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, 1996

                                        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)

      P. O. Box 7266
      1180 Seminole Trail; Charlottesville, Virginia      22906-7266
        (Address of principal executive offices)          (Zip Code)

Registrant's telephone number, including area code: (804) 978-2200

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. [X]

    The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 11, 1997 was approximately  $46,584,000 (See Item 5). The
number of shares of Common Stock outstanding as of March 11, 1997 was 8,592,866.

                      DOCUMENTS INCORPORATED BY REFERENCE:
    The Company's  1996 Annual Report to the  Stockholders  is  incorporated  by
reference under Part II and portions of the Company's Definitive Proxy Statement
for its 1997  Annual  Meeting  of  Stockholders,  which  will be filed  with the
Securities and Exchange  Commission within 120 days after December 31, 1996, are
incorporated by reference under Part III of this Form 10-K.





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

Part I

     Item 1.      Business                                                    4
           (a)    General Development of Business                             4
                     Safe Harbor Statement                                    5
                     Industry Background                                      5
                     Strategy                                                 8
           (b)    Financial Information About Industry Segment               12
                     Product Sales Information                               12
           (c)    Narrative Description of Business                          12
                     Products                                                12
                        Business Systems                                     13
                        Proprietary and Specialty Terminals                  18
                        Custom Manufacturing                                 18
                     Sales and Marketing                                     18
                     Engineering, Research and Development                   20
                     Manufacturing and Quality Control                       21
                     Competition                                             22
                     Intellectual Property                                   23
                     Employees                                               24

     Item 2.      Properties                                                 24

     Item 3.      Legal Proceedings                                          25

     Item 4.      Submission of Matters to a Vote of Security Holders        25

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Part II

     Item 5.      Market for Registrant's Common Equity and Related
                  Stockholder Matters                                        26

     Item 6.      Selected Financial Data                                    26

     Item 7.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                        26

     Item 8.      Financial Statements and Supplementary Data                26

     Item 9.      Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                        26

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

Part III

     Item 10.     Directors and Executive Officers of the Registrant         27

     Item 11.     Executive Compensation                                     27

     Item 12.     Security Ownership of Certain Beneficial Owners and
                    Management                                               27


     Item 13.     Certain Relationships and Related Transactions             27
-----------------------------------------------------------------------------

Part IV

     Item 14.     Exhibits, Financial Statement Schedules, and Reports
                    on Form 8-K                                              28





PART I

  ITEM 1.  Business

   (a)  GENERAL DEVELOPMENT OF BUSINESS

       Comdial  Corporation (the "Company") is a Delaware  corporation  based in
Charlottesville,  Virginia.  The Company is engaged in the design,  development,
manufacture,  distribution, and sale of advanced telecommunications products and
system solutions.  The Company was originally incorporated in Oregon in 1977. In
1982, the Company was reincorporated in Delaware,  acquired substantially all of
the  assets,  and  assumed  substantially  all of the  liabilities,  of  General
Dynamics  Telephone Systems Center,  Inc.,  formerly known as  Stromberg-Carlson
Telephone  Systems,  Inc.  ("Stromberg-Carlson"),  a wholly-owned  subsidiary of
General Dynamics Corporation.

       The Company's  Common Stock is traded  over-the-counter  and is quoted on
the National Association of Security Dealers Automated Quotation National Market
System ("Nasdaq National Market") under the symbol: CMDL.

       On March 20, 1996, the Company completed the acquisition of two companies
involved in Computer-Telephony Integration ("CTI") applications: Aurora Systems,
Inc.  ("Aurora") and Key Voice  Technologies,  Inc.  ("KVT").  Aurora,  based in
Acton, Massachusetts,  is a leading provider of off-the-shelf CTI products. KVT,
based in  Sarasota,  Florida,  develops,  assembles,  markets,  and sells  voice
processing systems and related products for business  applications.  As a result
of the acquisitions, Aurora and KVT have become wholly-owned subsidiaries of the
Company (see Note 2 to the Consolidated Financial Statements).

       These two acquisitions have positively affected  consolidated revenues by
$9.7 million and  profitability  by $4.3 million  (excluding any acquisition and
corporate  allocation  costs) for  approximately  nine months of 1996,  and also
should enhance the Company's position for future development of related products
for the CTI market.

The Company's products accommodate  organizations  requiring up to approximately
500  telephones.  The  Company  believes  that it is a leading  supplier to this
market,  with an installed base of approximately  250,000  telephone systems and
3,000,000  telephones.   The  Company's  products  include  digital  and  analog
telephone  switches and  telephones,  as well as a wide range of enhancements to
the Company's telephone systems.  The Company's growth has occurred  principally
as a result of sales of digital  telephone  systems  introduced  by the  Company
since 1992 and CTI products  introduced since 1993. CTI encompasses a wide range
of  products,  primarily  software,  that enable end users to perform  telephony
functions from desktop personal  computers ("PCs") or PCs served by a local area
network ("LAN").


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

       Some of the  statements  included or  incorporated  by reference into the
Company'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, reliance on key strategic
alliances,  fluctuations in operation  results,  delays in development of highly
complex  products,  and other risks  detailed from time to time in the Company's
filings.  These  risks  could cause the  Company's  actual  results for 1997 and
beyond  to  differ  materially  from  those  expressed  in  any  forward-looking
statement made by, or on behalf of, the Company.

Industry Background

       In recent years,  advances in technology and industry  deregulation  have
facilitated the development of  technologically  advanced  telephone systems and
applications.  Beginning  in  the  1970s,  electronic  telephone  systems  began
displacing the traditional  electromechanical  key sets that served as the basic
office telephone  system since the 1930s.  New telephone  applications are being
introduced  continuously,  permitting  business users to improve  communications
within  their  organizations  and  with  customers  by using  conference  calls,
speakerphones,   voice  mail,   automated   attendants,   and  voice  processing
applications, such as speech recognition.

       The  Company  primarily   manufactures   telephone  systems.  A  business
telephone system typically  consists of (a) a central  telephone  switching unit
(key service unit or "KSU"),  (b) telephone  instruments,  (c) associated wiring
and connections hardware,  (d) system software,  and (e) adjunct devices such as
facsimile  machines and voice processing  systems.  Telephone  systems are often
described  in terms of the number of telephone  lines and terminal  devices that
can be supported  by a KSU. The  aggregate  number of  telephone  terminals  and
outside  lines  that can be  configured  as to a  specific  KSU is the number of
"ports."

       Until recently,  most telephone systems were "analog," transmitting voice
information in a continuous  wave form that is "analogous" to the original voice
signal.  Analog transmission is acceptable for most voice  requirements,  but is
not as efficient for data or video transmission.  Analog transmission is subject
to  attenuation,  or the continual  degradation of  transmission  quality as the
distance between sender and receiver increases. In addition,  ambient noises can
be picked up and transmitted along with the original voice transmission, leading
to garbled communications.

       By  the  late  1980s,   digital  telephone  systems  were  available  for
commercial use. The digitization of voice, data, and video is a general trend in
the  telecommunications  industry,  whereby  such  forms  of  communication  are
converted into binary pulses (0 and 1) that may be stored or transmitted. Within
a fully  digital  system,  the signals are  reproduced  precisely  with  minimal
degradation of quality. Digital systems generally offer customers more features,
provide  greater voice clarity,  offer potential cost savings through the use of
low-cost,  high-capacity T-1 transmission lines from  telecommunication  service
providers,  enable  improved  video and data  transmission,  and offer  superior
platforms for future  features.  Businesses  with digital  systems are therefore
better  positioned to take  advantage of new CTI  application  features that are
being developed by software companies.

       While some manufacturers have ceased producing analog systems altogether,
the  Company  offers a broad line of systems  utilizing  both analog and digital
technologies. The Company believes that current industry shipments are primarily
digital and that the  proportion of shipments of digital  telephones as compared
to analog  telephones  will  continue to increase.  Although the market share of
digital telephones and CTI products is growing,  the installed  telephone system
base remains predominantly analog,  thereby providing significant  opportunities
for  manufacturers  who  continue  to  produce  analog  systems.  End users will
continue  to  install  analog   systems  for  various   reasons  such  as  price
considerations, expansion, replacement or repair of existing systems.

       CTI is an emerging industry,  consisting of connectivity and applications
software for various hardware platforms such as switching units,  private branch
exchanges  ("PBX") and automatic  call  distribution  ("ACD").  CTI products and
applications  merge the power of modern telephone systems with that of computers
to provide integrated solutions to broad communications problems, such as proper
queuing in call communications centers and specific vertical market applications
(such as the real estate, law firm, and food service markets).  Using CTI, calls
can be placed from the computer,  including all call  processing  activities and
users can scan their computer  screens for information on incoming voice and fax
messages.  An example of a vertical  market  application is the Company's  E-911
emergency  dispatch  systems.  The E-911  system may use  caller  identification
technology in conjunction with databases in order to access  information such as
the street address and profile of an emergency  caller which is displayed on the
dispatcher's computer. Dispatchers are in a better position to send help quickly
to  the  correct  address  and  provide  emergency   personnel  caller  specific
information needed to respond appropriately to the situation.

       This growing  industry  and growing user  interest in CTI has added a new
dimension  to  the  business  telecommunications  market.  In  addition  to  the
proprietary  products  offered by the  Company  and others,  the  acceptance  of
industry standards now makes it possible for independent  software developers to
market  applications  software  geared toward solving or simplifying a myriad of
common business communications problems.

       Initially,  implementation of CTI was limited to specialized applications
written to the proprietary  interfaces of individual switch makers. This yielded
a small  number of expensive  products.  With the broad  acceptance  of de facto
standards  from  major  computer  software  suppliers,  it is  now  possible  to
implement  CTI on a much broader scale and at a  substantially  lower cost. In a
local area  network  ("LAN")  environment,  major  computer  software  suppliers
provide  software  instructions  (service  provider  interfaces  or  "SPIs")  to
telephone system manufacturers  committed to producing the connectivity software
and hardware  required to communicate with the telephony  server.  The telephone
switch effectively becomes another node on a client-server network.

       For users not on a network,  the desktop  approach  promoted by Microsoft
Corporation  is  an  alternative   solution.  In  this  case,  telephone  system
manufacturers  design  special  software  links  to  Microsoft's  SPI. Telephony
software is standard on Windows95 TM and Windows NT.

       Until the late 1980s,  all small and medium sized telephone  systems were
"closed." That is, if users wished to add new  capabilities  to their  telephone
systems they were restricted to whatever the system manufacturer chose to offer.
One of the most significant  developments in recent years is the introduction of
"open" systems that permit users to customize their  telephone  system by adding
those application  packages suitable to their communication  needs. Open systems
provide an Open Applications  Interface ("OAI") through which a telephone system
can be linked to a computer.  The computer can then command the telephone system
to perform  certain  functions,  such as to answer,  hold,  delay,  or  transfer
telephone  calls.  The OAI is different for each switch  manufacturer and useful
only if a Software  Developer  Kit ("SDK") is also  provided to third parties by
the switch manufacturers.

       Because of the technological  advances that have arisen with digitization
and open systems,  more  flexible and useful  telephone  applications  are being
developed to solve current  communications  problems.  For example,  a decade of
down-sizing  and  corporate  cost-cutting  has  produced a large number of small
businesses and  work-at-home  employees.  The industry  estimates that nearly 30
million  people work at least  part-time out of their homes.  This has created a
large market for small  telephone  systems,  personal  computers,  fax machines,
modems,  and other devices  required by home offices.  These users need products
that better integrate voice and data at the desktop level.

       Changes in the  telecommunications  industry extend to the  international
market as well. Developing countries recognize that advanced  telecommunications
systems and networks are essential to attract  foreign  investment and stimulate
local  economies.  In some  countries,  people must wait several years for basic
dial tone service.  There is a large, ready demand for delivery systems that can
provide  basic  service in short time  frames and at  economical  prices.  Among
developed nations, there is a sustained trend toward privatization of government
telecommunications  monopolies  in  favor  of  competition  at all  levels.  The
Company, with extensive experience working in a competitive environment, is well
positioned to take advantage of these opportunities.

Strategy

       The  Company is  pursuing  three  fundamental  business  strategies:  (1)
maintaining a leadership  position in its core  business of delivering  advanced
telecommunications  systems to the U.S. domestic market through wholesale supply
house  distribution  channels,  (2)  establishing  a leadership  position in the
emerging market for system solutions based on CTI products and applications, and
(3) achieving growth through expansion into international  markets.  The Company
seeks to support these strategies through the following approaches:

    Maintaining a Broad and Efficient Distribution Network

       The Company  focuses its  distribution  of products  primarily  through a
network  of  approximately  1700  independent  dealers  that sell the  Company's
products.   This  network  enables  the  Company  to  achieve  broad  geographic
penetration  as well as access to some of the  fastest  growing  markets  in the
country.  The  Company's  distribution  network  centers  around a key  group of
wholesale supply houses, through which the Company's products are made available
to dealers.  The dealers,  in turn,  market the Company's  products to small and
medium sized organizations and divisions of larger organizations.  The Company's
strategy of utilizing  wholesale supply houses enables it to virtually eliminate
bad debt exposure and minimize administration,  credit checking, sales expenses,
and finished goods inventory levels. Most importantly,  the use of supply houses
allows the Company to extend product distribution to virtually any market in the
United  States  and  Canada.   Wholesale   supply  houses   benefit  from  their
relationship  with the Company by earning a margin on the sale of the  Company's
products  and on the sale of related  products  such as cable,  connectors,  and
installation  tools.  Dealers  have the  benefits of  competitive  sourcing  and
reduced inventory carrying costs.

       In addition to supply  house  distribution,  the Company also markets its
products directly to national accounts, third party system developers,  original
equipment manufacturing ("OEM") customers, and to the federal government via its
Government Services Administration ("GSA") schedule contract.

    Targeting Small and Medium Sized Organizations

       The Company has traditionally focused on organizations requiring small to
medium sized  telecommunications  systems, which the Company believes represents
about nine million establishments in the United States, based on statistics from
Dun & Bradstreet  Information Services. The Company's products offer this market
many of the features  previously  available only in large,  proprietary  systems
that were often not as affordable to this market.

    Offering a Broad Range of Products

       The  Company  currently  offers  digital  and analog  business  telephone
systems,  CTI  applications,  and other products along with a variety of product
enhancements.  Due to the fact that the software and hardware are designed to be
compatible with most of the Company's telephones,  end users are able to enhance
and upgrade  their  systems  without  having to replace  all of their  telephone
equipment. The Company believes that this broad range of products allows dealers
to meet  differing  price and feature  requirements.  The  Company  continuously
strives to introduce new products to meet the needs of a changing market.

    Developing Strategic Alliances

       The  Company  has  developed   strategic  alliances  with  several  other
companies in order to build on the  strengths of these  companies  and bring the
best possible  products to the market at a lower cost. For example,  pursuant to
strategic  alliances,  the Company has developed the Tracker on-site  integrated
paging system with Motorola, Inc. ("Motorola") as well as the Scout wireless key
system telephone with Uniden America Corporation ("Uniden").

    Pursuing International Opportunities

       Through   its   wholly-owned   subsidiary,   Comdial   Telecommunications
International,  Inc.  ("CTii"),  the Company  concentrates  on  identifying  and
developing  opportunities  for international  business.  The Company chooses its
international  markets  carefully,  with a  preference  for  emerging yet stable
economies with technical  standards close to those of North America (to minimize
costly  redesigns),   and  with  an  open  and  competitive   telecommunications
marketplace.  In 1996,  international  sales  were  approximately  $3.7  million
compared  with $2.7  million  and $2.5  million in 1995 and 1994,  respectively,
which  includes  sales to Canada,  Latin  America,  the Middle  East,  and South
Africa.  The Company has entered  into a  licensing  and OEM  relationship  with
Corporate Telephone Systems (Proprietary)  Limited  ("Teleboss"),  a major South
African  telecommunications  manufacturer and dealer, pursuant to which Teleboss
is serving as a distributor of specified products made by the Company, and has a
license  from the Company to  manufacture  certain  subassemblies  used in those
products. In 1996, the Company entered into a distribution agreement with Telbit
Telecommunications  for  distribution of the Company's DXP telephone  systems in
Israel.

    Computer Telephony Applications

       In 1993, the Company formed a wholly-owned subsidiary, Comdial Enterprise
Systems,  Inc. ("CES"), to focus on designing,  marketing,  and distributing CTI
applications  and software for the rapidly  growing markets for CTI products and
services. The Company is addressing the CTI opportunity on several fronts by (1)
delivering  "open" telephone  systems,  such as the Company's DXP, (2) designing
communication  links  between  the  telephone  system and  computer  or computer
network  such  as  the  Company's  E-911  system,  (3)  offering  "shrink  wrap"
integrated  products  for  vertical  markets,  such  as  hotel/motel,   and  (4)
distributing applications software.

       The  Company  believes  that in order to  maximize  profitability  in the
emerging  markets  for CTI it must  create  integrated  systems,  consisting  of
hardware platforms and applications  software for promising vertical markets and
small businesses such as real estate,  legal, and retail. The Company's strategy
is to develop applications for these vertical markets using capabilities already
available such as "screen pops",  directory  dialing from an existing data base,
facsimile  transmission from the desktop personal  computer ("PC"),  and unified
messaging displays.

    Promoting Industry Accepted Interface Standards

       In order to integrate computers and telecommunications equipment, several
standards  have been  developed.  The  Company  was  among  the first  telephone
manufacturing   companies  to  commit  to  the  Telephony  Services  Application
Programming  Interface  ("TSAPI")  standard which provides a stable platform for
integrating the features and  functionality  of a telephone  switch with certain
local area networks.  This standard also allows third-party  developers to write
applications in a non-proprietary environment,  thus decreasing development time
and application  investment  costs. The Company offers several software products
for linking its DXP and DXP Plus digital  switches to a local area  network.  In
1996, the Company began shipping  wideopen.office,  a universal telephony server
that  links the  Company's  DXP  digital  systems to a LAN  provided  by various
vendors.

    Developing Switching Systems with an Open Application Interface

       The  Company  believes  that OAI  provides  many  advantages  to  systems
developers  including  reducing  the time  needed to develop  new  products  and
providing  access to a variety of applications  from third-party  vendors.  Some
manufacturers  charge high prices for the interface and Software Development Kit
("SDK").  While  this has  delayed  growth of CTI  applications,  prices are now
declining.  The Company was the second  manufacturer  to equip a small to medium
sized  system  with an OAI,  and the first to offer the  interface  link and SDK
essentially for free.





   (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENT

       During  the  fiscal  years  ended  December  31,  1996,  1995  and  1994,
substantially  all of the Company's  sales,  net income,  and  identifiable  net
assets were  attributable  to the  telecommunications  industry.  Any additional
information  other than sales is incorporated by reference to the Company's 1996
Annual Report to Stockholders.

Product Sales Information

       The following table presents certain relevant information  concerning the
Company's principle product lines for the periods indicated:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                Years Ended December 31,
  (In Millions)                                                          1996              1995              1994
-------------------------------------------------------------------------------------------------------------------
<S> <C>
   Sales
      Business Systems
         Digital                                                         $42.8             $40.5             $28.9
         DXP                                                              17.8              13.8               9.0
         CTI                                                              20.5               7.4               6.1
         Analog                                                           16.2              22.4              25.0
                                                                         -----              ----              ----
           Sub-total                                                      97.3              84.1              69.0
      Proprietary and Specialty Terminals                                  4.7               6.0               6.7
                                                                         -----              ----              ----
           Sub-total                                                     102.0              90.1              75.7
      Custom Manufacturing                                                 1.3               6.1               2.5
                                                                         -----              ----              ----
           Gross Sales                                                   103.3              96.2              78.2
      Sales Discount and Allowances                                        1.1               1.4               1.1
                                                                         -----              ----              ----
           Net Sales                                                    $102.2             $94.8             $77.1
                                                                        ======             =====             =====
-------------------------------------------------------------------------------------------------------------------
</TABLE>

   (c) NARRATIVE DESCRIPTION OF BUSINESS

Products

       The Company  offers a variety of  telephone  systems,  including  digital
systems, DXP systems,  analog systems, CTI applications,  and other products and
product enhancements.

       The Company's  telecommunications products meet three basic criteria, and
are registered by; (1) the Federal  Communications  Commission  ("FCC"),  (2) an
independent  laboratory  approved  by the  Occupational  Safety  and  Health Act
Commission  ("OSHA") to product safety standards,  (3) and a National Recognized
Test Laboratory that performs product  evaluations.  Selected  products are also
registered  with the Canadian  government's  Industry  Canadian and are Canadian
safety  certified.  The Company  has, or is in the process of,  registering  its
products in other countries.





   Business Systems

    Digital Systems

       Impact,  introduced  in 1992,  is a digital  telephone  system  which can
support up to 24 lines and 48 telephones.  This system includes a digital switch
and Impact digital telephones. The Impact terminals offer a variety of features,
including an interactive  liquid crystal display ("LCD"),  programmable  feature
keys,  three color  lighted  status  indicators,  and a subdued  off-hook  voice
announce for receiving intercom calls while on a telephone call.

       DigiTech,  introduced  in 1991,  are digital  systems  with  switches and
telephones  designed for the business  market  supporting  up to 24 lines and 48
telephones.  DigiTech offers  automatic set relocation,  remote  programming,  a
replaceable software cartridge, and other sophisticated features.

       Impression,  introduced in October 1996,  is a digital  telephone  system
with  modern,   easy-to-use  terminals,  an  attendant  console,  three  digital
switching  units  ("DSUs") and a four-line,  eight station  expansion  module to
accommodate system growth.

       Scout,  introduced in 1995, is the Company's  first  wireless  multi-line
telephone.  The Scout was developed in cooperation with Uniden, a major supplier
of wireless communications  products. This telephone allows users to roam freely
within their  business  environments  and still  receive or place  calls.  Scout
phones offer an LCD display,  multi-line access, programmable keys, an intercom,
and head-set convenience. The portable handset weighs only 8.5 ounces.

       Tracker,  introduced  in 1994,  is an on-site  integrated  paging  system
developed in cooperation  with Motorola.  The purpose of this product is to help
insure that calls are quickly and  efficiently  completed to individuals who are
at work, but not always near their  telephones.  Tracker,  which operates on the
Company's  digital  telephone  systems,  includes  a Tracker  base  station  and
personal  pagers  equipped  with an LCD. The  personal  pagers sound an alert or
vibrate to notify  users of incoming  calls or  important  messages.  A user can
retrieve  calls by going to the nearest  system phone and dialing a special code
that is displayed on the LCD. A valuable feature of Tracker is its compatibility
with other products manufactured by the Company.

    DXP Systems

       DXP,  introduced  in 1992, is a digital  switch that is  compatible  with
virtually all of the Company's analog and digital telephones. This compatibility
allows the Company  and its  dealers to target  larger end users while using the
same telephones as those used in the Company's smaller systems.  Currently,  the
DXP provides customers with an affordable system that can be expanded to support
up to 224 ports. The DXP has more call processing features than smaller systems.
The DXP may be linked to  various  CTI  applications.  The DXP is also  directly
compatible with T-1 service lines from telecommunications  providers. A T-1 line
is a  digital  service  line  that is  equivalent  to 24 voice  channels  or can
transmit data at 1.5 megabits per second.

       DXP Plus,  introduced  in the fall of 1995,  is a larger  version  of the
original DXP. The DXP Plus can grow to a maximum of 560 ports  (combinations  of
outside lines and terminal connections).  Like the original DXP, the DXP Plus is
designed with OAI ports to accommodate third party software developers.  The DXP
Plus uses the same  lines and  station  cards as the DXP and  accommodates  most
industry standard telephones and the Company's proprietary terminals.

    Computer-Telephony Integration Products

       Enterprise, introduced in 1993, is the Company's OAI software developer's
tool kit used  with the DXP  systems.  Enterprise  allows  independent  software
developers  to access the DXP system  software  using more than 100  commands to
create unique applications for specific vertical markets,  such as telemarketing
groups, emergency services, call centers, taxi services, and multimedia centers.
One of the initial OAI  applications  developed using  Enterprise is an Enhanced
911 ("E-911")  emergency  telephone  system.  Enterprise  was a platform for the
development of applications based upon the convergence of computer and telephony
technologies.

       Wideopen.office, introduced in 1996, is a software product which provides
telephony   linkage  between  desktop   computers  and  DXP  digital   switches.
Wideopen.office   supports  multiple  applications  programming  interfaces  and
supports local area network software from Novell, Microsoft, and others, as well
as stand alone PCs running Windows,  Windows 95, or OS/2 operating systems.  The
PC must have certain  minimum  memory  capabilities  and an unused  serial port.
Because of this  capability  to provide  CTI in a variety of  environments,  the
Company   views   wideopen.office   as   a   universal   telephony   controller.
Wideopen.office  is shipped complete with  wideopen.call  applications  software
which  provides  users with popular  services such as PC-based call  processing,
integration  with  contact  management  programs,  and  "screen  pops" of caller
information,  provided the user has some type of caller identification  service.
In the fourth quarter of 1996, the Company also began shipping wideopen.group, a
telephony application package for workgroups.

       Concierge, introduced in 1996, is a digital telephone system designed for
hospitality   applications.   The   system   consists   of  a  DXP,   multi-line
administration telephones, single line guest telephones, and special hospitality
software.  The  system  is  linked  to a  personal  computer  via the  Company's
Enterprise  CTI  software,  and  allows  hotel  personnel  to  administer  guest
check-in/check-out   and  other  hotel  activities  from  the  PC  or  specially
programmed Impact LCD telephones. Guest room telephones may be industry standard
message waiting models or the Company's own HoTelephones. Concierge serves hotel
properties of up to approximately 400 rooms.

       QuickQ ACD, introduced in 1994, is an automatic call distributor ("ACD"),
designed for call center use.  The system  consists of DXP,  Impact  telephones,
voice announcing equipment,  special automatic call distribution software, and a
PC. The QuickQ answers and distributes  incoming calls rapidly and  efficiently,
helping  to assure  maximum  call  center  productivity  and  superior  customer
response levels.  Up to 96 reports are provided,  detailing call volume and call
center performance. The QuickQ ACD has a maximum capacity of 64 outside lines to
support up to 48 telephones in use simultaneously. Like Concierge, the QuickQ is
a "shrink wrap" CTI product,  based on the Company's  Enterprise link to the DXP
operating  system and special  call  control  software.  QuickQ was  designed in
cooperation with an independent software developer.

       E-911  Systems,  introduced in 1994, are specially  engineered  telephone
systems for handling  emergency  ("911")  telephone calls. The Company's systems
deliver   valuable   information   to   emergency   dispatchers   using   caller
identification  technology in conjunction  with databases to access  information
such as the street address and profile of the emergency caller.  Dispatchers are
better  positioned  to send help  swiftly to the  correct  address  and  provide
information  needed  for  emergency  personnel  to  respond  appropriately  to a
situation. All calls are recorded for future reference, and operators can handle
multiple calls without losing valuable  information.  The Company's E-911 system
makes extensive use of CTI. The Company contracts with municipal authorities for
sale of the E-911 system to the municipality.

       ExecuMail,  introduced in 1990, is an integrated voice processing  system
for use with selected telephone systems of the Company.  ExecuMail is offered in
a range of port and voice storage  capacities,  and provides both voice mail and
automated  attendant  service.  ExecuMail products are the result of a strategic
alliance with Active Voice Corporation.

       Versatile Voice Processing  ("VVP"),  introduced in 1996, is a trade name
of a PC-based voice  processing  system  produced by the Company's  wholly-owned
subsidiary  KVT and sold by the  Company.  The same product is sold as Corporate
Office by KVT to its own dealer  network.  Both  products  provide 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,   audiotext   (interactive  response  to  user  touch-tone
commands), and visual call management (the ability to view voice messages from a
PC) are also  available.  The VVP can be integrated  with the Company's  digital
telephone  systems  such that  display  messages  on 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,  also produced by KVT and sold through
both the Company's and KVT's dealer  networks,  is a smaller and more economical
version of VVP/Corporate Office. Small Office offers basically the same features
as the larger model, but is designed for smaller  enterprises.  Maximum capacity
is four ports (four simultaneous calls) and 100 mail boxes.

       PATI  3000,  introduced  in  1995,  links  standard  analog  single  line
telephones to PCs that use Windows or Windows 95 operating  systems.  The device
includes  applications  software that allows users to perform  normal  telephone
functions and many advanced functions from their PCs.

       FastCall,  introduced  in 1994,  produced by the  Company's  wholly-owned
subsidiary  Aurora,  is a special  class of CTI  software  that is  designed  to
"telephony  enable" existing custom data bases and programs,  as well as popular
personal information managers ("PIMs"). Categorized as "middleware", FastCall is
used by call centers and  businesses to streamline  incoming and outgoing  calls
for improved customer service  productivity.  Examples are calling directly from
databases by "point and click,"  handling complex  telephone  operations such as
conferencing  from  the  PC,  and  automatically   producing  specified  screens
triggered by the calling or called number.

    Analog Systems

       Voyager,  introduced in 1996, is a small  integrated  switching and voice
processing system. Voyager will accommodate up to four telephone lines and eight
terminal devices. The terminals may be standard analog telephones, fax machines,
modems, or other industry  standard analog devices.  The product is economically
priced and easy to install.  Potential  end users include  retail  shops,  small
service enterprises (such as restaurants, dry cleaners, etc.), and home offices.
The Company purchases  Voyager products from Voysys  Corporation and resells the
product through the Company's distributor and dealer channels.

       Unisyn,  introduced  in 1994, is designed to offer  advanced  features to
small  organizations.  Two models are offered, one of which supports up to three
lines and eight telephones,  and the other which supports up to six lines and 16
telephones. Display model telephones offer interactive function keys to simplify
feature access.  Another capability of Unisyn is its optional compatibility with
standard  analog  devices,  such as single line  telephones,  fax machines,  and
modems.

       ExecuTech 2000 Unitized  Expandable  Hybrid Systems,  introduced in 1989,
can support up to 24 lines and 56 telephones.  Expansion modules allow end users
to increase  capacity in  increments of four lines and 12 phones or by 16 phones
with no additional lines. These systems provide subdued off-hook voice announce,
built-in  battery  backup  interface,  integrated  call costing,  and many other
features.

       ExecuTech XE Key Systems,  introduced in 1989, can support up to 10 lines
and 24  telephones.  All  systems  support  the  same  family  of  full-featured
telephones.  The switch is a unitized  self-contained unit, making the ExecuTech
XE system  economical to  manufacture,  easy to install,  and  beneficial to end
users who do not have to buy additional components to add features.

       ExecuTech  II Hybrid  products,  introduced  in 1986,  consist  of models
supporting  up to 22 lines  and 96  telephones.  This line of  systems  supports
economical  ExecuTech  single-line   telephones  and  a  variety  of  multi-line
terminals including an LCD model.

       InnTouch,  introduced  in  1987,  is a line  of four  analog  hospitality
systems,  the first of which supports up to 22 lines and 128  telephones.  These
systems  feature a front desk video display  terminal,  integrated call costing,
and multi-featured room telephones.

       Solo II, introduced in 1986, is offered in three and four-line models and
provides a  sophisticated  set of  features  that are easy to  program  and cost
effective.

   Proprietary and Specialty Terminals

       HoTelephone,  originally  introduced  in 1984,  is a line of  single  and
two-line  telephones  specially designed for business travelers for use in hotel
and motel guest rooms.  The HoTelephone  offers guest room travelers memory keys
for one-button  dialing of various  services,  plus a message waiting lamp, hold
button,  and  built-in  data  jack for  connecting  portable  computers  and fax
machines.

       Voice  Express,  introduced  in  the  early  1980s,  is a  fully-featured
multi-function  display  telephone  that  includes an  integrated  speakerphone,
autodial,  and many other standard  features for use behind  different  types of
switches.  Voice Express may be optionally  equipped with a two-line  module for
use behind PBX's or the user can add special six and ten-button  modules for use
with older electromechanical key telephone equipment.

       MaxPlus  desk/wall  convertible  telephones range from a basic model with
message waiting to a fully-featured  speakerphone  model with  programmable soft
keys for often-used PBX and Centrex features.

       MaxPlus II two-line  telephones offer line status indicators,  electronic
hold and a dataport as basic features.  Additional  models with features such as
message waiting, tap, speakerphone, and programmable soft keys.

       ATC Terminals are a line of single and two-line  analog phones that offer
advanced  features  at  a  low  cost.  The  products  are  sourced  by  American
Telecommunications   Corporation  ("ATC"),  a  wholly-owned  subsidiary  of  the
Company.

   Custom Manufacturing

      Custom  manufacturing  consists  primarily of contract work  performed for
various original equipment manufacturers.

Sales and Marketing

       The Company has established an extensive two-tiered  distribution network
as its primary  channel for serving the U.S.  and Canada  markets.  Products are
sold to  wholesale  supply  houses  which in turn sell to  independent  dealers.
International sales are accomplished through a network of international dealers.
International  customers buy directly  from the Company,  normally by letters of
credit, and resell to end users or other dealers.

       In the U.S.,  the Company  distributes  products to nine major  wholesale
supply  houses,  three of which each account for more than 10% of the  Company's
net sales.  These wholesale  supply houses are Graybar  Electric  Company,  Inc.
("Graybar"), Sprint/North Supply, Inc. ("North Supply"), a subsidiary of Sprint,
and ALLTEL Supply, Inc. ("ALLTEL").  In 1996, net sales to ALLTEL,  Graybar, and
North Supply amounted to approximately $19.5 million (19%), $31.7 million (31%),
and $22.4 million (22%), respectively.

       The Company has three classes of dealers: Platinum Preferred,  Preferred,
and Associate  Dealers.  The Company offers an attractive  incentive package for
both Platinum  Preferred and Preferred  Dealers,  including  exclusive access to
certain  of its  products,  cash  rebates  related  to dealer  purchase  levels,
cooperative  advertising  allowances,  and a measure of territorial  protection.
Platinum  Preferred and Preferred  Dealers have sales quotas,  and the Company's
sales department  monitors their  performance  against these targets.  Associate
dealers purchase the Company'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 which are
offered by the Company. Several thousand dealers purchase the Company's products
through supply houses.

       The Company's sales  organization  seeks to recruit,  train,  and support
individual dealers to facilitate promotion and sale of its products.

       The Company has two  primary  sales  groups.  One group  concentrates  on
further  maximizing the Company's system sales through  Associate  Dealers.  The
second sales group  focuses on the  Company's  Platinum and  Preferred  Dealers,
helping them understand and effectively  market new CTI products,  expanding the
Company's  Value Added  Reseller  ("VAR")  channels,  and  developing  a broader
customer base for the Company's  advanced  digital switches and newer CTI system
solutions.  There are also smaller sales teams focused on national accounts, OEM
customers, E-911 customers, and federal government customers.

       Each 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, Field Sales Representatives make
joint sales calls with dealers to end users and train dealer sales  personnel in
product benefits.  Product  specialists in Charlottesville are available to help
engineer  complex   configurations  and  solve  technical  problems.  All  sales
personnel earn incentive income based on sales results.

       Advertising  and public  relations  efforts are also  directed to dealers
through trade magazines such as Teleconnect and Computer-Telephony.  Trade shows
are a major element of the Company's  marketing  plans.  The Company is always a
major draw at the annual Computer-Telephony conference and exposition.

       The Company's dealers are primarily responsible for supporting end users.
The Company does maintain a technical  support  staff devoted to dealer  support
which is available on a toll-free basis  twenty-four  hours per day with special
emergency service available on weekends and holidays. The Company also generally
provides a limited  warranty  on elements of its  products,  permitting  factory
returns within 24 months of the production  date.  Although the Company does not
offer maintenance  contracts for its systems,  dealers often  independently sell
maintenance contracts to end users.

       Because the Company'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 the Company's business.

Engineering, Research and Development

       The Company  believes that it must continue to introduce new products and
enhance existing products to maintain a competitive position in the marketplace.
The  Company's  engineering  department,   working  in  collaboration  with  the
marketing and manufacturing departments,  is responsible for the design of these
new products and enhancements.  A significant amount of engineering expenditures
are  dedicated  to new  product  development,  with  the  balance  used for cost
reductions  and  performance  enhancements  to existing  products.  In the early
1990s,  the Company changed the  responsibilities  of its  engineering  staff to
include both  product  development  and support of a product  through its entire
life cycle.  This requires  engineers to perform  multiple  tasks in addition to
research and  development.  Research and development  costs for the fiscal years
ended 1996, 1995, and 1994 comprise the majority of engineering,  research,  and
development   costs,   which  were  $5,771,000,   $4,186,000,   and  $3,932,000,
respectively.  The Company 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 1996,  1995, and 1994 were  $1,577,000,  $840,000,  and $717,000,
respectively. The amounts amortized for software development cost in 1996, 1995,
and 1994 were approximately $877,000, $757,000, and $858,000,  respectively. The
Company is committed  to improving  its  existing  products and  developing  new
telecommunications equipment in order to maintain or increase its market share.

       At this time, the Company's new product  investments are heavily directed
in three areas,  (1) expansion of its digital  product  line,  (2) extending OAI
capability   to  a  broader   range  of  the   Company's   platforms,   and  (3)
internationalization   of  existing  and  new  products.  The  efforts  are  not
independent of each other. For example,  new digital systems will be designed to
provide an OAI and to be available in models  compatible  with the  standards of
the Company's primary international markets.

Manufacturing and Quality Control

       The Company's  Manufacturing  Operations  organization is responsible for
all activities having to do with production,  testing,  shipping,  and repair of
the Company's products. Other functions that fall under manufacturing operations
include maintenance of plant facilities and specialty (contract) manufacturing.

       One of the  Company's  core  competencies,  along  with its  distribution
network, is its manufacturing efficiency. With recent improvements in production
equipment such as surface mount technology ("SMT") and information  systems, the
Company can now turn around customer  orders in days,  compared to weeks or even
months for offshore  competitors.  Manufacturing is able to schedule  production
runs on a daily basis which  provides the Company with  maximum  flexibility  in
responding to order levels,  improved product margins, and lower work-in-process
and finished goods inventories.

       Improvements in the  manufacturing  function  include the use of advanced
Manufacturing  Resource Planning ("MRP")  information  systems,  continuous flow
assembly lines, just-in-time philosophies, and the continual upgrades to the two
SMT lines. The Company has been able to reduce finished goods inventory  levels,
as  commonalties  at the component  levels have allowed  manufacturing  to stock
components and subassemblies  rather than finished products.  Manufacturing also
contributes  to  revenues  through  the sale of  repair  services  and  obsolete
equipment through the Company's wholly-owned  subsidiary American Phone Centers,
Inc. ("APC"), and by taking on selective custom manufacturing assignments.

       The Company also manufactures injection molded plastic parts,  fabricated
metal parts, and other  components.  The Company has been able to utilize excess
plant capacity by contracting with  third-parties to make various  manufacturing
parts by using the Company's plastic molding or fabrication equipment.

       The Company monitors the quality of its manufacturing process. Individual
assemblers  and machine  operators are trained to inspect  subassemblies  as the
work  passes  through  their  respective  areas.  In  addition,  some  automated
production machines perform quality tests concurrently with assembly operations.
The Company believes that this high level of automation and vertical integration
improves  quality,  cost,  and customer  satisfaction.  In 1994, the Company was
certified and has maintained its certification by the International Organization
for  Standardization  ("ISO") at the most  rigorous ISO 9001 level,  which rates
systems and procedures  for  manufacturing,  engineering,  product  design,  and
customer service.

Competition

       The market for the Company's products is highly competitive.  The Company
competes  with  approximately  20  companies  many of which  have  significantly
greater resources,  such as Lucent Technologies,  Inc., Nortel Inc., 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.  The Company
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 the Company provides.
In marketing its telephone  systems,  the Company also  emphasizes  quality,  as
evidenced  by its ISO  9001  certification  and  high  technology  features.  In
addition,  the Company  often  competes  to attract  and retain  dealers for its
products.  The Company expects that  competition  will continue to be intense in
the markets it serves,  and there can be no  assurance  that the Company will be
able to continue to compete  successfully in the marketplace or that the Company
will be able to maintain its current dealer network.

Intellectual Property

       From  time to time,  the  Company  is  subject  to  proceedings  alleging
infringement  by the Company of  intellectual  property  rights of others.  Such
proceedings could require the Company 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 the Company's  business.  Moreover,  the
Company relies upon copyright, trademark, and trade secret protection to protect
the Company's proprietary rights in its products. There can be no assurance that
these  protections will be adequate to deter  misappropriation  of the Company's
technologies or independent third-party development of similar technologies.

       Because the telecommunications manufacturing industry is characterized by
rapid technological change with frequent new product and feature  introductions,
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.  The  Company  itself has
received claims of patent infringement from several parties which sometimes seek
substantial  sums,  including  certain  competitors such as Phonometrics,  Inc.,
which has since  licensed  patented  technology  to the  Company.  Although  the
Company's  investigation of some of these claims has been limited by the claims'
lack of  specificity,  the  limited  availability  of  factual  information  and
documentation  related to the claims,  and the  expense of  pursuing  exhaustive
patent reviews,  the Company believes that its systems do not currently infringe
valid patents of any such claimants.  In response to prior infringement  claims,
the Company has pursued and obtained nonexclusive licenses entitling the Company
to utilize certain  fundamental  patented functions that are widely licensed and
used in the  telecommunications  manufacturing  industry.  These licenses expire
upon expiration of the underlying patents.

       Although  the Company  believes  that it  currently  owns or has adequate
rights to utilize all  material  technologies  relating to its  products,  as it
continues to develop new products and features in the future it anticipates that
it may receive  additional  claims of patent  infringement.  Such  claims  could
result in the Company's incurring  substantial legal expenses and being required
to obtain licenses,  pay damages for  infringement,  or cease offering  products
that  infringe such  patents.  There can be no assurance  that a license for any
such  infringed  technology  would  be  available  to the  Company  or,  even if
available, that the terms of any such license would be satisfactory.

Employees

       As of December 31, 1996, the Company,  including  Aurora and KVT, had 886
full-time  employees,  of  whom  590  were  engaged  in  manufacturing,   87  in
engineering,  143 in  sales  and  support,  and  66 in  general  management  and
administration.  The  Company  has  never  experienced  a work  stoppage  and no
employees  are  represented  by labor  unions.  The  Company  believes  that its
employee relations are good.

ITEM 2. Properties

       The  Company  designs,  manufactures,  and  markets  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 the Company's  operations  and  development  are located at this
facility,  which the Company owns. The Company  believes that its facilities are
adequate both for the  operation of its business as presently  conducted and for
expansion in the foreseeable future.

       In March 1996, the Company  acquired KVT and Aurora (see Item 1 - General
Development of Business). KVT operates out of an approximately 6,200 square foot
building,  located in  Sarasota,  Florida and Aurora  operates out of two leased
suites within an office building located in Acton, Massachusetts.

       The Company'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 the Company's capital expenditures,  earnings, or competitive position, and
it is not anticipated to have a material adverse effect in the future.

       In 1988,  the  Company  voluntarily  discontinued  its 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,  the  Company  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, after which the Company commenced the remediation efforts
required  thereunder.  In 1993, the Company  provided a $45,000  reserve for the
estimated cost to implement the remediation plan.

       In  October  1994,  the  Company  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 is deposited  into
approved  containers and taken to a hazardous  waste site in accordance with the
corrective  action plan. As of December 31, 1996, the Company has incurred costs
of  approximately  $37,000 and expects the pumping  process to be  completed  by
early 1998.

ITEM 3. Legal Proceedings

      The  Company  is from time to time  involved  in routine  litigation.  The
Company  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 1996 to a vote of the
Company's security holders.





PART II

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

      Information is  incorporated by reference to page 62 of the Company's 1996
Annual Report to stockholders under the caption "Related Stockholders  Matters."
As of March 11, 1997 there were 1,769  record  holders of the  Company's  Common
Stock.

ITEM 6. Selected Financial Data.

      Information is  incorporated by reference to page 61 of the Company's 1996
Annual Report to stockholders under the caption "Five Year Financial Data."

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

      Information  is  incorporated  by  reference to pages 34 through 40 of the
Company's  1996 Annual Report to  stockholders  under the caption  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 8. Financial Statements and Supplementary Data.

      Information  is  incorporated  by  reference to pages 40 through 61 of the
Company's 1996 Annual Report to stockholders or filed with this Report as listed
in Item 14 hereof.

ITEM 9. Changes In and Disagreements With Accountants on Accounting 
        and Financial Disclosure.

      No information is required to be reported pursuant to this item.




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 the  Company" on pages 6 through 7 and 10 through 11 of
the Company's  definitive proxy statement for the annual meeting of stockholders
to be held on April 29, 1997.

ITEM 11. Executive Compensation.

      Executive   compensation  and  management   transactions   information  is
incorporated by reference under the caption "Executive Compensation" on pages 12
through 20 of the Company's definitive proxy statement for the annual meeting of
stockholders to be held on April 29, 1997.

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" on pages 3 through 5 of
the Company's  definitive proxy statement for the annual meeting of stockholders
to be held on April 29, 1997.

ITEM 13.  Certain Relationships and Related Transactions.

      Information  is  incorporated  by  reference  under  the  caption  "Family
Relationships",  "Indebtedness  of Management"  and "Certain  Relationships  and
Related  Transactions" on page 12, 20, and 21 of the Company's  definitive proxy
statement for the annual meeting of stockholders to be held on April 29, 1997.





Part IV

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

(a) (1)          The  following  Consolidated  Financial  Statements  of Comdial
                 Corporation and its  Subsidiaries  are incorporated in Part II,
                 Item 8 by  reference  to the  Company's  1996 Annual  Report to
                 stockholders  (page  references  are  to  page  numbers  in the
                 Company's Annual Report):

                                                              Page Number
                 Independent Auditors' Report                      40
                 Report of Management                              41

         Financial Statements:
           Consolidated Balance Sheets -
               December 31, 1996 and 1995                          42
           Consolidated Statements of Operations -
               Years ended December 31, 1996, 1995, and 1994       43
           Consolidated Statements of Stockholders' Equity -
               Years ended December 31, 1996, 1995, and 1994       44-45
           Consolidated Statements of Cash Flows -
             Years ended December 31, 1996, 1995, and 1994         46
          Notes to Consolidated Financial Statements -
             Years ended December 31, 1996, 1995, and 1994         47-61

        2. Financial Statements - Supplemental Schedules:

           All of the 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 to Item 6 of  Registrant's  Quarterly
                    Report on Form 10-Q for the period ended July 2, 1995.)*

               3.2  Certificate of Amendment to 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. 2 to the  Registrant's  1992 Stock  Incentive
                    Plan and 1992  Non-employee  Directors Stock Incentive Plan.
                    (Exhibit  10.2 of  Registrant's  Form  10-Q  dated  June 30,
                    1996.)*

               10.3 Amendment  No. 3 to the  Registrant's  1992 Stock  Incentive
                    Plan and 1992  Non-employee  Directors Stock Incentive Plan.
                    (Exhibit  10.2 of  Registrant's  Form  10-Q  dated  June 30,
                    1996.)*

               10.4 Loan and  Security  Agreement  dated  February 1, 1994 among
                    Registrant and Fleet Capital  Corporation  formerly Barclays
                    Business Credit,  Inc.  (Exhibit 10.13 to Registrant's  Form
                    10-K for the year ended December 31, 1993.)*

               10.5 Development   Agreement   dated   December   2,  1993  among
                    Registrant and Motorola Inc.  (Exhibit 10.16 to Registrant's
                    Form 10-K for the year ended December 31, 1993.)*

               10.6 Amendment  No. 1 to the Loan and  Security  Agreement  dated
                    March 13,  1996  among  the  Registrant  and  Fleet  Capital
                    Corporation. (Exhibit 10.1 to Registrant's Form 10-Q for the
                    quarter ended March 31, 1996.)*

               10.7 Amendment  No. 2 to the Loan and  Security  Agreement  dated
                    June  28,  1996  among  the  Registrant  and  Fleet  Capital
                    Corporation. (Exhibit 10.1 to Registrant's Form 10-Q for the
                    quarter ended June 30, 1996.)*

               10.8 Amendment  No. 3 to the Loan and  Security  Agreement  dated
                    September  27, 1996 among the  Registrant  and Fleet Capital
                    Corporation. (Exhibit 10.1 to Registrant's Form 10-Q for the
                    quarter ended September 29, 1996.)*

               10.9 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.)*

               10.10The 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.)*

           (11) Schedule of Computation of Earnings Per Common Share.

           (13) Registrant's 1996 Annual Report to Stockholders.

           (21) Subsidiaries of the Registrant.

                   The following are the  subsidiaries of the Registrant and all
                   are incorporated in the state of Delaware.

                               American Phone Centers, Inc.
                               American Telecommunications Corporation
                               Aurora Systems, Inc.
                               Comdial Business Communications Corporation
                               Comdial Consumer Communications Corporation
                               Comdial Custom Manufacturing, Inc.
                               Comdial Enterprise Systems, Inc.
                               Comdial Technology Corporation
                               Comdial Telecommunications, Inc.
                               Comdial Telecommunications International, Inc.
                               Comdial Video Telephony, Inc.
                               Key Voice Technologies, Inc.
                               Scott Technologies Corporation

           (23) Independent Auditors' Consent.

                  Accountants consent to the incorporation by reference of their
                  report dated January 30, 1997, appearing in this Annual Report
                  on Form  10-K  of  Comdial  Corporation  for  the  year  ended
                  December 31, 1996, in certain Registration Statements.

           (24) Power of Attorney.

           (27) Financial Data Schedule.
---------------------------------------
*  Incorporated by reference herein.

 (b)  Reports on Form 8-K:

      The  Registrant  has not filed any  reports  on Form 8-K  during  the last
quarter of 1996.






                                   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 25th day of
March, 1997.

                                   COMDIAL CORPORATION

                                   By: /s/ William G. Mustain
                                       -------------------------------------
                                        William G. Mustain
                                        Chairman of the Board, President and
                                        Chief Executive 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

         *             Vice Chairman             March 25, 1997
--------------------
A. M. Gleason

         *             Director                  March 25, 1997
--------------------
Michael C. Henderson

         *             Director                  March 25, 1997
--------------------
William E. Porter

         *             Director                  March 25, 1997
--------------------
John W. Rosenblum

         *             Director                  March 25, 1997
--------------------
Dianne C. Walker

/s/ William G. Mustain Chairman of the Board,    March 25, 1997
---------------------- President, and
 William G. Mustain    Chief Executive Officer

  /s/ Wayne R. Wilver  Senior Vice President,    March 25, 1997
---------------------- Chief Financial Officer,
 Wayne R. Wilver       Treasurer, and Secretary

* By:/s/ Wayne R. Wilver           
------------------------
     Wayne R. Wilver, Attorney-In-Fact