening of such event, (i) issuing to the holder
of shares of Series B Preferred Stock so converted the shares of Common Stock
which he is entitled to receive because of the adjustments required pursuant to
any such subparagraph and (ii) paying to such holder any cash in lieu of a
fractional share pursuant to this Section 7.

            (m) Reservation of Stock Issuable on Conversion. Shares of Common
Stock issued on conversion of shares of Series B Preferred Stock shall be issued
as fully paid shares and shall be nonassessable by the Company. The Company
shall, at all times, reserve and keep available for the purpose of effecting the
conversion of the outstanding shares of Series B Preferred Stock such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of all of the outstanding shares of Series B Preferred Stock.

      Section 8. Approved Transactions. As used in Sections 3, 4, 6 and 7 of
this Certificate, the term "Approved Transaction" shall mean any transaction
entered into by the Company which results in the issuance of shares of the
Company's capital stock (or securities convertible into or exchangeable or
exercisable for shares of capital stock) to a third party so long as such
transaction shall have been approved or consented to, in either case in writing,
by a majority of the holders of the outstanding shares of Series B Preferred
Stock. The approval of or consent to such transaction shall be deemed to have
been given by such holders of a majority of the Series B Preferred Stock if such
holders shall have received a Third Party Opinion customary in form and
substance that the transaction is fair to the Company from a financial point of
view not less


                                       11


than five business days prior to the closing of such transaction. The term
"Third Party Opinion" shall mean a fairness opinion addressed to the Company's
Board of Directors and the holders of a majority of the Series B Preferred Stock
from a nationally recognized investment banking firm selected by the Company
which selection shall be subject to the approval of the holders of a majority of
the Series B Preferred Stock.

      Section 9. Transfer Restrictions. The holder of any shares of Series B
Preferred Stock shall not transfer or purport to transfer any such shares unless
he shall have given to the Company, through its Secretary, at least fifteen (15)
business days' written notice of the proposed transfer, the number of shares
proposed to be transferred, the price at which the proposed transfer is to be
made, and the name of the prospective transferee. During such fifteen (15)
business days, the Company shall have the sole option to exercise its right of
redemption consistent with the terms of Section 5 of this Certificate.

      IN WITNESS WHEREOF, Comdial Corporation has caused this Certificate of
Designation to be duly executed by Nickolas A. Branica, its President, and
attested to by Paul K. Suijk, its Secretary, and has caused the corporate seal
to be affixed hereto, this 6th day of March, 2002.

                               COMDIAL CORPORATION


                               By: /s/ Nickolas A. Branica
                                   ------------------------------------
                                   President


ATTEST:


/s/ Paul K. Suijk
- ------------------------------------
Secretary

(Corporate Seal)


1037123v4


                                       12

EX-10.29

                                                                   EXHIBIT 10.29


                                                                [EXECUTION COPY]

                          REGISTRATION RIGHTS AGREEMENT


                          REGISTRATION RIGHTS AGREEMENT

      THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into this 6th
day of March, 2002, by and between COMDIAL CORPORATION, a Delaware corporation
(the "Company") and BANK OF AMERICA, N.A., a national banking association (the
"Bank").

      WHEREAS, pursuant to that certain Preferred Stock Investment Agreement
dated on an even date herewith (the "Investment Agreement") by and between the
Company and the Bank, whereby among other things the Bank is exchanging
$10,000,000 of outstanding debt owed by the Company into shares of the Company's
Series B Alternate Rate Cumulative Convertible Redeemable Preferred Stock, par
value $10.00 per share (the "Preferred Stock").

      WHEREAS, as a condition to their willingness to enter into the Investment
Agreement, the Bank desires that the Company grant certain registration rights
with respect to the Common Stock which they may acquire upon conversion of the
Preferred Stock.

      NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Bank and the Company hereby
agree as follows:

1. Definitions.
   -----------

      As used herein:

      (a) Exchange Act. The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended.

      (b) Holder. The term "Holder" means the Bank and all other Persons holding
Registrable Securities so long as the Bank or such other Persons holds
Registrable Securities.

      (c) Registration. The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such Registration Statement.

      (d) Person. The term "Person" shall have the meaning set forth in Section
2(2) of the Securities Act.

      (e) Preferred Stock. The term "Preferred Stock" shall have the meaning set
forth in the recitals above.

      (f) Prospectus. The term "Prospectus" shall have the meaning set forth in
Section 2(10) of the Securities Act.

      (g) Registrable Securities. The term "Registrable Securities" means (i)
all shares of Common Stock issued or issuable pursuant to the conversion of the
Preferred Stock and (ii) any shares of the Common Stock of the Company or other
securities issued in connection with any stock


split, stock dividend, recapitalization or similar event relating to the
foregoing; excluding in all cases, however, any Registrable Securities sold to
the public pursuant to an effective Registration Statement or sold pursuant to
Rule 144 (or successor provision) promulgated under the Securities Act.

      (h) Registration Expenses. The term "Registration Expenses" shall mean any
and all expenses incident to the performance of or compliance by the Company
with this Agreement, including without limitation: (i) all SEC or National
Association of Securities Dealers, Inc. (the "NASD") registration and filing
fees, including, if applicable, the fees and expenses of any "qualified
independent underwriter" (and its counsel) that is required to be retained by
any Holder of Registrable Securities in accordance with the rules and
regulations of the NASD, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable fees and
disbursements of one counsel for any underwriters or Holder in connection with
blue sky qualification of any of the Registrable Securities) and compliance with
the rules of the NASD, (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus and any amendments or supplements
thereto, and in preparing or assisting in preparing, printing and distributing
any underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, (v) the fees and disbursements of counsel for the Company
and of the independent certified public accountants of the Company, including
the expenses of any "cold comfort" letters required by or incident to such
performance and compliance, (vi) the fees and expenses of any exchange agent or
custodian, (vii) all fees and expenses incurred in connection with the listing,
if any, of any of the Registrable Securities on any securities exchange or
exchanges, (viii) the reasonable fees and expenses of any special experts
retained by the Company in connection with any Registration Statement, and (v)
the reasonable fees and expenses of one special legal counsel for Holder.

      (i) Registration Statement. The term "Registration Statement" shall mean
any Registration Statement of the Company that covers any of the Registrable
Securities pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.

      (j) Securities Act. The term "Securities Act" means the Securities Act of
1933, as amended.

      (k) SEC. The term "SEC" means the Securities and Exchange Commission.

2. Registration Rights.
   -------------------

      (a) Demand Rights. If the Company receives written request from the Holder
          -------------
of the Registrable Securities that the Company file a Registration Statement
covering the Registrable Securities, then the Company shall as soon as
practicable after receipt of such request file a Registration Statement for a
public offering of all Registrable Securities which the Holder requests to be
registered (which offering may be an underwritten offering in the Company's sole
discretion) and use its best efforts to cause such Registration Statement to
become effective; provided that (i)


                                       2


the Company shall only be required to file up to four (4) such Registration
Statements (other than on Form S-3 below) pursuant to this section and (ii) the
amount of Registrable Securities to be registered shall be equal to or greater
than the lesser of (A) 250,000 shares of Common Stock and (B) a number of shares
having an anticipated aggregate public offering price (before underwriting
discounts and commissions) of not less than $250,000.

      (b) Piggyback Rights. If at any time or from time to time, the Company
          ----------------
shall determine to register any Common Stock for public sale under the
Securities Act (other than on a registration statement related to any employee
benefit plan, acquisition or corporate reorganization or registration for
foreign issuance or distribution) the Company will: (a) promptly give to the
Holder written notice thereof (which shall include a list of the jurisdictions
in which the Company intends to attempt to qualify its Common Stock under the
applicable blue sky or other state securities laws); and (b) use all
commercially reasonable efforts to cause to be included in such registration
under the Securities Act (and any related qualification under blue sky laws or
other compliance) and in any underwriting involved therein on the same terms and
conditions as the other securities included in such registration, all the
Registrable Securities specified in a written request made within 30 days after
receipt of such written notice from the Company by the Holder; except that, if,
in connection with any offering, the managing underwriter (or, in case of an
offering that is not underwritten, a nationally recognized investment banking
firm) shall advise the Company in writing that there should be a limitation on
the number of shares of Common Stock which may be included in the Registration
Statement because, in its judgment, such limitation is necessary to effect an
orderly public distribution that would not materially and adversely affect the
offering price or market price of the Common Stock, then the Company shall be
only obligated to include in such Registration Statement that number of
Registrable Securities that is in excess of the number of shares of Common Stock
the Company proposes to sell under the Registration Statement. If the
registration is initiated by the Company for its own account, the Company shall
not be required to reduce the number of shares of Common Stock to be offered by
the Company in such Registration Statement for any reason.

      (c) Form S-3. After the Company has qualified for the use of a
          --------
Registration Statement on Form S-3, in addition to the rights contained in
Section 2(a) above, the Holder shall have the right to request the Company use
its best efforts to effect a registration of the Registrable Securities on Form
S-3 (each such request to be in writing and to state the number of shares to be
disposed of and the intended methods of disposition); provided, however, that
the amount of Registrable Securities to be registered shall be equal to or
greater than the lesser of (A) 250,000 shares of Common Stock and (B) a number
of shares having an anticipated aggregate public offering price (before
underwriting discounts and commissions) of not less than $250,000.

3. Effectiveness.
   -------------

      A Registration Statement pursuant to which any Registrable Securities are
being offered will not be deemed to have become effective unless it has been
declared effective by the SEC; provided, however, that if, after it has been
                               -----------------
declared effective, the offering of the Registrable Securities pursuant to such
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. The


                                       3


Company will be deemed not to have used best efforts to cause the Registration
Statement to become, or to remain, effective during the requisite period if it
voluntarily takes any action that would result in any such Registration
Statement not being declared effective or that would result in the Holder not
being able to offer and sell the Registrable Securities during that period
unless such action is required by applicable laws and regulations or currently
prevailing interpretations of the staff of the SEC. The Company shall use best
efforts to maintain the effectiveness for up to 180 days (or such shorter period
of time as the underwriters need to complete the distribution of the registered
offering) of any Registration Statement pursuant to which any of the Registrable
Securities are being offered, and from time to time will amend or supplement
such Registration Statement and the Prospectus contained therein to the extent
necessary to comply with the Securities Act and any applicable state securities
laws or regulations. The Company shall also provide the Holder with as many
copies of the Prospectus contained in any such Registration Statement as the
Holder may reasonably request.

4. Expenses of Registration.
   ------------------------

      All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Agreement shall be borne by the
Company. Except as provided herein, the Holder shall pay all underwriters' fees,
discounts or commissions or transfer taxes, if any, relating to the sale or
disposition of the Holder's Registrable Securities.

5. Registration Procedures.
   -----------------------

      In the case of each registration, qualification, or compliance effected by
the Company pursuant to this Agreement, the Company will keep the Holder advised
in writing as to the initiation of each registration, qualification and
compliance and as to the completion thereof. At its expense, the Company will:

      (a) Prepare and file with the SEC a Registration Statement with respect to
such Registrable Securities as described in Section 2 and use its best efforts
to cause such Registration Statement to become effective and to remain effective
in accordance with Section 3 (provided that before filing a Registration
Statement or Prospectus or any amendments or supplements thereto, the Company
will furnish to the counsel selected by the Holder copies of all such documents
proposed to be filed, which documents will be subject to the review of such
counsel);

      (b) Prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective and current for a period
of not less than 180 days (plus any period during which Holders must refrain
from selling pursuant to Section 5(f)) or such shorter period which will
terminate when all Registrable Securities covered by such Registration Statement
have been sold, and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof as set forth in such Registration Statement;

      (c) Furnish to each selling Holder and to each managing underwriter, if
any, (i) at least three (3) business day prior to filing with the SEC, any
Registration Statement covering shares of Registrable Securities, and any
amendment or supplement thereto, and any Prospectus, which


                                       4


documents will be subject to the reasonable review of the selling Holders and
such underwriter, and, with respect to a Registration Statement prepared
pursuant to Section 2(a), the Company shall not file any such documents with the
SEC to which selling Holder shall reasonably object; and (ii) a copy of any and
all transmittal letters or other correspondence with the SEC or any other
governmental agency or self-regulatory body or other body having jurisdiction
(including any domestic or foreign securities exchange) relating to such
offering of shares of Registrable Securities;

      (d) (i) Furnish to the Holder, and to each underwriter, if any, without
charge, such number of copies of such Registration Statement, each amendment and
supplement thereto, the Prospectus included in such Registration Statement
(including each preliminary Prospectus), and such other documents as the Holder
or underwriters may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by the Holder; and (ii) consent to the use of
the Prospectus or any amendment or supplement thereto by the Holder of
Registrable Securities included in the Registration Statement in connection with
the offering and sale of the Registrable Securities covered by the Prospectus or
any amendment or supplement thereto;

      (e) Use its commercially reasonable best efforts to register or qualify
such Registrable Securities under all applicable securities or blue sky laws of
such jurisdictions of the United States by the time the applicable Registration
Statement is declared effective by the SEC as the Holder and any underwriters
reasonably request in writing and do any other related acts which may be
reasonably necessary or advisable to enable the Holder and underwriters to
consummate the disposition in such jurisdictions of the Registrable Securities;
provided, however, that the Company shall not be required to (i) qualify as a
- -----------------
foreign corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 5(e), (ii) file
any general consent to service of process in any jurisdiction where it would not
otherwise be subject to such service of process, or (iii) subject itself to
taxation in any such jurisdiction if it is not then so subject;

      (f) Notify the Holder, its counsel, and the managing underwriters, if any,
promptly, and promptly confirm such notice in writing, (i) at any time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which, or the fact that, the
Prospectus included in such Registration Statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the reasonable request of a majority of the Holders, the
Company will prepare a supplement or amendment to such Prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading; (ii)
when a Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (iii) of any request by the
SEC or any state securities authority for amendments and supplements to a
Registration Statement or Prospectus or for additional information after the
Registration Statement has become effective, (iv) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness of
a Registration Statement or the qualification of the Registrable Securities or
the initiation of any proceedings for that purpose, (v) if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Securities covered thereby, the representations and warranties of
the Company contained in any purchase agreement, securities sales agreement or
other similar agreement, if any, cease to be true


                                       5


and correct in all material respects, and (vi) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate;

      (g) If applicable, use its best efforts to cause all such Registrable
Securities to be listed or quoted on each securities exchange or interdealer
quotation system on which similar securities issued by the Company are then
listed or quoted;

      (h) Provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such Registration Statement;

      (i) Enter into such customary agreements (including underwriting
agreements on customary terms) and take all such other actions as the selling
Holders or the underwriters, if any, reasonably requests in order to expedite or
facilitate the disposition of such Registrable Securities;

      (j) Obtain for delivery to the Company and the managing underwriters, if
any, with copies to the Holders of the Registrable Securities being registered,
a comfort letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by comfort
letters as the Holders shall reasonably request, dated the effective date of the
Registration Statement and brought down to the closing;

      (k) If necessary, obtain a CUSIP number for the Registrable Securities not
later than the effective date of the Registration Statement; and

      (l) Make available for inspection by the selling Holder, any underwriter
participating in any disposition pursuant to such Registration Statement and any
attorney, accountant or any other agent retained by the Holder or any such
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by the Holder, any such
underwriter, attorney, accountant or agent in connection with such Registration
Statement.

      (m) Cooperate with the Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and registered in such names as the Holder or
the underwriters may reasonably request at least two Business Days prior to the
closing of any sale of Registrable Securities pursuant to such Registration
Statement;

      (n) As expeditiously as possible, upon the occurrence of any circumstance
contemplated by Section 5(f)(i), 5(f)(iii), 5(f)(iv), or 5(f)(v) hereof, use
best efforts to prepare a supplement or post-effective amendment to such
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such Prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and to notify the Holder to suspend
use of the Prospectus as promptly as practicable after the occurrence of such an
event, and the Holder hereby agrees to suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission;


                                       6


      (o) Cooperate with each seller of Registrable Securities covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD;

      (p) Make "generally available to its security holders" (within the meaning
of Rule 158 of the Securities Act) an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder no
later than 45 days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective date of
the Registration Statement, which earnings statement shall cover said 12-month
period; and

      (q) Use best efforts to take all other steps necessary to effect the
registration of the Registrable Securities covered by a Registration Statement
contemplated hereby.

6. Indemnification and Contribution.
   --------------------------------

      (a) In connection with any Registration Statement, the Company shall
indemnify and hold harmless the Holder and each underwriter who participates in
an offering of the Registrable Securities, each Person, if any, who controls any
of such parties within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and each of their respective directors, officers,
employees and agents, as follows:

            (i) from and against any and all loss, liability, claim, damage and
      expense whatsoever, joint or several, as incurred, arising out of any
      untrue statement or alleged untrue statement of a material fact contained
      in any Registration Statement (or any amendment thereto) covering
      Registrable Securities, including all documents incorporated therein by
      reference, or the omission or alleged omission therefrom of a material
      fact required to be stated therein or necessary to make the statements
      therein not misleading or arising out of any untrue statement or alleged
      untrue statement of a material fact contained in any Prospectus (or any
      amendment or supplement thereto) or the omission or alleged omission
      therefrom of a material fact necessary in order to make the statements
      therein, in the light of the circumstances under which they were made, not
      misleading;

            (ii) from and against any and all loss, liability, claim, damage and
      expense whatsoever, joint or several, as incurred, to the extent of the
      aggregate amount paid in settlement of any litigation, or any
      investigation or proceeding by any court or governmental agency or body,
      commenced or threatened, or of any claim whatsoever based upon any such
      untrue statement or omission, or any such alleged untrue statement or
      omission, if such settlement is effected with the prior written consent of
      the Company; and

            (iii) from and against any and all expenses whatsoever, as incurred
      (including reasonable fees and disbursements of counsel chosen by Holder
      or any underwriter (except to the extent otherwise expressly provided in
      Section 6(c) hereof)), incurred in investigating, preparing or defending
      against any litigation, or any investigation or proceeding by any court or
      governmental agency or body, commenced or threatened, or any claim
      whatsoever based upon any such untrue statement or omission, or any such
      alleged untrue statement or


                                       7


      omission, to the extent that any such expense is not paid under
      subparagraph (i) or (ii) of this Section 6(a);

provided, however, that (i) this indemnity does not apply to any loss,
- -----------------
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission with respect to a
Holder made in reliance upon and in conformity with written information
furnished in writing to the Company by the Holder, or any underwriter with
respect to the Holder, or any underwriter, as the case may be, expressly for use
in a Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) and (ii) the Company shall not be liable to the
Holder, any underwriter or controlling Person, with respect to any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary Prospectus to the extent that any such loss, liability, claim,
damage or expense of the Holder, any underwriter or controlling Person results
from the fact that the Holder or any underwriter, sold Registrable Securities to
a Person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final Prospectus as then amended or
supplemented if the Company had previously furnished copies thereof to the
Holder or any underwriter or controlling Person and the loss, liability, claim,
damage or expense of the Holder or underwriter, or controlling Person results
from an untrue statement or omission of a material fact contained in the
preliminary Prospectus which was corrected in the final Prospectus. Any amounts
advanced by the Company to an indemnified party pursuant to this Section 6 as a
result of such losses shall be returned to the Company if it shall be finally
determined by such a court in a judgment not subject to appeal or final review
that such indemnified party was not entitled to indemnification by the Company.

      (b) It shall be a condition to the obligation of the Company to effect a
registration of Registrable Securities under the Securities Act pursuant hereto
that each seller of Registrable Securities, severally and not jointly,
indemnifies and holds harmless the Company, any underwriter and each of their
respective directors, officers (including each officer of the Company who signed
the Registration Statement), employees and agents, any underwriter or any other
selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, from and against any and all loss, liability, claim,
damage and expense whatsoever described in the indemnity contained in Section
6(a) hereof, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in a Registration
Statement or any Prospectus in reliance upon and in conformity with written
information furnished to the Company by such selling Holder with respect to such
Holder expressly for use in such Registration Statement, or any such Prospectus;
provided that the liability of each seller of Registrable Securities pursuant to
this Section 6(b) shall not exceed an amount equal to the net proceeds of the
sale of Registrable Shares sold pursuant to such registration statement that are
received by or for the benefit of such seller of Registrable Securities.

      (c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, enclosing a copy of all papers properly served on such
indemnified party, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have under this
Section 6, except to the extent that it is materially prejudiced by such
failure. An indemnifying party may participate at its own expense in the defense
of such action, or, if it so elects within a reasonable time after receipt of
such notice, assume the defense of any suit brought to enforce any such claim;
but if it so elects to assume the defense, such defense shall be conducted by


                                       8


counsel chosen by it and approved by the indemnified party or parties, which
approval shall not be unreasonably withheld. In the event that an indemnifying
party elects to assume the defense of any such suit and retain such counsel, the
indemnified party or parties shall bear the fees and expenses of any additional
counsel thereafter retained by such indemnified party or parties; provided,
                                                                  --------
however, that the indemnified party or parties shall have the right to employ
- -------
counsel (in addition to local counsel) to represent the indemnified party or
parties who may be subject to liability arising out of any action in respect of
which indemnity may be sought against the indemnifying party if, in the
reasonable judgment of counsel for the indemnified party or parties, there may
be legal defenses available to such indemnified party or parties which are
different from or in addition to those available to the indemnifying party, in
which event the fees and expenses of appropriate separate counsel shall be borne
by the indemnifying party. In no event shall the indemnifying parties be liable
for the fees and expenses of more than one counsel (in addition to local
counsel), separate from its own counsel, for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release in form and substance satisfactory to the
indemnified parties of each indemnified party from ail liability arising out of
such litigation, investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.

      (d) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 6 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company and the Holder
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by the
Company and the Holder, as incurred; provided, that no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person that was not
guilty of such fraudulent misrepresentation. As between the Company and the
Holder, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement in such proportion as shall be appropriate to reflect the relative
fault of the Company, on the one hand, and the Holder, on the other hand, with
respect to the statements or omissions which resulted in such loss, liability,
claim, damage or expense, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of the Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by or on behalf of the
Holder, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holder agree that it would not be just and equitable if
contribution pursuant to this Section 6 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations. For purposes of this Section 6, each
affiliate of the Holder, and each director, officer, employee, agent and Person,
if any, who controls a Holder or such affiliate within the meaning of Section 15
of the Securities Act or


                                       9


Section 20 of the Exchange Act shall have the same rights to contribution as the
Holder, and each director of the Company, each officer of the Company who signed
the Registration Statement, and each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Company.

      (e) The obligations of the Company and the Holders under this Section 6
shall survive the completion of an offering of Registrable Securities pursuant
to a Registration Statement. Notwithstanding the foregoing, to the extent that
the indemnification and contribution provisions contained in the underwriting
agreement executed in connection with such Registration Statement conflict with
the foregoing provisions, the provisions in such underwriting agreement shall
control; provided that the Company will use its reasonable best efforts to
negotiate terms of indemnification that are reasonably favorable to the various
sellers pursuant thereto, as appropriate under the circumstances.

      (f) The indemnity agreements contained herein shall be in addition to any
other rights to indemnification or contribution which any indemnified party may
have pursuant to law or contract and shall remain operative and in full force
and effect regardless of any investigation made or omitted by or on behalf of
any indemnified party and shall survive the transfer of the Registrable Shares
by any such party.

      (g) The indemnification and contribution required by this Section 6 shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.

7. Information by Holder.
   ---------------------

      The Holder of Registrable Securities included in any registration shall
furnish to the Company such written information regarding Holder and the
distribution proposed by Holder as the Company may reasonably request in writing
and as shall be required in connection with any registration, qualification, or
compliance referred to in this paragraph. The Company hereby acknowledges and
agrees that, unless otherwise expressly agreed to in writing by a seller of
Registrable Securities to the contrary, for all purposes of this Agreement the
only information furnished or to be furnished to the Company for use in any such
registration statement, preliminary, final or summary prospectus or amendment or
supplement thereto are statements specifically relating to (i) transactions
between such seller of Registrable Securities and its affiliates, as that term
is defined in Rule 12b-2 of the Exchange Act ("Affiliates"), on the one hand,
and the Company, on the other hand; (ii) the beneficial ownership of shares of
the Company's Common Stock by such seller of Registrable Securities and its
Affiliates and (iii) the name and address of such seller of Registrable
Securities. If any additional information about such seller of Registrable
Securities or the plan of distribution (other than for an underwritten offering)
is required by law to be disclosed in any such document, then such seller shall
not unreasonably withhold its agreement referred to in the immediately preceding
sentence.

8. Postponement Rights.
   -------------------

      The Company shall have the right to postpone the filing (or suspend the
effectiveness) of any Registration Statement for a period of not in excess of 60
days if (A) the Company would, in the


                                       10


opinion of its counsel, be required to disclose in such registration statement a
material business situation, transaction or negotiation affecting the Company
not otherwise then required by law to be publicly disclosed and (B) in the good
faith judgment of the Board of Directors of the Company, such disclosure would
materially and adversely affect such business situation, transaction or
negotiation; provided that the Company will promptly deliver evidence of such
determination by the Board of Directors of the Company to each Holder which
shall have requested to join in such registration pursuant to Section 2;
provided, further, that the aggregate number of days of postponements and
suspensions hereunder shall not exceed 60 days during any twelve (12) month
period. The Company shall give prompt notice to each Holder of the end of any
delay period hereunder. If the Company shall give any notice of postponement or
suspension of any Registration Statement, the Company shall not, during the
period of such postponement or suspension, register any shares of the Company's
Common Stock, other than pursuant to a registration statement on Form S-4 or S-8
(or an equivalent registration form then in effect). If the Company shall give
any notice of postponement of the filing or suspension of the effectiveness of a
Registration Statement, the Company shall, at such time as the reason that
caused such postponement or suspension no longer exists (but in no event later
than 60 days after the date of the postponement or suspension), use its best
efforts to effect the registration under the Securities Act of the Registrable
Securities covered by the postponed or suspended Registration Statement. If the
Company shall postpone or suspend the filing of any Registration Statement, the
Holder or Holders who delivered the demand pursuant to Section 2(a) shall have
the right to withdraw the demand for such registration by giving notice to the
Company within 20 days of the notice of postponement or suspension. In the event
that the demand is withdrawn, such demand shall not be counted for purposes of
determining the number of registrations to which Holders are entitled hereunder.

9. Limitations on Subsequent Registration Rights.
   ---------------------------------------------

      Except in the case of an "Approved Transaction" as defined in Section 8 of
the Company's Certificate of Designation establishing the Preferred Stock, the
Company shall not grant to any holder of securities of the Company any
registration rights which have a priority greater than or equal to those granted
to Holders of Registrable Securities pursuant to Section 2 without the prior
written consent of the Holders of at least a majority of the aggregate
outstanding Registrable Securities, voting as a single group.

10. No Preferred Stock Registration Rights.
    --------------------------------------

      Nothing in this Agreement shall be construed to impose on the Company any
obligations or duties as to the registration of the Preferred Stock; provided
that holders of Preferred Stock shall be entitled to initiate or participate in
a registration pursuant to Section 2 with respect to shares of Common Stock
issuable upon conversion of shares of Preferred Stock, which shares of Preferred
Stock shall be converted into Common Stock on or before the date the
Registration Statement is declared effective by the SEC.

11. Lock-Up Agreement.
    -----------------

      Holder hereby agrees, so long as such Holder holds at least five percent
(5%) of the Company's outstanding voting equity securities, that it shall not,
to the extent requested by the


                                       11


managing underwriter of securities of the Company, sell or otherwise transfer or
dispose of any Registrable Securities or other shares of stock of the Company
then owned by such Holder (other than to donees, members or partners of the
Holder who agree to be similarly bound) for up to 90 days following the date of
the final prospectus in connection with any registration statement of the
Company filed under the Securities Act; provided, however, that such agreement
shall be applicable only to the registration statements of the Company that
cover securities to be sold on the Company's behalf to the public in an
underwritten offering but not to Registrable Securities sold pursuant to such
registration statement; provided, further, that each officer and director who
own equity securities of the Company also agrees to such restrictions. In
addition, Holder agrees to execute an agreement, in the lead underwriter's
standard form, reflecting the foregoing at the time of the underwritten
offering. The provisions of this Section shall be binding upon any transferee or
assignee of any Registrable Securities, whether or not such persons are entitled
to registration rights pursuant to this Agreement.

12. Rule 144 Reporting Obligations.
    ------------------------------

      With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Registrable Securities to the public without registration, after such time as a
public market exists for the Common Stock of the Company, the Company agrees to:

            (a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;

            (b) Use its best efforts to file with the Commission in a timely
manner, taking into account any permitted extensions of filing deadlines, all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and

            (c) So long as Holder owns any Registrable Securities, to furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time after 90
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become subject to
the reporting requirements of the Exchange Act), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the Exchange Act).

13. Legends.
    -------

      Holder understands that the share certificates evidencing any Registrable
Securities shall be endorsed with the following legends (in addition to any
legends required under applicable state securities laws):


                                       12


            (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."

            (b) "THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN INVESTOR RIGHTS AGREEMENT AND
A STOCKHOLDER AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OR HIS
PREDECESSOR IN INTEREST. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY."

            (c) Any legend required to be placed thereon by any other applicable
state securities laws and any other agreement between the parties hereto.

14. Specific Performance.
    --------------------

      The parties agree that irreparable damage will result in the event that
the obligations of the Company under this Agreement are not specifically
enforced, and that any damages available at law for a breach of any such
obligations would be inadequate. Therefore, the Holders of the Registrable
Securities shall have the right to specific performance by the Company of the
provisions of this Agreement, and appropriate injunctive relief may be applied
for and granted in connection therewith. The Company hereby irrevocably waives,
to the extent that it may do so under applicable law, any defense based on the
adequacy of a remedy at law which may be asserted as a bar to the remedy of
specific performance in any action brought against the Company for specific
performance of this Agreement by the Holders of Registrable Securities. Such
remedies and all other remedies provided for in this Agreement shall, however,
be cumulative and not exclusive and shall be in addition to any other remedies
which may be available under this Agreement.

15. Termination of Obligations.
    --------------------------

      The right of Holder to request registration or inclusion in any
registration pursuant to Section 2 hereof shall terminate on the earlier of (i)
the date on which the Holders, collectively, cease to own Registrable Securities
representing at least one percent (1%) of the outstanding Common Stock and (ii)
seven years from the date of this Agreement. Notwithstanding the foregoing, the
rights, duties and obligations of the Company and the Holders under Section 6
shall survive the termination of this Agreement.

16. Assignability.
    -------------

      This Agreement shall be binding upon and inure to the benefit of the
respective heirs, successors and assigns of the parties hereto.


                                       13


17. Changes in Capital Stock.
    ------------------------

      If, and as often as, there is any change in the Common Stock by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the shares
as so changed.

18. Governing Law.
    -------------

      This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia, without regard to the conflict of laws
provisions thereof.

19. Amendment.
    ---------

      Any modification, amendment or waiver of this Agreement or any provision
hereof shall be in writing executed by the Holders of a majority of the then
outstanding Registrable Securities and the Company. The Company shall provide
prompt notice of any such modification, amendment or waiver to all Holders of
the then outstanding Registrable Securities. Any amendment effected in
accordance with this Section 19 shall be binding upon the Company, the Bank, and
each other Holder of Registrable Securities.

20. Severability.
    ------------

      In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired thereby.

21. Successors and Assigns.
    ----------------------

      This Agreement shall inure to the benefit of and be binding upon the
successors, assigns and transferees of the Bank, including, without limitation
and without the need for an express assignment, subsequent Holders. If any
transferee of Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof.

22. Notices.
    -------

      Any notice required or permitted to be given to a party pursuant to the
provisions of this Agreement will be in writing and will be effective on (i) the
date of delivery by facsimile, or (ii) the business day after deposit with a
nationally-recognized courier or overnight service, including Express Mail, for
United States deliveries or (iii) five (5) business days after deposit in the
United States mail by registered or certified mail for United States deliveries.
All notices not delivered


                                       14


personally or by facsimile will be sent with postage and other charges prepaid
and properly addressed to the party to be notified at the address set forth
below such party's signature on this Agreement or at such other address as such
party may designate by five (5) days advance written notice to the other parties
hereto. All notices for delivery outside the United States will be sent by
facsimile, or by nationally recognized courier or overnight service. Any notice
given hereunder to more than one person will be deemed to have been given, for
purposes of counting time periods hereunder, on the date given to the last party
required to be given such notice. Notices to the Company will be marked to the
attention of the Chief Financial Officer.

23. Attorneys' Fees.
    ---------------

      If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

24. Entire Agreement.
    ----------------

      This Agreement and the other writings referred to herein contain the
entire understandings among the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to its subject matter.

25. Headings.
    --------

      The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

26. Counterparts.
    ------------

      This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.

27. Further Assurances.
    ------------------

      From and after the date of this Agreement, upon the request of a party,
the other parties shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.

                  [Remainder of Page Intentionally Left Blank]


                                       15


      IN WITNESS WHEREOF, the undersigned Holder and the Company have executed
this Agreement on the day and year first above written.


                  COMPANY: COMDIAL CORPORATION

                           By: /s/ Paul K. Suijk
                               -----------------
                           Name: Paul K. Suijk
                                 -------------
                           Title: Senior Vice President/Chief Financial Officer
                                  ---------------------------------------------


                  HOLDER:  BANK OF AMERICA, N.A.

                           By: /s/ Daniel Langelier
                               --------------------
                           Name: Daniel Langelier
                                 ----------------
                           Title: Senior Vice President
                                  ---------------------

#1038873 (Richmond)

EX-10.30

                                                                   EXHIBIT 10.30


                                 PREFERRED STOCK

                              INVESTMENT AGREEMENT

                                   dated as of

                                  March 6, 2002

                                     between

                               COMDIAL CORPORATION

                                       and

                              BANK OF AMERICA, N.A.


                                TABLE OF CONTENTS

                                                                            PAGE
ARTICLE    1    DEFINITIONS................................................ 1

ARTICLE    2    ISSUANCE AND DELIVERY OF SERIES B PREFERRED STOCK..........
                                                                            3
          2.1       Issuance of the Series B Preferred Stock............... 3
          2.2       Delivery of Certificates............................... 3

ARTICLE    3    REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............
                                                                            4

          3.1       Authorization.......................................... 4
          3.2       Valid Issuance of Preferred and Common Stock........... 4
          3.3       Private Placement Exemption............................ 4
          3.4       Incorporation of Other Representations and Warranties.. 4

ARTICLE    4    REPRESENTATIONS AND WARRANTIES OF THE BANK................. 4

ARTICLE    5    PREEMPTIVE RIGHTS.......................................... 6

          5.1       Right to Purchase...................................... 6
          5.2       Exceptions............................................. 6

ARTICLE    6    ASSIGNMENT AND AMENDMENT................................... 6

          6.1       Transfers; Third Party Beneficiaries................... 6
          6.2       Amendment.............................................. 7

ARTICLE    7    COVENANTS OF THE COMPANY................................... 7

          7.1       Access to Information.................................. 7
          7.2       Reservation of Shares of Common Stock.................. 7
          7.3       Bylaws................................................. 7
          7.4       Exchange Act Reports................................... 8
          7.5       Additional Financial Information....................... 8
          7.6       Rule 144A Information, PORTAL.......................... 9
          7.7       Rule 144 Reporting..................................... 9

ARTICLE    8    GENERAL PROVISIONS......................................... 9

          8.1       Notices................................................ 9
          8.2       Entire Agreement....................................... 10


                                       ii


          8.3       Governing Law.......................................... 10
          8.4       Severability........................................... 10
          8.5       Third Parties.......................................... 11
          8.6       Successors and Assigns................................. 11
          8.7       Captions............................................... 11
          8.8       Counterparts........................................... 11
          8.9       Costs and Attorneys' Fees.............................. 11
          8.10      Adjustment for Stock Splits, Etc....................... 11
          8.11      Aggregation of Stock................................... 11


                                      iii


                      PREFERRED STOCK INVESTMENT AGREEMENT
                      ------------------------------------

      THIS PREFERRED STOCK INVESTMENT AGREEMENT is made as of this 6th day of
March, 2002, by and between COMDIAL CORPORATION, a Delaware corporation with an
office at 106 Cattlemen Road, Sarasota, Florida 34232 (the "Company"), and BANK
OF AMERICA, N.A., a national banking association with an office at 100 N. Tampa
Street, Suite 1700, Tampa, Florida 33602 (the "Bank").

                                    RECITALS
                                    --------

      A. The Company and the Bank are parties to a Forbearance Agreement dated
as of January 28, 2002, pursuant to which the Bank agreed to forbear from the
exercise of certain of its rights and remedies under certain Loan Documents for
a period of time to provide for discussions regarding the restructuring of the
Indebtedness.

      B. The Bank has agreed to restructure the Indebtedness on the condition
that the Company, among other things, exchanges an amount of the Indebtedness
equaling $10,000,000 in return for equity issued by the Company in the form of
preferred stock.

      C. Therefore, the Company has agreed to issue to the Bank, in
consideration of the exchange of $10,000,000 of the Indebtedness, an aggregate
of 1,000,000 shares of the Company's Series B Preferred Stock, on the terms and
conditions set forth herein and in the Registration Rights Agreement of even
date herewith between the Bank and the Company. The execution of this Agreement
and the Registration Rights Agreement is a condition to the First Amendment.

                                    AGREEMENT
                                    ---------

      NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS
                                   -----------

      "144A Information" shall mean all information required by Rule
144A(d)(4)(i) of the rules and regulations promulgated under the Securities Act.

      "Accredited Investor" shall have the meaning as such term is defined in
Regulation D under the Securities Act.

      "Affiliate" shall be as defined in Rule 12b-2 promulgated under the
Exchange Act.

      "Agreement" shall mean the Preferred Stock Investment Agreement made as of
the 6th day of March, 2002, by and between Comdial Corporation and Bank of
America, N.A.


                                       1


      "Approved Stock Option Plan" shall mean (i) any stock option plan, stock
purchase plan or other stock-based incentive plan as such plan existed at the
date of this Agreement or (ii) any stock option plan, stock purchase plan or
stock based-incentive plan (or amendments to such plans) approved by the Board
of Directors or the stockholders of the Company.

      "Bank" shall mean Bank of America, N.A., a national banking association
with an office at 100 N. Tampa Street, Suite 1700, Tampa, Florida 33602.

      "Certificate" shall mean that Certificate of Designation of Series B
Alternate Rate Cumulative Convertible Redeemable Preferred Stock of the Company
dated as of March 6, 2002.

      "Commission" shall mean the United States Securities Exchange Commission.

      "Common Stock" shall mean the Bank's Common Stock, par value $.01 per
Share.

      "Company" shall mean Comdial Corporation, a Delaware corporation with an
office at 106 Cattlemen Road, Sarasota, Florida 34232.

      "Converted Common Stock" shall mean the Common Stock of the Company
issuable or issued upon the conversion of shares of Series B Preferred Stock.

      "Convertible Securities" shall mean any evidence of indebtedness, shares
of capital stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for shares of Common Stock.

      "Credit Agreement" shall mean the Amended and Restated Credit Agreement
dated as of November 22, 2000, between the Bank and the Company, as now or
hereafter amended.

      "Dividended Common Stock" shall mean that Common Stock paid by the Company
pursuant to Section 2(b) of the Certificate.

      "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

      "First Amendment" shall mean the First Amendment to Amended and Restated
Credit Agreement of even date herewith between the Bank and the Company.

      "Forbearance Agreement" shall mean the Forbearance Agreement dated as of
January 28, 2002, between the Bank and the Company.

      "Indebtedness" shall have the meaning set forth in the Forbearance
Agreement.

      "Loan Documents" shall have the meaning set forth in the Credit Agreement.


                                       2


      "PORTAL" shall mean the National Association of Securities Dealers, Inc.
system for Private Offerings Resales and Trading through Automated Linkages.

      "Proposed Offering Notice" shall have the meaning set forth in Section 6.1
of the Agreement.

      "Pro Rata Share" shall mean, as of a specified date, the percentage equal
to the fraction, the numerator of which is the number of shares of Common Stock
held by the Bank or issuable upon the conversion of Series B Preferred Stock
held by the Bank as of such date, and the denominator of which is the sum of (i)
the number of shares of Common Stock outstanding as of such date, plus (ii) the
number of shares of Common Stock issuable upon the exercise or conversion, as
applicable, of any convertible securities outstanding as of such date (but only
to the extent such convertible securities are exercisable or convertible as of
such date).

      "Registration Rights Agreement" shall mean the Registration Rights
Agreement of even date herewith between the Bank and the Company.

      "Securities Act" shall mean the Securities Act of 1933, as amended.

      "Series B Preferred Stock" shall mean the Company's Series B Alternate
Rate Cumulative Convertible Redeemable Preferred Stock, par value $10.00 per
share.

      "Shares" shall mean any shares of, or securities convertible into or
exercisable for any shares of, any class of the Company's capital stock.

      "Transaction Documents" shall mean this Agreement, the Registration Rights
Agreement and the First Amendment, each of even date herewith between the Bank
and the Company.

                                    ARTICLE 2
                ISSUANCE AND DELIVERY OF SERIES B PREFERRED STOCK
                -------------------------------------------------

      2.1 Issuance of the Series B Preferred Stock. Upon execution of this
          ----------------------------------------
Agreement, the Company, in consideration for the Bank's agreement to exchange
$10,000,000 of the Indebtedness of the Company to the Bank as provided for in
the First Amendment, shall issue to the Bank 1,000,000 shares of the Company's
Series B Preferred Stock having the rights, restrictions, privileges and
preferences set forth in the Certificate and as contained in this Agreement and
the other Transaction Documents.

      2.2 Delivery of Certificates. Subject to the execution and delivery of the
          ------------------------
other Transaction Documents and the satisfaction of all conditions precedent set
forth in Section 33 of the First Amendment, the Company agrees to deliver to the
Bank promptly following such execution and delivery of one or more certificates
duly registered in the name of the Bank or


                                       3


such nominee as the Bank may have selected, and bearing a legend as contemplated
by Article 4, Section (g) below.

                                    ARTICLE 3
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY
                  ---------------------------------------------

      The Company hereby represents and warrants to the Bank (which
representations and warranties shall survive the execution and delivery of this
Agreement):

      3.1 Authorization. All corporate action on the part of the Company, its
          -------------
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement and all other agreements contemplated hereby to
which the Company is a party, including the Transaction Documents, the
performance of all obligations of the Company hereunder and thereunder, the
adoption of the Certificate and the authorization, sale and issuance (or
reservation for issuance) of the Series B Preferred Stock and the shares of the
Converted Common Stock, has been taken. This Agreement has been validly executed
and delivered by the Company and is a valid and binding agreement of the
Company, enforceable in accordance with its terms.

      3.2 Valid Issuance of Preferred and Common Stock. The shares of Series B
          --------------------------------------------
Preferred Stock, when issued and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and will be free of restrictions on
transfer, other than restrictions on transfer contemplated by this Agreement and
the other Transaction Documents and under applicable state and federal
securities laws. The shares of Converted Common Stock and Dividended Common
Stock have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Certificate, will be duly and validly issued,
fully paid and nonassessable and will be free of restrictions on transfer, other
than restrictions on transfer contemplated by this Agreement and the other
Transaction Documents and under applicable state and federal securities laws.

      3.3 Private Placement Exemption. The offer, sale and issuance of the
          ---------------------------
shares of Series B Preferred Stock contemplated by this Agreement and the
Transaction Documents are intended to be exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and under
any applicable blue sky laws. Neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemptions.

      3.4 Incorporation of Other Representations and Warranties. The
          -----------------------------------------------------
representations and warranties of the Company set forth in Section 32 of the
First Amendment are incorporated by reference into this Agreement with the same
force and effect as if such representations and warranties were set forth
verbatim herein.

                                    ARTICLE 4
                   REPRESENTATIONS AND WARRANTIES OF THE BANK
                   ------------------------------------------

The Bank hereby represents and warrants to the Company as of the date hereof
that:


                                       4


      (a)   This Agreement has been duly and validly authorized, executed and
            delivered by the Bank and is a valid and binding agreement of the
            Bank enforceable in accordance with its terms.

      (b)   The Bank understands that the offer and sale of the Series B
            Preferred Stock is intended to be exempt from registration under the
            Securities Act pursuant to Section 4(2) of the Securities Act and
            any applicable state securities or blue sky laws. (c) The Series B
            Preferred Stock to be acquired by the Bank pursuant to this
            Agreement is being acquired for its own account and not with a view
            to the resale or distribution of such Series B Preferred Stock or
            any interest therein other than in a transaction registered under or
            exempt from registration under the Securities Act.

      (d)   The Bank is an "Accredited Investor" as such term is defined in
            Regulation D under the Securities Act.

      (e)   The Bank has sufficient knowledge and experience in financial and
            business matters so as to be capable of evaluating the merits and
            risks of its investment in the Series B Preferred Stock and the Bank
            is capable of bearing the economic risks of such investment,
            including a complete loss of its investment in the Series B
            Preferred Stock. The Bank understands that the Bank's investment in
            the Series B Preferred Stock involves a high degree of risk.

      (f)   The Bank has had access to the Company's annual report on Form 10-K
            for its most recent completed fiscal year, and all other reports or
            documents filed by the Company pursuant to the Exchange Act most
            recent completed fiscal year as well as all other materials relating
            to the current business, operations and financial condition of the
            Company, and has been given the opportunity to ask questions of, and
            receive satisfactory answers from, the Company concerning the terms
            and conditions of the Series B Preferred Stock and other related
            matters. To the Bank's knowledge, the Company has made available to
            the Bank or its agents all documents and information relating to an
            investment in the Series B Preferred Stock requested by or on behalf
            of the Bank.

      (g)   The Bank understands that the Series B Preferred Stock has not been
            and, except as provided for in the Registration Rights Agreement,
            are not being registered under the Securities Act or any state
            securities laws, and may not be offered, sold, pledged or otherwise
            transferred except as permitted pursuant to this Agreement or the
            Registration Rights Agreement.

      (h)   The Bank understands that the certificate(s) representing the Series
            B Preferred Stock and the Converted Common Stock shall bear a
            restrictive legend substantially in the form set forth in the
            Registration Rights Agreement and that the Company may instruct its
            transfer agent to not to effect the transfer of the legended
            securities unless the conditions specified in the legends are
            satisfied.

                                       5


                                    ARTICLE 5
                                PREEMPTIVE RIGHTS
                                -----------------

      5.1 Right to Purchase. Subject to the terms and conditions specified in
          -----------------
this Article 5, the Company hereby grants to the Bank a right of purchase with
respect to any future issuance or sale by the Company of its Shares. At any time
the Company proposes to offer or sell any Shares, the Company shall first offer
the Bank the right to acquire Shares in accordance with the following
provisions:

      (a)   The Company shall deliver a Proposed Offering Notice to the Bank
            stating (i) its bona fide intention to offer such Shares, (ii) the
            number of such Shares to be offered and (iii) the price and other
            terms, if any, upon which it proposes to offer such Shares.

      (b)   Within five (5) business days after delivery of the Proposed
            Offering Notice, the Bank may elect, by delivering written notice to
            the Company, to purchase or acquire, at the price and on the other
            terms specified in the Proposed Offering Notice, up to an amount of
            Shares equal to the Bank's Pro Rata Share of the total number of
            Shares being offered by the Company such that, if the Bank exercised
            its right to purchase under this Section 5.1 in full, its Pro Rata
            Share of the newly issued Shares would not have changed from its Pro
            Rata Share prior to such issuance. Any purchase of Shares by the
            Bank shall close at the same time and upon the same general
            conditions imposed by the Company on the sale of Shares to all other
            parties.

      5.2 Exceptions. Section 5.1 above shall not apply to: (i) the issuance or
sale of any equity security by the Company pursuant to a bona fide public
offering registered under the Securities Act; (ii) the issuance or sale of
Common Stock or Convertible Securities pursuant to an Approved Stock Option
Plan; (iii) the issuance of securities in connection with a bona fide business
acquisition of the Company, whether by merger, consolidation, sale of assets,
sale or exchange of stock or otherwise; (iv) the issuance of Converted Common
Stock upon conversion of the Series B Preferred Stock; (v) to stock splits,
stock dividends or like transactions; or (vi) the issuance of securities in
connection with the Company's restructuring plan.

                                    ARTICLE 6
                            ASSIGNMENT AND AMENDMENT
                            ------------------------

      6.1 Transfers; Third Party Beneficiaries. If any transferee of the Bank
          ------------------------------------
shall acquire shares of Series B Preferred Stock or Converted Common Stock
representing at least 10% of the shares held by the Bank upon consummation of
the matters contemplated by this Agreement and the other Transaction Documents
in any manner, whether by operation of law or otherwise, other than pursuant to
(i) a purchase of Converted Common Stock from the Bank in a public registered
offering made pursuant to a registration statement filed by the Company and
declared effective under the Securities Act; or (ii) from the Bank in a sale of
Converted Common Stock by the Bank pursuant to Rule 144 under the Securities
Act, such shares of Series B Preferred Stock and Converted Common Stock shall be
held subject to all of the terms of this Agreement, and by taking and holding
such shares such transferee shall be entitled to receive the benefits of this


                                       6


Agreement and shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement.

      6.2 Amendment. Any provision of this Agreement may be amended (either
          ---------
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Bank (or any of its
permitted successors or assigns) holding the majority of issued and outstanding
shares of Series B Preferred Stock or the equivalent number (on an as-converted
basis) of shares of Converted Common Stock. Any amendment effected in accordance
with this Section 6.2 shall be binding upon the Company, the Bank, and each
permitted successor or assignee.

                                    ARTICLE 7
                            COVENANTS OF THE COMPANY
                            ------------------------

      7.1 Access to Information. The Company agrees that:
          ---------------------

      (a)   After the date hereof, the Bank shall be entitled to (i) receive all
            information made available to shareholders of the Company at the
            same time as such materials are distributed to its shareholders,
            (ii) meet on a quarterly basis with members of senior management at
            reasonable times and places, and (iii) have reasonable access to the
            Company's outside auditors, in each such case, for so long as the
            Bank and any of its affiliates beneficially own shares of the Series
            B Preferred Stock and/or shares of Converted Common Stock
            representing at least 50% of the shares held by the Bank upon
            consummation of the matters contemplated by this Agreement and the
            other Transaction Documents.

      (b)   The Bank agrees that any nonpublic information furnished to the Bank
            pursuant to this Section 7.1 shall be deemed confidential
            information and shall not be used by it as the basis for any market
            transactions in the securities of the Company unless and until such
            information is made generally available to the public. The Bank
            further agrees that it will, upon learning that disclosure of such
            information is sought by a court of competent jurisdiction, give
            notice to the Company and allow the Company, at its expense, to
            undertake appropriate action to prevent disclosure of the
            information deemed confidential.

      7.2 Reservation of Shares of Common Stock. For so long as any of the
          -------------------------------------
shares of Series B Preferred Stock are outstanding, the Company shall keep
reserved for issuance a sufficient number of shares of Common Stock to satisfy
its conversion obligations under the Certificate.

      7.3 Bylaws. The Company shall at all times cause its Bylaws to provide
          ------
that, (a) unless otherwise required by the laws of the State of Delaware, the
holders of at least fifty percent (50%) of the issued and outstanding shares of
Series B Preferred Stock shall be entitled to call a special meeting of the
Board of Directors or stockholders of the Company and (b) the number of
directors fixed in accordance therewith shall in no event conflict with any of
the terms or provisions of the Series B Preferred Stock as set forth in the
Certificate. The Company shall at


                                       7


all times maintain provisions in its Bylaws or Certificate of Incorporation
indemnifying all directors against liability and absolving all directors from
liability to the Company and its stockholders to the maximum extent permitted
under the laws of the State of Delaware.

      7.4 Exchange Act Reports. The Company covenants and agrees that,
          --------------------
commencing on the date of this Agreement, and for so long as the Bank holds any
shares of Series B Preferred Stock and/or shares of Converted Common Stock of
the Company, the Company will prepare and file with the Commission on a timely
basis all documents or amendments required under the Exchange Act and the
applicable rules and regulations of the Commission thereunder. The Company
further covenants and agrees that it will provide the Bank a copy of each such
filing immediately following its filing, and as many additional copies as the
Bank shall reasonably request.

      7.5 Additional Financial Information. At all times, if any, during which
          --------------------------------
the Company is not subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act and the Bank holds any shares of Series B Preferred Stock
and/or shares of the Converted Common Stock, the Company will:

      (a) Annual Reports. Furnish to the Bank, as soon as practicable, and in
          --------------
any event within ninety (90) days after the end of each fiscal year of the
Company, a Balance Sheet as of the end of such fiscal year, a Statement of
Income and a Statement of Cash Flows of the Company for such year, setting forth
in each case in comparative form the figures from the Company's previous fiscal
year (if any), all prepared in accordance with generally accepted accounting
principles and audited by an independent certified public accounting firm
suitable to the Bank;

      (b) Quarterly Reports. Furnish to the Bank as soon as practicable, and in
          -----------------
any case within thirty (30) days of the end of each fiscal quarter of the
Company (except the last quarter of the Company's fiscal year), quarterly and
year-to-date unaudited financial statements, including an unaudited Balance
Sheet, an unaudited Statement of Income and an unaudited Statement of Cash
Flows, together with a comparison to the Company's operating plan and budget and
statements of the Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer or Controller of the Company explaining any significant
differences in the statements from the Company's operating plan and budget for
the quarter covered and stating that such statements fairly present the
financial position and financial results of the Company for the quarter covered.

      (c) Confidentiality. The Bank agrees to hold all information received
          ---------------
pursuant to this Section 7.5 in confidence, and not to use or disclose any of
such information to any third party, except to the extent such information may
be made publicly available by the Company; provided, however, that the Bank may,
in the ordinary course of business, provide the financial results of the Company
to third parties in the same manner such information is provided by the Bank
with respect to their portfolio companies; provided, further, however, that the
Bank shall obtain the prior written consent of the Company before making any
such disclosure, which consent shall not be unreasonably withheld.


                                       8


      (d) Other Information. The Company shall provide such other financial data
          -----------------
and operational information as may reasonably be requested by the Bank.

      7.6 Rule 144A Information, PORTAL. At all times during which the Company
          -----------------------------
is neither subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, the Company covenants and agrees that it will provide in written
form, upon the written request of the Bank, or a prospective purchaser of
securities of the Company from the Bank, all information required by Rule
144A(d)(4)(i) of the rules and regulations promulgated under the Securities Act.
The Company further agrees, upon written request, to cooperate with and assist
the Bank and any member of the National Association of Securities Dealers, Inc.
system for Private Offerings Resales and Trading through Automated Linkages
("PORTAL") in applying to designate and thereafter maintaining the eligibility
of the Company's securities for trading through PORTAL. With respect to each,
the Company's obligations under this Section 7.6 shall at all times be
contingent upon the Bank's obtaining from a prospective purchaser an agreement,
in form and substance reasonably satisfactory to the Company, to use its
commercially reasonable efforts to safeguard the 144A Information from
disclosure to anyone other than employees of the prospective purchaser who
require access to the 144A Information for the sole purpose of evaluating its
purchase of the Company's securities.

      7.7 Rule 144 Reporting. To make available the benefits of certain rules
          ------------------
and regulations of the Commission permitting the sale of the Series B Preferred
Stock or the Converted Common Stock to the public without registration with the
Commission, the Company agrees that for so long as its Common Stock shall be
registered under Section 12 of the Exchange Act, it will:

      (a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;

      (b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and

      (c) so long as the Bank or any permitted transferee or assignee holds any
Series B Preferred Stock or the Converted Common Stock, furnish to the holder
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of said Rule 144, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as a holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the Exchange Act).

                                    ARTICLE 8
                               GENERAL PROVISIONS
                               ------------------

      8.1 Notices. Any notice, request or other communication required or
          -------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered


                                       9


or if deposited in the U.S. mail by registered or certified mail, return receipt
requested, postage prepaid, as follows:

      (a) if to the Bank, at:          Bank of America, N.A.
                                       100 N. Tampa Street
                                       Suite 1700
                                       Tampa, Florida 33602
                                       Attention: Daniel Langelier

      with a copy to:                  Troutman Sanders LLP
      (which shall not constitute      1111 East Main Street
      notice hereunder)                P.O. Box 1122
                                       Richmond, Virginia 23218-1122
                                       Attention: Thomas E. duB. Fauls, Esquire

      (b) if to the Company, at:       Comdial Corporation
                                       106 Cattlemen Road
                                       Sarasota, Florida 34232
                                       Attention: Paul K. Suijk

      with a copy to:                  Shumaker, Loop & Kendrick, LLP
      (which shall not constitute      101 E. Kennedy Boulevard, Suite 2800
      notice hereunder)                Tampa, Florida 33602
                                       Attention: Darrell C. Smith, Esquire

Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.

      8.2 Entire Agreement. This Agreement, together with the other Transaction
          ----------------
Documents, constitutes and contains the entire agreement and understanding of
the parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.

      8.3 Governing Law. This Agreement shall be governed by a construed
          -------------
exclusively in accordance with the internal laws of the Commonwealth of
Virginia, excluding that body of law relating to conflict of laws and choice of
law.

      8.4 Severability. If one or more provisions of this Agreement are held to
          ------------
be unenforceable under applicable law, then such provision(s) shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision(s) were so excluded and shall be enforceable in accordance with
its terms.

                                       10


      8.5 Third Parties. Nothing in this Agreement, express or implied, is
          -------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.

      8.6 Successors and Assigns. Subject to the provisions of Section 6.1,
          ----------------------
provisions of this Agreement shall inure to the benefit of, and shall be binding
upon, the successors and permitted assigns of the parties hereto.

      8.7 Captions. The captions to sections of this Agreement have been
          --------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.

      8.8 Counterparts. This Agreement may be executed in two counterparts, each
          ------------
of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.

      8.9 Costs and Attorneys' Fees. In the event that any action, suit or other
          -------------------------
proceeding is instituted concerning or arising out of this Agreement or any
transaction contemplated hereunder, the prevailing party shall recover all of
such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.

      8.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement there
           ---------------------------------
is a reference to a specific number of shares of Common Stock or Series B
Preferred Stock of the Company of any class or series, then, upon the occurrence
of any subdivision, combination or stock dividend of such class or series of
stock, the specific number of shares so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.

      8.11 Aggregation of Stock. All shares held or acquired by affiliated
           --------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.

                            [SIGNATURE PAGE FOLLOWS]


                                       11


      IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date and year first above written.

                          THE COMPANY:
                          ------------

                          COMDIAL CORPORATION
                          a Delaware corporation

                          By: /s/ Paul K. Suijk
                              -----------------
                          Name: Paul K. Suijk
                                -------------
                          Title: Senior Vice President/Chief Financial Officer
                                 ---------------------------------------------


                          THE BANK:
                          ---------

                          BANK OF AMERICA, N.A.
                          a national banking association

                          By: /s/ Daniel Langelier
                              --------------------
                          Name: Daniel Langelier
                                ----------------
                          Title: Senior Vice President
                                 ---------------------

#1037120v4


                                       12

EX-21

                                                                      Exhibit 21

                        Subsidiaries of the Registrant

The following are the subsidiaries of the Registrant and all are incorporated in
the State of Delaware, except as otherwise indicated:

Array Telecom Corporation
Aurora Systems, Inc.
Comdial Business Communications Corporation
Comdial Enterprises Systems, Inc.
Comdial Real Estate Co., Inc. (incorporated in the State of Maryland)
Comdial Telecommunications International, Inc.
Key Voice Technologies, Inc.

EX-23.1

                                                                    Exhibit 23.1

              Consent of Independent Certified Public Accountants


We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-53562 and 33-50124) pertaining to the 1992 Stock Incentive
Plan and Comdial Corporation 401(k) Plan, respectively, of our report dated
March 18, 2002, with respect to the consolidated financial statements and
schedule of Comdial Corporation included in the Annual Report (Form 10-K) for
the year ended December 31, 2001.

                                                   /s/ ERNST & YOUNG LLP

Tampa, Florida
March 28, 2002

EX-23.2

                                                                    Exhibit 23.2


INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No. 33-
53562 and No. 333-50124 of Comdial Corporation on Form S-8 of our report dated
April 10, 2001 appearing in the Annual Report on Form 10-K of Comdial
Corporation for the year ended December 31, 2001.


/s/ DELOITTE & TOUCHE LLP
Richmond, Virginia
March 29, 2002

EX-24

                                                                      Exhibit 24

                               POWER OF ATTORNEY


I, Robert P. Collins, a duly elected Director of COMDIAL CORPORATION, a Delaware
corporation, do hereby constitute and appoint Paul K. Suijk, Ralph R. Dyer, and
Carla K. Luke, or any of them, my true and lawful attorneys-in-fact, each with
full power of substitution, for me and in my name, place and stead, in any and
all capacities (including without limitation, as Director of Comdial), to sign
Comdial's Annual Report on Form 10-K for the year ended December 31, 2001, which
is to be filed with the Securities and Exchange Commission, with all exhibits
thereto, and any and all documents in connection therewith, hereby granting unto
said attorney-in-fact and agent full power and authority to do and perform any
and all acts and things requisite and necessary to be done, and hereby ratifying
and confirming all that said attorney-in-fact and agent may do or cause to be
done by virtue hereof. This power of attorney shall not terminate upon my
disability.



Dated:  03/27/02

    /s/ Robert P. Collins
    Robert P. Collins


                                                                      Exhibit 24

                               POWER OF ATTORNEY


I, Nickolas A. Branica, a duly elected Director of COMDIAL CORPORATION, a
Delaware corporation, do hereby constitute and appoint Paul K. Suijk, Ralph R.
Dyer, and Carla K. Luke, or any of them, my true and lawful attorneys-in-fact,
each with full power of substitution, for me and in my name, place and stead, in
any and all capacities (including without limitation, as Director of Comdial),
to sign Comdial's Annual Report on Form 10-K for the year ended December 31,
2001, which is to be filed with the Securities and Exchange Commission, with all
exhibits thereto, and any and all documents in connection therewith, hereby
granting unto said attorney-in-fact and agent full power and authority to do and
perform any and all acts and things requisite and necessary to be done, and
hereby ratifying and confirming all that said attorney-in-fact and agent may do
or cause to be done by virtue hereof. This power of attorney shall not terminate
upon my disability.



Dated:  03/27/02

    /s/ Nickolas A. Branica
    Nickolas A. Branica


                                                                      Exhibit 24


                               POWER OF ATTORNEY


I, David P. Berg, a duly elected Director of COMDIAL CORPORATION, a Delaware
corporation, do hereby constitute and appoint Paul K. Suijk, Ralph R. Dyer, and
Carla K. Luke, or any of them, my true and lawful attorneys-in-fact, each with
full power of substitution, for me and in my name, place and stead, in any and
all capacities (including without limitation, as Director of Comdial), to sign
Comdial's Annual Report on Form 10-K for the year ended December 31, 2001, which
is to be filed with the Securities and Exchange Commission, with all exhibits
thereto, and any and all documents in connection therewith, hereby granting unto
said attorney-in-fact and agent full power and authority to do and perform any
and all acts and things requisite and necessary to be done, and hereby ratifying
and confirming all that said attorney-in-fact and agent may do or cause to be
done by virtue hereof. This power of attorney shall not terminate upon my
disability.



Dated:  03/27/02

    /s/ David P. Berg
    David P. Berg


                                                                      Exhibit 24

                               POWER OF ATTORNEY


I, Sanford Schlitt, a duly elected Director of COMDIAL CORPORATION, a Delaware
corporation, do hereby constitute and Paul K. Suijk, Ralph R. Dyer, and Carla K.
Luke, or any of them, my true and lawful attorneys-in-fact, each with full power
of substitution, for me and in my name, place and stead, in any and all
capacities (including without limitation, as Director of Comdial), to sign
Comdial's Annual Report on Form 10-K for the year ended December 31, 2001, which
is to be filed with the Securities and Exchange Commission, with all exhibits
thereto, and any and all documents in connection therewith, hereby granting unto
said attorney-in-fact and agent full power and authority to do and perform any
and all acts and things requisite and necessary to be done, and hereby ratifying
and confirming all that said attorney-in-fact and agent may do or cause to be
done by virtue hereof. This power of attorney shall not terminate upon my
disability.



Dated:  03/27/02

    /s/ Sanford Schlitt
    Sanford Schlitt