<PAGE>

                                  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, 2000

                                        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 12, 2001, was  approximately  $12,342,293  (See Item 5).
 The number of shares of Common  Stock  outstanding  as of March 12 , 2001,  was
 9,196,509.

                      DOCUMENTS INCORPORATED BY REFERENCE:
Comdial's   Definitive   Proxy   Statement  for  its  2000  Annual   Meeting  of
Stockholders,  which will be filed with the Securities  and Exchange  Commission
within 120 days after December 31, 2000, is incorporated by reference under Part
III of this Form 10K.

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

TABLE OF CONTENTS
----------------------------------------------------------------

Part I

Item 1.         Business                                                     4
            (a)   General Development of Business                            4
                     Safe Harbor Statement                                   6
                     Industry Background                                     6
                     Strategy                                                8
            (b)   Financial Information About Industry Segment              10
                     Product Sales Information                              11
            (c)   Narrative Description of Business                         11
                     Products                                               11
                     Strategic Business Unit Products                       11
                     Sales and Marketing                                    14
                     Engineering, Research and Development                  15
                     Manufacturing and Quality Control                      15
                     Competition                                            16
                     Intellectual Property                                  16
                     Employees                                              17

Item 2.         Properties                                                  17

Item 3.         Legal Proceedings                                           18

Item 4.         Submission of Matters to a Vote of
                Security Holders                                            18

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

Part II

Item 5.         Market for Registrant's Common Equity and Related
                Stockholder Matters                                         19

Item 6.         Selected Financial Data                                     20

Item 7.         Management's Discussion and Analysis of Financial
                Condition and Results of Operations                         20

Item 7A.        Quantitative and Qualitative Disclosures About
                Market Risk                                                 30

Item 8.         Financial Statements and Supplementary Data                 30

Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure                         58


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

TABLE OF CONTENTS (Cont'd.)
----------------------------------------------------------------
Part III

Item 10.        Directors and Executive Officers
                of the Registrant                                           59

Item 11.        Executive Compensation                                      59

Item 12.        Security Ownership of Certain Beneficial
                Owners and Management                                       59

Item 13.        Certain Relationships and Related Transactions              59
----------------------------------------------------------------

Part IV

Item 14.        Exhibits, Financial Statement Schedules,
                and Reports on Form 8-K                                     60



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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 National Market(R) of the National  Association of
Security  Dealers  Automated  Quotation System  ("Nasdaq(R)")  under the symbol,
"CMDL".

Comdial designs and markets  sophisticated  voice  communications  solutions for
small to medium sized businesses,  government and other  organizations.  Comdial
also  designs  and  markets   vertical  market  solutions  for  assisted  living
facilities and the hospitality industry. Comdial currently has an installed base
of approximately 350,000 telephone systems and 3.7 million telephones.

In July 1998, Comdial acquired Array Telecom Inc. ("Array"), a technology leader
in Voice over Internet  Protocol (IP).  Comdial now offers both an enterprise IP
solution  through its  distribution  channels  and  carrier-class  IP  telephony
solutions through its agreement with ePHONE, Inc.

On March 31, 2000,  Comdial licensed the carrier-class IP telephony  solution it
acquired from Array to ePHONE  Telecom,  Inc. for a five-year term, with options
to extend the agreement or purchase the solution. In addition,  Comdial sold the
majority of the Array fixed assets and the "3000" family of products to ePHONE.

During  2000,  Comdial was  comprised  of four major  strategic  business  units
("SBUs"):

1. Comdial Convergent Communications ("CCC") selling switching products;

2. Key Voice Technologies ("KVT") selling messaging products;

3. Comdial  Enterprise  Solutions  ("CES")  selling both switching and messaging
products along with  specialized  developed  software  applications  tailored to
specific  vertical  markets,  most notably the assisted  living and  hospitality
markets; and

4. Comdial Business Communications Corp ("CBCC"), manufacturing Comdial products
and repairing out-of-warranty products; and Array Telecom Corporation ("Array"),
producing  Internet  Protocol  ("IP")  software  products  (product  licensed to
ePHONE).

Restructuring

During  2000,  Comdial  experienced  declining  market  conditions,  unfavorable
economic factors, uncompetitive product cost, and excess inventory levels. A new
CEO was  appointed  effective  October 2, 2000.  In the fourth  quarter of 2000,
management  and the  Board  approved  a plan (the  "Plan")  to  restructure  the
Company.  The foundation of the Plan was to outsource  manufacturing in order to
return  to  profitability  in as short a time  frame as  possible.  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 certain functions from Virginia to Florida
5.     Outsourcing of the manufacturing operations

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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 elimination of 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.  Prior to year-end,
the Company  notified an additional  222 of its employees  that their  positions
with the Company would be terminated at various phases during 2001. (See Note 15
to the Consolidated Financial Statements).

The  relocation  and  consolidation  of functions  from  Virginia to Florida was
completed during the first quarter of 2001. The Company anticipates  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 manufacturing  operations.  The Company
is currently transitioning its manufacturing operations to this manufacturer and
expects to largely complete this transition by mid-2001.

Sale of Virginia Facility

On March 9, 2001,  the Company sold its  Virginia  manufacturing  facility.  The
Company is leasing  approximately  100,000  square  feet of space for low volume
board production,  light assembly work, warehousing,  engineering, and technical
services functions.

Streamlining Product Lines and Cost Savings

During the fourth quarter of 2000, the Company went through a rigorous  analysis
of the number of telephone and circuit boards it marketed to its customers. As a
result,  Comdial  is  significantly  reducing  the  number of  telephone  models
available by discontinuing low run-rate and/or redundant items. Low-run versions
of circuit cards used in the FX and DXP systems were also eliminated.  Beginning
in 2001,  Comdial is in the  process of  streamlining  the number of  telephones
offered in conjunction  with its digital  systems from 54 models to 8. Likewise,
the number of key systems is also being  reduced  from three to two. The Company
believes it will realize benefits as a result of this streamlining.  More volume
concentrated  on fewer products is expected to reduce product cost and inventory
levels, while making the product lines easier to configure and sell.


The Company  expects the above actions to result in increased  efficiencies  and
lower  overhead  costs in the  future.  The  Company  will  continue to evaluate
cost-effective measures.

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"Safe Harbor" Statement
Under the Private Securities Litigation Reform Act of 1995

Some of the  statements  included or  incorporated  by reference  into Comdial's
Securities and Exchange  Commission  filings and shareholder  communications are
forward-looking   statements  that  are  subject  to  risks  and  uncertainties,
including,  but not  limited  to, the impact of  competitive  products,  product
demand  and  market  acceptance  risks,  market  fluctuations  caused by general
economic conditions,  the successful execution of Comdial's  restructuring plan,
continued  compliance  with  or  renegotiation  of  applicable  bank  covenants,
reliance on key strategic alliances,  fluctuations in operating results,  delays
in development of highly complex products, and other risks detailed from time to
time in Comdial's  filings with the  Securities and Exchange  Commission.  These
risks  could  cause  Comdial's  actual  results  for 2001 and  beyond  to differ
materially from those expressed in any forward-looking  statement made by, or on
behalf of, Comdial.

Industry Background


Comdial's primary business and product offerings 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  that
incorporate voice messaging and voice processing products with advanced computer
technologies  and/or Internet  applications.  All of these businesses 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 businesses with 3 to 500 employees,
while larger businesses  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.


In 1990, Comdial began to transition from analog systems to digital systems with
the  introduction  of  Digital  Service  Units  ("DSU"):  a digital  key  system
supporting up to 48 users. In 1992,  Comdial  introduced the Digital  Expandable
("DXP(TM)")  switch. In 1994, the capacity of the DXP was expanded to 560 ports,
making it competitive with small PBXs, hence enabling Comdial dealers to compete
for larger opportunities and retain existing customers that would otherwise have
outgrown  Comdial's  product  offering.  Comdial provided  Computer to Telephony


                                       6
<PAGE>

Integration  ("CTI")  for  the DXP via  the  "Enterprise"  software  development
tool-kit  which  complied  with the de facto  industry  standards  of the  time:
Telephony Server  Application  Programming  Interface  ("TSAPI") and Microsoft's
Telephony Applications Programming Interface ("TAPI").  Comdial has continued to
enhance  the  Enterprise  CTI  interface  to support  various  applications  and
operating systems.

In 1997,  Comdial  introduced Impact FX, a 96 port switch containing an integral
PC to support  software  applications,  such as voice  processing.  In 1998, the
capacity of the Impact FX was increased to 560 ports.  At that time,  the Impact
FX became  Comdial's  flagship  product  for larger  line sizes and  ongoing R&D
efforts also shifted to the Impact FX. The latest  version of the product is the
FX II. Current plans call for the FX II to support IP based networking and an IP
telephone by mid 2001.


In 1992,  approximately  20 percent of  Comdial's  sales  were  attributable  to
digital  systems.  In 2000,  virtually all of Comdial's voice  switching  system
sales were  digital  systems.  Between 1992 and 2000,  Comdial  also  marketed a
number of products related to its digital business phone systems,  including: an
in-building  pager system known as  "Tracker;"  an  in-building  wireless  phone
system known as "Scout" and a second wireless phone known as "Air Impact;" a CTI
based hospitality version of the DXP known as "Concierge";  a CTI based assisted
living version of the DXP system known as "Avalon";  a CTI based  automatic call
distribution  ("ACD")  product  known as "Quick  Q(TM)";  and a call and message
management  system that  integrates  digital  communications  with  Microsoft(R)
Outlook(R) and Microsoft Exchange(R) Server known as "Corporate Call".

Voice  switching  systems  is a mature  business.  The size of the market in any
given year is dependent on many factors,  including  employment growth, the rate
of new business formation and expansion,  obsolescence, and new entrants. During
the 1990s,  business  conditions for switching systems have been generally good,
characterized  by  annual  growth  in excess  of the  general  economy,  few new
entrants,  and  moderate  price  decreases  driven by lower  material  costs and
advances in technology. As of June 2000, Comdial held a 5.3% market share in key
hybrid products;  in 1999 Comdial products accounted for 28% of key hybrid sales
through the supply house channel.

The domestic demand for  traditional  key/hybrid and PBX switching  systems,  as
projected by a leading  industry  consulting  firm, is expected to increase only
slightly  from $2.4 billion in 2001 to $2.5  billion in the year 2003.  Sales of
PBX systems are expected to remain largely flat during that same period, running
at about  $3.4  billion  each  year.  This is mainly  due to a  transition  from
traditional circuit switched technology to the use of IP technology to transport
voice and further integrate related telephony applications.

Sales of IP PBX and key hybrid  products are expected to increase from just over
$100 million in 2001 to $600 million by 2003, with steeper increases thereafter.
Comdial believes it is well positioned with respect to this transition by virtue
of new IP related-features  and capabilities  associated with the Impact FX that
will be introduced in the second and third quarters of 2001.


        Voice Messaging

The ability to digitize  analog voice signals gave rise to the voice  processing
business in the 1980s.  In the 1990s,  the  introduction  of  powerful  personal
computers provided a platform to make voice processing affordable for even small
businesses.

Voice mail was the first  voice-processing  product;  it automatically  routed a
caller to the desired party and recorded a detailed  message if the called party
was not immediately  available.  Voice mail helped organizations reduce the cost
of operator and  secretarial  staffs  otherwise  needed to answer calls and take
messages.  Voice  processing  is  now  almost  ubiquitous  in  large  and  small
organizations.

Comdial entered the voice processing  business in 1990 via an original equipment
manufacturing  ("OEM")  agreement  with a leading  producer  of these  products.
Seeking  more  design  control  and  increased  profitability,  in 1996  Comdial
acquired  KVT,  a  private  producer  of small  to  mid-sized  voice  processing


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products. The acquisition enabled Comdial to realize a significant increase in
both sales of voice messaging and profitability. The voice processing products
are sold to resellers of Comdial switching products, to resellers of competitive
switching products and directly to end-users. Comdial's voice processing
products integrate with most major brands of business telephone systems.

After a very rapid growth spurt in the early 1990s, the voice processing
industry is now entering a mature phase. The domestic market for voice
processing products, as projected by a leading industry consulting firm, is
expected to grow just 9% between 2001 and 2003, with total sales in 2003 of $3.7
billion. According to a leading industry analyst, Comdial / Key Voice is
currently the fourth leading provider (behind Avaya, Nortel and Active Voice/
Cisco) of voice processing products.

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 messages and email messages in a single location (such as the "inbox"
associated with Microsoft's 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 messages and e-mail messages. In the third quarter
of 1999, Comdial introduced iNTerchange, our unified messaging system combining
voice mail, fax, and e-mail. Comdial's iNTerchange(TM) Unified Messaging system
is available in several sizes and configurations. iNTerchange integrates with
Microsoft(R) Exchange and other popular e-mail servers. The market for unified
messaging is expected to grow from $1.0 billion in 2001 to $1.6 billion in 2003.
iNTerchange, in combination with the Debut(TM), Small Office(TM), Small Office
Lite(TM) and Corporate Office(TM) voice mail systems constitutes a complete
range of voice processing solutions. These products provide voice processing for
applications ranging in size from 2 to 64 ports. Most Comdial generated sales
are in the 2 to 8 port range, corresponding with the needs of small to mid-size
businesses that are Comdial's primary markets.

Integrated Computer Telephony Solutions

By combining  switching,  voice  processing  and CTI  capabilities,  Comdial has
developed  products  targeted at vertical  markets.  Two examples  include:  the
"Concierge" and "Avalon" products  (discussed in greater detail in the following
section). Comdial has also developed sophisticated desktop software applications
designed to run in a Microsoft Windows(R) / Outlook (R) 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
Wide-Open Office(TM), a server based program. The market for CTI products is
very diverse and  difficult to quantify.  Most of Comdial's  CTI sales are
related to sales of the Company's switching and/or voice messaging products.

Strategy

       Comdial seeks to expand sales and profits by:
     (1) Leveraging the core competency in communications  technology to develop
and introduce advanced IP telephony products and solutions
     (2)  Expanding  unified  messaging  product  offerings  by  leveraging  the
existing expertise
     (3)  Refocusing  on  traditional  PBX  and  hybrid  products   through  the
introduction of a small key system, DX-80 and the FX II
     (4) Increasing the focus on direct sales through  national account programs
with large end-users


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     (5) Increasing the focus on government programs
     (6) Expanding voice processing software sales in international markets; and
     (7)  Expanding  recurring  revenue  opportunities  through the  offering of
bundled solutions to users by combining hardware and software sales with various
service offerings.


Product Offerings

Comdial currently offers digital and analog business  telephone  systems,  wired
and wireless  terminals,  computer and telephony  software  applications,  voice
processing  systems,  Vioce 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  Impact FX,  DXP and DSU  switching  products.
Comdial also provides  three major CTI based  products that work in  conjunction
with the DXP and / or FX.  Those  products  are  Concierge  for the  hospitality
industry,  Avalon for the assisted  living  industry and Quick Q, which provides
automatic  call  distributor  ("ACD")  functionality.  Comdial also provides the
iNTerchange(TM)  unified messaging product,  the Corporate Office, Small Office,
Small  Office(TM)Lite  and Debut(TM)  voice  messaging  systems.  Sales of these
products constitute the majority of Comdial's sales revenue.

The FX is Comdial's most current and sophisticated switching platform. The FX is
expandable to 560 ports. Since its introduction in 1997, Comdial has continually
enhanced the FX. The FX differs from Comdial's other switching platforms in that
it is more  "open"  and more  software-intensive.  The FXII is a rack  mountable
version of the FX platform. FXII is designed to provide a lower initial cost of
entry for  customers  who desire the  sophisticated  features and digital  trunk
capabilities  of the FX. The company  has seen demand  growing in the lower line
sizes for digital trunk  interfaces.  The rack mount design provides  convenient
location  options as most  businesses  require some rack mounted  equipment  for
other purposes.  The FXII also can be wall mounted.  The  introduction of the FX
II, makes the FX competitive for smaller applications, thus expanding its market
opportunity,  which should in turn  produce  increased  sales.  The FXII will be
expandable to 5 cabinets,  and support fiber connectivity,  IP networking and IP
telephones.

The FX family of products has complete networking  capabilities.  The networking
design  allows  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.
In 2001,  Comdial will release an IP  networking  feature.  This feature  allows
networking  multiple  sites using TCP-IP  protocol.  By taking  advantage of the
TCP-IP  protocol,  users can benefit from less  expensive  carrier  options like
frame relay to connect their locations.  The same IP connection that is used for
voice can also be used for data,  further enhancing the application and reducing
costs. Comdial provides for the use of multiple  compression  algorithms to best
suit the users application and bandwidth requirements.

The FXII supports fiber connectivity.  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.

When an application involves networking of switches, management of the equipment
in disparate  locations  becomes  complicated.  Comdial is  developing a network
management system that provides complete  visibility of all of the network nodes


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and the individual  components at each node for management  purposes.  Comdial's
network management  software will enable quick diagnosis and  troubleshooting of
remote  locations  with a  graphical  layout  of  the  entire  network.

Product Development / New Products

Comdial currently has a number of new products and product  enhancements  either
in testing  or  scheduled  for  release  during  the first  half of 2001.  These
include:  IP based  networking  and  fiber  connectivity  for the FX,  new IMAP4
protocol  support for  iNTerchange  the IP telephone,  and the DX-80 digital key
hybrid with internal voice processing.

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 the value they add
from Comdial's customers' perspective.

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
various  supply  houses that serve as  wholesale  distributors  of, and stocking
locations for, Comdial products. Use of the supply house channel enables Comdial
to minimize  receivables credit risk, sales  administration  and inventory.  The
supply house channel also makes Comdial  products widely available on a same-day
or next-day basis.  The supply houses benefit by earning a margin on the sale of
Comdial  products.  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.

       In  addition  to supply  house  distribution,  Comdial  also  markets its
products directly to national  accounts,  vertical  markets,  third party system
developers, OEM customers and the federal government via its Government Services
Administration  ("GSA")  schedule  contract.  Vertical  market sales include the
Avalon and Concierge products as well as the core switching and voice processing
products.  Voice  processing  products are sold through supply houses as well as
directly to dealers and national accounts under the Key Voice brand. Some of the
more complex CTI options  associated  with  Comdial's  switching  and  messaging
products  are also sold  directly to dealers and  national  accounts in order to
facilitate installation and support.

Strategic Alliances

       Comdial  plans to  continue to evaluate  strategic  alliances  with other
companies in order to build on the  strengths of these  companies  and bring the
best possible products to market at competitive prices.



        (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

       During  the  fiscal  years  ended  December  31,  2000,  1999,  and 1998,
substantially  all of Comdial's sales,  net income,  and identifiable net assets
were attributable to the telecommunications industry.  Additional information is
included in Note 12 to the consolidated financial statements.


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   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)                              2000      1999            1998
----------------------------------------------------------------------------
                                                 (as restated)  (as restated)
----------------------------------------------------------------------------
Business Segment Sales:
Comdial Convergent Communication         $67,126   $102,206         $102,800
Comdial Enterprise Solutions              12,592     13,800            8,065
Key Voice Technologies                    21,317     34,001           25,324
CBCC/Array                                 5,373     14,495            6,965
Inter-company elimination                 (6,366)   (14,167)         (11,319)
                                         -------   --------         --------
            Net Sales                   $100,042   $150,335         $131,835
                                        ========   ========         ========
----------------------------------------------------------------------------

   (c) NARRATIVE DESCRIPTION OF BUSINESS

        Products

        Comdial  offers  a  variety  of   communications   products,   including
voice-switching  products,  voice  messaging  products,  software  solutions and
products for national  accounts and  vertical  markets,  and other.  For further
clarification  of Comdial's  business  segments see Note 12 to the  Consolidated
Financial Statements.

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.

Strategic Business Unit Products

CCC Sales
---------

The following products comprised the majority of CCC sales:

The FX is Comdial's  most current and  sophisticated  switching  platform and is
expandable to 560 ports. Since its introduction in 1997, Comdial has continually
enhanced the FX. The FX differs from Comdial's other switching platforms in that
it is more "open" and more  software-intensive.  The  introduction  of the FX II
makes FX  competitive  for  smaller  applications,  thus  expanding  its  market
opportunity, which should in turn produce incremental sales.

The  DXP(TM)  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 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(TM) phones), Impact SCS (using Impact SCS phones) and the Impression(TM).
The Impression was discontinued during first quarter of 2001.

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


                                       11
<PAGE>

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.

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.

 The DX-80 is a new digital key system with advanced  features  including  voice
mail,  live call  screening,  auto  attendant,  plus others.  This new system is
competitively  priced to enable Comdial to increase  market share in the smaller
business  market  segment.  Comdial is in the  process  of a general  release of
DX-80.

QuickQ ACD,  introduced  in 1994,  is an  automatic  call  distributor  ("ACD"),
designed for call center use. The system  consists of an Impact 224, Impact 560,
or Impact FX digital switch, voice announcing equipment,  special automatic call
distribution software, and a PC. The QuickQ ACD answers and distributes incoming
calls  rapidly  and   efficiently,   helping  to  assure   maximum  call  center
productivity and superior customer response levels.

CES Sales

The following products comprised the majority of CES sales:

Avalon(TM),  introduced in 1998,  is the first  communications  system  designed
specifically for assisted living  communities.  Avalon  integrates a Comdial DXP
digital switch system and telephones, wireless communications devices, wired and
wireless   alerting  devices,   and  custom  software.   Avalon  provides  basic
telecommunications  service  to  residents  and  staff,  but its most  important
advantage is that it allows elderly residents to alert on-site caregivers of the
name and location of an alarm condition. Should a resident activate a compatible
in-room  alerting  device  (such as a pull cord - a third  party  device),  dial
"911", or take certain other actions indicating an alarm condition, messages are
transmitted  from the  Avalon  system to pagers or  wireless  phones  carried by
caregivers.  Computer  records  of the  emergency  alert and  response  are also
generated.

Concierge,  introduced  in 1996,  is a digital  telephone  system  designed  for
hospitality applications. The system consists of a DXP multi-line administration
telephone,  and special hospitality software. The system is linked to a computer
via  Comdial's  Enterprise  software,  and allows hotel  personnel to administer
guest  check-in/check-out  and  other  hotel  activities  from  PC or  specially
programmed Impact LCD telephones. Concierge serves hotel properties that have up
to approximately 400 rooms.

Enterprise, introduced in 1993, is Comdial's open applications interface ("OAI")
software developer's tool kit. Enterprise allows independent software developers
to access the Impact,  DXP, DXP Plus, or FX system  software using more than 190
commands.  These tools allow Comdial to create unique  applications for specific
vertical  markets,  such  as  telemarketing  groups,  emergency  services,  call
centers, taxi services, and multi-media centers.

Corporate Call  introduced in 2000, is a powerful  communications  solution that
brings  superior  call  and  message  management  capabilities  to the  desktop.
Corporate Call integrates digital  communications  with Microsoft(R)  Outlook(R)
and Microsoft  Exchange(R)  Server. The resulting  integrated system facilitates
dramatic  improvements in the  call/message  handling and information  retrieval
process.



                                       12
<PAGE>

CES also sells some of the same switching and voice  processing  products as CCC
and KVT,  but sells them  direct to  corporate  end-users  as part of a national
account program.


KVT Sales

The following products comprised the majority of KVT sales:

VVP/Corporate  Office(TM),  introduced  in 1996, is the trade name of a PC-based
voice processing system produced by Key Voice Technologies  ("KVT") and now sold
under both the KVT and Comdial brands.  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.  VVP can be integrated with Comdial's  digital telephone
systems so that display  messages on liquid crystal display (LCD) terminals
prompt user operations.  KVT offers similar integration  packages for telephone
systems made by  other  companies.  VVP and  Corporate  Office  are  offered
in 4 to 16 port configurations.  Voice storage capacity is virtually unlimited
- an advantage of PC-based design.

Small Office,  introduced in 1996, is a smaller and more  economical  version of
VVP/Corporate  Office,  which  is also  produced  by KVT and sold  through  both
Comdial's  and KVT's dealer  networks.  Small Office  offers  basically the same
features as the larger  model,  but is  designed  for  smaller  businesses.  The
maximum capacity is four ports (four simultaneous calls) and 100 mailboxes.

Small Office Lite was introduced in 1997. The Small Office Lite voice processing
system  features  the latest  advances in  communications  technology  specially
streamlined to fit the needs of small  businesses.  With Comdial's  Small Office
Lite, even small businesses can take advantage of a voice-processing feature set
that  is  state-of-the-art,  but  also  affordable.  In  addition  to  automated
attendant  functionality,  Small Office Lite allows users to  personalize  their
individual mailboxes with custom greetings.

Corporate  Office NT and  Small  Office-NT  were  introduced  in 1998.  They are
user-friendly voice mail systems, with a proven design, that are easy to install
and maintain.  Each system accommodates a different number of users and is built
on the Windows NT(R) operating system platform. In addition,  enhanced graphical
screens  enable  system  supervisors  to quickly  adjust  user  information  and
retrieve  vital  call  processing  data.  In the fourth  quarter  of 2000,  both
products were migrated to the Windows  2000(TM) and now are sold under the names
of Small Office 2000 and Corporate Office 2000.

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

iINTerchange(TM)  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 Windows NT(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.

CBCC Sales

The majority of CBCC sales were  comprised of repair  services and variations of
Array Comdial digital phones sold by CBCC to other companies for resale by those
companies under their own brands. Sales of Array IP software also contributed to
CBCC revenue.

     While the above accurately  reflects the sale of products by business unit,
it should be noted that  products  are in some  instances  combined  as with the


                                       13
<PAGE>

utilization  of the DXP as part of the Avalon and  Concierge  products.  In this
example,  the  revenue  associated  with the DXP sale would be  included  in the
Avalon or Concierge revenue and not reported in CCC sales.


In 2001, in association  with the  reorganization,  the Company has redefined
the segments used to analyze its business from the SBU structure to one that is
more focused on types of products such as voice  switching  systems,  voice
messaging systems, unified messaging systems, and other products.

 Sales and Marketing
 -------------------

Comdial markets its products through both direct and indirect channels. Indirect
channels  include  both  two-tiered  and  three-tiered  distribution.  Comdial's
primary  channel of  distribution  to U.S. and Canadian  markets is through five
wholesale  supply  houses,  which in turn,  resell to  hundreds  of  independent
dealers. International sales are accomplished through a network of international
dealers. International dealers buy directly from Comdial, normally by letters of
credit and resell to end-users or other dealers.

Three supply houses each account for more than 10% of Comdial's net sales. These
are ALLTEL Supply, Inc. ("ALLTEL"),  Graybar Electric Company, Inc. ("Graybar"),
and Sprint/North  Supply,  Inc. ("North Supply").  In 2000, net sales to ALLTEL,
Graybar,  and North Supply amounted to approximately  $14.6 million (15%), $24.7
million (25%), and $16.0 million (16%), respectively.

Comdial has established four classes of dealers that purchase Comdial's products
from  supply  houses  and resell to  end-users.  These are  Platinum  Preferred,
Preferred Gold,  Preferred,  and Associate Dealers.  Comdial offers an incentive
package for Platinum Preferred, Preferred Gold, and Preferred 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  Preferred,  Preferred Gold, and
Preferred  Dealers have sales quotas,  and Comdial's sales  department  monitors
their performance  against these targets.  Associate Dealers purchase  Comdial's
products on an  as-needed  basis,  and are  rewarded  through  product  rebates.
Associate  Dealers do not have quotas but do receive  benefits such as toll-free
assistance, training, and other services that are offered by Comdial.

Comdial  supports its existing  dealers and seeks to attract new dealers through
advertising in popular trade magazines,  special promotional programs, sales and
technical training, and participation in major industry trade shows.

Each area sales manager is  responsible  for recruiting new dealers and training
and motivating existing dealers. Dealers are supported through telephone contact
with Inside Sales Representatives, direct mail, and local product seminars often
organized by distributors.  To stimulate  demand,  each area sales manager 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.

Comdial's dealers are primarily  responsible for selling  Comdial's  products to
end-users as well as providing after-sale support. Comdial maintains a technical
staff  devoted to dealer  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.  Selected  dealers  are  authorized  to  purchase  Impact
Concierge  systems  direct from  Comdial and resell to the  hospitality  market.
Dedicated  personnel  support  OEM  and  international  sales.  Sales  of  voice
processing  products produced by KVT are through two channels:  supply houses to
dealers and direct to dealers.



                                       14
<PAGE>

In recent years,  Comdial  initiated a National  Accounts  Program to market its
products to large  multi-location  end-users.  The program  allows  end-users to
contract with one entity (Comdial) for sales and support,  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 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 sell and support national accounts.

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.  Going  forward,  Comdial will
strive 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 for projects
that are  necessary but do not provide the same value to Comdial as other higher
value projects.

Research and development  costs for the fiscal years ended 2000, 1999, and 1998,
comprise the majority of engineering,  research,  and development  costs,  which
were $6.3 million,  $9.7 million,  and $7.3  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  capitalization  is in accordance  with the  provisions of Statement of
Financial Accounting Standards ("SFAS") No. 86. The amounts capitalized in 2000,
1999, and 1998 were $3.1 million, $2.9 million, and $2.8 million,  respectively.
The amount of software  development costs that were amortized in 2000, 1999, and
1998 were $2.1 million, $1.8 million, and $1.4 million, respectively. Comdial is
committed   to   improving   its   existing    products   and   developing   new
telecommunications equipment in order to maintain and increase its market share.

Manufacturing and Quality Control
---------------------------------

Comdial  is  currently  in  the  process  of  outsourcing  the  majority  of its
manufacturing operations. This decision was made to increase efficiency,  reduce
overhead  and  free  up   significant   capital  assets   associated   with  the
manufacturing  operations.  The Company  expects the  outsourcing  to be largely
complete  by  mid-2001.  A  reduction  in unit  cost on high  run  items is also
anticipated.  Comdial  is taking  all  necessary  measures  to ensure  continued
quality and avoid supply chain  disruption  during the transition to outsourcing
of  the  manufacturing  operations.   Comdial  plans  to  retain  key  personnel
associated with quality  assurance and hold our suppliers to the highest quality
standards.

Comdial has recently  streamlined its product offerings by eliminating  products
and  models  that  were  redundant  and/or  low  volume,   thereby   simplifying


                                       15
<PAGE>

outsourcing  and reducing the  associated  risk.  This action also has the added
benefit of concentrating more volume on the remaining models,  which should have
a positive effect on cost, efficiency and quality.

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,  AVT,  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 our 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 is 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.

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  Lucent  Corporation,  however,  at this time the
Company has informed  Lucent it is not in a position to pay Lucent fees, if any,
that may be owed under the licenses.


                                       16
<PAGE>

Employees
---------

As of December 31, 2000,  Comdial,  including  subsidiaries,  had 616  full-time
employees, of whom 324 were engaged in manufacturing,  72 in engineering, 157 in
sales and support, and 63 in general management and administration. During 2000,
Comdial   initiated  a   restructuring   plan  that  included   outsourcing  the
manufacturing of certain of its products.  As result, the Company  experienced a
reduction in its manufacturing workforce by 229 employees. On December 28, 2000,
pursuant to its  restructuring  plan,  the Company  notified an  additional  222
employees  that their  positions  would be  terminated  during  2001.  Continued
assessment of cost efficiencies may necessitate additional headcount reductions.


ITEM 2.  Properties

Comdial  previously  designed,  manufactured,  and  marketed the majority of its
products   from  a   fully   integrated,   approximately   500,000   square-foot
manufacturing  facility on a 25-acre site located in Charlottesville,  Virginia.
The majority of Comdial's  operations  and product  development  were located at
this  facility.  In February  2001, the Company signed an agreement to outsource
the majority of its manufacturing operations. On March 9, 2001, Comdial sold the
land  and  building.  As part of  this  transaction,  Comdial  is  leasing  back
approximately  100,000 square feet for some low volume board  production,  light
assembly  work,  warehousing,  engineering,  and technical  services  functions.
Effective  the first  quarter of 2001,  the  Company's  corporate  headquarters,
including  finance,  administration,   information  technology,  and  sales  and
marketing was relocated to the KVT facility in Florida.

In 2000, KVT sold its building and relocated to an  approximately  67,000 square
foot  facility,  located in  Sarasota,  Florida.  This  facility is subject to a
10-year lease. All other additional space used by Comdial is leased.

Comdial's  facilities  are  subject to a variety of  federal,  state,  and local
environmental protection laws and regulations,  including provisions relating to
the discharge of materials  into the  environment.  The cost of compliance  with
such laws and regulations  has not had a material  adverse effect upon Comdial's
capital  expenditures,   earnings,  or  competitive  position,  and  it  is  not
anticipated to have a material adverse effect in the future.

In  1988,  Comdial  voluntarily  discontinued  use  of  a  concrete  underground
hydraulic oil and chlorinated solvent storage tank at its Charlottesville plant.
In conjunction therewith,  nearby soil and groundwater  contamination was noted.
As a result,  Comdial  developed a plan of remediation  that was approved by the
Virginia Water Control Board on January 31, 1989. The plan was later amended and
approved by the  Virginia  Department  of  Environmental  Quality  ("DEQ"),  the
successor  administrative  agency to the State Water Control Board,  after which
Comdial commenced the remediation efforts required thereunder.

In October 1994, Comdial installed all required equipment in accordance with the
remediation  plan and started the process of pumping  hydraulic oil residue from
the underground water. The oil was deposited into approved  containers and taken
to  a  permitted  hazardous  waste  storage  location  in  accordance  with  the
corrective  action plan.  The  remediation  was  supervised by the DEQ under the
Virginia  Underground  Storage   Tank/Petroleum   Program  until  the  case  was
transferred  from the Underground  Storage  Tank/Petroleum  Program to the Waste
Program of the DEQ on March 27, 1998.

Assessment and  remediation of the hydraulic oil was the principal  focus of the
DEQ at the  Charlottesville,  Virginia plant under its Underground  Storage Tank
Petroleum  Program,  however some  assessment  work was required  regarding  the
chlorinated solvent  contamination.  Comdial decided in 1999 to expedite further
assessment and clean up of the solvents and hydraulic oil by entering the site


                                       17
<PAGE>

into  Virginia's  Voluntary  Remediation  Program (the "VRP").  The  chlorinated
solvent  contamination was accepted under the VRP on April 19, 1999. The DEQ has
clarified that the Underground Storage  Tank/Petroleum Program was requesting no
further  action  at the site and  considers  the case  closed;  and has  further
indicated that the remaining petroleum  contamination should be addressed in the
VRP.

In  1999,   Comdial  was  accepted   into  the  VRP  to  start  the  final  site
characterization and closure process for the groundwater  contamination.  A Site
Characterization  Report ("SCR") required under DEQ's regulations  presented the
results of a site  characterization of the horizontal and vertical extent of the
contamination,  a baseline  risk  assessment,  and a remedial  action plan.  The
completion of the site characterization required the construction of several new
wells to determine the extent of the contamination and some additional sampling.

The Site Characterization was completed in May 2000 and the SCR was submitted to
the DEQ in September  2000.  DEQ has accepted the  recommendations  of Comdial's
consultants that the site be closed with  institutional  and deed  restrictions.
The  deed  restrictions   prohibit  residential   construction  or  use  of  the
groundwater for potable water. Additionally, an L-shaped area to the rear of the
manufacturing  facility has an institutional  control  requiring the approval of
DEQ for any ventilation system installed in any building  constructed within the
confines of this area that would be inhabited by workers.  Wells will be sampled
every two years for a period of six years to determine if the remedial action of
choice,  natural  attenuation,  is achieving the desired results. If levels have
declined to the satisfaction of the DEQ, the  restrictions  will be removed from
the  property.   Otherwise,  the  long-term  monitoring  will  continue  for  an
additional period of time to be determined.

As of December  31,  2000,  Comdial has  incurred  total costs of  approximately
$460,000 and has substantially completed the pumping process as of year end.

The property  was sold to a new owner on March 9, 2001,  who has  initiated  the
work to proceed with the site closure process.

ITEM 3.  Legal Proceedings

Comdial is from time to time involved in litigation.  Comdial believes that none
of the litigation in which it is currently involved is material to its financial
condition or results of operations.

ITEM 4.  Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth quarter of 2000 to a vote of Comdial's
security holders.



                                       18
<PAGE>

PART II

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

As of March 12, 2001 there were 1,257 record holders of Comdial's Common Stock.

Quarterly Common Stock Information

The  following  table  sets  forth,  for the  periods  shown,  the  high and low
quarterly  closing  sales prices 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 in the
NASDAQ National Market(R) under Comdial's symbol, CMDL.



                            2000                               1999
Fiscal Quarters      High          Low                  High          Low
First Quarter       $21.63        $9.00                $8.750       $5.938
Second Quarter       14.06         4.44                 7.938        5.750
Third Quarter         5.38         2.03                 9.250        6.375
Fourth Quarter        2.25         1.00                10.125        6.750
------------------------------------------------------------------------------

Comdial has never paid a dividend on its Common Stock and its Board of Directors
currently  intends  to  continue  for the  foreseeable  future the policy of not
paying cash  dividends on Common Stock.  Prior to 1998,  Comdial was  prohibited
from paying dividends due to the Loan Agreement with Fleet.


                                       19
<PAGE>

<TABLE>
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                                 2000           1999(a)      1998(a)     1997(a)     1996(a)
----------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>          <C>          <C>          <C>
Net Sales                                         $100,042       $150,335     $131,835     $118,561     $102,182
Income (loss) before income taxes                  (47,864)        10,033        6,295        5,218        1,509
Net income (loss)                                  (63,264)         7,343       17,032        5,069        2,027
Earnings(loss) per share:
    Basic                                            (6.89)          0.82         1.93         0.58         0.24
    Diluted                                          (6.89)          0.82         1.88         0.58         0.24
----------------------------------------------------------------------------------------------------------------

Selected Consolidated Balance Sheet Data
December 31,
In thousands                                  2000           1999(a)         1998(a)        1997(a)        1996(a)
-------------------------------------------------------------------------------------------------------------------

Current assets                              $34,928        $72,077         $50,854        $37,107        $30,767
Total assets                                 72,954        133,074         108,990         79,264         74,352
Current liabilities                          32,531         23,833          19,734         21,196         20,443
Long-term debt and other
  long-term liabilities                      28,908         38,633          26,624         13,998         15,629
Stockholders' equity                         11,515         70,608          62,632         44,070         38,280
-------------------------------------------------------------------------------------------------------------------

(a) As restated, see Note 18 to the Consolidated Financial Statements.
</TABLE>


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

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 2000 reporting basis (see Note 1 to the Consolidated Financial Statements).

Subsequent to the issuance of the Company's  consolidated  financial  statements
for the year  ended  December  31,  1999,  management  determined  that the 1992
Incentive Stock Option Plan ("Plan"), which had previously been accounted for as
a fixed plan, had certain features which permitted  option  recipients to tender
shares as partial or full  consideration of the exercise price,  that caused the
Plan to be a variable plan.  Under the fixed plan  accounting,  no  compensation
expense was  recognized  for options  granted to employees.  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,  and is recognized over
the options'  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. As a
result, the 1999 and 1998 consolidated  financial  statements have been restated
from amounts previously reported to account for the options granted to employees
under the Plan as variable  awards.  See note 18 to the  consolidated  financial
statements for a summary of the significant effects of the restatement.

The Management's  Discussion and Analysis of Financial  Condition and Results of
Operations for the years ended December 31, 1999 and 1998 presented  herein have
been adjusted to reflect the restatement described above.


                                       20
<PAGE>

SEGMENT REPORTING

During the first quarter of 2000,  Comdial was organized into Strategic Business
Units ("SBUs") which were used by management to analyze its business during 2000
(See Note 12 to the Consolidated Financial Statements).

<TABLE>
RESULTS OF OPERATIONS

Selected  consolidated  statements of operations for the last three years are as
follows:
--------------------------------------------------------------------------------------------------------------
In thousands                                                      2000            1999              1998
--------------------------------------------------------------------------------------------------------------
                                                                             (as restated)     (as restated)
Business Segment Sales:
<S>                                                             <C>             <C>               <C>
CCC                                                             $67,126         $102,206          $102,800
CES                                                              12,592           13,800             8,065
KVT                                                              21,317           34,001            25,324
CBCC/Array                                                        5,373           14,495             6,965
Inter-company elimination                                        (6,366)         (14,167)          (11,319)
                                                               --------           ------           -------
       Net Sales                                               $100,042          150,335           131,835
Cost of goods sold                                               77,715           85,554            79,080
                                                               --------           ------           -------
Gross profit                                                     22,327           64,781            52,755
Selling, general & administrative                                47,099           39,914            33,531
Engineering, research & development                               6,283            9,735             7,342
Goodwill amortization                                             3,195            3,180             3,806
Restructuring                                                     2,355                -                 -
Impairment of long-lived assets                                   7,425                -                 -
Interest expense                                                  2,902            1,633             1,216
Miscellaneous expense - net                                         932              286               565
                                                               --------           ------           -------
Income(loss) before income taxes                                (47,864)          10,033             6,295
Income tax expense (benefit)                                     15,400            2,690           (10,737)
                                                               --------           ------           -------
Net income (loss)                                              $(63,264)          $7,343           $17,032
                                                               ========           ======           =======

Earnings (loss) per share:
                    Basic                                      $  (6.89)          $ 0.82           $  1.93
                                                               ========           ======           =======
--------------------------------------------------------------------------------------------------------------

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.

                                                                  2000            1999              1998
                                                              -----------------------------------------------
   Business Segment:
      CCC                                                      $ 22,919          $37,892           $34,895
      CES                                                         3,283            4,830             3,063
      KVT                                                        10,239           18,348            13,831
      CBCC/Array                                                (14,114)           3,711               966
                                                               --------           ------           -------
       Gross profit margin                                     $ 22,327          $64,781           $52,755
                                                               ========           ======           =======
--------------------------------------------------------------------------------------------------------------
</TABLE>


2000 Compared with 1999
-----------------------

Net sales as reported for 2000 decreased by 33% to $100.0 million, compared with
$150.3  million in 1999.  The primary  factors in the decrease of sales were the
reduction of inventory  levels at the supply houses 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 supply  houses to reduce
their  inventory  levels.  Comdial  has  sought  to  respond  to  adverse  sales
conditions  by offering a more concise  product line that is more  responsive to
customer needs.  Comdial believes it offers a lower-end,  more price competitive
key system, which is being outsourced to an overseas manufacturer. The redefined
product line is expected to have a positive impact on gross margins.

In 2000, net sales by Comdial  Convergent  Communications  ("CCC") decreased 34%
from $102.2  million to $67.1  million.  The primary factor in this decrease was
the decrease in inventory  levels at the supply houses as noted above.  Although
this adversely  affected Comdial's sales in the year 2000,  management  believes
that the inventory levels at Comdial's major supply houses, except Ingram-Micro,
are  now at a  level  that  is  appropriate  to  meet  customers'  needs  in the


                                       21
<PAGE>

foreseeable future. The Company has received notification from Ingram-Micro that
it intends to terminate  its  relationship  with  Comdial.  Efforts are underway
between the companies to reduce remaining inventory at Ingram-Micro.

Sales by Comdial Enterprise Solutions,  ("CES"), decreased 9% from $13.8 million
to $12.6  million.  This  decrease  is  attributable  to the poor  growth in the
assisted living market, as well as the overall downturn in the economy.

Key Voice  Technologies  ("KVT") sales decreased 37%, from $34.0 million in 1999
to $21.3 million in 2000. This decrease was  predominantly  tied to the decrease
in CCC sales, as KVT sells to the same supply houses and a significant number of
the same dealers as CCC.

Net sales in 2000 by CBCC/Array decreased 63% from $14.5 million in 1999 to $5.4
million. This decrease is attributable to the sale of Array in the first quarter
of 2000 and a lower demand of analog products.

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.  Another factor which caused the inventory obsolescence
provision  to  increase  was the  decision  to  outsource  manufacturing,  which
rendered  some  raw  materials  and  components  obsolete,  as they  will not be
utilized by the  contract  manufacturer.  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 $.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 decided to
record a warranty  reserve  specifically for warranty claims in the consolidated
financial statements.

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 22% compared with 43% for
1999.  In 2000,  gross profit  decreased by 66% to $22.3  million  compared with
$64.8 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 supply houses;
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.

CCC's  gross  margin  declined  from 37% to 34%.  This  decrease  was  primarily
attributable to several pricing programs that Comdial offered during the year to
stimulate sales.

The  gross  margin  that CES  realized  decreased  from  35% to 26%.  As more of
Comdial's competitors enter the solutions and software market, Comdial has begun
experiencing  significant  market  pressure  on its  pricing  in  certain of its
product lines, which adversely affected margins.

KVT's gross margin decreased from 54% in 1999 to 48% in 2000.  Relocation of the
KVT  manufacturing  group to its new facility  resulted in  additional  one-time
costs due to initial set-up.

Gross profit for CBCC/Array  decreased in 2000 to a negative  263% compared to a
positeve  26%  in  1999.  This  decrease  is  due  primarily  to  the  increased
obsolescence  reserves  and lower of cost or market  adjustment  of $2.4 million
taken against inventory held by CBCC.

                                       22
<PAGE>

During 2000,  Comdial began recording  installation  services expense in cost of
sales,  rather  than  as a  selling  expense.  Amounts  in  the  1999  and  1998
consolidated  financial statements have been reclassified to conform to the 2000
presentation.  This  resulted  in net sales  increasing  $2.4  million  and $2.9
million for 1999 and 1998,  respectively.  Cost of goods sold was  increased  by
$3.2 million and $3.5 million for 1999 and 1998, respectively.  Selling, general
and administrative costs decreased by $0.8 million and $0.6 million for 1999 and
1998, respectively. 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 18%
to $47.1  million  compared  with $39.9 million for 1999.  SG&A  expenses,  as a
percentage of sales for 2000,  increased to 47% compared with 27% 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 for 2000,  decreased to 6% compared  with 7% for 1999.  This
decrease was due to a reduction in engineering  personnel,  which was consistent
with other reductions the Company initiated in the first quarter of 2000.

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
which 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.

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


                                       23
<PAGE>

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 - 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.

Fixed Assets  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.

Other Write-offs - As part of Comdial's decision to outsource  manufacturing and
reduce the number of product lines to a more  appropriate  level,  several other
write-offs  were  deemed  necessary.   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 the beginning of fiscal 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.

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).

1999 Compared with 1998
-----------------------

Net sales as reported for 1999 increased by 14% to $150.3 million, compared with
$131.8 million in 1998.  The continued  growth in net sales was primarily due to
(1) greater demand for Comdial's  Digital Systems  products,  (2) an increase in
Platinum   Preferred   Dealers   (Comdial's   highest  dealer  level)  in  major


                                       24
<PAGE>

metropolitan  cities,  (3) an  increase  in  national  account  sales,  and  (4)
continued  growth  in sales  of  Solutions  and  Software  products  such as the
assisted living,  hospitality and voice mail systems. The voice mail systems are
produced by a subsidiary of Comdial, Key Voice Technologies, Inc. ("KVT").

In 1999,  net sales  generated  by  Comdial  Convergent  Communications  ("CCC")
decreased  1% to $102.2  million,  compared  with $102.8  million for 1998.  The
slight  decrease in CCC sales was  partially  due to Comdial's  focus in 1999 on
growing the solutions and software markets.

In 1999,  net sales of Comdial  Enterprise  Solutions  ("CES")  increased 70% to
$13.8 million  compared  with $8.1 million for 1998.  The solutions and software
markets were increasingly being targeted by CES solutions during 1999.

KVT's net sales increased  significantly from 1998 to 1999,  increasing 34% from
$25.3 million to $34.0  million,  respectively.  KVT's increase in net sales was
attributable to its continued penetration in the market, and the addition of new
products during 1999.

Net  Sales by  CBCC/Array  increased  108% from  $7.0  million  in 1998 to $14.5
million.  This increase was  attributable  to an increase in the sale of digital
products, offset by a decrease in the sale of analog products.

Comdial provides reserves to cover product obsolescence for all its products and
changes to those  reserves  impact  gross  profit.  For the years 1999 and 1998,
provisions for obsolescence totaled $0.5 million and $2.3 million, respectively.
The reserve for  obsolescence  for 1999 was lower due to less raw  material  and
finished goods obsolescence  usage than in previous years.  Future reserves will
be dependent on management's estimates of the recoverability of inventory costs.
Raw material  obsolescence is mitigated by the commonality of component parts of
digital and other products.  Finished goods obsolescence is mitigated by the low
level of inventory relative to sales.

In 1999, international sales decreased by 35% to $2.6 million compared with $4.0
million for 1998. Due to the international  climate,  distribution problems, and
homologation  issues  dealing  with  the  sale  of  digital  products,   Comdial
temporarily suspended its efforts in developing further international markets on
its own.

Gross profit,  as a percentage of sales for 1999,  was 43% compared with 40% for
1998. In 1999, gross profit, as a percentage of sales, increased by 23% to $64.8
million  compared  with $52.8  million for 1998.  This  increase  was  primarily
attributable to increased sales of higher margin business segment products, such
as Impact  FX,  Impact  DXP,  and  solution  products  such as  assisted living,
hospitality and voice mail systems.

CCC's gross margin  increased to 37% in 1999, from 34% in 1998. This increase in
gross margin was attributable to improved  efficiencies in manufacturing product
that was Comdial's  mainstay  business.

KVT's  gross  margin  remained  steady  from  1998  to  1999,  at 55%  and  54%,
respectively.  CES gross margin,  however,  decreased from 38% in 1998 to 35% in
1999. This decline was predominantly the result of new competitors entering into
the same markets as Comdial's CES, and therefore,  placing  pricing  pressure on
CES's revenues.

Gross  profit for  CBCC/Array  increased in 1999 to 26% compared to 14% in 1999.
This increase was due to the sale of higher margin digital products in 1999.

Selling,  general and administrative  expenses ("SG&A") increased in 1999 by 19%
to $39.9  million  compared  with $33.5 million for 1998.  SG&A  expenses,  as a
percentage of sales for 1999,  increased to 27% compared with 25% for 1998.  The
primary  reasons for the  increase  were (1) an increase in sales  personnel  to
support  the  growth  in  national  accounts  and  expanding  computer-telephony
integration ("CTI") markets,  (2) higher promotional  allowance costs associated
with  increased  sales through  Platinum and Preferred  Dealers,  and (3) higher
marketing costs  associated with advertising  Comdial's  products as well as the
efforts to increase Comdial's name recognition in the various business markets.

Engineering,  research and development expenses increased in 1999 by 33% to $9.7
million  compared  with  $7.3  million  for  1998.  Engineering  expenses,  as a


                                       25
<PAGE>

percentage of sales for 1999,  increased to 7% compared  with 6% for 1998.  This
increase was due to additional  engineering  personnel  throughout Comdial along
with the additional support costs.

Goodwill amortization expense decreased in 1999 by 16% to $3.2 million, compared
with $3.8 million for 1998. This decrease is due primarily to the elimination of
goodwill  amortization expense associated with Comdial's  acquisition in 1996 of
Aurora Systems, Inc. ("Aurora").  Aurora at this time is non-operational and all
goodwill  associated with this acquisition has been written off. The Company has
determined that the remaining  amount of goodwill is recoverable at December 31,
2000.

Interest  expense  increased in 1999 by 33% to $1.6 million  compared  with $1.2
million for 1998.  This increase is due to higher  average debt levels with Bank
of America,  N.A.  ("Bank of America"),  formerly  known as  NationsBank,  N.A.,
coupled  with  higher  interest  rates when  compared to 1998 (see Note 6 to the
Consolidated Financial Statements). The higher debt is primarily attributable to
higher material purchases which correlated with higher sales.

Miscellaneous  expense decreased by 50% for 1999 to $0.3 million,  compared with
$0.6  million for 1998.  This  decrease was  primarily  due to decreases in cash
discounts allowed by Comdial to its customers.

Income before income taxes,  as a result of the foregoing,  increased in 1999 by
59% to  $10.0  million  compared  with  $6.3  million  in 1998.  A major  factor
contributing  to the  increase in income for 1999 are  increased  sales of KVT's
voice processing products that have higher margins.

Income tax expense  (benefit)  reflected  an expense  for 1999 of $2.7  million,
compared  with a tax  benefit  of  $10.7  million  for  1998.  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). The tax
benefit of $10.7  million in 1998 was due primarily to the reversal of valuation
allowances related to certain of the Company's deferred tax assets.



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                                     2000             1999
-----------------------------------------------------------------------
    Cash and cash equivalents                   $2,428           $1,917
    Current maturities of debt                  24,848              471
    Working capital (deficiency)                (5,727)          48,244
-----------------------------------------------------------------------

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, 2000,  Comdial's
cash and cash  equivalents  were higher than  December 31, 1999 by $0.5 million,
due primarily to the timing of deposits and payments made at year-end.

                                       26
<PAGE>

Accounts  Receivable at December 31, 2000,  decreased by $25.9 million  compared
with December 31, 1999, primarily due to the decreased level of sales during the
year,  as well as improved  collections.  Comdial  also  increased  its bad debt
reserves by $2.5 million in the fourth quarter of 2000 due to declining economic
conditions  in  several  of the  markets in which  Comdial  sells its  products.
Comdial has improved its days sales outstanding in each of its business units as
compared  to the same  period  in the prior  year,  due to  improved  collection
efforts.

Inventory at December 31, 2000, decreased by $7.4 million compared with December
31,  1999,  due, in part,  to  additional  reserves  for lower of cost or market
adjustments  of $2.4 million,  as well as additional  reserves for  discontinued
product  lines  of $1.2  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,
2000 by approximately $5.0 million compared with December 31, 1999.

Prepaid  expenses and other  current  assets at December 31, 2000,  decreased by
$4.4  million  compared  with  December  31,  1999,  due to the  provision  of a
valuation  allowance  for  deferred  tax  assets  of  $1.8  million.  Management
determined that it was not "more likely than not" that the Company would realize
the benefit of the deferred tax asset as of December 31, 2000. Prepaid deposits,
rent and other expenses decreased from December 31, 1999 to December 31, 2000 by
$.8 million.

Other assets  decreased by $2.3 million  primarily  due to the write-off of $3.9
million  of  purchased  software.  Pension  assets  were  reduced  by  $.7  in a
year-over-year comparison;  this decrease, however, was offset by an increase in
patent  license fee costs of $.7  million.  Additionally,  capitalized  software
development costs increased $0.6 million.

Capital additions for 2000 were approximately $3.9 million,  including purchased
software  acquired  through capital lease  obligations.  Such capital  additions
helped  Comdial  introduce  new  products as well as improve  quality and reduce
costs associated with new and existing  products.  Capital additions were funded
by cash generated from  operations,  borrowings  from the revolver,  and capital
leases.  Cash  expenditures  for  capital  additions  for 2000,  1999,  and 1998
amounted  to  $2.6  million,  $3.9  million,  and  $4.8  million,  respectively.
Management  anticipates that approximately $0.5 million will be spent on capital
additions  during 2001.  The  significant  decrease in capital  additions in the
future is the result of outsourcing  manufacturing  and therefore,  needing less
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, 2000,  decreased by $7.6 million when compared
to December 31, 1999. This decrease was primarily due to decreasing purchases of
raw  materials  intended to reduce  inventory  levels over the latter  months of
2000.

Working capital decreased to a deficiency of $5.7 million at December 31, 2000
million  when  compared  with working  capital of $48.2  million at December 31,
1999. The Company has sold the land and building in Charlottesville on March 9,
2001. The proceeds of approximately $11.4 million will be utilized to pay down
the a portion of the Term Loan. The Company will also use proceeds of
approximately $1.0 million received from its sale of equipment and furniture to
further reduce the outstanding balance. Inventory levels, as well as accounts
payable, are expected to be further reduced as a result of outsourcing the
manufacturing operations.


                                       27
<PAGE>

Long-term Debt, Including Current Maturities

Since  October  1998,  Bank  of  America  held  substantially  all of  Comdial's
indebtedness.  Prior to October 1998,  Fleet Capital  Corporation  ("Fleet") had
held substantially all of Comdial's indebtedness.

On October  22,  1998,  Comdial and Bank of America,  N.A.  ("Bank of  America")
formerly  NationsBank,  N.A.,  entered  into a  credit  agreement  (the  "Credit
Agreement").  The Credit Agreement provided Comdial with a $50 million revolving
credit  facility  and a $5 million  letter of credit  subfacility.  Comdial used
$15.8  million  under the  revolving  credit  facility  (the  "Revolving  Credit
Facility") to pay off (1) all its  indebtedness  of $10.8 million to Fleet,  (2)
$4.4 million representing amounts owed under Comdial's promissory note including
interest to the former owners of KVT, and (3) $0.6 million of mortgages  owed by
KVT.

On November 22, 2000, the Credit Agreement was amended  ("Amendment") to reflect
the following:  (i) a reduction of the revolving  credit  facility to an initial
aggregate principal amount not to exceed $21.5 million,  with further reductions
over time as discussed  below;  (ii) an $18.5  million term loan  facility;  and
(iii) the  continued  provision  of $5.0 million  letter of credit  subfacility.
Interest on amounts  outstanding  under the Term Loan and the  Revolving  Credit
Facility are due monthly and are based on the LIBOR daily floating rate plus 3%.

The term loan  requires  principal  installments  of $2.5  million  per  quarter
beginning June 30, 2001, with the final  principal  payment of $11.0 million due
on March 31,  2002.  See Note 6 to the  Consolidated  Financial  Statements  for
additional information with respect to Comdial's loan agreements, long-term debt
and available short-term credit lines.

As of December 31, 2000,  Comdial was in  compliance  with all the covenants and
terms of the Credit Agreement except for the requirements  that Comdial maintain
certain  levels  of  working  capital,  and a  specified  debt to total  capital
covenant. The working capital covenant required that Comdial maintain "eligible"
accounts  receivable  and  inventory (as defined in the  Agreement),  to provide
security  for loans under the Credit  Agreement  of at least $16.5  million.  At
December 31, 2000, the total of such eligible accounts  receivable and inventory
was $15.6 million.

As of April 10, 2001, Comdial and Bank of America agreed to new terms. The terms
are as follows:

The  revolving  credit  facility  will not be reduced,  but will remain at $16.5
million.  Comdial will also be allowed to utilize the facility provided that the
collateral is 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 has been extended until March 31, 2002.

The Term Loan  principal  payment of $2.5 million due September 30, 2001 will be
replaced by an amount necessary to reduce the debt to $5 million. Currently, the
outstanding balance of the term loan is $15.7 million.  Comdial expects the $8.4
million note from Seminole Properties, LLC (pursuant to its sale of its land and
building  on  March  9,  2001)  to be  paid by June 1,  2001,  and  proceeds  of
approximately  $1.0  million  from the  April 12,  2001  equipment  auction  and
furniture  sale to reduce the  principal  payment  due on  September  30 2001 to
approximately  $1.3  million.   The  remaining  balance  of  the  term  loan  of
approximately $5.0 million will be due as follows:  $2.5 million on December 20,
2001 and $2.5 million on March 31, 2002.

The funded debt to total capital ratio covenant  ("Ratio")  which is measured at
the end of each fiscal  quarter has been waived for  December 31, 2000 and March
31, 2001. The Ratio will remain a maximum of .55 to 1, but will be calculated by
adding back the deferred tax valuation allowance to total capital.

The Earnings Before Income Taxes and Depreciation  and  Amortization  ("EBITDA")
covenant,  which was effective  for the first  quarter of fiscal 2001,  has been
waived for March 31, 2001. The replacement covenant is a minimum EBITDA for June


                                       28
<PAGE>

30,  September  30, and  December  31, 2001  equivalent  to $1.9  million,  $6.0
million,  and $9.7 million,  respectively.  The EBITDA covenant is measured on a
cumulative basis from April 1, 2001.

The new ratios are based in the Company's  projected  financial  performance for
2001. The Company believes it will be able to meet these financial  projections,
however, no assurances can be given.

Capital  expenditures  by the  Company  have been  limited to $0.3  million  per
quarter and $1.2 million per year.

The  interest  rates for both the Term  Loan and  Revolving  Facility  have been
increased from LIBOR rate plus 3% to Prime rate plus 3%.

The  Company  will pay Bank of  Amercia a $50,000  amendment  fee which  will be
payable by December 20, 2001.  In the event the Company has not  refinanced  its
debt by December 31, 2001,  the Company is required to pay a fee  equivalent  to
1.0% of the outstanding debt.

Comdial believes that income from operations combined with the proceeds from the
sale of its Charlottesville  facility, and amounts available from current credit
facilities  will be  sufficient  to meet  Comdial's  needs  for the  foreseeable
future;  however,  no  assurance  can  be  given  that  the  Company's  internal
operations will generate cash significant  enough to fund the Company's  working
capital needs.

Other Financial Information

During fiscal years 2000, 1999, and 1998,  primarily all of Comdial's sales, net
income, and identifiable net assets were attributable to the  telecommunications
industry.

Current Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments  and  Hedging  Activities,"  as amended by SFAS No.  138,  which was
issued in June 2000. The Company  adopted SFAS No. 133 on January 1, 2001.  SFAS
No. 133  requires  that all  derivative  instruments  be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current  earnings or other  comprehensive  income,  depending  on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge  transaction.  Comdial does not  participate  in any financial
instruments that meet the definition of a derivative, and therefore, adoption of
this  statement  did  not  have a  material  effect  on  Comdial's  consolidated
financial statements.

In November 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting Bulletin("SAB") No. 100, "Restructuring and Impairment Charges". This
SAB provides  guidance on the accounting for and disclosure of certain  expenses
and  liabilities  often reported in connection with exit activities and business
combinations (restructuring  activities),  and the recognition and disclosure of
asset  impairment  charges.  The  Company's  accounting  treatment  for  similar
transactions,  as discussed in Note 15 and Note 16 to the consolidated financial
statements, are consistent with the requirements of this SAB.

In  the  fourth  quarter  of  1999,  the  SEC  issued  SAB  No.  101,   "Revenue
Recognition".  Comdial  adopted the SAB, which did not have a material impact on
Comdial's consolidated financial statements.

In March 2000, the FASB issued  Interpretation  ("FIN") No. 44,  "Accounting for
Certain  Transactions   Involving  Stock  Compensation,   an  interpretation  of
Accounting  Principles Board Opinion No. 25." The requirements of FIN No. 44 are
either  not  applicable  to the  Company  or are  already  consistent  with  the
Company's existing accounting policies.

In September  2000,  the  Emerging  Issues Task Force  ("EITF")  reached a final
consensus on EITF Issue 00-10,  "Accounting  for Shipping and Handling  Fees and
Costs." This consensus  requires that all amounts billed to a customer in a sale
transaction  related to shipping and  handling,  if any,  represent  revenue and


                                       29
<PAGE>

should be  classified  as  revenue.  The  Company  historically  has  classified
shipping charges to customers as 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 $200,000 per year.

Item 8.  Financial Statements and Supplementary Data




                                       30
<PAGE>

------------------------------------------------------------------------------
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 1999, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for each of the three 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  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  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  1999,  and the  results  of their
operations  and their cash flows for each of the three 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.

As  discussed  in  Note  18  to  the  consolidated  financial  statements,   the
accompanying  consolidated balance sheet as of December 31, 1999 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1999 and 1998 have been restated.




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


                                       31
<PAGE>

<TABLE>
----------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                         December 31,
                                                                                 2000                  1999
                                                                                                   (As Restated -
In thousands except par value                                                                       See Note 18)
----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                     <C>
Assets
     Current assets
        Cash and cash equivalents                                                $2,428                  $1,917
        Accounts receivable (less allowance for                                  13,829                  39,700
            doubtful accounts:  2000 - $2,834; 1999 - $302)
        Inventories                                                              15,431                  22,827
        Prepaid expenses and other current assets                                 3,240                   7,633
----------------------------------------------------------------------------------------------------------------
            Total current assets                                                 34,928                  72,077
----------------------------------------------------------------------------------------------------------------

     Property - net                                                              16,684                  19,458
     Net deferred tax asset                                                           -                  11,980
     Goodwill                                                                     5,276                  11,207
     Other assets                                                                16,066                  18,352
----------------------------------------------------------------------------------------------------------------
            Total assets                                                        $72,954                $133,074
================================================================================================================

Liabilities and Stockholders' Equity
     Current liabilities
        Accounts payable                                                         $7,522                 $15,135
        Accrued payroll and related expenses                                      4,391                   3,652
        Accrued promotional allowances                                            1,324                   2,322
        Other accrued liabilities                                                 2,570                   2,253
        Current maturities of debt                                               24,848                     471
----------------------------------------------------------------------------------------------------------------
            Total current liabilities                                            40,655                  23,833
----------------------------------------------------------------------------------------------------------------

     Long-term debt                                                              13,561                  31,795
     Net deferred tax liability                                                   2,266                   2,622
     Long-term employee benefit obligations                                       4,957                   4,216
     Commitments and contingent liabilities (see Note 13)                             -                       -
----------------------------------------------------------------------------------------------------------------
            Total liabilities                                                    61,439                  62,466

     Stockholders' equity
        Common stock, $0.01 par value
             (Authorized 30,000 shares; issued shares,
             outstanding: 2000 - 9,197; 1999 - 8,940)                                93                      91
        Paid-in capital                                                         123,427                 119,199
        Treasury stock                                                           (1,296)                 (1,237)
        Accumulated deficit                                                    (110,709)                (47,445)
----------------------------------------------------------------------------------------------------------------
            Total stockholders' equity                                           11,515                  70,608
----------------------------------------------------------------------------------------------------------------
            Total liabilities and stockholders' equity                          $72,954                $133,074
================================================================================================================

                    The accompanying notes are an integral part of these financial statements.
</TABLE>


                                      32
<PAGE>

<TABLE>
--------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations

--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                 Years Ended December 31,
                                                                           2000               1999               1998
                                                                                          (As Restated -     (As Restated -
In thousands except per share amounts                                                      See Note 18)       See Note 18)
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>                <C>
Net sales                                                                  $100,042           $150,335           $131,835
Cost of goods sold                                                           77,715             85,554             79,080
--------------------------------------------------------------------------------------------------------------------------
        Gross profit                                                         22,327             64,781             52,755
--------------------------------------------------------------------------------------------------------------------------

Operating expenses
     Selling, general & administrative                                       47,099             39,914             33,531
     Engineering, research & development                                      6,283              9,735              7,342
     Goodwill amortization                                                    3,195              3,180              3,806
     Restructuring                                                            2,355
     Impairments of long-lived assets                                         7,425
--------------------------------------------------------------------------------------------------------------------------
        Operating income (loss)                                             (44,030)            11,952              8,076
--------------------------------------------------------------------------------------------------------------------------

Other expense
     Interest expense                                                         2,902              1,633              1,216
     Miscellaneous expense - net                                                932                286                565
--------------------------------------------------------------------------------------------------------------------------
Income(loss) before income taxes                                            (47,864)            10,033              6,295
Income tax expense (benefit)                                                 15,400              2,690            (10,737)
--------------------------------------------------------------------------------------------------------------------------
        Net income (loss)                                                  $(63,264)            $7,343            $17,032
==========================================================================================================================

Earnings (loss) per share:
      Basic                                                                 $ (6.89)            $ 0.82             $ 1.93
==========================================================================================================================
      Diluted                                                               $ (6.89)            $ 0.82             $ 1.88
==========================================================================================================================

Weighted average common shares outstanding:
        Basic                                                                 9,188              8,948              8,843
        Diluted                                                               9,188              8,989              9,081

                         The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                            33
<PAGE>

<TABLE>
------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                         Deferred Stock
                                                                    Common Stock            Incentive
                                                                    ------------       --------------------      Paid-in
In thousands                                                      Shares     Amount    Shares        Amount      Capital
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>                      <C>         <C>
 Balance at January 1, 1998, (As restated - see Note 18)           8,794        $88         -            $-          $116,840
      Proceeds from sale of common stock
         Notes receivable
         Stock options exercised                                      97          1                                       706
      Treasury Stock Purchased
      Deferred stock compensation                                                           8            84                48
      Incentive stock issued                                           3                                                   39
      Stock option compensation (As restated - see note 18)                                                               358
      Contingency stock issued for
         KVT acquisition                                              72                                                  498
 Net income (As restated - see Note 18)
------------------------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1998 (As restated - see Note 18)          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 (As restated - see note 18)                                                                41
      Contingency stock issued for
         KVT acquisition                                              72          1                                       303
         Array acquisition                                                                                                162
 Net income (As restated - see Note 18)
------------------------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1999, (As restated - see Note 18)         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
==============================================================================================================================

<CAPTION>
                                                                                        Notes
                                                              Treasury Stock          Receivable
                                                              --------------            on Sale       Accumulated
In thousands                                               Shares         Amount       of Stock         Deficit            Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
 Balance at January 1, 1998, (As restated - see Note 18)    (97)           ($878)       ($161)          ($71,820)        $44,069
      Proceeds from sale of common stock
         Notes receivable                                                                   5                                  5
         Stock options exercised                                                                                             707
      Treasury Stock Purchased                              (19)            (209)                                           (209)
      Deferred stock compensation                                                                                            132
      Incentive stock issued                                                                                                  39
      Stock option compensation (As restated - see note 18)                                                                  358
      Contingency stock issued for
         KVT acquisition                                                                                                     498
 Net income (As restated - see Note 18)                                                                   17,032          17,032
---------------------------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1998 (As restated - see Note 18)  (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 (As restated - see note 18)                                                                   41
      Contingency stock issued for                                                                                             -
         KVT acquisition                                                                                                     304
         Array acquisition                                                                                                   162
 Net income (As restated - see Note 18)                                                                    7,343           7,343
---------------------------------------------------------------------------------------------------------------------------------
 Balance at December 31, 1999, (As restated - see Note 18)  (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)          $0          ($110,709)        $11,515
=================================================================================================================================

                               The  accompanying  notes are an integral  part of these financial statements.
</TABLE>


                                                       34
<PAGE>

<TABLE>
Consolidated Statements of Cash Flows

------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                     Years Ended December 31,
                                                                                                   1999               1998
                                                                                              (As restated -      (As restated -
In thousands                                                                    2000           see Note 18)       see Note 18)
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>                <C>
Cash flows from operating activities:
    Net income (loss)                                                         $(63,264)            $7,343             $17,032
    Adjustments to reconcile net income (loss) to operating
     cash flows
     Depreciation and amortization                                              11,236              9,642               8,829
     Impairments of long-lived assets                                            7,425
     Deferred taxes                                                             15,456              2,147             (11,496)
    Changes in working capital components:
     (Increase) decrease in accounts receivable                                 25,871            (16,694)             (9,186)
     Inventory provision                                                         2,116                487               2,286
     (Increase)decrease in inventory                                             5,280             (1,880)             (5,219)
     Increase in other assets                                                   (4,437)           (11,278)             (5,431)
     Increase (decrease) in accounts payable                                    (7,613)             4,101               1,805
     Increase in other liabilities                                                 443              2,387               1,184
     Array asset value at acquisition                                                                   -                (103)
     Increase in other equity                                                    2,035                619                 266
    --------------------------------------------------------------------------------------------------------------------------
       Net cash used by operating activities                                    (5,452)            (3,126)                (33)
------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Purchase of Array Telecom Corp. ("Array")                                        -                  -              (5,880)
    Acquisition cost for Array                                                                         (5)               (246)
    Proceeds received from the sale of FastCall                                      -                  -                 290
    Proceeds received from sale of ePHONE assets                                   648
    Proceeds from the sale of equipment                                            891                  1                 158
    Capital expenditures                                                        (2,591)            (3,935)             (4,842)
------------------------------------------------------------------------------------------------------------------------------
       Net cash used by investing activities                                    (1,052)            (3,939)            (10,520)
------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Net borrowings under revolver agreement                                      5,528              7,464              22,132
    Proceeds from issuance of common stock                                       2,136                 20                 498
    Principal payments on debt                                                       -                  -             (13,546)
    Principal payments under capital lease obligations                            (649)              (101)                (63)
------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by financing activities                                 7,015              7,383               9,021
------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                               511                318              (1,532)
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                                   1,917              1,599               3,131
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                        $2,428             $1,917              $1,599
==============================================================================================================================

------------------------------------------------------------------------------------------------------------------------------
Supplemental information - Cash paid during the year for:
    Income taxes                                                                 $ 508              $ 503               $ 824
    Interest                                                                     2,902              1,633               1,387
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Supplemental Schedule of Non-Cash Investing and Financing Activities:
    Assets acquired through capital lease transactions                         $ 1,264            $ 2,800                $  -
    Contingency stock issued for acquisitions                                        -                466                 498
------------------------------------------------------------------------------------------------------------------------------


                           The accompanying notes are an integral part of these financial statements.
</TABLE>


                                      35

<PAGE>

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2000, 1999, and 1998

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

Principles of Consolidation

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

Nature of Operations

Comdial is a United States ("U.S.") based manufacturer of business communication
systems.  Comdial's  principal  customers  are small to medium sized  businesses
throughout the U.S. and certain international  markets. The distribution network
consists of four major distributors,  other supply houses, dealers, other direct
channels, and independent  interconnects.  Beginning in fiscal 2001, the Company
has  outsourced the majority of its  manufacturing  operations to two suppliers.
The dynamic,  high-technology  industry in which  Comdial  participates  is very
competitive.

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 of America ("GAAP") requires  management
to make  certain  estimates  and  assumptions  that affect  reported  amounts of
assets, liabilities, revenues, expenses, and 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,  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,
when  purchased,  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 and $2.2  million  are  included in accounts
payable  at  December  31,  2000 and 1999,  respectively.  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 on the Consolidated Statements of Cash Flows.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

Property/Depreciation

Property is recorded at cost.  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 are charged to


                                       36
<PAGE>

expense. Improvements and repairs, which extend economic lives, are capitalized.
In 2000 and 1999, Comdial expensed certain computer hardware and software due to
the  rapid  change  in  technology  that  has  effected  a  need  for  continual
replacements.  In 2000 and 1999,  some of the major  expenditures  for  computer
hardware and software have been through  operating or capital  leases.  Prior to
1998,  all computer  and software  costs were  capitalized  or acquired  through
operating leases.

The estimated useful lives are as follows:
Buildings                                                         30 years
Land Improvements                                                 15 years
Machinery and Equipment                                            7 years
Computer Hardware Equipment and Tooling                            5 years

Other Long-lived Assets

Long-lived  assets are amortized based on the assets' useful lives.  The cost in
excess of net assets of consolidated business acquired is amortized over periods
ranging from 2 to 10 years.  Long-lived  assets are reviewed for  impairment  as
circumstances  change that might effect  those  assets.  Impairment  loss is not
recognized  unless a  portion  of the  carrying  amount of an asset is no longer
recoverable  using a test of  recoverability,  which is the net of the  expected
future undiscounted cash flows.

During the fourth quarter of 2000, in light of the  restructuring and initiative
to outsource  manufacturing,  the Company  identified  certain long-lived assets
that were impaired. See Note 16.

Capitalized Software Development Costs

In 2000, 1999, and 1998,  Comdial incurred costs associated with the development
of software  related to Comdial's  various  products.  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").  The amortization  period is over three
years  which  is the  short  end of  the  product  life  cycle.  The  three-year
straight-line  method for software  amortization causes greater expense for each
period versus using the revenue method. The total amount of unamortized software
development  cost  included in other  assets is $6.1 million and $5.5 million at
December  31, 2000 and 1999,  respectively.  The amounts  capitalized  were $3.1
million,  $2.9 million,  and $2.8 million, of which $2.1 million,  $1.8 million,
and $1.4 million were amortized in 2000, 1999, and 1998,  respectively.  Comdial
also capitalizes costs associated with product software development performed by
outside  contract  engineers.  The total amount of unamortized  outside contract
development  cost  included in other assets is $3.3 million both at December 31,
2000, and 1999. The amounts  capitalized  were $1.3 million,  $1.8 million,  and
$1.5  million,  of which $1.2  million,  $0.6  million,  and $0.4  million  were
amortized in 2000, 1999 and 1998, respectively.

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

Postretirement Benefits Other Than Pension

Comdial  accrues  estimated  costs  relating to health  care and life  insurance
benefits.  In 2000,  Comdial recognized income of $12,000 compared to an expense
of $137,000 and $87,000 during 1999 and 1998, respectively. See Note 10.

Revenue Recognition

Comdial  recognizes  revenue as products  are  shipped  and are  accepted by the
customer.  An  estimate of returned  products  is reserved  concurrent  with the
recognition  of revenue.  The only  exceptions  to this policy are revenues from


                                       37
<PAGE>

E911 systems and from  embedded  software.  E911  revenues are  recognized  when
projects have been completed and embedded  software  revenues are not recognized
until the  customer  requests a code from  Comdial  enabling  the software to be
used.  Comdial's  reporting of software  revenue meets the  requirements  as set
forth by Statement of Position  97-2  "Software  Revenue  Recognition."  Comdial
recognizes service revenue upon completion of repairs and 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.

Expensing of Costs

All production  start-up,  research and development,  and engineering  costs are
charged to expense,  except for that  portion of costs  which  relate to product
software development and outside contract development (see "Capitalized Software
Development Costs").

Accounting for Stock-Based Compensation

Comdial accounts for stock-based  compensation 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".

Income Taxes

Comdial uses the deferred tax liability or asset approach, which is based on the
difference  between  the  financial  statement  and  tax  basis  of  assets  and
liabilities  as  measured  by the enacted tax rates which will 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  incurred  cumulative
operating losses through 1991 for financial statement and tax reporting purposes
and has adjusted its valuation  allowance  account to recognize the net deferred
tax asset for future  periods  (see Note 7). Tax  credits  will be  utilized  to
reduce current and future income tax expense and payments.

Earnings per Common Share

Earnings per common share  ("EPS") is computed for both basic and diluted EPS in
accordance with  SFAS  No. 128.  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.
(Note 8)


                                       38
<PAGE>

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 interest rates on the Company's
bank borrowings are adjusted regularly to reflect current market rates.
Accordingly, the carrying amounts of the Company's short-term and long-term
borrowings also approximate fair value.

Reclassifications

Amounts in the 1999 and 1998 consolidated financial statements have been
reclassified to conform to the 2000 presentation. These reclassifications had no
effect on previously reported consolidated net income (See Note 17).

Current Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS No. 138, which was issued in June 2000. The Company adopted SFAS No. 133
on January 1, 2001. SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Comdial does not
participate in any financial instruments that meet the definition of a
derivative, and therefore, adoption of this statement did not have any effect on
Comdial's consolidated financial statements.

In November 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin ("SAB") No. 100, "Restructuring and Impairment Charges".
This SAB provides guidance on the accounting for and disclosure of certain
expenses and liabilities often reported in connection with exit activities and
business combinations (restructuring activities), and the recognition and
disclosure of asset impairment charges. The Company's accounting treatment for
similar transactions, as discussed in Note 15 and Note 16, is consistent with
the requirements of this SAB.

In the fourth quarter of 1999, the SEC issued SAB No. 101, "Revenue
Recognition". Comdial adopted the SAB in January 2000 which did not have a
material impact on Comdial's consolidated financial statements.

In March 2000, the FASB issued Interpretation (FIN) No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of APB No.
25." The requirements of FIN No. 44 are either not applicable to the Company or
are already consistent with the Company's existing accounting policies.

In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." This consensus requires that all amounts billed to a customer in a sale
transaction related to shipping and handling, if any, represent revenue and
should be classified as revenue. The Company historically has classified
shipping charges to customers as revenue. With respect to the classification of
costs related to shipping and handling incurred by the seller, the EITF
determined that the classification of such costs is an accounting policy
decision that should be disclosed. The Company recognizes such costs as a
component of cost of goods sold. Adoption of this consensus did not change the
Company's existing accounting policies or disclosures.


                                       39
<PAGE>

NOTE 2.  ACQUISITIONS & DISPOSALS
         ------------------------

On July 14,  1998,  Comdial  acquired  the Internet  telephony  gateway  product
VOIPgate.com  and the related  assets and business of Array Telecom  Corporation
("Array")  from Array  Systems  Computing  Inc.  ("ASCI").  ASCI was  located in
Toronto, Ontario, Canada. The purchase price was approximately $5.9 million. The
funds used for the  acquisition  came from cash  generated by  operations  and a
revolving  credit  facility.  The principal asset purchased was the intellectual
property which is being amortized over a range of five to eight years,associated
with VOIPgate software, an Internet protocol based telephony software platform.

On March 31, 2000,  Array,  a wholly owned  subsidiary  of Comdial,  and Comdial
entered into a Strategic Alliance with ePHONE Telecom, Inc. ("ePHONE"). Pursuant
to the agreement, Array sold its fixed assets and the "3000" family of products,
and licensed its  technology  for a five-year  term to ePHONE.  Comdial  allowed
ePHONE to utilize the name  "Array" and will  provide  ePHONE with access to its
distribution  channels.  EPHONE paid Array $2.7  million on the closing date and
will pay royalty fees to Comdial  based on certain  gross sales over a five-year
period.  Comdial will recognize the $2.7 million, less costs associated with the
transaction  and  proceeds   received  for  the  assets  sold  which  aggregated
approximately  $0.7  million,  into income over a five year period.  The Company
recognized $0.3 million of income during the year ended December 31, 2000.

NOTE 3.  INVENTORIES
         -----------

Inventory consists of the following:

---------------------------------------------------------------------------
December 31,
In thousands                              2000                  1999
---------------------------------------------------------------------------
     Finished goods                      $7,064                $8,763
     Work-in-process                         80                 4,556
     Materials and supplies               8,287                 9,508
                                        -------               -------
       Total                            $15,431               $22,827
                                        =======               =======

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

Comdial  provides  reserves to cover  product  obsolescence  and those  reserves
impact  gross  margin.  Reserves  for  inventory  obsolescence  amounted to $5.4
million and $3.2 million as of December 31, 2000 and 1999, 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.

NOTE 4.  PROPERTY
         --------

Property consists of the following:

------------------------------------------------------------------------------
December 31,
In thousands                                   2000                      1999
------------------------------------------------------------------------------
Land                                           $624                      $656
Buildings and improvements                   14,471                    15,035
Machinery and equipment                      37,833                    37,517
Less accumulated depreciation               (36,244)                  (33,750)
                                            -------                   -------
  Property - Net                            $16,684                   $19,458
                                            =======                   =======
------------------------------------------------------------------------------

Depreciation  expense charged to operations for the years 2000,  1999, and 1998,
was $3.5 million, $3.3 million, and $2.8 million, respectively.



                                       40
<PAGE>

Due  to  the  Company's  decision  to  begin  outsourcing  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  a $0.3  million  write-down  on its fixed
assets in fiscal 2000 (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
------------------------------------------------------------------------------
   2001                                          $1,009             $2,356
   2002                                           1,006              1,837
   2003                                           1,006              1,173
   2004                                             859              1,015
   2005                                              62                645
   thereafter                                         -              1,987
                                                 ------             ------
Total minimum lease commitments                   3,942             $9,013
                                                                    ======
  Less amounts representing interest
    and other costs                                (657)
                                                 ------
  Principal portion of minimum lease
    commitments at December 31, 2000             $3,285
                                                 ======
------------------------------------------------------------------------------

Assets  recorded  under  capital  leases   (included  in  other  assets  in  the
accompanying Consolidated Balance Sheets) are as follows:

------------------------------------------------------------------------------
December 31,
In thousands                                      2000              1999
------------------------------------------------------------------------------
     Capitalized software                         $669             $2,757
     Less accumulated amortization                 (77)               (59)
                                                  ----             ------
        Capitalized software - Net                $592             $2,698
                                                  ====             ======

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

For 2000 and 1999,  Comdial  entered into new capital  lease  obligations  which
amounted to  approximately  $1.3  million and $2.8  million,  respectively.  All
capital lease  balances as of December 31, 2000 and 1999, are for assets such as
software. 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 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, 2000, 1999, and 1998, were
$3.7 million, $2.7 million, and $2.2 million, respectively.

NOTE 6.  DEBT
         ----

On October  22,  1998,  Comdial and Bank of America,  N.A.  ("Bank of  America")
formerly  NationsBank,  N.A.,  entered  into a  credit  agreement  (the  "Credit
Agreement").  The Credit Agreement provided Comdial with a $50 million revolving
credit  facility  and a $5 million  letter of credit  subfacility.  Comdial used
$15.8  million  under the  revolving  credit  facility  (the  "Revolving  Credit
Facility") to pay off (1) all its  indebtedness  of $10.8 million to Fleet,  (2)
$4.4 million representing amounts owed under Comdial's promissory note including
interest to the former owners of KVT, and (3) $606,000 of mortgages owed by KVT.

                                       41
<PAGE>

Long-term debt consists of the following:
------------------------------------------------------------------------------
December 31,
In thousands                                             2000           1999
------------------------------------------------------------------------------
   Revolving credit facility (1)                        $16,624        $29,596
   Term loan                                             18,500
   Capitalized leases (2)                                 3,285          2,670
                                                        -------        -------
     Total debt                                          38,409         32,266
   Less current maturities on debt                       24,848            471
                                                         ------        -------
     Total long-term debt                                13,561        $31,795
                                                         ======        =======
------------------------------------------------------------------------------

     (1) On October 22, 1998, Comdial borrowed $15.8 million under the Revolving
Credit Facility from Bank of America, which was used to pay off other existing
loans. The loan made pursuant to the Credit Agreement with Bank of America
carries an interest rate based on the LIBOR daily rate plus the applicable
margin and does not require monthly principal payments. The interest rate can be
adjusted quarterly based on Comdial's ratio of funded debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA"), which allows the
rates to vary from plus 0.75% to 1.50% above the LIBOR daily rate.

On November 22, 2000, the Credit Agreement was amended ("Amendment") to reflect
the following: (i) a reduction of the revolving credit facility to an initial
aggregate principal amount not to exceed $21.5 million with further reductions
over time as discussed below; (ii) an $18.5 million term loan facility; and
(iii) the continued provision of the $5.0 million letter of credit subfacility.
Interest on amounts outstanding under the Term Loan and the Revolving Credit
Facility are due monthly and are based on the LIBOR daily floating rate plus 3%.

As of December 31, 2000 and 1999, Comdial's borrowing LIBOR rates were 9.64% and
6.58%, respectively, which includes the additional margin of 3.0% and 0.75%,
respectively. On April 10, 2001, the Credit Agreement was again amended. On
April 10, 2001, the credit agreement was again amended.

Revolving  Credit  Facility
The Amendment dated April 10, 2001 provides that the revolving credit facility
will not be reduced from amounts then currently outstanding, but will remain at
$16.5 million. Comdial will also be allowed to utilize the facility provided
that the collateral is maintained (see "Debt Covenants"). Furthermore, the
facility's maturity has been extended until March 31, 2002.

Proceeds of advances under the revolving credit facility can be used for working
capital and other general corporate purposes.

Term Loan
The Amendment dated November 22, 2000 provided for a term loan in the amount of
$18.5 million which Comdial received on November 30, 2000. Principal
installments on the term loan are due as follows:

                June 30, 2001                  $ 2,500,000
                September 30, 2001               2,500,000
                December 31, 2001                2,500,000
                March 31, 2002                  11,000,000

The April 10, 2001 amendment states that principal payment of $2.5 million due
September 30, 2001 will be replaced by an amount necessary to reduce the debt to
$5 million. As of March 9, 2001, the outstanding balance of the term loan is
$15.7 million. Comdial expects the proceeds from the $8.4 million note
receivable from Seminole Properties, LLC (pursuant to its sale of its land and
building on March 9, 2001 - see Note 19) to be collected by June 1, 2001, and
proceeds of $1.0 million from the April 12, 2001 equipment auction and furniture
sale to reduce the principal payment due September 30, 2001. The remaining
balance of the Term Loan will be due as follows: $2.5 million on December 20,
2001 and $2.5 million on March 31, 2002.


                                       42
<PAGE>

The Bank of America Credit Agreement also gives Comdial a letter of credit
subfacility of $5.0 million, which is part of the Revolving Credit Facility, as
commitments occur. At December 31, 2000 and 1999, there were no commitments
under the letter of credit facility with Bank of America.

The Company will pay Bank of America a $50,000 amendment fee which will be
payable by December 20, 2001. In the event Comdial has not refinanced its debt
by December 31, 2001, the Company is required to pay a fee equivalent to 1.0% of
the outstanding debt.

(2) Capital leases are with various financing entities and are payable based on
the terms of each individual lease (see Note 5).

Debt Covenants

As of December 31, 2000, Comdial was in compliance with all the covenants and
terms of the Credit Agreement except for the requirement that Comdial maintain
certain levels of working capital and the funded debt to total capital covenant.
The working capital covenant required that Comdial maintain "eligible" accounts
receivable and inventory (as defined in the Agreement), to provide security for
loans under the Credit Agreement of at least $16.5 million. At December 31,
2000, the total of such eligible accounts receivable and inventory was $15.6
million. The Company was also not in compliance with the funded debt to total
capital covenant.

The Amendment dated April 10, 2001 sets forth certain changes to the covenants
as follows:

The funded debt to total capital ratio covenant ("Ratio"), which is measured at
the end of each fiscal quarter, was waived for December 31, 2000 and March 31,
2001. The Ratio will remain at a maximum of .55 to 1, but will be calculated by
adding back the deferred tax valuation allowance to total capital.

The Amendment also provides that Comdial maintain "eligible" accounts receivable
and inventory (as defined in the Agreement), to provide security under the
Credit Agreement of 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.

The Earnings Before Income Taxes and Depreciation and Amortization ("EBITDA")
covenant which was effective for the first quarter of 2001, has been waived for
March 31, 2001. The replacement covenant is 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 is measured on a cumulative
basis from April 1, 2001.

Capital expenditures by the Company have been limited to $0.3 million per
quarter and $1.2 million per year.

The interest rates for both the Term Loan and Revolving Facility have been
increased from the LIBOR rate plus 3% to Prime rate plus 3%.

As a result of the revised Credit Agreement and related restrictive covenants,
$11.0 million of the outstanding indebtedness as of December 31, 2000 has been
excluded from current liabilities.

                                       43
<PAGE>

NOTE 7.  INCOME TAXES
         ------------

The components of the income tax expense  (benefit) for the years ended December
31 are as follows:
-------------------------------------------------------------------------------
In thousands                             2000           1999             1998
-------------------------------------------------------------------------------
     Current -  Federal                  ($40)           $410             $393
                State                     (16)            133              369
     Deferred - Federal                14,200           1,573           (9,730)
                State                   1,256             574           (1,769)
                                      -------          ------         --------
       Total provision (benefit)      $15,400          $2,690         ($10,737)
                                      =======          ======         ========
-------------------------------------------------------------------------------

The income tax provision  reconciled to the tax computed at statutory  rates for
the years ended December 31, is summarized as follows:
--------------------------------------------------------------------------------
In thousands                                     2000         1999        1998
--------------------------------------------------------------------------------
    Federal tax at statutory rate
    (35% in 2000, 1999, and 1998)             ($16,752)      $3,512      $2,203
    State income taxes (net of federal tax
      benefit)                                     806          764        (924)
    Nondeductible charges                           40          707         411
    Other adjustments                              197         (124)        519
    Expiring business credits                       66          504           -
  Adjustment of valuation allowance             31,043       (2,673)    (12,946)
                                               -------       ------    --------
      Income tax provision (benefit)           $15,400       $2,690    $(10,737)
                                               =======       ======    ========
--------------------------------------------------------------------------------

Net deferred  tax assets of $0 and $14.8  million  have been  recognized  in the
accompanying  Consolidated  Balance  Sheets  at  December  31,  2000  and  1999,
respectively.  The  components of the net deferred tax assets  (liabilities)  at
December 31, 2000 and 1999 are as follows:
-------------------------------------------------------------------------------
Deferred Assets (Liabilities)                             December 31,
In thousands                                       2000                  1999
-------------------------------------------------------------------------------
     Net loss carryforwards                      $13,918                $4,984
     Tax credit carryforwards                      1,411                 1,513
     Inventory write downs and capitalization      3,274                 1,937
     Pension                                         128                    26
     Postretirement                                  287                   280
     Compensation and benefits                     1,818                   409
     Capitalized software development costs        2,838                 1,033
     Other deferred tax assets                     1,510                   197
     Goodwill amortization                         5,151                 2,405
     Research and development expenditures         4,515                 5,218
     Allowance for bad debts                       1,067                    88
                                                 -------               -------
        Total deferred tax assets                 35,917                18,090

     Contingencies                                     -                  (359)
     Fixed asset depreciation                     (1,776)               (2,216)
     State taxes                                                          (406)
                                                 -------               -------
        Total deferred tax liabilities            (1,776)               (2,981)

     Net deferred tax asset                       34,141                15,109
     Less:  Valuation allowance                  (34,141)                 (300)
                                                 -------               -------
        Total                                    $     -               $14,809
                                                 =======               =======
-------------------------------------------------------------------------------

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  judgement about the future  realization of deferred tax
assets.  Due to changes in estimates of future  taxable  income,  management  no
longer  believes  that it is more likely than not that  Comdial will realize its
tax benefits.

Accordingly,  the Company  reserved a valuation  allowance equal to its deferred
tax assets of $34.1 million for the year ended December 31, 2000.

Comdial has net  operating  loss and credit  carryovers of  approximately  $37.5
million and $1.4 million,  respectively,  which, if not utilized, will expire as
follows:
------------------------------------------------------------------------------
In thousands                    Net Operating
  Expiration Dates                  Losses                  Tax Credits
------------------------------------------------------------------------------
    2001                            2,898                     $    -
    2002                            6,486                          -
    2003                                7                          -
    After 2003                     28,138                      1,411
                                   ------                     ------
       Total                      $37,529                     $1,411
                                  =======                     ======
-----------------------------------------------------------------------------

                                       44
<PAGE>

NOTE 8:  EARNINGS PER SHARE
         ------------------

For the years ended December 31, 2000, 1999 and 1998, earnings per common share
("EPS") were computed for both basic and diluted EPS in accordance with SFAS
No. 128. 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 (loss) by the weighted average number of common and potentially dilutive
common shares outstanding during the period. In 2000, 190,417 potentially
dilutive common shares were excluded from the computation of diluted earnings
per share because their effect would have been antidilutive. The following table
discloses the annual earnings per share information would have been:


------------------------------------------------------------------------------
        Year                     Numerator         Denominator          EPS
In thousands, except EPS
------------------------------------------------------------------------------

    2000  Basic EPS              $(63,264)            9,188          $(6.89)
          Diluted                $(63,264)            9,188          $(6.89)

    1999  Basic EPS                $7,343             8,948           $0.82
           Diluted                 $7,343             8,989           $0.82

    1998  Basic EPS               $17,032             8,843           $1.93
           Diluted                $17,032             9,081           $1.88


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

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 the 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.

                                       45
<PAGE>

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 Retiremant Benefit  Restoration Plan, and in
September  2000,  the  Company  froze  the  qualified   pension  plan,   thereby
eliminating any further  benefit accrual by employees in 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.

The following  table sets forth the change in projected  benefit  obligations of
the pension  plans during 2000 and 1999.

------------------------------------------------------------------------------
In thousands                                        2000              1999
------------------------------------------------------------------------------
    Benefit obligation at beginning of year       $25,786           $22,432
    Service cost                                    1,051             1,758
    Interest cost                                   1,938             1,692
    Actuarial loss (gain)                           1,019            (3,101)
    Benefits paid                                  (1,776)             (543)
    Curtailment adjustment                         (2,559)                -
    Settlement adjustment                             144                 -
    Amendments                                          -             3,548
                                                  -------           -------
       Benefit obligation at end of year          $25,603           $25,786
                                                  =======           =======

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

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,
2000 and 1999.
-------------------------------------------------------------------------------
In thousands                                              2000            1999
-------------------------------------------------------------------------------
    Fair value of plan assets at beginning of year     $24,080         $21,402
    Actual return on plan assets                           907           1,704
    Employer contribution                                1,959           1,517
    Benefits paid                                       (1,776)           (543)
                                                       -------         -------
       Fair value of plan assets at end of year        $25,170         $24,080
                                                       =======         =======

Funded status                                          ($  433)        ($1,706)
Unrecognized actuarial gain                                (71)         (2,507)
Unrecognized prior service cost                              -           3,210
                                                       -------         -------
Net amount recognized                                   ($ 504)        ($1,003)
                                                       =======         =======

Amounts recognized in the Consolidated Balance
    Sheets consist of:
    Prepaid benefit cost                                $1,678               -
    Intangible asset                                         -           2,400
    Accrued benefit liability                           (2,182)         (3,403)
                                                       -------         -------


       Net amount recognized                           ($  504)        ($1,003)
                                                       =======         =======
-------------------------------------------------------------------------------


                                       46
<PAGE>

Assumptions  used  in  accounting  for  the  plans  as of  December  31  were as
follows:
                                          2000          1999         1998
--------------------------------------------------------------------------
    Discount rate                         7.50%         8.00%        7.00%
    Expected return on plan assets        9.00%         9.00%        9.00%
    Rate of compensation increase         4.50%         4.50%        4.50%
--------------------------------------------------------------------------

Net  periodic  pension cost for 2000,  1999,  and 1998  included  the  following
components:

--------------------------------------------------------------------------------
In thousands                                2000           1999           1998
--------------------------------------------------------------------------------
    Service cost                          $1,051         $1,758         $1,575
    Interest cost                          1,938          1,692          1,334
    Expected return on plan assets        (2,050)        (1,777)        (1,490)
    Amortization of prior service cost       186            124            (63)
    Settlement gain                         (112)             -              -
    Curtailment loss                         464              -              -
    Recognized actuarial loss (gain)         (17)            68             61
                                          ------         ------         ------
       Net periodic pension cost          $1,460         $1,865         $1,417
                                          ======         ======         ======
--------------------------------------------------------------------------------

In addition to providing pension benefits, Comdial contributes to a 401(k) plan,
based on an 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%. Prior to 1998, Participants could
contribute  from 2% to 12.5% of their salary as defined in the terms of the plan
and  Comdial  would  match  contributions  equal  to 25%  of  the  participant's
contributions  up to the first 10%.  Comdial's  total  expense for the  matching
portion to the  401(k)  plan for 2000,  1999,  and 1998 was $0.6  million,  $0.6
million, and $0.4 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 2000 was income of $12,000  compared to an
expense  for  1999  and  1998  of  $137,000  and  $87,000,   respectively.   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 following table).

During fiscal 2000,  Comdial  eliminated  the accrual of certain  postretirement
benefits previously  accounted for under the program 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 current year earnings are negligible.

                                       47
<PAGE>

The following table sets forth the change in postretirement  benefit obligations
and amounts recognized in Comdial's  Consolidated Balance Sheets at December 31,
2000 and 1999.

------------------------------------------------------------------------------
In thousands                                         2000              1999
------------------------------------------------------------------------------
    Benefit obligation at beginning of year        $1,074            $1,011
    Service cost                                        4                37
    Interest cost                                      27                74
    Plan participants' contributions                   13                16
    Actuarial loss/(gain)                              17               (16)
    Benefits paid                                     (40)              (48)
    Curtailment effect                               (707)                -

Benefit obligation at December 31                    $388            $1,074
                                                     ====            ======

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

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, 2000 and 1999.
------------------------------------------------------------------------------
In thousands                                             2000           1999
------------------------------------------------------------------------------
    Fair value of plan assets at beginning of year       $  -           $  -
    Employer contribution                                  27             32
    Plan participants' contributions                       13             16
    Benefits paid                                         (40)           (48)
                                                          ----           ---
        Fair value of plan assets at December 31         $  -           $  -
                                                         ====           ====

Funded status                                          ($ 388)       ($1,074)
    Unrecognized transition obligation                    438          1,182
    Unrecognized actuarial gain                          (812)          (902)
    Unrecognized prior service cost                         -              -
                                                         ----          -----
        Accrued benefit cost                           ($ 762)         ($794)
                                                       ======          =====

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

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

-----------------------------------------------------------------
                     2000              1999             1998
-----------------------------------------------------------------
  Discount rate       7.50%            8.00%            7.00%
-----------------------------------------------------------------

For measurement purposes, a 7.00% annual rate of increase in the per capita cost
of covered  health care  benefits was assumed for 2000.  The rate was assumed to
decrease gradually to 5.25% for 2005 and remain at that level thereafter.

Net periodic  postretirement  (benefit) cost for 2000, 1999, and 1998,  included
the following components:

------------------------------------------------------------------------------
In thousands                         2000             1999              1998
------------------------------------------------------------------------------
    Service cost                     $  4              $37               $19
    Interest cost                      27               74                68
    Amortization of unrecognized
     transition obligation             37               91                91
    One-time curtailment income        (6)
    Recognized actuarial gain         (74)             (65)              (91)
                                      ----             ---               ---
        Net postretirement
          (benefit) cost             ($12)            $137               $87
                                     ====             ====               ===
------------------------------------------------------------------------------

                                       48
<PAGE>

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         $23            ($22)
------------------------------------------------------------------------------


NOTE 11.  STOCK-BASED COMPENSATION PLANS
          ------------------------------

As of December 31, 2000, Comdial had two basic stock-based  compensation  plans.
The 1992  Stock  Incentive  Plan (the " 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. 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, 2000, there were 2.0 million shares of Comdial's Common Stock
reserved for issuance under Comdial's 1992 Stock Incentive Plan that had been
approved by the stockholders in 1996. 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, $150,000, and
$156,000 at December 31, 2000, 1999, and 1998, respectively, and have been
deducted from Stockholders' Equity.

Options  granted  for years  2000 and 1999 have a maximum  term of ten years and
vest over a three-year  period.  Options  issued in 2000 become  exercisable  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 become  exercisable in
installments   of  33%  per  year  on  each  of  the  first  through  the  third
anniversaries of the grant date. All options granted through the Stock Incentive
Plan are granted at an exercise  price  equal to the market  price of  Comdial's
Common  Stock on the grant date.  In 1998,  Comdial  granted  120,000  shares of
nonstatutory stock options at the current fair market value at grant date. These
options were issued outside of the 1992 Stock Incentive Plan. These options vest
over a four to six year period.

Comdial  applies APB No. 25 and related  interpretations  in accounting  for its
plans.

The 1992 Stock Incentive Plan has features which permitted option recipients to
tender shares as partial or full consideration of the exercise price, that
caused the Plan to be 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 and is recognized, over the options'
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.

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



                                       49
<PAGE>

Accordingly,  the  Company  recognized  compensation  expense  in the  amount of
$847,000, $511,000 and $122,000 for its variable stock option plan for the years
ended December 31, 2000, 1999 and 1998,  respectively.  In addition, the Company
records  compensation  expense related to the  performance  based option that is
part of the plan for its  directors.  Common Stock has been issued by Comdial to
its  directors for years that show positive net income.  The  compensation  cost
that has been charged against income for its director's  performance-based stock
was $130,000, $85,000, and $148,000 for 2000, 1999, and 1998 respectively.

Information regarding stock options is summarized below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                        2000        (1)              1999        (1)            1998       (1)
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>          <C>            <C>            <C>          <C>
Options outstanding,
    January 1;                     1,079,788      $8.66         1,104,213      $8.93           859,729     $8.08
    Granted                          728,500       3.34           220,433       7.51           405,316     10.42
    Exercised                       (262,040)      8.15            (8,228)      2.34           (96,602)     7.17
    Terminated                      (494,595)      8.21          (236,630)      9.08           (64,230)     9.61
                                    ---------                    --------                      -------
       Options outstanding,
       December 31;                1,051,653       5.31         1,079,788       8.66         1,104,213      8.93
                                   =========                    =========                    =========
    Options exercisable,
    December 31;                     265,755       8.96           598,468       8.57          474,175       8.05
    Per share ranges of options outstanding
       at December 31                  $1.41 - $13.50                 $1.41-$13.50                $1.41-$13.50
    Dates through which options outstanding
      at December 31,
       were exercisable                1/2001-12/2010               1/2000-12/2009               1/1999-12/2008

(1)  Weighted-average exercise price at grant date.
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes  information concerning currently outstanding and
exercisable options at December 31, 2000:
------------------------------------------------------------------------------
                   Options Outstanding           Options Exercisable
                ------------------------       -----------------------
                              Weighted-
                   Number      Average      Weighted-    Number      Weighted-
 Range of        Outstanding   Remaining    Average    Exercisable   Average
 Exercise            at       Contractual   Exercise       at        Exercise
 Prices           12/31/00       Life        Price      12/31/00      Price
------------------------------------------------------------------------------
$ 1.41 to  3.00    608,283        9.6        $ 1.88       16,560      $ 2.37
  5.12 to  7.77    113,929        6.7          7.47       59,748        7.41
  8.12 to 10.94    212,808        5.2          9.95      176,066        9.79
 11.25 to 13.50    116,633        9.0         12.58       13,381       13.06
                 ---------                               -------
  1.41 to 13.50  1,051,653        8.3          5.31      265,755        8.96
                 =========                               =======

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

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:


------------------------------------------------------------------------------
                              2000                 1999                  1998
------------------------------------------------------------------------------
  Risk-free interest rate     6.03%                5.15%                 4.72%
  Expected life               5.10                  6.5                  7.78
  Expected volatility           87%                  65%                   68%
  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

                                       50
<PAGE>

SFAS No. 123,  Comdial's  net income  (loss) and  earnings  (loss) per share
would have been reduced to the pro forma amounts indicated below:

--------------------------------------------------------------------------------
In thousands except per share amounts           2000          1999        1998

  Net income(loss):     As reported           ($63,264)      $7,343      $17,032
                        Additional
                          Compensation
                          expense                1,360        1,327        1,573
                        Pro forma             ($64,624)      $6,016      $15,459

  Basic earnings (loss) per share:
                        As reported             ($6.89)       $0.82        $1.93
                        Pro forma               ($7.03)       $0.67        $1.75
  Diluted earnings (loss) per share:
                        As reported             ($6.89)       $0.82        $1.88
                        Pro forma               ($7.03)       $0.67        $1.70
------------------------------------------------------------------------------

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
$2.74,  $6.14, and $7.66 for the years ending December 31, 2000, 1999, and 1998,
respectively.  During  fiscal 1998,  the Company  issued  options with  exercise
prices that were greater than the fair market  value of the  Company's  stock at
date of grant.  The weighted  average fair value of such options was $8.49.  All
other options  issued during fiscal years 2000,  1999,  and 1998 had an exercise
price equal to the fair market value of the Company  stock at the date of grant,
as disclosed above.


NOTE 12.  SEGMENT INFORMATION
          -------------------

Effective  December  31, 1998,  Comdial has adopted  SFAS No. 131,  "Disclosures
about Segments of an Enterprise and Related Information".

During 2000, 1999, and 1998,  substantially  all of Comdial's sales, net income,
and identifiable net assets were attributable to the telecommunications industry
with over 98% of the sales occurring in the United States.

Comdial is organized into several strategic  business unit ("SBU") segments that
comprise the majority of its sales to the telecommunications market. Comdial has
three  SBU's that  contribute  ten  percent or more to net sales.  The SBU's are
Comdial  Convergent  Communications   Corporation  ("CCC"),  Comdial  Enterprise
Solutions,  Inc.  ("CES"),  Key Voice  Technologies,  Inc.  ("KVT")  and  others
(including   Array   Telecom   Corporation   ("Array")   and  Comdial   Business
Communications  Corporation  ("CBCC")).  All of the SBU's are  companies  wholly
owned by Comdial. 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  down to the  operating  profit
level.

CCC is comprised of products such as Impact,  Impact Digital  Expandable Systems
("DXP"),  DXP Plus and the open  digital  switching  platforms  known as the "FX
Series." The products are sold through various supply house  channels,  which in
turn sell to  various  dealers  that sell and  install  Comdial  products.  This
distribution  channel  comprises  more than 65% of  Comdial's  net sales for any
given period.

CES is comprised of all Comdial's  software  solutions and application  products
that are sold through  vertical  markets and  national  account  customers.  The
products  included  are  Comdial's  vertical  market  products  such  as  Impact
Concierge,  Avalon,  Power Broker, and voice processing systems.  These products
are sold to specific industries such as hospitality, real estate, financial, and
assisted living centers.

KVT  provides  voice-processing  products  to the other SBU's as well as selling
directly to dealers and end users.  Based in Sarasota,  Florida,  KVT  develops,
assembles,  markets, and sells voice-processing systems and related products for
business  applications.  KVT  products  can  provide  up to 64  ports  of  voice
processing  capacity.  Most Comdial generated sales are in the two to eight port
range,  which  corresponds  with  the  small  to  mid-size  businesses  that are


                                       51
<PAGE>

Comdial's  primary  markets.  Industry  shipments  are measured both in terms of
systems and ports.

The other  segments  are CBCC,  which  manufactures  Comdial  products,  repairs
out-of-warranty products and engages in contract manufacturing, and Array, which
produces  Internet Protocol ("IP") software products (product licensed to ePHONE
Telecom Inc. ("ePHONE")).

The information in the following  tables is derived  directly from the segments'
internal  financial  reporting  used  for  corporate  management  purposes.  The
expenses,  assets and liabilities  attributable to corporate  activities are not
allocated to the operating segments.  Corporate  allocation costs that have been
transferred  to KVT and  other  business  segments  have  not been  included  in
operating  income.  Management  does not include these costs when  analyzing the
various business  segments'  performance.  There are no operating assets located
outside the United States.

    Unallocated  costs  include  corporate  expenses,  interest  expense,  other
miscellaneous  expenses,  and income tax expenses or benefits.  Comdial does not
maintain  information  that would  allow  these costs to be broken down into the
various  business  segments,  and most of the costs  are  universal  in  nature.
Unallocated  assets  include  such  items  as  cash,  deferred  tax  assets  and
miscellaneous  assets.  Unallocated capital expenditures and depreciation relate
primarily  to shared  assets.  Unallocated  liabilities  include  such  items as
accounts  payable,  debt,  leases,  deferred  tax  liabilities,  and most  other
liabilities that do not relate to sales.

The following tables show segment information, for years ended December 31.

------------------------------------------------------------------------------
Business Segment Net Revenues
(In thousands)                           2000           1999              1998
--------------------------------------------------------------------------------

  Comdial Convergent Communications   $67,126       $102,206          $102,800
  Comdial Enterprise Solutions         12,592         13,800             8,065
  Key Voice Technologies               21,317         34,001            25,324
  CBCC/Array                            5,373         14,495             6,965
  Inter-company elimination            (6,366)       (14,167)          (11,319)
                                     --------       --------          --------
    Net sales                        $100,042       $150,335          $131,835
                                     ========       ========          ========
--------------------------------------------------------------------------------

Business Segment Profit
(In thousands)                        2000             1999              1998
--------------------------------------------------------------------------------

Comdial Convergent Communications   $22,919          $37,892           $34,895
Comdial Enterprise Solutions          3,283            4,830             3,063
Key Voice Technologies               10,239           18,348            13,831
CBCC/Array                         (14,114)            3,711               966
                                  --------           -------            ------
  Gross profit                       22,327           64,781            52,755
Operating expenses                   56,577           52,829            44,679
Restructuring                         2,355                -                 -
Impairment of long-lived assets       7,425
  Interest expense                    2,902            1,633             1,216
Miscellaneous expense - net             932              286               565
                                   --------          -------            ------
  Income (loss) before
      income taxes                 $(47,864)         $10,033            $6,295
                                   ========          =======            ======
--------------------------------------------------------------------------------


                                       52
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
December 31,
 (In thousands)                                                    2000             1999              1998
----------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>               <C>
Business Segment Assets
  Comdial Convergent Communications                              $7,191          $28,662           $17,823
  Comdial Enterprise Solutions                                    6,650            7,039             1,369
  Key Voice Technologies                                          8,166           10,155             7,099
  CBCC/Array                                                     39,039           43,693            39,538
  Unallocated                                                    11,908           43,525            43,161
                                                                -------         --------          --------
   Total                                                        $72,954         $133,074          $108,990
                                                                =======         ========          ========

Business Segment Liabilities
  Comdial Convergent Communications                                $518           $2,322              $109
  Comdial Enterprise Solutions                                        -               66                 -
  Key Voice Technologies                                          1,190            2,340             1,296
  CBCC/Array                                                     15,664           15,878            14,041
  Unallocated                                                    44,067           41,860            30,913
                                                                -------          -------           -------
     Total                                                      $61,439          $62,466           $46,359
                                                                =======          =======           =======
----------------------------------------------------------------------------------------------------------
<CAPTION>
Business Segment Property, Plant and Equipment
December 31,
(In thousands)                                                     2000             1999              1998
----------------------------------------------------------------------------------------------------------
<S><C>
 Depreciation
  Comdial Convergent Communications                                $241             $242              $233
  Comdial Enterprise Solutions                                        5                2                 5
  Key Voice Technologies                                            251              127                99
  CBCC/Array                                                      2,926            2,894             2,411
  Unallocated                                                        43               42                56
                                                                 ------           ------            ------
      Total                                                      $3,466           $3,307            $2,804
                                                                 ======           ======            ======

 Additions
  Comdial Convergent Communications                                $143             $104              $445
  Comdial Enterprise Solutions                                        -               29                 3
  Key Voice Technologies                                            538              365               240
  CBCC/Array                                                      1,488            2,809             2,540
  Unallocated                                                       422            1,405             1,270
                                                                 ------           ------            ------
      Total                                                      $2,591           $4,712            $4,498
                                                                 ======           ======            ======

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

Comdial had sales in excess of 10% of net sales to three customers as follows:
<CAPTION>
----------------------------------------------------------------------------------------------------------
In thousands                                                       2000             1999              1998
----------------------------------------------------------------------------------------------------------
<S><C>
 Sales:
    ALLTEL Supply, Inc.                                         $14,563          $24,393           $19,301
    Graybar Electric Company, Inc.                               24,683           34,750            30,415
    Sprint/North Supply , Inc.                                   16,035           25,323            24,902

 Percentage of net sales:
    ALLTEL Supply, Inc.                                              15%              16%               15%
    Graybar Electric Company, Inc.                                   25%              23%               23%
    Sprint/North Supply , Inc.                                       16%              17%               19%

Net sales of all three:
  Comdial Convergent Communications                             $49,894          $75,517           $66,483
  Comdial Enterprise Solutions                                        -                -                 -
  Key Voice Technologies                                          5,387            8,949             8,135
                                                                -------          -------           -------
    Net sales                                                   $55,281          $84,466           $74,618
                                                                =======          =======           =======

----------------------------------------------------------------------------------------------------------
</TABLE>

                                       53
<PAGE>

NOTE 13.  COMMITMENTS AND CONTINGENT LIABILITIES
          --------------------------------------

Comdial  maintains its  operations in material  compliance  with all  applicable
environmental, health and safety laws and regulations, including those regarding
permits.   Comdial  began  conducting   annual   environmental   audits  of  its
Charlottesville,  Virginia  facility  in 1995 to  assure  continued  compliance.
Comdial's  facility  has two  permits.  The  first  is a  connection  permit  to
discharge  wastewater  to the  Rivanna  Water and Sewer  Authority,  a  publicly
operated  treatment works. The second is an air permit exemption letter from the
Virginia Department of Environmental Quality ("DEQ").

In  1988,  Comdial  voluntarily  discontinued  use  of  a  concrete  underground
hydraulic oil and chlorinated  solvent  storage tank. In conjunction  therewith,
nearby  soil and  groundwater  contamination  was  noted.  As a result,  Comdial
developed a plan of remediation  that was approved by the Virginia Water Control
Board and later by the DEQ. DEQ has also  required some  assessment  work of the
chlorinated solvents under the underground storage tank ("UST") Program, however
Comdial  determined  that it could  expedite  matters by entering  the site into
Virginia's Voluntary Remediation Program (the "VRP").

In October 1994, Comdial installed all required equipment in accordance with the
remediation  plan and started the process of pumping  hydraulic oil residue from
the underground water. The oil was deposited into approved  containers and taken
to  a  permitted  hazardous  waste  storage  location  in  accordance  with  the
corrective action plan.

In  1999,   Comdial  was  accepted   into  the  VRP  to  start  the  final  site
characterization and closure process for the groundwater  contamination.  A Site
Characterization  Report ("SCR") required under DEQ's regulations  presented the
results of a site  characterization of the horizontal and vertical extent of the
contamination,  a baseline  risk  assessment,  and a remedial  action plan.  The
completion of the site characterization required the construction of several new
wells to determine the extent of the contamination and some additional sampling.

The Site Characterization was completed in May 2000 and the SCR was submitted to
VDEQ in  September  2000.  VDEQ has accepted  the  recommendations  of Comdial's
consultants that the site be closed with  institutional  and deed  restrictions.
The deed  restrictions  would prohibit  residential  construction  or use of the
groundwater for potable water. Additionally, an L-shaped area to the rear of the
manufacturing  facility has an institutional  control  requiring the approval of
VDEQ for any ventilation system installed in any building constructed within the
confines of this area that would be inhabited by workers.  Wells will be sampled
every two years for a period of six years to determine if the remedial action of
choice,  natural  attenuation,  is achieving the desired results. If levels have
declined to the satisfaction of VDEQ, the restrictions  will be removed from the
property.  Otherwise,  the long-term  monitoring will continue for an additional
period of time to be determined.

As of December  31,  2000,  Comdial has  incurred  total costs of  approximately
$.5 million and has substantially completed the pumping process as of year-end.

Comdial sold the land and building on March 9, 2001 (See Note 19). The new owner
has initiated the work to proceed with the site closure process.


                                       54
<PAGE>

<TABLE>
NOTE 14.  QUARTERLY FINANCIAL DATA (UNAUDITED)
          ------------------------------------

The quarterly financial data presented below has been restated to reflect the
recognition of compensation expense associated with variable accounting for the
Company's 1992 Stock Option Plan (See Note 18).
<CAPTION>
------------------------------------------------------------------------------
In thousands except                          First               First             Second              Second
  per share amounts                         Quarter             Quarter            Quarter             Quarter
                                        (As Previously            (As          (As Previously            (As
                                           Reported)           Restated)          Reported)           Restated)
------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                 <C>                <C>                 <C>
2000
    Net Sales                               $32,193             $32,193            $21,372             $21,372
    Gross profit                             13,770              13,770              4,412               4,412
    Goodwill amortization                       799                 799                798                 798
    Interest expense                            607                 607                616                 616
    Net income (loss)                           341              (2,333)            (6,658)             (4,848)
    Net earnings(loss) per
    common share: Basic                         .04                (.26)              (.72)               (.53)
                  Diluted                       .04                (.26)              (.72)               (.53)
------------------------------------------------------------------------------------------------------------------
1999
    Net Sales                               $32,589             $32,589            $36,351             $36,351
    Gross profit                             12,495              12,495             15,449              15,449
    Goodwill amortization                       784                 784                799                 799
    Interest expense                            382                 382                377                 377
    Net income                                  388                 717              1,291               1,261
    Net earnings per
    common share: Basic                        0.04                0.08               0.14                0.14
                  Diluted                      0.04                0.08               0.14                0.14
------------------------------------------------------------------------------------------------------------------
<CAPTION>
In thousands except                          Third               Third                                 Fourth
  per share amounts                         Quarter             Quarter                                Quarter
                                        (As Previously            (As
                                           Reported)           Restated)
------------------------------------------------------------------------------------------------------------------
<S><C>
2000
    Net Sales                               $27,021             $27,021                                $19,456
    Gross profit                              7,249               7,249                                 (3,104)
    Goodwill amortization                       799                 799                                    799
    Interest expense                            745                 745                                    934
    Net income (loss)                        (5,155)             (5,137)                               (50,946)
    Net earnings (loss) per
    common share: Basic                        (.56)               (.56)                                 (5.53)
                  Diluted                      (.56)               (.56)                                 (5.53)
------------------------------------------------------------------------------------------------------------------
                                             Third               Third             Fourth              Fourth
                                            Quarter             Quarter            Quarter             Quarter
                                        (As Previously            (As           (As Previously            (As
                                           Reported)           Restated)          Reported)           Restated)
1999
    Net Sales                               $37,960             $37,960            $43,435             $43,435
    Gross profit                             16,114              16,114             20,723              20,723
    Goodwill amortization                       798                 798                799                 799
    Interest expense                            399                 399                475                 475
    Net income                                1,834               1,824              4,341               3,541
    Net earnings per
    common share: Basic                        0.20                0.20                0.48               0.39
                  Diluted                      0.20                0.20                0.48               0.39
------------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       55
<PAGE>

During the fourth quarter of 2000,  Comdial began to implement its restructuring
plan and recognized $2.4 million in restructuring charges and additional charges
of $7.4 relating to the impairment of long-lived assets including  goodwill,  as
well as other write-offs as discussed in Note 16.

NOTE 15.  RESTRUCTURING
          -------------

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 during the fourth quarter of
2000.

Significant terms of the restructuring plan ("Plan") included outsourcing the
manufacturing operations and thereby significantly downsizing the workforce. In
addition, the Company is moving its corporate headquarters to Florida where its
wholly owned subsidiary Key Voice Technologies is located. This impacts the
administrative, finance, information technology, and sales and marketing
departments. Pursuant to the Plan, 152 employees were laid off effective
December 15, 2000; another 222 employees were notified as of December 28, 2000
that their positions would be eliminated in fiscal 2001.

As of December 31, 2000,  Comdial accrued  severance and related benefits in the
amount of $2.4  million  related to the Plan.  These  amounts  are  included  in
accrued payroll and related expenses in the accompanying  consolidated financial
statements. No amounts for severance related to the restructuring plan have been
paid out during fiscal year 2000.

NOTE 16. IMPAIRMENT OF LONG-LIVED ASSETS
         -------------------------------

In  the  fourth  quarter  of  2000,   Comdial  recorded  asset  impairments  and
write-offs,  including  goodwill,  of $7.4 million.  Asset  impairments  of $0.3
million  were  required to  write-down  the net book value of the  manufacturing
equipment  that is  expected  to be  disposed of during the first half of fiscal
2001 as a result  of the  outsourcing  of a  certain  portion  of the  Company's
manufacturing operations. The asset impairment was 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 appraisals and quoted market prices.

In addition,  $3.9 million of purchased software that will no longer be utilized
due to the downsizing was written off. Other write-offs consisted of capitalized
software development costs in the amount of $0.4 million related to discontinued
products.  The  write-off  of  these  assets  was  based on an  analysis  of the
projected  undiscounted  cash flows as compared to the  carrying  value of these
assets.

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 is 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
write-off of goodwill.

NOTE 17. RECLASSIFICATIONS
         -----------------

During fiscal 2000, The Company began recording  installation costs as a cost of
goods sold rather than as selling, general & administrative costs as was done in
previous  years.  Also in 2000, the Company began  recording  repair revenue and
related  costs  on a gross  basis  rather  than on a net  basis  as was  done in
previous years.  Prior to 2000,  repair services revenue,  net of expenses,  was
recorded as a selling, general and administrative cost.

The Company has reclassified  the above referenced  amounts in the 1999 and 1998
consolidated  financial  statements  so as to conform to the 2000  presentation.
This resulted in net sales increasing $2.4 million and $2.9 million for 1999 and


                                       56
<PAGE>

1998, respectively. Cost of goods sold was increased by $3.2 million and $3.5
million for 1999 and 1998, respectively. Selling, general and administrative
costs decreased by $0.8 million and $0.6 million for 1999 and 1998,
respectively. These reclassifications had no effect on operating or net income.

NOTE 18.   RESTATEMENT
           -----------

Subsequent to the issuance of the Company's consolidated financial statements
for the period ended December 31, 1999, management determined that the 1992
Incentive Stock Option Plan ("Plan"), which had previously been accounted for as
a fixed plan, had certain features, which permitted option recipients to tender
shares as partial or full consideration of the exercise price, that caused the
Plan to be a variable plan. Under the fixed plan accounting, no compensation
expense was recognized for options granted to employees. 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 and is recognized over
the options' 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. As a
result, the 1999 and 1998 consolidated financial statements contained herein
have been restated from amounts previously reported to account for the stock
option plan as a variable plan.

A summary of the significant effects of the restatements on the 1999 and 1998
financial statements and on the beginning stockholders' equity as of January 1,
1998 is as follows:



                                                     December 31, 1999
                                                     -----------------

                                         As Previously
                                           Reported               As Restated
                                           --------               -----------

As of December 31, 1999
------------------------
Accrued payroll and related
  expenses                                 $  2,652                 $  3,652
Paid-in-capital                             116,535                  119,199
Accumulated deficit                         (43,781)                 (47,445)
Total stockholders' equity                   71,608                   70,608

For the year ended December 31, 1999:
-------------------------------------
Selling, general & administrative
  expenses                                   40,229                   40,740
Net income applicable to common stock         7,854                    7,343
Earnings per share:
         Basic                                $0.88                    $0.82
         Diluted                              $0.87                    $0.82


                                         As Previously
                                           Reported                As Restated
                                           --------                -----------

As of December 31, 1998
------------------------
Paid-in-capital                            $115,950                  $118,573
Accumulated deficit                         (51,635)                  (54,788)
Total stockholders' equity                   63,161                    62,631

For the year ended December 31, 1998:
-------------------------------------
Selling, general & administrative
  expenses                                   34,034                    34,156
Net income applicable to common stock        17,154                    17,032
Earnings per share:
         Basic                                $1.94                     $1.93
         Diluted                              $1.89                     $1.88

As of January 1, 1998
---------------------
Paid-in-capital                             114,575                   116,840
Accumulated deficit                         (68,789)                  (71,820)
Total stockholders' equity                   44,835                    44,069

The above referenced restated amounts for selling, general & administrative
expenses are exclusive of certain reclassifications made to the 1999 and 1998
consolidated financial statements to conform to the 2000 presentation (See Note
17).

                                       57
<PAGE>

NOTE 19.  SUBSEQUENT EVENT
          ----------------

The Company sold its facility in Charlottesville,  Virginia on March 9, 2001 for
$11.4  million.  A payment of $3.0 million was made on the closing date with the
remaining  balance  due by June 1,  2001.  Comdial  is  leasing a portion of the
building  from the closing  date  through  August 30, 2003 for low volume  board
production,  light assembly,  engineering, and technical services functions. The
Company  estimates it will recognize a gain of  approximately  $4.0 million from
the sale.  A portion  of the  proceeds  of the sale will be used to pay down the
outstanding balance of the Term Loan (see Note 6).


ITEM 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         None




                                       58
<PAGE>

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.


                                       59
<PAGE>

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

             Independent Auditors' Report

             Financial Statements:
             Consolidated Balance Sheets -
               December 31, 2000 and 1999 (As restated)
             Consolidated Statements of Operations -
               Years ended December 31, 2000, 1999 (As restated),
               and 1998 (As restated)
             Consolidated Statements of Stockholders' Equity -
               Years ended December 31, 2000, 1999 (As restated),
               and 1998 (As restated)
             Consolidated Statements of Cash Flows -
               Years ended  December 31, 2000, 1999 (As restated),
               and 1998 (As restated)
             Notes to Consolidated Financial Statements -
               Years ended December 31, 2000, 1999, and 1998

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.)*



                                       60
<PAGE>

              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.)*

              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,
                     1997.)*

              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)*



                                       61
<PAGE>

              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

              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


------------------------
*  Incorporated by reference herein.


                                       62
<PAGE>

              (11)   Schedule of Computation of Earnings Per Common Share


              (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:

                      American Phone Centers, Inc.
                      American Telecommunications Corporation
                      Array Telecom Corporation
                      Aurora Systems, Inc.
                      Comdial Business Communications Corporation
                      Comdial Consumer Communications Corporation
                      Comdial Custom Manufacturing, Inc.
                      Comdial Enterprise Systems, Inc.
                      Comdial Real Estate Co., Inc.(incorporated in the State
                         of Maryland)
                      Comdial Technology Corporation
                      Comdial Telecommunications, Inc.
                      Comdial Telecommunications International, Inc.
                      Comdial Video Telephony, Inc.
                      Key Voice Technologies, Inc.
                      Telecom Technologies Inc. (formerly known as Scott
                         Technologies Corporation)

              (23)   Independent Auditors' Consent

              (24)   Power of Attorney




(b)      Reports on Form 8-K:

  The  Registrant  has filed the following  report on Form 8-K during the fourth
  quarter of the year ending December 31, 2000:
  Form 8-K dated October 5, 2000:
      Item 5. Other Events - Waiver of credit agreement covenant and appointment
      of  Nick  Branica  as  President  and  Chief  Executive  Officer.
      Item 7.  Financial  Statements  and  Exhibits - Exhibit  10.1  Conditional
      Waiver Agreement and Exhibit 10.2 Press release relating to appointment of
      Nick  Branica  as  President  and  Chief  Executive   Officer  of  Comdial
      Corporation.

                                       63
<PAGE>

                                   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 17th day of
April, 2001.

                               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               April 17, 2001
--------------------
 Robert P. Collins

        *                          Director               April 17, 2001
--------------------
 Barbara J. Dreyer

        *                          Director               April 17, 2001
--------------------
 John W. Rosenblum

        *                          Director               April 17, 2001
--------------------
 Robert E. Spekman

        *                          Director               April 17, 2001
--------------------
 Nickolas A. Branica

        *                    Chairman of the Board        April 17, 2001
--------------------
 Dianne C. Walker

                                       64
<PAGE>

<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COMDIAL CORPORATION
DECEMBER 31, 2000

<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                 COL. A                       COL. B                        COL. C                   COL. D               COL. E
-----------------------------------------------------------------------------------------------------------------------------------
                                                                  Additions
                                            Balance at            Charged to        Charged to                           Balance at
                                             Beginning            Costs and      Other Accounts -   Deductions -           End of
               Description                   of Period             Expenses          Describe         Describe             Period
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                                <C>                <C>
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 obsolescence                   3,239                  3,734                            (1,618)**            5,355
                                          -----------------------------------                   -----------------------------------
                        Total                  $3,959                 $8,556                           ($1,879)            $10,636
                                          ===================================                   ===================================

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 obsolescence                   3,362                    487                              (610)**            3,239
                                          -----------------------------------                   -----------------------------------
                        Total                  $3,961                   $698                             ($700)             $3,959
                                          ===================================                   ===================================

Year Ended December 31, 1998:

  Deducted from asset accounts:
     Allowance for doubtful accounts              $78                   $188                               (68)*              $198
     Reserve for sales returns                    213                    188                                 -                 401
     Reserve for obsolescence                   2,482                  2,286                            (1,406)**            3,362
                                          -----------------------------------                   -----------------------------------
                        Total                  $2,773                 $2,662                           ($1,474)             $3,961
                                          ===================================                   ===================================

</TABLE>

 * Writeoff uncollectable accounts
** Writeoff obsolete inventory