<PAGE>
 
                                   FORM 10-K

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549
(Mark One)

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

                  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 (NO FEE REQUIRED)

            For the transition period from __________ to __________

                        Commission file number 0-15578

                               DAVOX CORPORATION

            (Exact name of registrant as specified in its charter)

         Delaware                                          02-0364368
(State or other jurisdiction of                            (IRS Employer
incorporation or organization)                             Identification No.)
                                            
         6 Technology Park Drive            
         Westford, Massachusetts                           01886
(Address of principal executive offices)                   (Zip Code)

           Registrant's telephone number, including area code: (508) 952-0200 

           Securities registered pursuant to Section 12(b) of the Act: None 

           Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock,  $.10 Par Value

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]

Aggregate market value, as of February 21, 1997 of Common Stock held by
non-affiliates of the registrant: $156,077,752 based on the last reported sale
price on the National Market System as reported by Nasdaq on that date.

Number of shares of Common Stock outstanding at February 21, 1997:  7,543,954

                      DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1996. Portions of such Proxy Statement are incorporated by reference in Part
III.
<PAGE>
 
                                    PART I




ITEM 1 - BUSINESS
-----------------


General

        Davox Corporation ("Davox" or the "Company") is principally a software
and systems integration company which develops, markets, implements, supports
and services management systems for call center operations. These call center
operations are responsible for business applications including
credit/collections, customer service, telephone sales, and fund raising. Davox
systems help calling operations integrate existing voice and data systems,
manage outbound and inbound calling applications and focus on improving the
quality of each customer contact, as well as the quantity of calls handled. This
increased productivity and efficiency, documented by Davox users, has resulted
in lower labor costs, increased revenue and/or increased transaction capacity
for the user organization, and improved service levels. Davox systems include
intelligent outbound calling, inbound call handling, inbound/outbound call
integration and call center network management.

        Davox, through its direct sales force and through its distribution
channel, has provided unified call center solutions to banks, consumer finance
organizations, retailers, entertainment companies, telemarketing organizations,
telecommunications companies, and utilities. Among the Company's current
customers are: Chemical Bank, General Electric Capital Corporation (GECC),
Household Finance, NationsBank, May Companies, AT&T, NYNEX, Precision Response
Corporation, Superstar Satellite Entertainment, Gottschalks Department Stores,
USAA Federal Savings Bank, TeleTech Holding, Unitel Corporation, and WGBH
television.

        Statements in this Form 10-K which are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities and Exchange
Commission. See also "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Certain Factors That May Affect Future
Results."

        The Company was incorporated in Massachusetts in 1981 and reorganized
in Delaware in 1982. The Company's principal offices are located at 6 Technology
Park Drive, Westford, Massachusetts 01886 and its telephone number is 
(508) 952-0200.

                                       2
<PAGE>
 
Overview

        Today's businesses realize that their most important asset and source
for additional business is their customer; therefore, within most corporations,
several departments are in almost constant contact with buyers or users of their
goods or services. These departments, or call centers, place and/or receive
phone calls, supplying information to or receiving information from the
customer, or processing account information from a database. The mission of call
center management is to increase the productivity of telephone agents, improve
the efficiency of the calling operation and enhance the quality of customer
service.

        To achieve the mission of the call center, businesses have invested in
different types of technology to accommodate different types of customer
contact, such as incoming and outgoing calls. However, these discrete
proprietary systems result in an environment characterized as "islands of
technology" which limit the productivity and efficiency of the call center and
degrade customer service. The majority of today's businesses are under economic
and competitive pressure to protect their investment in technology, and require
a method for integrating existing disparate technologies. By integrating these
technologies, a business can share its resources, and provide its customers a
higher quality of service.

        Davox recognized the growing demand for systems that would unify these
disparate resources and calling applications. To deliver the level of
integration necessary to unite a business' customer contact applications, Davox
introduced in late 1993 the Unison(R) call center management system which
represented a new generation technology for the call center market.

        The Unison(R) call center management system relies on open system,
client/server architecture to communicate with a call center's existing and
future voice and data systems, allowing call centers to share valuable system
resources and a single data source, and to manage a more efficient customer
contact operation.


The UNISON(R) Open Systems Environment
--------------------------------------

        The Unison(R) system's open systems-based architecture creates a
flexible environment that enables customers to realize the potential of their
call center investments now and in the future. A customer's PBX (Private Branch
Exchange), ACD (Automatic Call Distributor) and VRU (Voice Response Unit) are
usually made by different vendors and installed at different times and even at
different locations. Furthermore, information about a specific customer may
reside on one or more databases within a legacy system(s).

        A single Unison(R)-based agent workstation can handle all voice/data
tasks associated with any call -- incoming or outgoing, regardless of point of
origin. The system can track all calls in real-time, allowing managers to
identify quickly both positive and negative trends as they develop. As a result,
adjustments can be made instantly to correct unfavorable trends and exploit
positive ones.

        One characteristic of the Unison(R) system is its Rules-Based(TM)
software product which allows a call center manager to design, adjust, refine
and implement calling strategies in real-time. With this Rules-Based(TM)
management capability, the Unison(R) system's user can target 

                                       3
<PAGE>
 
outbound calling campaigns based on user-defined criteria such as location,
income level, or outstanding balance.

        This capability also allows call centers to match specific customers
with telephone agents who have the necessary skills to handle these customer
accounts. For example, foreign language speaking agents can be automatically
assigned to handle calls to or from households where only that language is
spoken; or agents skilled in handling a specific product can be assigned to
those accounts.

        Using the Unison(R) system's Rules-Based(TM) management capability, a
call center manager can set the calling "rules" for each campaign, such as:

        .  The order in which phone numbers will be called 
        .  Acceptable talk time 
        .  The time of day clients will be called 
        .  Acceptable after call work time 
        .  Which accounts will be called

        Each campaign is monitored in real-time, notifying the call center's
supervisors immediately if performance deviates from the prescribed norm,
enabling the supervisor to take immediate corrective action. The Rules-Based(TM)
management capability provides Unison(R) system users with real-time information
to adapt their system "on the fly" to changing priorities within the call
center. Our customers have told us that this Rules-Based(TM) capability also
helps Unison(R) users maintain compliance with FTC/FCC regulations.

UNISON(R) Functional Overview
-----------------------------

        The Unison(R) family of call center management systems combines open
system, client/server, and relational database technology with sophisticated
applications. The Unison(R) system's open architecture performs equally well in
the following call center environments:

        .  Outbound
        .  Outbound/Inbound blended
        .  Inbound

UNISON(R) Technology for a New Generation of Call Centers
---------------------------------------------------------

The Smart Management Center(R) (SMC(R)) is the central management engine which
implements the Unison(R) system's Rules-Based(TM) management strategies and a
broad range of software-driven features that allow the intelligent, strategic
integration of all call center resources. The SMC(R) (a UNIX(TM) RISC-based
management system built on the Sun Microsystems, Inc. SPARC(TM) architecture)
manages, monitors, processes, reports, communicates, integrates and controls a
broad range of telephony and data-oriented call center tasks -- all in real-time
and using a friendly, point-and-click graphical user interface (GUI). The SMC(R)
utilizes Sybase Incorporated relational database management software which
supports the Rules-Based(TM) management capability and is integral to call
center improvements in the areas of quality of contact, productivity,
effectiveness and resource management.

                                       4
<PAGE>
 
The Company's ONEStation(TM) software product provides universal agent audio
connectivity to an existing PBX/ACD. In conjunction with installed data
resources, ONEStation(TM) functionality allows agents to access available voice
and data resources from any single existing workstation anywhere in the
company's data network.

The Company's Smart Access(TM) software product provides a flexible management
network allowing users to: 
        .  Access, monitor, and control multiple calling sites in real-time 
        .  Distribute information and outbound call campaigns to any center on
           the network


Call Management Features Automate, Streamline Outbound Operations

        The Unison(R) system's sophisticated dial and pacing technology,
campaign flow, dynamic campaign generation and filter capabilities streamline
outbound call operations by automating unproductive or time-consuming processes.
Supervisors control the parameters which affect the actual call placement,
freeing agents to focus on engaging in productive conversations with customers.
Layered upon this powerful dialing engine is Davox's broad array of real-time
campaign management/measurement capabilities.


Intelligent Integration Options For Call Blending

        Because Davox understands that a single call blending solution may not
be appropriate for every call center, the Company offers both a Computer
Telephony Integration (CTI) and a non-CTI Unison(R) system option.

The Company's Smart ACD(TM) software product provides non-CTI inbound/outbound
notification. Smart ACD(TM) software:

        .  Interfaces with a call center's existing ACD and PBX
        .  Monitors all designated ACD queues and displays inbound traffic
           information in real-time 
        .  Automatically and intelligently instructs agents to handle ACD 
           queues and outbound calling lists as necessary to maximize 
           productivity while maintaining the proper service levels 

The Company's SCALE(TM) (Seamless Call and Agent Load Equalization) software is
available for call centers that wish to utilize CTI for their call handling.
With SCALE(TM) functionality, all designated agents function as both inbound and
outbound agents, and the movement of those agents from inbound to outbound calls
is automatic; no separate login procedures are required. The standard Unison(R)
system campaign management capabilities are available to SCALE(TM) users. In
addition, Unison(R) agent management and real-time voice and data reporting
features are available for inbound as well as outbound agents.

                                       5
<PAGE>
 
Software That Delivers Value Throughout A Call Center

        .  Unison Strategist(TM) Applications Software lets supervisors specify
           and modify comprehensive calling strategies.
        .  Unison Tactician(TM) Applications Software makes it easy for
           supervisors to monitor agent productivity during individual
           campaigns and shift resources quickly when needed.
        .  Unison Precision Dial(TM) Applications Software streamlines call
           center operations by allowing the supervisor to control the
           parameters which affect the actual call placement, freeing agents
           to focus on engaging in productive conversations with customers.

        The Unison(R) system price begins at approximately $90,000. Specific and
variable customer requirements, such as the number of agent positions, extent of
inbound integration and multi-site connectivity determine actual Unison(R)
system prices.


Markets and Applications

        Davox markets its unified call center solutions to corporations that
rely heavily on the telephone to conduct business with their customers. These
corporations have typically made large investments in building inbound and/or
outbound calling operations. The function of these operations is to place and
receive customer calls. In many cases, these calling operations are responsible
for specific business applications such as collections, customer service, fund
raising or telephone sales.

        In 1991, new trends emerged in the marketplace. Customers began
augmenting outbound calling applications with inbound call handling
applications, allowing them to share system and labor resources, reduce overhead
and improve the quality of their customer contacts and overall customer service.

        The Company believes that Unison(R) systems can significantly increase
productivity in many applications where repetitive tasks can be automated.
Additionally, Davox believes that its products are well suited to meet evolving
CTI standards due to their multi-protocol capabilities, integrated voice
functions, and flexible software design.

Significant Customers

        In 1996, the Company's largest single customer was GE Capital
Corporation, accounting for 4% of total revenue. In 1995, AT&T was the largest
single customer, accounting for 12% of total revenue, and in 1994 Chemical Bank
was the Company's largest single customer, accounting for 9% of the Company's
total revenue. Total revenue from the Company's top three customers amounted to
12% of total revenue in 1996, 20% of total revenue in 1995, and 19% of total
revenue in 1994. The Company believes that its dependence on any one end user
customer is not likely to increase significantly as the Company continues to
penetrate the broader call center market and expand its alternate distribution
channels.

                                       6
<PAGE>
 
Marketing and Sales

       Davox takes a solutions-oriented approach to marketing its Unison(R)
systems. The integration and management capabilities of the systems are
presented as tools to help customers meet their business goals and objectives
for customer service. This approach has two major benefits:

         .  First, as Davox's relationship with a client grows, the Company is
            able to increase sales by developing additional call center
            capabilities for the client

         .  Second, Davox can identify additional applications in other areas of
            the customer's business

       Additionally, by focusing on common applications and identifying
industries with similar organizational or functional structures, Davox can
address new markets with relatively small incremental development costs and a
short training period for its sales force.

       The Company's sales force follows a disciplined selling program that
focuses on selling business solutions, rather than stressing the features of
individual products. Having identified departments in which Unison(R) systems
may provide significant productivity increases, Davox sales representatives and
technical consultants (system/application specialists) work with the customer to
analyze the business and production objectives for the calling operation. This
consultative, "team" approach is best suited to establish a long-term
relationship with the client.

       The Company continues to expand market penetration through its Business
Partners Program. This program represents a third party distribution channel
through referral joint marketing and reseller relationships. Examples of third
party partners include telecommunication system manufacturers, software vendors,
and systems integrators. The Company plans to continue to expand its Business
Partners Program, with particular emphasis on customer contact software vendors
and telecommunication system providers.

       In North America, the Company markets its products primarily through a
direct sales force with contributions from the Business Partners Program. Direct
sales personnel are supported by a team of marketing professionals based at the
Company's headquarters.

       Davox manages international activities for three global regions --
Europe, Latin America and the Pacific Rim. The Company's products are offered in
these regions primarily through a series of mostly nonexclusive distribution
agreements. In 1995, Davox established a European headquarters in the United
Kingdom which provides marketing, technical support, and service to its European
distributors. Also in 1995, Davox signed a distributor agreement with LaKe
Corporation of Australia to distribute the Company's products in a select number
of countries throughout the Pacific region.

       In 1996, Davox signed a distribution agreement with Marubeni Electronics
Co. Ltd, a major Japanese importer, developer, and integrator of technology
systems, and a subsidiary of one of the world's largest trading companies.
Marubeni distributes Davox's Unison(R) call center management system in Japan.
Also in 1996, Davox expanded its South American 

                                       7
<PAGE>
 
distribution network through distribution agreements with GMA Consulting S.A.
(Buenos Aires, Argentina) and TANDAM Chile S.A. (Santiago, Chile) to distribute
its products in the Argentinean, Chilean, and Peruvian markets.

         Davox broadened its ability to reach its designated market through
several new business relationships. PTT Telecom, the preeminent distributor of
call center technology in the Netherlands, and Davox announced a distribution
agreement under which PTT Telecom will be the exclusive distributor of Davox's
Unison(R) call center management system product line in the Netherlands. Under
terms of the agreement, PTT Telecom will market and support the Unison(R) family
of products to its extensive customer base as part of its overall call center
solution.

       In December 1995, Davox and GeoTel Communications Corporation signed a
joint marketing agreement designed to combine their complementary products to
create "virtual call centers." In November 1996, Davox and Intervoice, Inc.
signed a product development and license agreement designed to produce an
integrated call center solution.

       In connection with sales outside the United States, Davox products are
subject to regulation by foreign governments, which requires the Company to
follow certification procedures for some countries. Failure to obtain necessary
local country approvals or certifications will restrict Davox's ability to sell
into some countries. International product revenue was $7.6 million, $4.5
million, and $3.3 million in 1996, 1995, and 1994, respectively.

Support and Service

         Davox's Customer Service Organization provides maintenance and systems
integration services that include not only call center system installation and
training, but also:

         .  Call center network planning, design, and implementation services
         .  Professional services that include call center consulting, custom
            application design, and development services

Davox customer support comprises:

         .  Support teams responsible for on-going account management and
            customer satisfaction of the installed base
         .  On-site hardware and software support
         .  A Worldwide Support Center located in the corporate offices in
            Westford, Massachusetts that provides centralized access to hardware
            and software support as required on a worldwide basis to end-users
            and distributors
         .  Software services that enhance or modify current systems
         .  Professional services that deliver consulting and customized project
            services as required
         .  Training for customers' and distributors' personnel, delivered both
            in Davox's Westford, MA training facility and at customer sites

         Under the terms of an agreement with Grumman Systems Support
Corporation (GSSC), a wholly-owned subsidiary of Northrop Grumman Corp., GSSC
delivers hardware support 

                                       8
<PAGE>
 
services for the Unison(R) system and older CAS(R) and SMC(R) product lines
within the continental United States and Canada while Davox continues to deliver
software support services. In addition, GSSC provides network design and systems
integration services allowing Davox to focus its expertise on customizing
advanced calling centers for its clients.

           Customer service revenue accounted for $16,465,000, or 30.7% of the
Company's total revenue in 1996, an increase of $2,291,000 from $14,174,000, or
37.7% of the Company's total revenue in 1995, and an increase of $3,387,000 from
$13,078,000, or 43.5% of the Company's revenue in 1994. Customer service revenue
as a percentage of total revenue decreased in 1996 as compared to 1995 due
largely to a 59% increase in product revenue in 1996.

Research, Development and Engineering

       The Company employs an open system, client/server, relational database
approach in developing its unified call center solutions. The platform selected
for this approach is the SPARC(TM) Station from SUN Microsystems Inc. The
Company's development efforts are focused on enhancing and expanding the
functionality of these systems. Davox currently anticipates that areas of
potential product development may include integration links to additional call
center telephony components and the development of additional telephone
management and reporting capabilities.

       The Company's continued success depends on, among other factors,
maintaining close working relationships with its customers and resellers, and
anticipating and responding to their evolving applications needs. The Company is
committed to the development of new products, the improvement of existing
products and the continuing evaluation of new technologies.

       During 1996, 1995, and 1994, the Company's research, development and
engineering costs were approximately $5,861,000, $4,020,000, and $3,540,000,
respectively, representing approximately 10.9%, 10.7%, and 11.8%, respectively
of total revenue during these periods. In the future, the Company expects to
incur approximately the same level of research, development and engineering
expenditures as a percentage of total revenue as it did during 1996. In
addition, the Company did not capitalize any of its software development costs
in 1996 or 1995, while it capitalized approximately $310,000 of its software
development costs during 1994.

Operations

       While the majority of the Company's hardware needs are met by readily
available off-the-shelf technology, a small portion remains proprietary. These
proprietary hardware components are manufactured by third party contractors, and
the Company believes there are many qualified vendors for these services. The
Company's production process consists primarily of final test, quality
assurance, and systems integration which occurs at its Westford facility. The
Company purchases certain equipment for Unison(R) through an industry remarketer
agreement with SUN Microsystems, Inc.

       The Company attempts to maintain multiple sources of supply for key items
and believes it has adequate sources of supply for its expected needs. While any
of these sources could be replaced if necessary, the Company might face
significant delays in establishing replacement 

                                       9
<PAGE>
 
sources or in modifying its products to incorporate replacement components or
software code. There can be no assurance that the Company will not suffer delays
resulting from non-performance by its vendors or cost increases due to a variety
of factors, including component shortages or changes in laws or tariffs
applicable to items imported by the Company.

Competition

       Davox systems compete against various outbound, inbound, and blend
calling systems. Companies such as Mosaix Inc. (formerly Digital Systems
International, Inc.), Melita International Corporation and EIS International,
Inc. offer predictive dialers, but with varying levels of functionality in terms
of system management, integration and workstation support.

       Certain of the Company's potential competitors may be larger companies
which have greater financial, technical and marketing resources. It is possible
that competitors could produce products that perform the same or similar
functions as those performed by the Company's products.

       The Company believes that the principal factors affecting competition are
ease of use and range of functionality, reliability, performance, price and
customer service, and that the Company competes favorably as to these factors.

Reliance on Intellectual Property

       The Company relies on a combination of patent, copyright, contract and
trade secret laws to establish and protect its proprietary rights in its
technology. Software products are furnished under software license agreements
which grant customers licenses to use, rather than to own, the products. The
license agreements contain provisions protecting the Company's ownership of the
underlying technology. Upon commencement of employment, employees execute an
agreement under which inventions developed during the course of employment will,
at the election of the Company, be assigned to the Company, and which further
prohibits disclosure of confidential Company information. Despite the
precautions undertaken by the Company, it may be possible to copy or otherwise
obtain and use the Company's products or technology without authorization. In
addition, effective protection of intellectual property rights may be limited or
unavailable in certain foreign countries.

       The Company owns and licenses a number of patents relating to predictive
dialing, real-time telecommunication management and user interfaces. Davox is
very active in pursuing patents in its key technology and applications areas.
The Company does not rely on the licensed patents as its sole competitive
advantage.

Employees

       As of December 31, 1996, the Company had 232 full-time employees, of whom
20 were engaged in operations, 149 in sales, marketing and customer support, 39
in research, development and engineering and 24 in general and administrative
functions. The Company's ability to attract and retain qualified personnel is
essential to its continued success. None of the Company's employees is
represented by a collective bargaining agreement, nor has the Company ever
experienced any work stoppage. The Company believes that its employee relations
are good.

                                      10
<PAGE>
 
ITEM 2-PROPERTIES
-----------------

       During January 1994, the Company moved its administrative offices and its
operations and development facilities to a 60,000 square foot, two story
building in Westford, Massachusetts. The facility is occupied under a lease
which expires in September 1997. The Company incurred approximately $480,000 for
various expenditures related to this move, of which $191,000 represents property
under a capital lease. In addition, the Company leases facilities for district
and regional sales and service offices in eight states. The current aggregate
annual rental payments for all of the Company's facilities are approximately
$446,000.

ITEM 3-LEGAL PROCEEDINGS
------------------------

       The Company is from time to time subject to claims arising in the
ordinary course of business. While the outcome of the claims cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the results of operations and financial condition of the
Company.

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

       There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.

                                      11
<PAGE>
 
ITEM 4A-EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------

       The executive officers of the Company, the age of each, and the period
during which each has served in his present office are as follows:

Mr. Alphonse M. Lucchese (61) has served as Chairman, President and Chief
Executive Officer since July 1994. Mr. Lucchese joined Davox following seven
years as President and Chief Executive Officer at Iris Graphics, a manufacturer
of high quality color printers. Prior to joining Iris, Mr. Lucchese had served
as Vice President of Sales at Xyvision, Inc., a manufacturer of computer-
integrated publishing systems sold to Fortune 500 companies, commercial printers
and typesetters, and government agencies. Mr. Lucchese was Vice President of
Sales for Davox Corporation from 1983 until 1984. Earlier, he had spent six
years at Raytheon Data Systems, where he attained the position of Vice President
and General Manager of Northeastern Operations. Following service in the U.S.
Army during the mid-1950s, Mr. Lucchese began his professional career at IBM as
a systems engineer, later moving into the position of marketing representative.

Mr. John J. Connolly (40) has served as Vice President, Finance and Chief
Financial Officer since August 1, 1994, and was elected Treasurer in January
1997. Mr. Connolly joined Davox from Iris Graphics where he had been Vice
President of Finance since 1989. Prior to joining Iris, Mr. Connolly held
finance and accounting positions of increasing responsibilities at
Instrumentation Laboratory, a manufacturer of medical equipment.

Mr. James F. Mitchell (50) is a founder of the Company and has served as Senior
Vice President and Chief Technical Officer since 1983. From September 1993 to
August 1994, Mr. Mitchell managed the domestic sales operations. From 1981 to
1983, he was Vice President, Engineering of the Company. Prior to joining Davox
in 1981, Mr. Mitchell served as Manager of Systems Development at Applicon,
Inc., a producer of CAD/CAM products.

Mr. Douglas W. Smith (54) has served as Vice President, Sales and Marketing
since September 1, 1994. Mr. Smith is responsible for the Company's direct and
reseller sales in both the United States and Canada, as well as product and
industry marketing, sales support and marketing communications. Mr. Smith joined
Davox in 1994, following seven years at Iris Graphics where he contributed to
that company's extraordinary growth. Prior to joining Iris, Mr. Smith worked for
nearly 20 years in sales, managerial, and executive-level capacities for General
Electric Information Systems, Honeywell Information Systems, Raytheon Data
Systems, and Phoenix Data Systems.

Mr. Mark Donovan (42) has served as Vice President, Operations since August
1994. Since joining Davox in 1983, Mr. Donovan has held management positions of
increasing responsibility, including Vice President, Customer Service. He has
also held various materials and manufacturing management positions within the
Company. Prior to joining Davox, Mr. Donovan held various management positions
with Applicon, Inc. and Raytheon Corporation.

                                      12
<PAGE>
 
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
------------------------------------------------

Mr. John E. Cambray (41) has served as Vice President, Product Development since
August 1993. Mr. Cambray has been with Davox since early 1982 and has held
various software development and engineering management positions during this
time. Prior to joining Davox, Mr. Cambray held various design and management
positions with FASFAX Corporation and Sanders Associates.

Mr. Douglas P. Langenberg (51) has served as Vice President, Customer Services
since May 1996. Mr. Langenberg joined Davox following four years at Stratus
Computer, Inc., where he held the position of Vice President, Customer Services.
Prior to joining Stratus, Mr. Langenberg held executive-level positions with
Apollo Computer, Inc. and Digital Equipment Corporation, as well as founding and
serving as principal in a service-oriented consulting firm.

Richard P. Santos (60) has served as Vice President of International Operations
since May 1996. In this position, Mr. Santos is responsible for Davox's
international sales and support activities. His duties also include management
and development of Davox's distribution channels into its key international
markets, including Europe, Latin America, Asia/Pacific Rim, Middle East, and
Africa. Mr. Santos brings to Davox nearly 35 years of domestic and international
experience in management, sales, marketing, and business development. Prior to
joining Davox, he held senior level business development and management
positions with several leading high-technology companies, including President
and Chief Executive Officer of Monet, Inc., President of Pako Corporation, and
co-founder and Senior Vice President of Iris Graphics. In 1994, Pako Corporation
filed for bankruptcy.

Officers are elected by and serve at the discretion of the Board of Directors.

                                       13
<PAGE>
 
                                    PART II


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

Davox's Common Stock has been traded on the Nasdaq stock market under the symbol
"DAVX" since its initial public offering on April 28, 1987. Prior to that date
there was no public market for Davox's Common Stock. The following table sets
forth the range of high and low sale prices per share of Common Stock on the
National Market System for each quarter of the years ended December 31, 1996 and
1995 as reported by the National Association of Securities Dealers Automated
Quotation System (NASDAQ).


           Fiscal 1996                      High              Low
           -----------                      ---------------------

           First Quarter                    18-3/8            11-1/4

           Second Quarter                   32-1/2            17-1/4

           Third Quarter                    39-1/4            23-3/4

           Fourth Quarter                   45-1/4            30-3/4



           Fiscal 1995                      High              Low
           -----------                      ---------------------
           First Quarter                    8                 5-3/8

           Second Quarter                   9-1/8             6-7/8

           Third Quarter                    13-1/4            8-7/8

           Fourth Quarter                   12-7/8            10



As of February 21, 1997, there were approximately 305 holders of record of the
Company's Common Stock and approximately 1,600 beneficial shareholders of the
Company's Common Stock.

The Company has never paid cash dividends on its Common Stock and has no present
intentions to pay cash dividends in the future. The Company intends to retain
any future earnings to finance the growth of the Company.

The Company has not sold any equity securities during the period covered by this
report that were not registered under the Securities Act of 1933, as amended.

                                       14
<PAGE>


ITEM 6    SELECTED FINANCIAL DATA
----------------------------------

The following table sets forth certain consolidated financial data with respect
to the Company for each of the five years in the period ended December 31, 1996:
<TABLE> 
<CAPTION> 
                                                        Years Ended December 31,
                                         --------------------------------------------------
                                            1996        1995      1994      1993       1992
                                            ----        ----      ----      ----       ----
                                                (in thousands, except per share amounts)
<S>                                      <C>         <C>       <C>       <C>        <C> 
Consolidated Statements of Operations Data:
    Total revenue....................... $53,642     $37,556   $30,047   $33,756    $30,636
    Cost of revenue.....................  21,577      16,451    16,234    17,488     18,208
                                         -------     -------   -------   -------    -------
    Gross profit........................  32,065      21,105    13,813    16,268     12,428
    Research, development and
        engineering expenses............   5,861       4,020     3,540     3,391      3,389
    Selling, general and
        administrative expenses.........  17,213      12,166    12,681    12,472     12,485
    Restructuring costs ................   - - -       - - -     3,379     - - -      - - -
                                         -------     -------   -------   -------    -------
     Income (loss) from operations......   8,991       4,919    (5,787)      405     (3,446)
     Interest income (expense), net.....   1,137         421        37        20        (35)
                                         -------     -------   -------   -------    -------
     Income (loss) before provision
         for income taxes...............  10,128       5,340    (5,750)      425     (3,481)
      Provision for income taxes........   1,013         534     - - -        40      - - -
                                         -------     -------   -------   -------    -------
Net income (loss).......................  $9,115      $4,806   ($5,750)     $385    ($3,481)
                                         =======     =======   =======   =======    =======
Net income (loss) per common and
   common equivalent share..............   $1.11       $0.62    ($1.01)    $0.07     ($0.66)
                                         =======     =======   =======   =======    =======
Weighted average number of common
   and common equivalent shares
   outstanding..........................   8,190       7,711     5,689     5,776      5,256
                                         =======     =======   =======   =======    =======

<CAPTION> 
                                                           December 31,
                                         ---------------------------------------------------
                                             1996        1995      1994      1993       1992
                                         ---------------------------------------------------
                                                          (In Thousands)
<S>                                      <C>         <C>       <C>       <C>        <C> 
Consolidated Balance Sheets Data:
    Working capital.....................  $18,710      $8,589    $1,807    $3,627     $2,572
    Total assets........................   39,729      20,825    14,777    17,681     16,049
    Long-term debt......................    - - -          45       138        96         50
    Stockholders' equity................   22,835      10,912     5,492     8,881      8,340

</TABLE> 

                                      15

<PAGE>

Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
--------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future capital requirements, the
Company's future development plans, the Company's ability to obtain debt, equity
or other financing, and the Company's ability to generate cash from operations,
are based on current expectations. These statements are forward looking in
nature and involve a number of risks and uncertainties, as more fully described
under "Factors Affecting Future Performance." Actual results may differ
materially.

The following table sets forth, for the periods indicated, the percentage of
revenue represented by items as shown in the Company's Consolidated Statements
of Operations. This table should be read in conjunction with the Selected
Financial Data, Consolidated Financial Statements and Notes to Consolidated
Financial Statements contained elsewhere herein.

<TABLE> 
<CAPTION> 
                                  Percentage of Total Revenue For The
                                       Years Ended December 31,
-----------------------------------------------------------------------------
                                    1996          1995          1994
------------------------------------------------------------------------------

<S>                                <C>           <C>          <C> 
Product revenue                     69.3%         62.3%         56.5%
Service revenue                     30.7          37.7          43.5
------------------------------------------------------------------------------
Total revenue                      100.0         100.0         100.0

Cost of revenue                     40.2          43.8          54.0
------------------------------------------------------------------------------
Gross profit                        59.8          56.2          46.0

Research, development
and engineering expenses            10.9          10.7          11.8

Selling, general and
administrative expenses             32.1          32.4          42.2

Restructuring costs                 ----          ----          11.2
------------------------------------------------------------------------------
Income (loss) from
operations                          16.8          13.1         (19.2)

Interest income, net                 2.1           1.1           0.1
------------------------------------------------------------------------------
Income (loss) before provision
for income taxes                    18.9          14.2         (19.1)

Provision for income taxes           1.9           1.4          ----
------------------------------------------------------------------------------
Net income (loss)                   17.0%         12.8%        (19.1%)

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

                                      16
<PAGE>
 
Item 7  Management's Discussion and Analysis of Financial Condition and Results
        of Operations (Continued)


       Total revenue was approximately $53,642,000, $37,556,000, and $30,047,000
for the fiscal years ended December 31, 1996, 1995 and 1994, respectively. Total
revenue increased 42.8% for the year ended December 31, 1996 compared to the
same period in 1995 and increased 25.0% in fiscal year 1995 compared to fiscal
year 1994. Total cost of revenues as a percentage of total revenue was 40.2% in
fiscal year 1996, 43.8% in fiscal year 1995, and 54.0% in fiscal year 1994.

       Product revenue was approximately $37,178,000, $23,382,000, and
$16,969,000 in fiscal years 1996, 1995 and 1994, respectively. Product revenue
increased by 59.0% from 1995 to 1996 and increased 37.8% from 1994 to 1995. The
increase in 1996 was due to continued increasing demand for the Unison(R) call
center management system, especially the telemarketing and collections outbound
capabilities. The increase in 1995 was mainly attributable to strong demand for
the Company's core collections call center products, sales of the new
telemarketing product, and expansion into international markets.

       Cost of product revenue as a percentage of product revenue was 29.3%,
30.6%, and 39.6% in fiscal years 1996, 1995 and 1994, respectively. The
continued improvements in product margin in 1996 represent the increased volume
of product shipments relative to fixed costs, and a higher margin product mix.
In 1995, the increase in product margin was mainly attributable to the favorable
impact of increased volume as well as reduced costs related to inventory
provisions and amortization of software development costs.

       Service revenue was approximately $16,465,000, $14,174,000, and
$13,078,000 in fiscal years 1996, 1995 and 1994, respectively. Service revenue
increased 16.2% from 1995 to 1996, and 8.4% from 1994 to 1995. The increases in
1996 and 1995 were due to increased installation revenue related to the
increased volume of product shipments, and an increase in maintenance revenue
related to the growth in the installed base of the Company's customers.

       Cost of service revenue as a percentage of service revenue was 64.9%,
65.6%, and 72.8% in 1996, 1995 and 1994, respectively. The decrease in 1996 was
primarily attributable to the higher service revenue relative to fixed costs.
The decrease in 1995 was primarily related to the increase in revenue, while
also being favorably impacted by slightly reduced third-party maintenance costs.

       Revenue from the Company's largest single customer in each of 1996, 1995,
and 1994 was 4%, 12%, and 9% of total revenue, respectively. Revenue from the
Company's three largest customers amounted to 12% of total revenue in 1996, 20%
of total revenue in 1995, and 19% of total revenue in 1994. The Company intends
to broaden its base of existing and new customers by penetrating new markets,
expanding its direct international sales force, and using alternate channels of
distribution, thereby decreasing its dependence on its largest customers.

                                       17
<PAGE>
 
       Research, development and engineering expenses were approximately
$5,861,000, $4,020,000, and $3,540,000, representing 10.9%, 10.7%, and 11.8% of
total revenue during 1996, 1995 and 1994, respectively. The increase in 1996 was
primarily attributable to higher payroll and related expenses in 1996 resulting
from personnel increases. In addition, due to a change in the Company's
development cycle, no software development costs were capitalized in 1996 or
1995, while the Company capitalized approximately $310,000 of software
development costs during 1994. The increase in expenses from 1994 to 1995 was
primarily due to the absence of capitalized software development costs in 1995.

       Selling, general and administrative (SG&A) expenses were approximately
$17,213,000, $12,165,000, and $12,681,000, representing 32.1%, 32.4%, and 42.2%
of total revenue during 1996, 1995, and 1994, respectively. The increase in 1996
was primarily attributable to increased payroll and related expenses resulting
from personnel increases, and direct and indirect selling expenses related to
the increased revenue. The decrease as a percentage of revenue in 1996 and 1995
was mostly attributable to the significant increase in revenues.

       Interest income, derived primarily from money market instruments and
investments in commercial paper, increased 159.9% from 1995 to 1996, and 559.2%
from 1994 to 1995. These increases were due to the significantly higher average
cash and investment balances from year to year, as well as the increased
interest percentages received as a result of the Company's new investment policy
of investing in commercial paper and government securities. Interest expense
decreased 50.8% from 1995 to 1996, and 35.5% from 1994 to 1995. These decreases
reflect an overall decrease in outstanding debt attributable to capital lease
obligations.

Restructuring

       In the second quarter of 1994, in response to lower revenue, the Company
implemented a restructuring program. The restructuring was intended to refocus
the strategic direction of the Company to exploit the full potential of the
Unison(R) product line and maintain the Company's operating expenses in line
with the revised revenue plan. As a result of this program, the Company hired a
new Chief Executive Officer and a new Chief Financial Officer. This
restructuring resulted in a 21% reduction in the Company's work force worldwide.

       The Company offered or was contractually committed to severance packages
of up to fifteen months' salary. Additionally, the Company accelerated the
phaseout of certain older product lines, necessitating the write-down of certain
assets. In total, the restructuring cost was approximately $3,379,000, of which
all costs have been paid as of December 31, 1996. The restructuring charge
reflects approximately $1,487,000 of severance related costs and $1,892,000
related to the phase out of certain older product lines.


Liquidity and Capital Resources

       As of December 31, 1996, the Company's principal sources of liquidity
were its cash and cash equivalent balances of approximately $21,333,000, as well
as its marketable securities of approximately $9,780,000. As of the end of
fiscal 1995, the Company's cash and cash equivalent balances were approximately
$12,936,000. The increase in cash is a result of the favorable operating
results, an increase in customer deposits, and proceeds from exercises of stock
options. In addition, the Company has an agreement for a working capital line of
credit 

                                       18
<PAGE>
 
with a bank for up to $2,000,000 based on eligible receivables, as defined.
There were no outstanding balances as of December 31, 1996 or 1995 under this
line of credit.

           Working capital as of December 31, 1996 was approximately $18,710,000
as compared to $8,589,000 as of December 31, 1995 and $1,807,000 as of December
31, 1994. Total assets as of December 31, 1996 were approximately $39,729,000
compared to $20,825,000 as of December 31, 1995 and $14,777,000 as of December
31, 1994. The increase from 1995 to 1996 was primarily attributable to the cash
generated by operations and an increase in customer deposits. The increase from
1994 to 1995 was primarily attributable to the cash generated by operations.

           Management believes, based on the current operating plan, that the
Company's existing cash and cash equivalents, marketable securities, cash
generated from operations, and amounts available under its working capital line
of credit will be sufficient to meet the Company's cash requirements for the
foreseeable future.


Impact of Inflation

       The Company believes that inflation did not have a material effect on the
results of operations in 1996.

Certain Factors That May Affect Future Results

       From time to time, information provided by the Company, statements made
by its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K) may contain statements which are
not historical facts, so-called "forward-looking statements," which involve
risks and uncertainties. In particular, statements in "Item 1. Business"
relating to expansion of the Business Partners Program, and in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" relating to the Company's intent to broaden its customer base and
decrease reliance on its largest customers and the sufficiency of working
capital, may be forward-looking statements. The Company's actual future results
may differ significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
factors discussed below. Each of these factors, and others, are discussed from
time to time in the Company's filings with the Securities and Exchange
Commission.

       The Company's future results may be subject to substantial risks and
uncertainties. The Company purchases certain equipment for its products from
third party suppliers and licenses certain components of its software code from
a number of third party vendors. While the Company believes that third party
equipment and software vendors could be replaced if necessary, the Company might
face significant delays in establishing replacement sources or in modifying its
products to incorporate replacement components or software code. There can be no
assurance that the Company will not suffer delays resulting from non-performance
by its vendors or cost increases due to a variety of factors, including
component shortages or changes in laws or tariffs applicable to items imported
by the Company. Also, the Company relies on certain intellectual property
protections to preserve its intellectual property rights. Any invalidation of
the Company's intellectual property rights or lengthy and expensive defense of
those rights could have a material adverse affect on the financial position and
results of 

                                       19
<PAGE>
 
operations of the Company. The development of new products, the improvement of
existing products and the continuing evaluation of new technologies is critical
to the Company's success. Successful product development and introduction
depends upon a number of factors, including anticipating and responding to the
evolving applications needs of customers and resellers, timely completion and
introduction of new products, and market acceptance of the Company's products.
The telecommunications industry is extremely competitive. Certain current and
potential competitors of the Company are more established, benefit from greater
market recognition and have substantially greater financial, development and
marketing resources than the Company.

       The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially adversely affect revenue and
profitability, including the timing of customer orders; the Company's ability to
introduce new products on a timely basis; introduction of products and
technologies by the Company's competitors; and market acceptance of the
Company's and its competitors' products. As a result of the foregoing and other
factors, the Company may experience material fluctuations in future operating
results on a quarterly or annual basis which could materially and adversely
affect its business, financial condition, results of operations and stock price.

                                       20
<PAGE>
 
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------------------

Index to Consolidated Financial Statements
------------------------------------------

<TABLE> 
<CAPTION> 
                                                                     Page
                                                                     ----
<S>                                                                  <C> 
Report of Independent Public Accountants                              22
                                                               
Consolidated Balance Sheets as of December 31,                 
       1996 and 1995                                                  23
                                                               
Consolidated Statements of Operations for the Years            
       Ended December 31, 1996, 1995, and 1994                        24
                                                               
Consolidated Statements of Stockholders' Equity                
       for the Years Ended December 31, 1996, 1995             
       and 1994                                                       25
                                                               
Consolidated Statements of Cash Flows for the Years            
       Ended December 31, 1996, 1995 and 1994                         26
                                                               
Notes to Consolidated Financial Statements                            27
                                                               
Report of Independent Public Accountants on Financial          
       Statement Schedule                                             42
                                                               
Financial Statement Schedule                                          43
</TABLE> 

                                       21
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Davox Corporation:

       We have audited the accompanying consolidated balance sheets of Davox
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

       We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Davox Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.





                                                  ARTHUR ANDERSEN LLP



Boston, Massachusetts
January 21, 1997

                                       22
<PAGE>


                         PART I. FINANCIAL INFORMATION
                         ITEM I. FINANCIAL STATEMENTS
                      DAVOX CORPORATION AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
<TABLE> 
<CAPTION> 
                                                           December 31,    December 31,
                                                               1996            1995
                                                           -------------   ------------
                                         ASSETS
<S>                                                        <C>             <C> 
Current assets:
      Cash and cash equivalents                            $  21,333,300   $ 12,935,907
      Marketable securities                                    9,780,273          -----
      Accounts receivable, net of reserves of
            approximately $699,000 and $665,000
            in 1996 and 1995, respectively                     3,184,814      4,459,597
      Inventories                                              1,204,058      1,009,029
      Prepaid expenses and other current assets                  101,802         52,357
                                                           -------------   ------------
            Total current assets                              35,604,247     18,456,890

Property and equipment, net                                    4,050,850      1,865,398
Other assets, net                                                 74,207        502,274
                                                           -------------   ------------
                                                           $  39,729,304   $ 20,824,562
                                                           =============   ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Current maturities of long-term debt                 $      40,067   $     92,896
      Accounts payable                                         4,771,123      2,927,172
      Accrued expenses                                         6,174,935      3,926,054
      Customer deposits                                        3,413,726      1,292,627
      Deferred revenue                                         2,494,390      1,629,081
                                                           -------------   ------------
            Total current liabilities                         16,894,241      9,867,830
                                                           -------------   ------------
Long-term debt, net of current maturities                            ---         44,891
                                                           -------------   ------------

Commitments and Contingencies (Note 7)

Stockholders' equity:
      Common stock, $.10 par value  -
         Authorized - 10,000,000 shares
         Issued - 7,387,798 and 6,845,789
         shares in 1996 and 1995, respectively                   738,780        684,579
      Capital in excess of par value                          45,263,568     42,509,154
      Accumulated deficit                                    (23,143,139)   (32,257,746)
                                                           -------------   ------------
                                                              22,859,209     10,935,987
         Less - Treasury Stock, 2,807 shares at cost             (24,146)       (24,146)
                                                           -------------   ------------
             Total stockholders' equity                       22,835,063     10,911,841
                                                           -------------   ------------
                                                           $  39,729,304   $ 20,824,562
                                                           =============   ============

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

<PAGE>


                      DAVOX CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE> 
<CAPTION> 
                                                           Years Ended December 31,
                                                     ---------------------------------------

                                                         1996         1995           1994
                                                         ----         ----           ----
<S>                                                  <C>          <C>            <C> 
Product revenue                                      $37,177,601   $23,382,089   $16,969,126
Service revenue                                       16,464,791    14,173,982    13,077,995
                                                     -----------   -----------  ------------
   Total revenue                                      53,642,392    37,556,071    30,047,121
                                                     -----------   -----------  ------------
                                                                             
Cost of product revenue                               10,883,420     7,155,766     6,715,886
Cost of service revenue                               10,693,687     9,295,707     9,518,484
                                                     -----------   -----------  ------------
   Total cost of revenue                              21,577,107    16,451,473    16,234,370
                                                     -----------   -----------  ------------
                                                                             
   Gross profit                                       32,065,285    21,104,598    13,812,751
                                                     -----------   -----------  ------------
                                                                             
Operating Expenses:                                                          
   Research, development and engineering expenses      5,861,108     4,020,350     3,539,858
   Selling, general and administrative expenses       17,212,916    12,165,447    12,680,787
   Restructuring costs                                   ----          ----        3,379,031
                                                     -----------   -----------  ------------
   Total operating expenses                           23,074,024    16,185,797    19,599,676
                                                     -----------   -----------  ------------
                                                                             
   Income (loss) from operations                       8,991,261     4,918,801    (5,786,925)
                                                                             
Interest income                                        1,146,006       440,909        66,882
Interest expense                                           9,480        19,287        29,913
                                                     -----------   -----------  ------------
                                                                             
   Income (loss) before provision                                            
      for income taxes                                10,127,787     5,340,423    (5,749,956)
Provision for income taxes                             1,013,180       534,176       ----
                                                     -----------   -----------  ------------
                                                                             
   Net income (loss)                                  $9,114,607    $4,806,247   ($5,749,956)
                                                     ===========   ===========  ============
                                                                             
Net income (loss) per common and                                             
     common equivalent share                               $1.11         $0.62        ($1.01)
                                                     ===========   ===========  ============
                                                                             
Weighted average number of common and                                        
    common equivalent shares outstanding               8,190,163     7,710,553     5,688,730
                                                     ===========   ===========  ============
</TABLE> 

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

                                      24
<PAGE>

<TABLE>
<CAPTION>
                                                                     DAVOX CORPORATION AND SUBSIDIARIES

                                                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                    Capital in                                           Total
                                                  Common Stock       Excess of      Accumulated   Treasury Stock      Stockholders'
                                               Shares    Par Value   Par Value        Deficit     Shares   Amount        Equity
                                              ---------  --------   -----------    -------------  -------  ---------  -------------
<S>                                           <C>        <C>        <C>            <C>            <C>      <C>        <C>
BALANCE, December 31, 1993                    5,332,530  $533,253   $39,685,656    $(31,314,037)  (2,807)  $(24,146)   $8,880,726

    Proceeds from exercise of stock
      options                                   175,167    17,517       325,333         - - - -    - - -    - - - -       342,850
    Proceeds from employee stock
      purchase plan                               5,932       593        17,684         - - - -    - - -    - - - -        18,277
    Proceeds from private placement           1,066,666   106,667     1,893,332         - - - -    - - -    - - - -     1,999,999
    Net loss                                    - - - -   - - - -       - - - -      (5,749,956)   - - -    - - - -    (5,749,956)
                                              ---------  --------   -----------    -------------  -------  --------  -------------
BALANCE, December 31, 1994                    6,580,295   658,030    41,922,005     (37,063,993)  (2,807)    24,146     5,491,896

    Proceeds from exercise of stock
      options, including related tax benefit    256,758    25,676       551,927         - - - -    - - -    - - - -       577,603
    Proceeds from employee stock
      purchase plan                               8,736       873        35,222         - - - -    - - -    - - - -        36,095
    Net income                                  - - - -   - - - -       - - - -       4,806,247    - - -    - - - -     4,806,247
                                              ---------  --------   -----------    -------------  -------  --------  -------------
BALANCE, December 31, 1995                    6,845,789   684,579    42,509,154     (32,257,746)  (2,807)    24,146    10,911,841

    Proceeds from exercise of stock
      options, including related tax benefit    532,023    53,202     2,664,494         - - - -    - - -    - - - -     2,717,696
    Proceeds from employee stock
      purchase plan                               9,986       999        89,920         - - - -    - - -    - - - -        90,919
    Net income                                  - - - -   - - - -       - - - -       9,114,607    - - -    - - - -     9,114,607
                                              ---------  --------   -----------    -------------  -------  --------  -------------
BALANCE, December 31, 1996                    7,387,798  $738,780   $45,263,568    $(23,143,139)  (2,807)  $(24,146)  $22,835,063
</TABLE>

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

                                      25
<PAGE>
                      DAVOX CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                              ----------------------------------------------

                                                                                  1996             1995             1994
                                                                              ------------     ------------      ----------- 
<S>                                                                            <C>              <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                                            $9,114,607       $4,806,247      ($5,749,956)
  Adjustments to reconcile net income (loss) to net cash
  provided by operating activities -
     Depreciation and amortization                                              2,373,168        2,643,814        3,138,413
     Provision for losses on accounts receivable                                   98,000          248,561          338,289
     Changes in current assets and liabilities -
         Accounts receivable                                                    1,176,783           (8,439)       2,473,593
         Inventories                                                             (195,029)        (241,235)       1,233,663
         Prepaid expenses and other current assets                                (49,445)         156,663         (109,296)
         Accounts payable                                                       1,843,951          396,516         (836,149)
         Accrued expenses                                                       3,136,927          179,619          702,235
         Customer deposits                                                      2,121,099          462,332          719,730
         Deferred revenue                                                         865,309         (229,160)        (154,026)
                                                                              ------------     ------------      ----------- 
         Net cash provided by operating activities                             20,485,370        8,414,918        1,756,496
                                                                              ------------     ------------      -----------
Cash flows from investing activities:
  Purchases of property and equipment                                          (4,133,851)      (1,230,140)      (1,067,223)
  (Increase) decrease in other assets                                               3,298           41,458          (43,332)
  Purchases of marketable securities                                          (10,865,105)          ----             ----
  Sales of marketable securities                                                1,084,832           ----             ----
  Capitalized software development costs                                           ----             ----           (309,961)
                                                                              ------------     ------------      -----------
         Net cash used in investing activities                                (13,910,826)      (1,188,682)      (1,420,516)
                                                                              ------------     ------------      -----------
Cash flows from financing activities:
  Principal payments for long-term debt                                           (97,720)        (108,460)        (137,575)
  Proceeds from private placement                                                  ----             ----          1,999,999
  Proceeds from exercise of stock options                                       1,829,650          504,256          342,850
  Proceeds from exercise of employee stock purchase plan                           90,919           36,095           18,277
                                                                              ------------     ------------      -----------
         Net cash provided by financing activities                              1,822,849          431,891        2,223,551
                                                                              ------------     ------------      -----------

         Net increase in cash and cash equivalents                              8,397,393        7,658,127        2,559,531

Cash and cash equivalents, beginning of year                                   12,935,907        5,277,780        2,718,249
                                                                              ------------     ------------      -----------
Cash and cash equivalents, end of year                                        $21,333,300      $12,935,907       $5,277,780
                                                                              ============     ============      ===========
Supplemental disclosures of cash flow information:
         Cash paid for-
                  Interest                                                    $     9,480      $    19,287       $   29,913
                                                                              ============     ============      ===========
                  Income taxes                                                $   429,000      $   184,655       $   20,826
                                                                              ============     ============      ===========

Supplemental disclosure of non-cash investing and financing activities:
                  Equipment acquired under capital lease obligation           $    ----        $    ----         $  190,812
                                                                              ============     ============      ===========
                  Recognition of tax benefit relating to disqualifying
                  dispositions and exercise of non-qualified stock options    $   888,046      $    73,347       $   ----
                                                                              ============     ============      ===========
</TABLE>
      The accompanying notes are an integral part of these consolidated 
                             financial statements.
                                      26
<PAGE>
 
                      DAVOX CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1996





(1)    Operations and Significant Accounting Policies


       Davox Corporation (the Company) is a software and systems integration
company that develops, markets, supports and services management systems for
call center operations. These systems are marketed directly, through joint
marketing relationships, and distribution agreements. The Company provides its
systems to banks, consumer finance organizations, retailers, entertainment
companies, telemarketing organizations and utilities.

       These consolidated financial statements reflect the application of
certain significant accounting policies as described below and elsewhere in the
accompanying consolidated financial statements.

(a)    Management Estimates

       The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

(b)    Revenue Recognition

       The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1 (SOP 91-1), Software Revenue Recognition. The
Company generates software revenue from licensing the rights to use its software
products. The Company also generates service revenues from the sale of product
maintenance contracts and consulting services.

       Revenue from software license fees are recognized upon delivery, net of
estimated returns, provided there are no significant postdelivery obligations,
and payment is due within one year and is probable of collection. If acceptance
is required, software license revenue is recognized upon customer acceptance.
Fees for consulting services are recognized upon customer acceptances or over
the period in which services are provided if customer acceptance is not
required, and the revenue is fixed and determinable. Maintenance revenue is
deferred at the time of software license revenue recognition and is recognized
ratably over the term of the support period, which is typically one year.

                                       27
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)


(1)    Operations and Significant Accounting Policies (Continued)


(c)    Warranty Costs

       The Company warrants its products for 90 days and provides for estimated
warranty costs upon shipment of such products. Warranty costs have not been and
are not anticipated to be significant.


(d)    Principles of Consolidation

       The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.


(e)    Postretirement Benefits

       The Company has no obligations for postretirement or general
       postemployment benefits.


(f)    Cash, Cash Equivalents and Marketable Securities

       The Company considers all highly liquid investments with original
maturities of three months or less at the time of acquisition to be cash
equivalents.

       The Company accounts for investments in accordance with Statement of
Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. Under SFAS No. 115, securities that the Company
has the positive intent and ability to hold to maturity are reported at
amortized cost and are classified as held-to-maturity. At December 31, 1996,
held-to-maturity securities consisted of investments in high grade commercial
paper instruments. All of these investments are classified as current as they
mature within one year.

       At December 31, 1996 marketable securities consisted of the following:

<TABLE> 
<CAPTION> 
                                                       Total Market Value        Total  Amortized Cost
                                                     ----------------------    -------------------------
       <S>                                                 <C>                        <C> 
       Commercial paper obligations................        $9,780,060                 $9,780,273
</TABLE> 

                                       28
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)

(1)    Operations and Significant Accounting Policies (Continued)

(g)    Inventories

    Inventories are stated at the lower of first-in, first out (FIFO) cost or
market and consist of the following:

<TABLE> 
<CAPTION> 
                                                                                December 31,
                                                              ----------------------------------------------
                                                                1996                                  1995
                                                                ----                                  ----
<S>                                                       <C>                                   <C> 
Raw materials and subassemblies....................       $    82,684                           $    52,032
Work-in-process....................................           854,768                               641,430
Finished goods.....................................           266,606                               315,567
                                                          -----------                           -----------
                                                          $ 1,204,058                           $ 1,009,029
                                                          ===========                           ===========
</TABLE> 

    Subassemblies, work-in-process and finished goods inventories include
material and sub-contract labor. Internal labor and overhead are not
significant.


(h)    Property and Equipment

    The Company provides for depreciation and amortization of property and
equipment using the straight-line and declining-balance methods by charges to
operations in amounts to allocate the cost of the property and equipment over
their estimated useful lives. The cost of property and equipment and their
useful lives are summarized as follows:

<TABLE> 
<CAPTION> 
                                                              December 31,
                                                        ------------------------
                                       Estimated
Asset Classification                   Useful Life         1996          1995
--------------------                   -----------      ----------    ----------
<S>                                    <C>              <C>           <C> 
Equipment and software ............    2-3 Years        $6,174,516    $3,564,708
Equipment under capital lease .....    Life of Lease       530,117       530,117
Rental and demonstration
       equipment ..................    3 Years             426,731       411,604
Service equipment .................    1-5 Years         2,179,939     2,158,185
Leasehold improvements ............    Life of Lease       184,466        95,155
                                                        ----------    ----------
                                                         9,495,769     6,759,769
Less-Accumulated depreciation
       and amortization ...........                      5,444,919     4,894,371
                                                        ----------    ----------
                                                        $4,050,850    $1,865,398
                                                        ==========    ==========
</TABLE> 

                                       29
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)



(1)    Operations and Significant Accounting Policies (Continued)

(i)    Research and Development and Software Development Costs

       Research and development expenses other than software development costs
are charged to operations as incurred. In compliance with SFAS No. 86,
Accounting for the Costs of Computer Software To Be Sold, Leased, or Otherwise
Marketed, the Company capitalized certain computer software development costs. A
change occurred in the Company's development cycle such that the period between
the attainment of technological feasibility and the first commercial shipment of
a software enhancement has shortened and the level of capitalizable costs
incurred are no longer material. Accordingly, the Company expensed all software
development costs incurred during the years ended December 31, 1996 and 1995.
Approximately $380,000, $579,000, and $685,000 of capitalized software
development costs were amortized to expense during the years ended December 31,
1996, 1995 and 1994, respectively.

(j)    Net Income (Loss) per Common and Common Equivalent Share

       Net income (loss) per common and common equivalent share has been
computed using the weighted average number of common and common equivalent
shares outstanding during each period. Common stock and common stock issuable
pursuant to stock options and warrants have been reflected as outstanding using
the treasury stock method. Common equivalent shares (stock options and warrants)
have not been considered in the calculation of net loss per share for the year
ended December 31, 1994, as their effect would be antidilutive. Fully diluted
net income per common and common equivalent share has not been separately
presented as the amounts are not materially different from primary net income
per share.


(k)    Other Assets

       During March 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of, which is effective for fiscal years
beginning after December 15, 1995. The adoption of this standard did not have a
material effect on the Company's financial position or results of operations.

                                       30
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)



 (2)   Line of Credit

       The Company has a working capital line of credit (line of credit) with a
bank that expires in June 1997, if not renewed, pursuant to which the Company
may borrow up to the lesser of $2,000,000 or a percentage of accounts
receivable, as defined. Borrowings under the line of credit will bear interest
at the bank's prime rate (8.25% at December 31, 1996). There were no borrowings
under the line of credit during 1996.

(3)    Accrued Expenses

       Accrued expenses consist of the following:

<TABLE> 
<CAPTION> 
                                                            December 31,
                                                     --------------------------
                                                      1996                1995
                                                     ------              ------
<S>                                                <C>                <C> 
Commissions and bonuses ..................         $1,095,246         $  913,574
Employee benefits ........................            969,317            964,717
State sales tax ..........................            535,888            302,888
Other ....................................          3,574,484          1,744,875
                                                   ----------         ----------
                                                   $6,174,935         $3,926,054
                                                   ==========         ==========
</TABLE> 

(4)    Long-term debt

       Long-term debt consists of a capital lease obligation at an interest rate
of 10.0%, collateralized by certain equipment. The total obligation under this
lease was $40,067 and $137,787, with current maturities of $40,067 and $92,896
and long term debt of $0 and $44,891 as of December 31, 1996 and 1995,
respectively.


(5)    401(k) Plan

       The Company maintains The Davox Corporation 401(k) Retirement Plan (the
Plan), which is a deferred contribution plan that covers all full-time employees
over 21 years of age who have completed at least six months of service with the
Company. The participants may make pretax deferred contributions to the plan of
up to 15% of the annual compensation, as defined. Contributions by the Company
are discretionary and are determined by the Board of Directors. The Company made
discretionary contributions of approximately $161,000 in 1996. There were no
Company contributions to the Plan in 1995 or 1994.

                                       31
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)

(6)    Income Taxes

       The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax basis of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these differences
are expected to reverse. The income tax provision for the years ended December
31, 1996 and 1995 consists of federal alternative minimum and state income taxes
payable.

      The components of the provision for income taxes consist of the following:

<TABLE> 
<CAPTION> 
                                            Fiscal Years Ended December 31,
                                       ----------------------------------------
                                          1996           1995           1994
                                          ----           ----           ----
<S>                                    <C>            <C>            <C> 
Current:
         Federal..................     $  202,636     $  106,835     $      --
         State....................        810,544        427,341            --
                                       ----------     ----------     ----------

            Total current.........     $1,013,180     $  534,176     $      --
                                       ==========     ==========     ==========
Deferred:
         Federal..................     $     --       $     --       $      --
         State....................           --             --              --   
                                       ----------     ----------     ----------

            Total deferred........     $     --       $     --       $      --
                                       ----------     ----------     ----------

Provision for Income Taxes........     $1,013,180     $  534,176     $      --
                                       ==========     ==========     ==========
</TABLE> 

       The provision for income taxes that is currently payable for the year
ended December 31, 1996 does not reflect $888,000 of tax benefits included in
additional paid in capital related to disqualifying dispositions and the
exercise of non-qualified stock options.

                                       32
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)


(6)    Income Taxes (Continued)

       The approximate income tax effect of each type of temporary difference
comprising the deferred tax asset is approximately as follows:

<TABLE> 
<CAPTION> 
                                                           1996                       1995
                                                           ----                       ----
<S>                                                  <C>                       <C> 
Net operating loss carryforwards...............      $   8,153,000             $   8,862,000
Depreciation...................................            571,000                   604,000
Inventory reserves.............................            561,000                   651,000
Federal tax credit carryforwards...............            577,000                   577,000
Other temporary differences....................          1,940,000                   926,000
                                                     --------------            --------------
                                                        11,802,000                11,620,000
Valuation allowance............................        (11,802,000)              (11,620,000)
                                                     --------------            --------------
                                                     $     --                  $      -- 
                                                     ==============            ==============
</TABLE> 

       Due to the uncertainty surrounding the timing of realization of the
benefits of its favorable tax attributes in future tax returns, the Company
placed a full valuation allowance against its net deferred tax asset. However,
approximately $4,125,000 of the valuation allowance relates to the excess tax
benefit of disqualifying dispositions and the exercise of non-qualified stock
options. If the valuation allowance is reduced in future periods, this benefit
will be recorded in additional paid in capital at that time.

       At December 31, 1996, the Company has available net operating loss
carryforwards and tax credit carryforwards of approximately $20,383,000 and
$577,000, respectively, expiring through 2009. These carryforwards may be used
to offset future income taxes payable, if any, and are subject to review by the
Internal Revenue Service.

       The Internal Revenue Code provides that net operating loss carryforwards
available to be used in any given year may be limited in the event of certain
circumstances, including significant changes in ownership, as defined.

                                       33
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)

(6)    Income Taxes (Continued)

       A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:

<TABLE> 
<CAPTION> 
                                                                  Years Ended December 31,
                                                                  ------------------------
                                                              1996          1995           1994
                                                              ----          ----           ----
<S>                                                           <C>           <C>           <C> 
Federal statutory tax rate...............................     34.0%         34.0%         34.0%
State income taxes, net of federal income tax benefit....      6.3           6.3           6.3
                                                        
Permanent items..........................................     (1.3)         (2.6)           --
                                                        
Utilization of net operating loss carryforwards..........    (29.0)        (27.7)           --
Net operating loss generated.............................       --            --         (40.3)
                                                            --------      --------      --------
                                                        
Effective tax rate.......................................     10.0%         10.0%          ---%
                                                              =====         =====          ====
</TABLE> 

(7)    Commitments and Contingencies

(a)    Operating Lease Commitments

       The Company leases its facilities and sales offices under operating
leases that expire at various dates through October 2001. The Company's lease
for its corporate headquarters expires in September 1997. Pursuant to the lease
agreements, the Company is responsible for maintenance costs and real estate
taxes. Total rental expense for all operating leases for the years ended
December 31, 1996, 1995 and 1994 amounted to approximately $507,000, $551,000,
and $684,000, respectively.

       Future minimum lease payments by year, in the aggregate under operating
leases are approximately as follows at December 31, 1996:

<TABLE> 
<CAPTION> 

       Years Ending December 31,                         Amount
       -----------------------------                  ----------
       <S>                                            <C> 
       1997................................           $  446,000
       1998................................              222,000
       1999................................              165,000
       2000................................              123,000
       2001................................               89,000
                                                      ----------
                                                      $1,045,000
                                                      ==========
</TABLE> 

                                       34
<PAGE>
 
                      DAVOX CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

                                  (Continued)


 (7)   Commitments and Contingencies (Continued)

 (b)   Capital Lease Commitments

       The Company leases certain equipment that has been reported as equipment
under capital lease and as lease obligations in the accompanying consolidated
financial statements. The cost and accumulated amortization of this equipment
were approximately $191,000 and $152,000, respectively, at December 31, 1996 and
approximately $354,000 and $230,000, respectively, at December 31, 1995.

       Future minimum lease payments under capital leases are as follows at
December 31, 1996:

<TABLE> 
<CAPTION> 
       Year Ending December 31,                                      Amount
       ------------------------                                      ------
       <S>                                                          <C> 
       1997...............................................          $ 41,584
       Less - Amount representing interest................           ( 1,517)
                                                                    ---------
       Less - Current portion                                       $(40,067)
                                                                    ---------
                                                                    $  ----
                                                                    =========
</TABLE> 

(c)    Employment and Severance Agreements

       The Company has entered into employment and severance agreements with
certain officers and employees whereby the Company may be required to pay the
officers and employees a total of approximately $1,152,000 upon termination of
employment by the Company under certain circumstances, as defined.

(8)    Litigation

       The Company is presently engaged in various legal actions and its
ultimate liability, if any, cannot be determined at the present time. However,
management has consulted with legal counsel, and management believes that any
such liability will not have a material adverse effect on the Company's
financial position or its results of operations.

                                       35
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)



(9)    Stockholders' Equity

(a)    1986 Stock Plan

       The Company's 1986 Stock Plan (the "1986 Plan"), administered by the
Board of Directors authorizes the issuance of a maximum of 1,114,286 shares of
common stock for the exercise of options in connection with awards or direct
purchases of stock. In August 1994, the Shareholders approved an amendment to
increase the number of shares authorized for issuance under the 1986 Plan to
2,114,286. In April 1996, the Shareholders approved an amendment to increase the
number of shares authorized for issuance under the 1986 Plan to 2,464,286.
Options granted under the 1986 Plan may be either nonstatutory stock options or
options intended to constitute "incentive stock options" under the Internal
Revenue Code. Stock options may be granted to employees, officers,
employee-directors or consultants of the Company and are exercisable in such
installments as the Board of Directors may specify. The options granted
currently vest over a four-year period and expire ten years from the date of
grant. The 1986 Plan terminated pursuant to its terms in September 1996.

(b)    1996 Stock Plan

       The Company's 1996 Stock Plan (the "1996 Plan") administered by the Board
of Directors authorizes the issuance of a maximum of 600,000 shares of common
stock for the exercise of options in connection with awards or direct purchases
of stock. Options granted under the 1996 Plan may be either nonstatutory stock
options or options intended to constitute "incentive stock options" under the
Internal Revenue Code. Stock options may be granted to employees, officers,
employee-directors or consultants of the Company and are exercisable in such
installments as the Board of Directors may specify. The shares currently vest to
the individual over a four-year period. There were 526,650 shares available for
future grants under the 1996 Plan at December 31, 1996.

(c)    Stock Options to Directors

       The Company's 1988 Non-employee Director Stock Option Plan (the "1988
Plan"), as amended, is administered by the Board of Directors and authorizes the
issuance of a maximum of 400,000 shares of common stock for the exercise of
options. The 1988 Plan provided for the automatic grant of options for 40,000
shares for each non-employee director in office at the time of the amendment and
provides for additional grants of options for 10,000 shares per non-employee
director on each biennial anniversary of amendment approval. The 1988 Plan also

                                       36
<PAGE>
 
                       DAVOX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                                   (Continued)


(9)    Stockholders' Equity (Continued)

(c)    Stock Options to Directors (Continued)

provides for the automatic grant of options for 40,000 shares to each newly
elected non-employee director and additional grants of 10,000 options per
biennial anniversary of election to the Board of Directors. Options granted
under the 1988 Plan vest 25% per year beginning one year from the date of grant
and expire five years from the date of grant. There are 227,500 shares available
for future grants under the 1988 Plan.

       The following is a summary of the stock option activity for all plans for
the years ended December 31, 1996, 1995 and 1994:

<TABLE> 
<CAPTION> 
                                                               Number of                    Exercise
                                                                Options                    Price Range
                                                                -------                    -----------
<S>                                                           <C>                        <C> 
Outstanding, December 31, 1993                                  943,936                  $1.75   -  $5.50
     Granted ..................................               1,475,662                   2.25   -   5.25
     Exercised ................................                (162,180)                  1.75   -   4.50
     Canceled .................................                (553,576)                  1.75   -   5.50
                                                              ----------                 ----------------
Outstanding, December 31, 1994                                1,703,842                   1.75   -   5.50
     Granted ..................................                 112,875                   6.75   -  12.25
     Exercised ................................                (204,640)                  1.75   -   7.13
     Canceled .................................                 (44,519)                  1.75   -  12.25
                                                              ----------                 ----------------
Outstanding, December 31, 1995                                1,567,558                   1.75   -  12.25
     Granted ..................................                 287,550                  12.13   -  39.50
     Exercised ................................                (532,023)                  1.75   -  24.25
     Canceled .................................                 (50,789)                  1.75   -  12.25
                                                              ----------                 ----------------
Outstanding, December 31, 1996                                1,272,296                  $2.00   - $39.50
                                                              ==========                 ================
     Exercisable, December 31, 1996                             429,949                  $2.00   - $28.63
                                                              ==========                 ================
</TABLE> 

(d)    Employee Stock Purchase Plan

       The Company has adopted an Employee Stock Purchase Plan (the "Purchase
Plan") under which a maximum of 100,000 shares of Common Stock may be purchased
by eligible employees. Substantially all full-time employees of the Company are
eligible to participate in the Purchase Plan.

                                       37
<PAGE>
 
                      DAVOX CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

                                  (Continued)


(9)    Stockholders' Equity (Continued)

(d)    Employee Stock Purchase Plan (Continued)

       The Purchase Plan provides for two "purchase periods" within each of the
Company's fiscal years, the first commencing on January 1 of each calendar year
and continuing through June 30 of such calendar year, and the second commencing
on July 1 of each year and continuing through December 31 of such calendar year.
Eligible employees may elect to become participants in the Purchase Plan for a
purchase period by completing a stock purchase agreement prior to the first day
of the purchase period for which the election is made. Shares are purchased
through accumulation of payroll deductions (of not less than 0.5% nor more than
10% of compensation, as defined) for the number of whole shares, determined by
dividing the balance in the employee's account on the last day of the purchase
period by the purchase price per share for the stock determined under the
Purchase Plan. The purchase price for the shares will be the lower of 85% of the
fair market value of the Common Stock at the beginning of the purchase period or
85% of such value at the end of the purchase period (rounded to the nearest
quarter). During 1996 and 1995, 9,986 and 8,736 shares, respectively, were
purchased under the Purchase Plan.

(e)    Accounting for Stock-Based Compensation

       The Company accounts for its stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes a fair-value-based
method of accounting for stock-based compensation plans. The Company has adopted
the disclosure-only alternative under SFAS No. 123, which requires the
disclosure of the pro forma effects on earnings and earnings per share as if
SFAS No. 123 had been adopted, as well as certain other information.

       The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted (including the employee stock purchase
plan) as of December 31, 1996 using the Black-Scholes option pricing model
prescribed by SFAS No. 123.

                                       38
<PAGE>
 
                      DAVOX CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

                                  (Continued)



 (9)   Stockholders' Equity (Continued)

(e)    Accounting for Stock-Based Compensation (Continued)

       The assumptions used and the weighted average information for the years
ended December 31, 1996 and 1995 are as follows:

<TABLE> 
<CAPTION> 
                                                                          Years ended December 31,
                                                                          ------------------------
                                                                          1996                1995
                                                                          ----                ----
<S>                                                                  <C>                  <C> 
Risk-free interest rates................................             5.36% - 6.64%        5.86% - 7.76%
Expected dividend yield.................................                 -----                -----
Expected lives..........................................               5.5 years            5.5 years
Expected volatility.....................................                  71%                  71%

Weighted average grant-date fair value of
   options granted during the period....................                $19.20                $5.94
Weighted-average exercise price.........................                $ 9.31                $3.58
Weighted-average remaining contractual life
    of options outstanding..............................                7.45 years            7.63 years
Weighted average exercise price of 429,949 and
   546,147 options exercisable at December 31,
   1996 and 1995, respectively..........................                $ 3.76                $3.08
</TABLE> 

       The effect of applying SFAS No. 123 would be as follows:

<TABLE> 
<CAPTION> 
                                                                       Years ended December 31,
                                                                       ------------------------
                                                                       1996                1995
                                                                       ----                ----
<S>                                                               <C>                  <C> 
Pro forma net income....................................          $ 8,290,265          $ 4,703,345
                                                                  ===========          ===========

Pro forma net income per share..........................          $      0.99          $      0.61
                                                                  ===========          ===========
</TABLE> 

                                       39
<PAGE>
 
                      DAVOX CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

                                  (Continued)


(10)   Significant Customers

       Revenue from the Company's largest single customers were 4%, 12%, and 9%
of total revenue in 1996, 1995 and 1994, respectively. Revenue from the
Company's three largest customers amounted to 12%, 20% and 19% of total revenue
in 1996, 1995 and 1994, respectively.


(11)   Export Sales

       Export product sales, primarily to Canada, Europe, Mexico, Australia and
Japan, accounted for 14%, 12%, and 11% of total revenue in 1996, 1995 and 1994,
respectively. All of the Company's sales for the years ended December 31, 1996,
1995 and 1994 were originated from its headquarters located in the United
States.


(12)   Restructuring Costs

       In the second quarter of 1994, the Company restructured by downsizing in
all areas of its operations. This downsizing resulted in a 21% reduction in the
Company's work force worldwide. As a result, the Company recorded restructuring
costs as follows:

       Write-downs of fixed assets, goodwill, inventory and
       other assets abandoned as a result of the restructuring       $1,629,866

       Severance and related benefits for 40 terminated employees     1,486,665

       Abandoned facilities costs                                       262,500
                                                                     ----------
                                                                     $3,379,031
                                                                     ==========

As of December 31, 1994, the restructuring had been completed, and there were no
additional restructuring charges recorded in 1995 or 1996. All costs have been
paid as of December 31, 1996. None of the previously accrued expenses were
reversed to the Consolidated Statements of Operations.

                                       40
<PAGE>





                      DAVOX CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1996

                                  (Continued)



(13)  Quarterly Results of Operations (Unaudited)

     The following table presents a condensed summary of quarterly results of
operations for the years ended December 31, 1996 and 1995:

<TABLE> 
<CAPTION> 

                                 Year Ended December 31, 1996
                                 ----------------------------

                        First            Second            Third            Fourth
                       Quarter          Quarter           Quarter          Quarter
                       -------          -------           -------          -------
<S>                  <C>              <C>               <C>              <C> 
Total revenue        $11,410,267      $12,665,349       $14,079,224      $15,487,552

Gross profit           6,731,619        7,527,051         8,450,649        9,355,966

Net income             1,758,299        2,047,861         2,477,050        2,831,397

Net income
 per share                 $0.22            $0.25      $       0.30        $0.34

<CAPTION> 
                                 Year Ended December 31, 1996
                                 ----------------------------
<S>                  <C>              <C>               <C>              <C> 
Total revenue         $8,541,101       $9,016,084        $9,568,619      $10,430,267

Gross profit           4,614,439        5,018,460         5,452,528        6,019,171

Net income               912,561        1,080,901         1,289,085        1,523,700

Net income
 per share                 $0.12            $0.14      $        0.16          $0.19

</TABLE> 

                                      41
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

                        ON FINANCIAL STATEMENT SCHEDULE




To Davox Corporation:

       We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Davox Corporation and
subsidiaries included in this Form 10-K, and have issued our report thereon
dated January 21, 1997. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the index is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and regulations and is not part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.



                                        ARTHUR ANDERSEN LLP


Boston, Massachusetts
January 21, 1997

                                       42
<PAGE>


                      DAVOX CORPORATION AND SUBSIDIARIES

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS


<TABLE> 
<CAPTION> 
                            Balance at       Charged to        Deductions     Balance at
                            Beginning         Costs and           from          End of
                             of Year          Expenses          Reserves         Year
                             -------          --------          --------         ----
<S>                         <C>              <C>               <C>            <C> 
Accounts receivable
Reserves:

December 31, 1996            $665,030          $98,000           $64,118       $698,912
December 31, 1995             637,672          242,185           214,827        665,030
December 31, 1994             686,847          338,289           387,464        637,672
</TABLE> 

                                      43
<PAGE>
 
ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
----------------------------------------------------------
              ACCOUNTING AND FINANCIAL DISCLOSURE
              -----------------------------------

          Not Applicable.

PART III


ITEM 10   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

Directors

   The information concerning directors of the Company required under this item
is incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, to be filed with the Commission not later than 120
days after the close of the Company's 1996 fiscal year ended December 31, 1996
under the heading "Election of Directors."

Executive Officers

    See Item 4A.

ITEM 11   EXECUTIVE COMPENSATION
--------------------------------

   The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's 1996 fiscal year ended December 31, 1996, under the heading
"Compensation and Other Information Concerning Directors and Officers."

ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

   The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission not later than 120 days after the close of the
Company's 1996 fiscal year ended December 31, 1996, under the headings
"Principal Holders of Voting Securities" and "Election of Directors."

ITEM 13   CERTAIN RELATIONSHIPS AND TRANSACTIONS
------------------------------------------------

   The information required under this item is incorporated herein by reference
to the Company's definitive proxy statement pursuant to Regulation 14A, to be
filed with the Commission within 120 days after the close of the Company's 1996
fiscal year ended December 31, 1996, under the headings "Principal Holders of
Voting Securities" and "Election of Directors."

                                      44
<PAGE>
 
PART IV

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

(a)      Financial Statements and Financial Statement Schedules

         1.   Financial Statements.

         The following financial information is incorporated in Item 8 above.

         Report of Independent Public Accountants

         Consolidated Balance Sheets as of December 31, 1996 and 1995.

         Consolidated Statements of Operations for the years ended December 31,
         1996, 1995, and 1994.

         Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 1996, 1995 and 1994.

         Consolidated Statements of Cash Flows for the years ended December 31,
         1996, 1995 and 1994.

         Notes to Consolidated Financial Statements.

         2.   Financial Statement Schedule.

         The following financial information is incorporated in Item 8 above.

         Report of Independent Public Accountants on Schedule II - Valuation and
         Qualifying Accounts.

         All other schedules are not submitted because they are not applicable,
         not required or because the information is included in the Financial
         Statements or Notes to Financial Statements.

(b)      Reports on Form 8-K

         The Company did not file any Current Report on Form 8-K during the
         fourth quarter of the fiscal year ended December 31, 1996.

(c)      List of Exhibits.

         Exhibit
         Number                     Description of Exhibit
         ------                     ----------------------

         3.01(6)                    Restated Certificate of Incorporation of the
                                    Registrant, as amended.

                                      45
<PAGE>
 
(c).     List of Exhibits (continued)


         3.02(2)                    By-laws of the Registrant, as amended.

         4.01(6)                    Description of Capital Stock contained in
                                    the Registrant's Restated Certificate of
                                    Incorporation, as amended, filed as Exhibit
                                    3.01.

         10.01(10)                  1986 Stock Plan, as amended, of the
                                    Registrant.

         10.02(8)                   Form of Incentive Stock Option Agreement
                                    under the Registrant's 1986 Stock Plan.

         10.03(2)                   Form of Non-Qualified Stock Option Agreement
                                    under the Registrant's 1986 Stock Plan.

         10.04(2)                   Incorporation Agreement of the Registrant
                                    dated June 1982.

         10.05(4)                   Manufacturing Agreement dated as of February
                                    20, 1987, between the Registrant and Wong's
                                    Electronics Company, Ltd.

         10.06(2)                   Form of Nondisclosure Agreement.

         10.07(3)                   Stock Purchase Agreement among the
                                    Registrant, The Dispatch Printing Company
                                    and TBS International, Inc. dated as of
                                    September 15, 1987.

         10.08(7)                   Amended and Restated 1988 Non-Employee
                                    Director Stock Option Plan of the
                                    Registrant.

         10.09(4)                   Form of Option Agreement under the
                                    Registrant's 1988 Non-Employee Director
                                    Stock Option Plan.

         10.10(5)                   Asset Purchase Agreement dated August 9,
                                    1988 between the Registrant, DAVOX/VCT
                                    Corporation and Voice Computer Technologies
                                    Corporation.

         10.11(1)                   Merger Agreement dated December 15, 1988
                                    between the Registrant, DAVOX/VCT
                                    Corporation and TBS International, Inc.

         10.12(8)                   International Distribution Agreement between
                                    the Registrant and Datapoint Corporation
                                    dated January 8, 1993.

                                      46
<PAGE>
 
(c).     List of Exhibits (continued)


         10.13(1)           Employee Deferred Compensation Savings Plan
                            of the Registrant.
                            
         10.14(7)           1991 Employee Stock Purchase Plan.
                            
         10.15(8)           Third party maintenance agreement dated
                            August 3, 1992 between the Registrant and
                            Grumman Systems Support Corporation.
                            
         10.16(9)           Sublease Agreement dated October 22, 1993
                            between the Registrant and Digital Equipment
                            Corporation.
                            
         10.17(10)          Common Stock Purchase Agreement dated
                            September 23, 1994 between the Registrant
                            and the purchasers named therein.
                            
         10.18(10)          Letter agreement dated December 30, 1994
                            between the Registrant and Fleet Bank of
                            Massachusetts, N.A.
                            
         10.19 (11)         Third party service provider agreement
                            between the Registrant and Grumman Systems
                            Support Corporation.
                            
         10.20              1996 Stock Plan of the Registrant.
                            
         10.21              Form of Incentive Stock Option Agreement
                            under the Registrant's 1996 Stock Plan.
                            
         10.22              Form of Non-Qualified Stock Option Agreement
                            under the Registrants's 1996 Stock Plan.
                            
         22.                Subsidiaries of the Registrant.
                            
         24.                Consent of Arthur Andersen LLP.
                            
         27.                Financial Data Schedule.


(1)      Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1988.

(2)      Previously filed as an exhibit to Registration Statement No. 33-12689
         filed on March 17, 1987.

(3)      Previously filed as an exhibit to Form 8-K filed on September 29, 1987.

                                      47
<PAGE>
 
(c).     List of Exhibits (continued)


(4)      Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1987.

(5)      Previously filed as an exhibit to Form 8-K filed on September 15, 1988.

(6)      Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1990.

(7)      Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1991.

(8)      Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1992.

(9)      Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1993.

(10)     Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1994.

(11)     Previously filed as an exhibit to Form 10-K for the fiscal year ended
         December 31, 1995.

                                      48
<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, in the Town of Westford,
Commonwealth of Massachusetts, on the 21st day of February 1997.

Davox Corporation

                                            By:    /s/ Alphonse M. Lucchese
                                               ------------------------------
                                                    Alphonse M. Lucchese
                                                  President, Chief Executive
                                                    Officer and Chairman

                                    POWER OF ATTORNEY

Each person whose signature appears below this Annual Report on Form 10-K hereby
constitutes and appoints Alphonse M. Lucchese and Timothy C. Maguire and each of
them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead in any and all capacities
(until revoked in writing) to sign all amendments (including post-effective
amendments) to this Annual Report on Form 10-K of Davox Corporation, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his or her substitute, may lawfully do or cause to be done by virtue hereof.

                                      49
<PAGE>
 
SIGNATURES

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

<TABLE> 
<CAPTION> 

         Signature                    Title                           Date
         ---------                    -----                           ----
<S>                                <C>                             <C> 
                                                              
                                                              
/s/ Alphonse M. Lucchese             President, Chief                                 
------------------------            Executive Officer and     
    Alphonse M. Lucchese            Chairman (Principal       
                                     Executive Officer)            February 21, 1997  
                                                              
                                                              
/s/ John J. Connolly                Vice President of         
--------------------                Finance and Chief                               
    John J. Connolly                 Financial Officer                               
                                    (Principal Financial                             
                                           Officer)                February 21, 1997 
                                                                                     
                                                              
/s/ Michael D. Kaufman                  Director                   February 21, 1997
----------------------                                        
    Michael D. Kaufman                                        
                                                              
                                                              
/s/ R. Scott Asen                       Director                   February 21, 1997
-----------------                                             
     R. Scott Asen                                            
                                                              
                                                              
/s/ Walter J. Levison                   Director                   February 21, 1997
---------------------
     Walter J. Levison
</TABLE> 

                                       50