EXHIBIT 10.8

MANUFACTURING AGREEMENT

between

CORTELCO SYSTEMS, INC.

and

CMC MANUFACTURING, INC.

TABLE OF CONTENTS

PAGE

PART I PARTIES TO THE AGREEMENT........................................... 1

Section 1. Manufacturing Agreement.................................. 1

PART II PERFORMANCE........................................................ 1

Section 2. Orders and Delivery...................................... 1
Section 3. Description of Work...................................... 1
Section 4. Price.................................................... 2
Section 5. Ordering................................................. 2
Section 6. Manufacturing............................................ 3
Section 7. Tooling.................................................. 3
Section 8. Packaging................................................ 4
Section 9. Warranties............................................... 4
Section 10. Delivery................................................. 4
Section 11. Title.................................................... 4
Section 12. Acceptance or Rejections................................. 5
Section 13. Payment.................................................. 5
Section 14. Unit Repair.............................................. 6

PART III CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY................. 7

Section 15. Confidential Information................................. 7
Section 16. Intellectual Property.................................... 8

PART IV TERMS AND TERMINATION.............................................. 9

Section 17. Term of the Agreement.................................... 9
Section 18. Termination for CSI's Convenience........................ 9
Section 19. Cancellation for Default................................. 9
Section 20. Cancellation of Purchase Orders.......................... 10
Section 21. Excusable Delays......................................... 10
Section 22. Return of Materials and Right of Entry................... 11

PART V CONTRACT ADMINISTRATION............................................ 11

Section 23. Managing Coordinators.................................... 11
Section 24. Engineering Changes...................................... 11

TABLE OF CONTENTS
(CONTINUED)

PAGE

PART VI GENERAL........................................................... 12

Section 25. Order of Precedence..................................... 12
Section 26. Nonexclusive Agreement.................................. 12
Section 27. Amendments to the Agreement............................. 12
Section 29. Governing Law........................................... 12
Section 30. Liability............................................... 13
Section 31. Survival of Terms....................................... 13
Exhibit A - Telephone and Systems Pricing................................... 14
Exhibit B - Long Lead-Time Components....................................... 16

ii.

PART I. PARTIES TO THE AGREEMENT

SECTION 1. MANUFACTURING AGREEMENT

This Agreement dated August 1, 1998, is made by and between Cortelco
Systems, Inc. (hereafter referred to as "CSI") and CMC Manufacturing, Inc.
(hereafter referred to as "CMC").

PART II. PERFORMANCE

SECTION 2. ORDERS AND DELIVERY

2.1. FORECASTS. The actual authorization to perform work under this
Agreement will be given by CSI in the form of a combined "Firm Delivery and
Forecast" schedule. This forecast shall have a two months firm delivery schedule
with confirming Purchase Order and shall have an additional (4) month forecast.
CSI will have financial responsibility for those long-lead components (lead time
of 75 days or greater) listed in Exhibit B. CSI's responsibility for these
components will be limited to the quantity required consistent with the quantity
of assemblies reflected on the forecast and the individual component's stated
lead time. CSI shall not be liable for any other costs incurred by CMC in its
anticipation of product quantities in excess of the quantities set forth in the
Purchase Orders or the forecast. CSI is not responsible for any work performed
in excess of that authorized by CSI in such Purchase Orders. Furthermore, CMC
shall fulfill such requests only when a valid CSI purchase order number has been
issued by CSI.

2.2. PURCHASE ORDER(S). CSI will issue Purchase Orders with
applicable part numbers to CMC for products required in the Firm Delivery
Schedule. The Purchase Order is the authorization by CSI to offer materials,
allocate labor or equipment, or enter into any other commitments for the
assembly of the Product(s).

2.3. DELIVERY SCHEDULE. Delivery of Products hereunder shall be made
on a daily basis. The quantity of Products to be Delivered shall be determined
by the confirming Purchase Orders issued by CSI to CMC.

2.4. DELIVERY SCHEDULE CHANGES. CSI may increase or decrease the
Base Quantity for any month on Purchase Order ten percent (10%) of the Base
Quantity amount, at no additional cost to CSI, provided CSI provides notice of
such change no later than close of business of the last business day prior to
the affected month. However, the decreased quantity must be rescheduled for
delivery sometime within the forecasted time frame.

SECTION 3. DESCRIPTION OF WORK

3.1. Under this Agreement. CMC agrees to manufacture, sell and
deliver and CSI agrees to purchase Units according to the terms of this
Agreement.

3.2. The Units to be purchased under this Agreement are specifically
detailed and described in Engineering documentation (e.g. assembly stocklists
and authorized vendor lists) provided by CSI.

3.3. The Units sold to CSI under this Agreement shall be in
accordance with the CSI Purchase Order.

3.4. CMC shall order and receive component parts and subassemblies
of the Units only from CSI approved vendors.

3.5. CMC shall produce the Units in accordance with Section 6.

3.6. CMC shall conduct in-process inspections, final inspection and
perform 100% functional test of all Units prior to shipping to CSI.

3.7. CMC shall package the Units in accordance with the CSI
packaging specifications and drawings.

SECTION 4. PRICE

4.1. The price to be paid by CSI for telephone and system products
are as described in Exhibit A. This pricing will be negotiated annually. Cost
reductions initiated by either party will be implemented on a priority basis and
the price will be adjusted at the start of next fiscal quarter.

4.2. The unit price to be paid by CSI for the Units covered under
this Agreement includes all charges for the Units as specified on the CSI
Purchase Order. However, if there is a significant (greater than 5%) change in
the cost of purchased material due to unforeseen market conditions, CMC shall
provide to CSI quotes from their supplier which document the increase. CSI will
have (5) working days to approve the price change or to identify an alternate
supplier or substitute component.

4.3. All prices are expressed and all payments shall be made in U.S.
Dollar currency.

4.4. Cost reduction activities are an important part of this
Agreement. Both parties will initiate proposals for evaluation whereby
manufacturing cost can be reduced. Bi-monthly coordination meetings will be held
to identify and monitor the status of cost reduction initiatives. During the
first year of implementation, new cost reductions will be shared on a 50/50
basis. For the second and all subsequent years, 100% of the cost reduction
benefit will be provided to CSI. The annual cost savings target is to be from 3%
to 5% of the total annual purchase amount.

SECTION 5. ORDERING

5.1. CSI shall submit CSI Purchase Order(s) for Units to be
delivered within sixty (60) days. CSI shall issue such Purchase Orders(s) for
delivery of Units at least fifteen (15) days prior to the first delivery date.
The foregoing shall not prevent CSI from placing Purchase Orders for Units for
delivery in less than thirty (30) days and CMC shall make every reasonable
effort to deliver such Units on the requested schedule.

5.2. CSI will issue Purchase Order(s) and will transmit delivery
schedules to CMC. Upon receipt of a Purchase Order. CMC will acknowledge such
Purchase Order back to CSI.

5.3. CSI shall not be responsible for work performed, material
purchased or other commitments or expenses incurred by CMC other than as stated
in the Purchase Order provided by CSI, unless otherwise agreed to in writing by
both parties.

SECTION 6. MANUFACTURING

6.1. CMC shall provide all parts, labor, and material necessary to
perform CMC's obligations. Any adjustments to the price of the Unit necessitated
by a change to the specific parts, materials, or vendors resulting from an
Engineering Change Order or other notice in writing must be identified to CSI
and approved by CSI before the change is implemented. CMC agrees to manufacture
the Units according to CSI's drawing package and will not make any substitutions
without prior written consent from CSI.

6.2. CMC shall manufacture the Units to meet an outgoing quality
level set at a .65% AQL for major defects and 1.5% AQL for minor defects.
Printed circuit assemblies must conform to workmanship standard of IPC-610 Rev
B, Class II unless otherwise noted on documentation.

6.3. CSI may review CMC's performance of the work under this
Agreement including development, fabrication and tests of the Units, the design
of the tools used to produce them, and their operation.

6.4. To review the work, CSI may visit the sites where CMC performs
it. CSI shall visit the sites during normal business hours, with reasonable
notice to CMC.

6.5. No parts containing Polychlorinated Biphenyls (PCBs) or
chemicals using PCBs shall be used in the manufacturing of these Units for CSI
by CMC.

6.6. CMC shall notify CSI promptly of any errors found in drawings
and specifications required under this Agreement.

SECTION 7. TOOLING

7.1. CSI shall provide written authorization to CMC and CMC shall be
responsible for the design and order of new tooling which CSI requires. Tooling
is defined as dies, molds, in-circuit test fixtures, solder-screening stencils,
etc., which are unique in design or construction for a specific manufactured
item. Not included are standard factory equipment or hand tools which are
commonly used in the production of a variety of products.

7.2. CMC shall submit new tooling charges in accordance with CSI's
written authorization to CSI and all backup documentation associated with such
charges. Notwithstanding the foregoing, CSI may request additional information
regarding such charges in order to confirm the legitimacy of the charges. CMC
shall be paid for the production tooling. Ail tooling paid for by CSI shall be
the property of CSI.

7.3. CSI reserves the right to inspect the Tooling and all
documentation associated with such Tooling upon reasonable notice to CMC.

7.4. CMC agrees not to mortgage, sell, borrow against, lien or to
encumber any CSI owned tooling in any way.

7.5. Upon termination, cancellation or expiration of the Agreement,
CSI has the right to remove all CSI owned tooling from CMC's premises at CSI's
expense. CSI may also elect to have said tooling be destroyed by CMC in front of
a CSI witness and have the tooling disposed of at CSI's expense, if any.

SECTION 8. PACKAGING

8.1. Packaging shall conform to the CSI drawings and product
specifications. CMC shall be responsible for procurement of materials, any
testing required and obtaining CSI's approval of packaging.

8.2. All labeling and packing lists containing the purchase order
number, Unit part numbers and quantity shipped shall accompany each shipment.

SECTION 9. WARRANTIES.

9.1. CMC warrants that Units delivered to CSI by CMC hereunder shall
conform in every respect to all specifications which are a part of this
Agreement and to be free from defects in material and workmanship under normal
use and operation for a period of one hundred eighty (180) days from the date of
manufacture. Date of Manufacture is defined as one hundred eighty (180) days
prior to manufacturer's date stamp.

9.2. CMC shall, at CSI's option, either replace or repair Units
found to be defective during this warranty period with Units which conform to
the specifications which are part of this Agreement and in force at the time the
defective Units were originally delivered. In the case of replacement, CMC shall
deliver to CSI replacement Units within thirty (30) days from the date CMC
receives the defective Units from CSI.

9.3. CMC's warranty shall not apply to any defects caused by
improper use, handling, or transportation after delivery to CSI, unless
improperly packaged by CMC.

SECTION 10. DELIVERY

10.1. CMC shall deliver Units to CSI. It is the responsibility of CMC
to schedule production and delivery of all Units ordered under this Agreement to
the Sawyer Road location by the scheduled delivery date contained in the CSI
monthly deliver schedule and confirming Purchase Order.

SECTION 11. TITLE

11.1. The risk of loss and title to the Units shall pass to CSI upon
shipment.

SECTION 12. ACCEPTANCE OR REJECTIONS

12.1. CMC shall provide and maintain an inspection procedure and
quality assurance program for Units and their production processes. This
procedure shall permit CMC to meet the level of quality described in Section
6.2. Inspection records maintained by CMC, including gauge inspection and
equipment calibration, shall be made available to CSI at a reasonable time, upon
request.

12.2. CSI may inspect and test all Units prior to acceptance or
rejection, and may refuse to accept Units which do not conform to the
specifications in this Agreement. All Units shall be subject to preliminary and
final inspection by CSI. If, after thirty (30) working days from delivery of
Units, CSI has not notified CMC of rejection, the Units shall be deemed to be
accepted by CSI. The act of payment for Units shall not of itself signify CSI's
acceptance.

12.3. If CSI rejects any Units, CMC shall issue a Return
Material Authorization and repair, adjust, or replace the defective units which
fail to meet the specifications set forth in this Agreement.

SECTION 13. PAYMENT

13.1. CSI will not pay CMC for any Units or charges unless the Unit
is delivered and accepted and the charges are in accordance with an authorized
Purchase Order previously submitted to CMC by CSI.

13.2. CMC shall submit invoice(s) to CSI upon shipment of Units.
Invoice(s) shall be sent to:

Cortelco Systems, Inc.
4119 Willow Lake Boulevard
Memphis, TN 38118
Attention: Accounts Payable

13.3. Terms of payment shall be made net 45 days after shipment of
the product.

13.4. The following information is required to be clearly stated on
the invoice:

CSI Purchase Order Number
Part Number
Quantity
Terms of Payment
Unit Price
CMC Shipping Ticket Number

13.5. If CSI rejects the Units under Section 12, ACCEPTANCE OR
REJECTION, after paying for them, CMC shall honor CSI's request for refund of
payment.

13.6. The payments described in this Section 13, fully compensate CMC
for all work performed under this Agreement.

If there are any additional charges incurred by performing additional
work due to Engineering changes or other written notice that affects work-in-
process or requires modification

operations, these charges must be approved by CSI before they are incurred.
These charges will be invoiced separately.

SECTION 14. UNIT REPAIR

14.1. CSI shall return Units that are defective in accordance
to Section 9, WARRANTIES or that need repair in accordance to Section 14, UNIT
REPAIR, to:

CMC Manufacturing, Inc.
1801 Fulton Drive
Corinth, Mississippi 38834
Attn: Repair Department

14.2 CMC shall repair or replace the defective units which do not
meet the specification requirements, and return them to the address specified by
CSI.

14.3. CMC agrees to provide spare assemblies to CSI or an approved
repair center for a period of five years following the expiration or termination
of this Agreement or five (5) years following the formal "Product Abandonment"
of a product, whichever occurs earlier.

14.4. CMC shall not be responsible for the repair or replacement of a
Unit that has been improperly used and/or handled. Such Units shall be returned
to CSI as unrepairable. Units repaired under warranty shall appear and function
as if they were new. Repair of non-warranty and/or post-warranty Units shall be
in accordance with CSI instruction. Upon receipt of the returned Unit(s), CMC
shall repair and ship the Unit(s) to the location designated by CSI within
thirty (30) working days.

14.5. Units returned for defects in workmanship and/or materials
during the warranty period, as set forth in Section 9, will be repaired at no
charge to CSI. Units returned for defects are not the responsibility of CMC or
after the expiration of the warranty period, shall be paid for by CSI. Should
CMC elect to perform unauthorized repairs, CSI shall not be liable for any
resulting charges.

14.6. CMC agrees to record date codes and corrective action for all
Units returned for repair or replacement.

14.7. All Units returned to CMC for repairs must be brought up t the
latest Engineering Change (EC) level when repaired (excluding "manufacturing
only" changes), and the incremental cost to the latest EC level shall be borne
by CSI.

14.8. Upon expiration or in the event Cortelco terminates this
Agreement, CMC and CSI shall, at CSI's option, negotiate in good faith, terms
for CMC's continued repair of Units for five years from the date that the last
Unit was delivered to CSI.

PART III. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY

Section 15. CONFIDENTIAL INFORMATION

15.1. "CONFIDENTIAL INFORMATION" shall mean that information disclosed
to CMC by CSI in the course of the term of this contract which relates to CSI's
past, present, and future research, development, and business activities, and
which has been identified to CMC as being the Confidential Information of CSI.

15.2. The term "Confidential Information" shall not mean any
information which is:

(a) Already in the possession of CMC and not furnished by CSI

(b) Rightfully received from a third party without obligation
of confidence;

(d) Now, or hereafter becomes, publicly available without
breach of this Agreement; or

(e) Approved for release by written agreement of CSI.

15.3. When disclosed in writing, the information will be labeled as
"Cortelco Systems Confidential." When disclosed orally, such information will be
identified as "Cortelco System Confidential" at the time of disclosure, with
subsequent confirmation in writing referencing the date and type of information
disclosed. CMC agrees to clearly label as "Cortelco Systems Confidential" all
information reduced to writing by CMC as a result of such oral disclosures. CMC
also agrees to clearly label as "Cortelco System Confidential" all information
prepared or developed by CMC for CSI and reduced to writing by CMC which is
deliverable to CSI hereunder.

15.4. For a period of five (5) years from the date of disclosure, CMC
agrees to hold all such Confidential Information in trust and confidence for CSI
and not to use such Confidential Information other than for the benefit of CSI.
Except as may be authorized by CSI in writing, for such period of time, CMC
agrees not to disclose any such Confidential Information, by publication or
otherwise, to any person other than those persons whose services CMC requires
who have a need to know such Confidential Information for purposes of carrying
out the terms of this Agreement, and who agree in writing to be bound by, and
comply with the provisions of this Section.

15.5. CMC shall secure documents, items of work in process and work
products that embody "Cortelco Systems Confidential" Information, in locked
files or areas providing restricted access to prevent its unauthorized
disclosure.

15.6. CMC shall maintain adequate procedure to prevent loss of any
"Cortelco Systems Confidential" documents. In the event of any loss, CMC shall
notify CSI immediately.

15.7. CMC shall return to CSI all Confidential Information upon
request by CSI or upon termination or expiration of this Agreement.

15.8. CMC shall not subcontract any activity described herein as
"Cortelco Systems Confidential" Information without CSI's prior written
approval.

15.9. CSI does not wish to receive confidential information of CMC,
but in the event information disclosed by CMC to CSI is deemed confidential, CSI
will retain any such information in confidence.

SECTION 16. INTELLECTUAL PROPERTY

16.1. CMC will promptly advise CSI if it develops a reasonable basis
for believing that the delivered material and/or items may violate any
intellectual property rights of a third party.

16.2. CSI agrees to notify CMC promptly in writing of any such claim.

16.3. Manufacturing/Marketing Rights. CMC acknowledges that CSI owns
all rights to Millennium Systems and ISDN products. CSI has the right to market
said units anywhere in the world subject to the laws and regulations of any
country of impact.

16.4. Design Rights. It is acknowledged that features and
processes subsequently developed under CSI's direction and at CSI's expense are
the proprietary and confidential designs of CSI. Nothing in this Agreement shall
be construed as establishing, transferring, or otherwise conveying the rights,
interest or license in such features and processes, whether by implication,
estoppel or otherwise. It is acknowledged that the design of the Systems
products are the property of CSI and shall be held by CMC as confidential
information.

16.5. Rights in Data. All of the works and/or items prepared for or
submitted to CSI by CMC under this Agreement shall belong exclusively to CSI and
shall be prepared so as to be works made for hire according to Title 17 of the
United States Code and CMC hereby assigns to CSI the ownership of copyright in
the deliverable works and/or items and CSI shall have the right to obtain and
hold in its own name copyrights, registrations and similar protection which may
be available in the deliverable items. CMC agrees to give CSI or its designees
all assistance reasonably required to perfect such rights.

To the extent that any pre-existing materials are contained in the
deliverable items hereunder, CMC grants to CSI an irrevocable, non-exclusive,
world-wide, royalty-free license to: (1) use, execute, reproduce, display,
perform, distribute, (internally or externally) copies of, and prepare
derivative works based upon such pre-existing materials and derivative works
thereof, and (2) authorize others to do any, some, or all of the foregoing.

PART IV TERMS AND TERMINATION

SECTION 17. TERM OF THE AGREEMENT

17.1. The term of this Agreement shall commence on August 1, 1998 and
shall expire on July 31, 1999. CSI shall have the option to renew this Agreement
for additional periods of one year each. CSI shall provide CMC sixty (60) days
notice of its intention to exercise the extension option.

17.2. CSI may end this Agreement at any time without
obligation to CMC if CMC defaults in the performance hereof as described Section
20, "Cancellation For Default."

17.3. Either CSI or CMC may terminate this Agreement, without
any prior notice, in the event that the other party shall:

(a) Become insolvent or have a petition in bankruptcy,
reorganization or similar action filed by or against it;

(b) Have all or a substantial portion of its capital stock or
assets expropriated or attached by any government entity;

(d) Be subject to property attachment, court injunction, or
court order materially affecting its operations under this Agreement.

SECTION 18. TERMINATION FOR CSI'S CONVENIENCE

18.1. Either party may completely or partially terminate this
Agreement for just cause at any time, by giving ninety (90) days written notice
to the other party. The written notice shall describe the extent of termination
and its effective date.

18.2. On receiving the termination notice, CMC shall immediately stop
work to the extent acquired by the notice.

18.3. Under this Section 18, CSI shall pay CMC amounts due for Units
already completed, any unpaid tooling balance, work-in-process and components in
inventory and on order that cannot be cancelled without charge, if they were in
response to a CSI Purchase Order.

SECTION 19. CANCELLATION FOR DEFAULT

19.1. Either party's failure to perform any of its material
obligations under this Agreement shall be a default. If either party defaults,
the other party may cancel the Agreement by giving the defaulting party a
written notice of cancellation. The cancellation notice shall state the reason
for the cancellation and its effective date.

19.2. The canceling party shall have no obligation to the defaulting
party, once the Agreement is cancelled for default.

19.3. The non-defaulting party may agree to continue the Agreement
rather than canceling it. To do so, that party shall send a notice of default to
the defaulting party instead of a notice of cancellation, or to replace an
earlier notice of cancellation. The notice of default shall state the nature of
the default, and the conditions under which the non-defaulting part will agree
to continue the Agreement. By agreeing to continue the Agreement in this manner,
the non-defaulting party does not waive its right to later cancel the Agreement
for default based on the event of default that is the subject of the notice.

19.4. If CMC cancels this Agreement for default by CSI, CSI shall pay
CMC all payments for work completed, if they were in response to a Purchase
Order, on the effective date of cancellation.

19.5. If CSI cancels this Agreement for default by CMC, CSI shall pay
CMC for all work completed to the satisfaction of CSI. CMC shall deliver to CSI
all documents, information, and work in process produced in performance of this
Agreement. CMC shall also pay for any additional costs which CSI may incur in
having a third party complete the work in which CMC defaulted.

SECTION 20. CANCELLATION OF PURCHASE ORDERS

20.1. In the event of a cancellation of a Purchase Order under this
Section, CSI will pay CMC for the reasonable and allowable material cost
including importation tax, labor costs and overhead incurred prior to the
effective date of the cancellation, plus a reasonable profit (not to exceed 5%
on such materials and labor costs, and CMC will deliver to CSI all completed
Units, work-in-process, and all unique components procured on account of the
cancelled Purchase Order(s). CMC shall cease operation on subject Purchase
Orders in accordance with the cancellation notice and shall make every
reasonable effort to cancel commitments for resale of or divert materials and/or
work-in-process (with the exception of the case such resale or diversion
infringes CSI's rights under his Agreement).

In no event, however, will CSI's payment exceed the amount on the
Purchase Order for items and quantity affected.

20.2. Prior to CSI's payment, CSI may audit CMC's records at
reasonable times during normal business hours or require CMC to provide
reasonable documentation and invoices to substantiate any and all charges made
to CSI under this Section.

SECTION 21. EXCUSABLE DELAYS

21.1. Neither party shall be in default or liable to the other for
any failure to perform directly caused by events beyond that party's reasonable
control, such as acts of nature, war, insurrections, riots, acts of governments,
embargoes and unusually severe weather provided the effected party notifies the
other party within five days of the occurrence. Such an event is an Excusable
Delay. THE PARTY AFFECTED BY AN EXCUSABLE DELAY SHALL TAKE ALL REASONABLE STEPS
TO PERFORM DESPITE THE DELAY. If the party is unable to perform within a
reasonable period, this Agreement shall end without any further obligation of
the unaffected party.

SECTION 22. RETURN OF MATERIALS AND RIGHT OF ENTRY

22.1. Unless otherwise notified by CSI within one month of the date
of expiration, termination or cancellation of this Agreement, CMC shall return
to CSI all materials containing Cortelco Systems Confidential Information,
documents produced in the performance of this Agreement, work-in-process, parts,
tools and test equipment paid for, owned or supplied by CSI at CSI's expense.

10.

22.2. Right of Entry. In the event of termination of this Agreement,
CSI shall have the right to enter CMC's premises and take possession of all CSI
owned tooling or property, to file a security interest in such tooling or
property or to invoke any other legal or equitable remedy available to protect
its interest in the tolling or property.

PART V. CONTRACT ADMINISTRATION

SECTION 23. MANAGING COORDINATORS

23.1. Each party shall appoint a managing coordinator who shall be
the sole authority to communicate between the parties.

23.2. The managing coordinator shall be responsible for the
following:

(a) Check progress of production.

(b) Submitting and approving requests for Engineering Changes.

(d) Transferring information, including Cortelco Systems
Confidential Information, and recording such transfers, and

(e) Giving and receiving notices required by this Agreement.

23.3. The managing coordinators do not have authority to agree to
changes to the terms of this Agreement.

SECTION 24. ENGINEERING CHANGES

24.1. Engineering Change shall mean any mechanical, electrical,
electro-mechanical or process change to any Units, including changes originating
with CSI or CMC, which change would affect the safety, performance, cost,
reliability, serviceability, appearance, dimensions, tolerances, materials and
composition of any bill of material of the Units.

24.2. Either party may request an Engineering Change, such as a
change to the Specifications. The managing coordinator of the requesting party
shall give a written request for the Engineering Change to the managing
coordinator for the other party.

24.3. If CSI requests an Engineering Change, within thirty (30) days
of receiving the request, CMC shall report to CSI in writing, the likely effects
of the change on the Unit's performance, reliability and safety, and on
schedules and prices. If CMC requests an Engineering Change, it shall submit the
written report with the request.

24.4. CSI shall decide whether to implement an Engineering Change
within thirty (30) days of receiving the written report from CMC. CMC shall not
implement an Engineering Change without CSI's written approval. If the
Engineering Change requires a change in prices or schedules, CMC shall not
implement the Engineering Change until both parties have agreed to revised
pricing.

11.

PART VI. GENERAL

SECTION 25. ORDER OF PRECEDENCE

25.1. In the event of any inconsistency in the provisions of
the following, the order of precedence shall be as follows:

(a) This agreement without its Exhibits.

(b) Exhibits to this Agreement.

(d) Provisions specified on the face of CMC's invoices.

(e) Provisions specified on the reverse side of CMC's
invoices.

SECTION 26. NONEXCLUSIVE AGREEMENT

26.1. This Agreement does not preclude either party from entering
similar agreements with others, or from developing, manufacturing, buying or
selling any product or service.

SECTION 27. AMENDMENTS TO THE AGREEMENT

27.1. This Agreement may only be changed or supplemented by a written
amendment, signed by authorized representatives of each party.

SECTION 28. ASSIGNMENT OR DELEGATION PROHIBITED

28.1. Neither party may assign its rights or delegate its obligations
under this Agreement without the prior written approval of the other party. Any
attempted assignment or delegation without such an approval shall be void.

SECTION 29. GOVERNING LAW

29.1. This Agreement shall be governed by the laws of the State of
Tennessee.

SECTION 30. LIABILITY

30.1. In the event that CMC causes damages to CSI by breach of this
Agreement or torts including product liability, CMC shall compensate CSI for all
such damages including attorney's fees incurred by CSI.

SECTION 31. SURVIVAL OF TERMS

31.1. All obligations and duties that by thus nature survive the
expiration, cancellation, or termination of the Agreement shall remain in effect
after expiration, cancellation or termination, including Section 9 (Warranties),
14 (Unit Repair Section), 15 (Confidential

12.

Information), 16 (Intellectual Property), and shall bind the parties and their
legal representatives, successors and assigns.

CORTELCO SYSTEMS, INC.

By: /s/ J. Michael O'Dell
-----------------------------
Title: President & CEO
--------------------------
Date: 8/12/98
---------------------------

CMC MANUFACTURING, INC.

By: /s/ Al Luffoon
-----------------------------
Title: Sr. VP Program Mgm't
--------------------------
Date: 8/20/98
---------------------------

13.

EXHIBIT A -- TELEPHONE AND SYSTEMS PRICING

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PART NUMBER DESCRIPTION COST VOLUME DISCOUNT PRICING
----------- ----------- ---- -----------------------
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188990-0CL-PAK LCD DISPLAY ASSY 2X24 $ 19.78
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189127-102-PAK 200 W POWER SUPPLY BOOSTER $ 181.64
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189170-101-PAK 128 PORT -- 8 SLOT SYSTEM $ 1,943.81
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189208-101-PAK 8 ANALOG STATION BABY BDS $ 168.43 $171.28/500 $168.43/1,000 $161.28/2,000
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189209-101-PAK 8 ICLID BABY BDS $ 104.99
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189610-102-PAK 256 PORT -- 16 SLOT SYSTEM $ 2,596.62
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189615-101-PAK 256 PORT -- 16 SLOT SYSTEM TBD
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189648-0CL-PAK 4X40 LCD DISPLAY $ 48.62
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189865-101-PAK 4-SLOT SHELF ASSY $ 363.77 $515.60/25 $431.89/50 $363.77/100 $331.07/200
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500002-536-002 DIGITAL LINE CARD $ 267.29
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500004-536-002 SYSTEM CONTROLLER PCB $ 414.21
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500005-017-001 BASE SUPPORT KIT $ 31.63
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500012-536-002 ANALOG LINE CARD PCB TBD
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500013-000-101 3100 INTERFACE CARD $ 397.17
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500025-000-101 T-1 MASTER CLOCK $ 249.22
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500025-000-102 E-1 CLOCK CARD OPTION $ 249.22
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500026-000-101 SLAVE CONCENTRATOR $ 255.16
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500027-000-101 MASTER CONCENTRATOR $ 399.21
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500035-536-002 ICLID BABY BOARD $ 13.60
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500040-000-101 INTEGRATED NT1 $ 92.53
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500045-000-101 COMMON SERVICES II $ 318.95
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500054-000-102 200 W POWER SUPPLY W/RIN $ 638.65
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500054-000-103 400 W POWER SUPPLY W/RIN $ 805.26
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500054-000-205 200 W 36-76 POWER SUPPLY $ 523.27
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500055-000-101 RING GENERATOR PIGGY-BACK $ 44.50
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500057-000-101 8 SLOT CABINET $ 347.04
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500057-000-202 128 PORT CABINET -- 8 SLOT $ 336.04
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500058-000-101 DUAL SHELF BUS. BOARD $ 53.95
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500059-000-101 JUMPER B. PLANE $ 54.93
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500060-000-101 256 PORT CABINET/16 SLOT $ 874.28
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500063-000-101 METERING TK (8 PACK) $ 314.05
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500066-000-101 TONE DETECT (8 PACK) $ 205.26
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500081-000-101 FIBER INTERFACE CARD $ 417.78
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500082-000-101 REMOTE FIBER INTERFACE C $ 322.94
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500084-000-101 T-1 CARD GEN II $ 449.80
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500084-000-102 E-1 CARD GEN II $ 449.80
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500084-000-103 E-1 CARD (75 OHM) $ 551.56
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5000CL-751-101 LCD DISPLAY 2X24 TBD
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5001CL-751-101 LCD DISPLAY 4X40 TBD
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500200-000-101 MOTHERBOARD-CAGE ASSY $ 91.59 @25
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500200-800-102 32 PORT SYSTEM (MILLENNIUM) $ 909.59
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500200-800-103 48 PORT SYSTEM (MILLENNIUM) $ 1,049.45
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500200-800-104 64 PORT SYSTEM (MILLENNIUM) $ 1,128.02
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500201-000-101 MAIN CNTIR PCB ASSY $ 354.75 @25
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500203-000-101 S-LOOP PCB ASSY $ 63.96 @100
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500204-000-101 TRUNK PCB ASSY $ 138.23 @100
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500205-000-101 STATION PCB ASSY $ 110.41 @100
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500206-000-101 RS-232 $ 35.86 @100
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500206-704-101 EXP. CABINET (1 CARD CAGE) $ 190.60
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500207-000-101 PAGING $ 21.92 @100
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500209-000-101 DTMF REGISTER PCB ASSY $ 38.59 @100
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500210-000-101 RING GENERATOR $ 32.05 @50
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14.

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500211-000-101 POWER SUPPLY, 110V $ 101.27 @50
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500215-000-101 TERMINATOR BOARD $ 24.82 @50
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500219-000-111 POWER SUPPLY, 110/220 $ 154.46 @50
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500300-760-101 EXTERNAL NT 1 $ 92.53
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5006CL-750-100 6 BUTTON TELEPHONE $ 78.85
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5012CL-750-100 12 BUTTON TELEPHONE $ 86.22
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5030CL-750-100 NEW 30 BTN MILL TEL $ 126.36
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9118CL-MOE-20E 18 BTN CORTELCO/M $ 105.09
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9130CL-MOE-20E 30 BTN CORTELCO/M $ 136.73
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9148CL-MOE-20E DSS/BLF CORTELCO $ 70.58
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CI1800-MOE-25U ISDN 18 BTN W/DISPLAY $ 144.34
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CI3000-MOE-25U ISDN 30 BTN W/DISPLAY $ 174.51
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15.

EXHIBIT B -- LONG LEAD-TIME COMPONENTS

PART NUMBER DESCRIPTION LEAD-TIME

500132415801 IC 150
500000422603 IC 150
500151415031 IC 150
500145415801 IC 150
500086415601 RING DETECTOR 150
500027415801 IC 150
500140415661 IC 150
500014415001 IC 150
500025415601 IC 150
500034415801 IC 150
500011373001 IC 150
500157415601 IC 150
500068415801 IC 150
500013415811 IC 150
500126415801 IC 150
183822101COM OPTO ISOLATOR 150
500005373002 IC 150
500046415801 IC 150
500002373601 OPTO COUPLER 150
500112415001 IC 150
500067415801 IC 150
500097415082 IC 150
500102415001 IC 150
500079415601 IC 150
600192410001 DOD SUPPRESSOR 120
600061411014 DOD SUPPRESSOR 120
600061411105 DOD SUPPRESSOR 120
500003396001 SURGE SUPPRESSOR 120
500027416001 DOD MUR1620CT 120
500003396002 SIDACTOR 120
500016416001 BRIDGE RECT 120
500003396201 TRANSIENT SUPPRESS 120
600102416001 DOD SUPPRESSOR 120
600197410003 DOD 120
500009416108 DIODE 120
600033416004 DIODE 120
500025416027 DOD 120
600033411061 DIODE 120
500019416001 XSTR 120
500007416001 DIODE 120
600033411048 DIODE 120
500005413001 XSTR 120
183611180COM CRYSTAL 120

16.

PART NUMBER DESCRIPTION LEAD-TIME

183611155COM CRYSTAL 120
183611170COM CRYSTAL 120
500017413001 XSTR 120
500020413001 XSTR 120
500003410001 DIODE 120
500026416001 IC 120
600033411011 DIODE 120
600033411040 DIODE 120
500025416026 DOD 120
600028411001 DIODE 120
500002411112 DIODE 120
500002411024 DIODE 120
600197410001 DOD 120
500024416004 DIODE 120
500002411106 DIODE 120
500009416104 DIODE 120
500004373001 IC 110
500050415001 IC 90
500009416119 DIODE 90
600033411028 DIODE 90
500002390001 DIODE 90
185326201COM XSTR 90
500003605001 CONNECTOR 80

17.