The terms of the deal as filed with the United States Bankruptcy Court for the State of Delaware include consideration paid to creditors and assumed liabilities of approximately $20 million. Vertical is obligated to close the transaction by September 28, 2005, which will require the company to obtain additional capital, most likely in the form of a combination of additional lender financing and a private issuance of the company’s common or preferred stock, on or before this date.

“Vertical’s vision is to help customers transform phone systems and voice applications from expense items and ‘infrastructure’ to business intelligence weapons that help organizations deliver exceptional customer service, dramatically reduce communications costs and significantly improve the operational efficiency of their businesses,” said Bill Tauscher, Chairman and CEO of Vertical Communications. “We are acquiring Comdial because they have excellent products, a loyal, established channel and a team of telephony experts that will add value to our company, accelerate our growth and help us realize this vision faster on behalf of our customers.”

The combination of Vertical and Comdial will create a significant player within the IP-PBX space, with the momentum to make a greater impact on the IP telephony market. With reported revenues of $39.58 million for the 12 months ended December 31, 2004, the addition of Comdial approximately doubles the size of Vertical from a revenue perspective. Since its inception in 1982, Comdial has delivered digital and IP-PBX phone systems to approximately 400,000 small and medium-sized business customers, representing more than $1 billion in installed systems. In 2004 alone, the company shipped 278,900 total PBX/IP-PBX lines. Comdial sells to SMB customers through an active channel of value-added resellers and systems integrators, and today has more than 800 authorized dealers in the US.

Vertical believes that dealers and customers will benefit from the company’s larger combined research and development spend, which will accelerate the development and delivery of next-generation products. They will also benefit from a larger consolidated marketing spend, which will allow the company to launch more robust awareness and demand generation programs designed to raise the company’s profile, increase the number of deals the company participates in, and improve the company’s win rate. In addition, the company believes that the combined Vertical and Comdial product set will create a more complete end-to-end product offering for customers.

Comdial filed for Chapter 11 reorganization on May 26, 2005 in a voluntary petition to the United States Bankruptcy Court of the State of Delaware.

For a more detailed description of the terms and conditions of the acquisition, please see the company’s form 8-K filed on September 2, 2005.