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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)

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

                         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                           Commission File No. 0-22700

                                  PROXIM, INC.
             (Exact name of Registrant as specified in our charter)

       DELAWARE                                                 77-0059429
(State of incorporation)                                     (I.R.S. Employer
                                                             Identification No.)

                               510 DeGuigne Drive
                           Sunnyvale, California 94085
                                 (408) 731-2700
               (Address, including zip code, and telephone number,
        including area code, of Registrant's principal executive offices)

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

                                 Title of Class
                     Common Stock, par value $.001 per share

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 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 the 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. [ ]

Based on the closing sale price of the Common Stock on the NASDAQ National
Market System on January 31, 2001, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $801,098,000. Shares of
Common Stock held by each officer and director and by each person who owns 5% of
more of the outstanding Common Stock have been excluded in that such persons may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, was 26,926,217 at January 31, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy Statement for the Registrant's Annual Meeting of Stockholders
in 2001 are incorporated by reference into Part III of this Form 10-K Annual
Report.



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                                     PART 1
ITEM 1.  BUSINESS


   The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may from
time to time make additional written and oral forward-looking statements,
including statements contained in our filings with the Securities and Exchange
Commission and in our reports to stockholders. Such forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those reflected in the forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed below under "Risk Factors" and elsewhere in this report. We do not
undertake to update any forward-looking statement that may be made from time to
time by or on our behalf. Readers should carefully review the risk factors
described in other documents we file from time to time with the Securities and
Exchange Commission.

   We design, manufacture and market high performance wireless local area
networking, or LAN, and building-to-building network products based on radio
frequency, or RF, technology. Our highly integrated wireless client adapters and
network infrastructure systems seamlessly extend existing enterprise LANs to
enable mobility-driven applications in a wide variety of in-building, campus
area and building-to-building network environments. Introduced in 1994,
RangeLAN2(TM) 2.4 GHz wireless LAN technology has been adopted by a number of
major mobile computer system and handheld data terminal manufacturers, as well
as many leading wireless solution providers, for real-time data collection
applications in manufacturing, warehousing, transportation and retailing and for
point-of-service network applications in healthcare, hospitality, education and
financial services.

   In 1998, we introduced the Symphony(TM) product family, a cost reduced
version of our commercially proven RangeLAN2 architecture, designed to address
the requirements for networking personal computers, or PCs, in home and small
office environments. Symphony products provide cordless peer-to-peer data
networking of PCs, enabling simultaneous Internet access for multiple PCs, and
resource sharing among network users for devices such as printers and other
peripheral equipment. Symphony products include software that makes the wireless
network easy to set up and tools to manage computing resources connected to the
network. In addition, notebook PC users are free to be anywhere in or around the
home while being connected to the Internet, other PCs and peripherals. Symphony
products also address many of the PC data networking requirements for small
office environments.

   In 2000, we introduced the second generation of Symphony cordless networking
products, Symphony HomeRF(TM) based on the HomeRF(TM) Working Group wireless
standard protocol. Similar to the original Symphony family of data networking
products, our Symphony HomeRF products also operate in the unlicensed 2.4 GHz
frequency band, providing cordless data local area networking, and eventually
cordless voice communications. We sell our Symphony HomeRF branded products
through a variety of consumer distribution channels, including computer
retailers and catalogs, as well as on-line retail sites over the Internet,
including our e-commerce Web site. In addition, we have entered into and seek to
broaden our base of original equipment manufacturer, or OEM, relationships and
co-marketing alliances with PC companies, broadband product companies, and
Internet service providers.

   In 2000, we also introduced Harmony(TM), a new wirefree networking
infrastructure solution for commercial applications designed to operate with
current and future wireless LAN standards, including OpenAir, IEEE 802.11b,
Bluetooth, 10 Mbps wideband frequency hopping, and 5 GHz technologies such as
802.11a, in a single, homogeneous architecture. For enterprise customers
implementing wirefree solutions, Harmony reduces equipment acquisition costs,
installation complexity and long-term operating costs by centralizing network
management, communication and security services. Harmony protects current and
future wirefree infrastructure investments by supporting leading and forthcoming
wireless LAN protocols. The system is managed through a Web-based interface,
which provides customizable network maps and traffic statistics, or through
standard enterprise SNMP packages. We are selling Harmony products through all
of our traditional commercial product distribution channels.

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        We were incorporated in California in 1984, and reincorporated in
Delaware in 1993. All references to Proxim common stock shares, net income per
share and the number of shares used in the computation have been restated for
all periods presented to reflect a two-for-one stock split (which was effected
in the form of a stock dividend) that was effective August 21, 2000.


SUBSEQUENT EVENT

   On January 23, 2001, we announced that we have entered into a definitive
agreement to acquire Netopia, Inc., in a stock-for-stock merger. Under the terms
of the merger agreement, each share of Netopia common stock will be converted
into 0.3 shares of Proxim common stock, resulting in an aggregate purchase price
of approximately $223 million, based on the closing price of our stock on
January 23, 2001. The acquisition will be accounted for as a purchase
transaction and is expected to be completed during late in the first calendar
quarter or early in the second calendar quarter of 2001. The closing is subject
to regulatory approval, Proxim and Netopia stockholder approval and customary
closing conditions. Netopia designs, develops, markets and sells broadband
Internet equipment solutions.


RECENT ACQUISITIONS

   In December 1999, we acquired privately held WaveSpan Corporation, a
California corporation, for 340,000 shares of our common stock and $2.2 million
of cash, and the acquisition was accounted for as a purchase transaction.
WaveSpan developed of 5 GHz ultra-broadband building-to-building wireless
products and technologies, including a 5 GHz wireless bridge delivering
networking speeds of up to 100 megabits per second ("Mbps") each way with two
T-1 voice channels. We believe that this acquisition enhances our wireless LAN
market position by adding complementary building-to-building wireless products
to our product offerings.

   In January 2000, we acquired Micrilor, Inc., a privately held company in
Wakefield, Massachusetts, for 292,000 shares of common stock to acquire
Micrilor, which was accounted for as a pooling of interests. Micrilor developed
patented direct sequence spread spectrum wireless technology. We believe this
acquisition further extends our technology base in developing products for the
worldwide wireless LAN and building-to-building networking industries. Further,
we believe that Micrilor's expertise in direct sequence spread spectrum RF
technology complements our mix of wireless LAN offerings utilizing frequency
hopping spread spectrum technology.

   In June 2000, we acquired Farallon Communications, Inc., a privately held
company in San Leandro, California, for 243,308 shares of Proxim's common stock
and $4 million in cash, and the acquisition was accounted for as a purchase
transaction. Farallon developed plug-and-play networking solutions for
Macintoshes and PCs. We believe this acquisition broadens our offerings for the
home networking, small business and education markets by adding
Macintosh-compatible wireless connectivity solutions and other complimentary
broadband networking products. These enhanced capabilities strengthen Proxim's
position with major cable operators and other leading service providers seeking
to deliver complete broadband networking solutions.

   In October 2000, we expanded our existing partnership with Siemens to include
technology cross-licensing, joint worldwide sales and marketing, and a Siemens
equity position in Proxim. Siemens received 500,000 shares of Proxim common
stock valued at approximately $21.3 million. We acquired a license from Siemens
to develop integrated DECT-based voice technology related to our HomeRF
products. To facilitate the intellectual capital and technology exchange, we
hired a team of Siemens engineers based in Austin, Texas, to develop integrated
HomeRF voice and data technology. Under the cross-licensing and technology
exchange agreement, Siemens provides us with know how related to digital
cordless voice technology. In return, we have licensed to Siemens manufacturing
rights for certain first and second generation Proxim HomeRF products. Siemens
is also providing engineering resources in Germany that concentrate on the
development of HomeRF-based voice handsets.


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BACKGROUND

   In recent years, organizations have shifted from centralized computing
environments to distributed client/server networks in order to move information
processing power closer to end users. Traditionally, these networks have been
accessed from desktop computers situated in fixed locations throughout an
enterprise and, accordingly, have not addressed the needs of organizations,
which require their employees to be mobile within the workplace. In response,
organizations have begun to utilize wireless technologies to extend their
client/server networks to mobile end users.

   Wireless technology can also address the growing requirement for networking
PCs in home and small office environments. The widespread adoption of personal
computers, fueled in particular by the advent of sub-$1,000 and now sub-$500
PCs, has resulted in multiple PCs within millions of homes. In addition, the
rapid growth of notebook PC sales in business over the past several years has
led to increased usage in the home as more and more business professionals bring
their laptops home on a regular basis. Furthermore, the popularity of the
Internet as a primary force in the growth of PCs in home and small office
environments, coupled with the emerging availability of higher-cost broadband
services, has created a growing need to share high speed Internet access among
multiple users.

   Significant technological advances and changes in the regulatory environment
have facilitated the development and proliferation of wireless networking
solutions, which extend the reach of existing wireline networks. In voice
communications, wireless technology has made possible the extension of wired
networks to serve mobile business and consumer users through devices such as
cordless and cellular telephones. Similarly, advances in wireless data
communications, including wireless LAN adapters and radio modems, have enabled
the extension of enterprise networks to notebook computers, pen-based notepads
and handheld data collection terminals in the local area environment. By
providing network connectivity for mobile business users, these products
increase the accuracy, timeliness and convenience of data collection and
information access, thereby improving productivity and enhancing customer
service. In home and small office environments, cordless networking enables
resource and Internet sharing without the need for new wiring, and provides the
additional benefit of allowing location independent access for mobile devices
such as notebook and handheld computers.

   Commercial applications of wireless local area networking technology
initially addressed a limited number of vertical markets such as retailing,
warehousing and distribution. In these industries, businesses quickly recognized
the advantages of mobile handheld data collection devices and the productivity
benefits associated with applications such as on-line inventory management and
real-time asset tracking. Early wireless networking products failed to achieve
widespread adoption because these systems typically involved proprietary
wireless network architectures operating at low data rates with limited
connectivity to existing enterprise LANs. Furthermore, because these systems
operated in licensed narrowband frequencies or in the 900 MHz frequency band,
they were generally authorized for use only in the U.S. and in a limited number
of international markets.

   During the past several years, advances in wireless data communications
technology have enabled the development of a new generation of wireless LAN
systems designed to operate in the unlicensed 2.4 GHz frequency band. This new
generation of 2.4 GHz products operates at significantly higher data rates and
utilizes standard network interfaces and protocols to seamlessly extend existing
enterprise data networks and Internet connections in small office and home
environments. The recent development of these high performance, open systems
products has enabled the emergence of a number of new high bandwidth
applications in established industrial data collection markets and has fostered
the creation of many applications in new vertical markets such as healthcare,
hospitality, education and financial services. In healthcare, for example,
wireless LANs now allow medical professionals to access clinical data and input
patient charting information at the point-of-care anywhere in a hospital
environment. These same wireless networks can also be used to facilitate
admissions, billing, material management and other administrative applications.
Data-intensive applications in markets such as healthcare require robust and
scalable wireless networks capable of supporting an increasing number of
applications and users over time. In addition, wireless LAN systems are
beginning to gain market acceptance in commercial enterprise markets.

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   As 2.4 GHz wireless LAN technology has matured, lower costs and ease of use
features have created the opportunity to serve the growing number of homes and
small offices that need to network PCs and peripherals and share Internet
access. For example, users in homes with multiple PCs can share files, computer
peripherals and Internet access without the hassle and expense of new wiring or
the limitations of old existing wires not suited to carrying high bandwidth
data. Laptop users are truly free to be anywhere in or around the home while
being connected to the Internet, other PCs and peripherals. Desktop PCs can be
positioned anywhere in the home or small office and still maintain network
access, regardless of telephone jack, powerline plug or other wiring
constraints. In addition, those in small offices can enjoy the benefits of
enterprise networking without investing in a wired networking infrastructure.

   In 1997, an alliance of industry leading PC and PC peripherals companies was
formed to address the requirements of the emerging market for home and small
office networking. Named the HomeRF Working Group, the alliance developed a
standard protocol for cordless voice communications and data networking. The
core promoters of the HomeRF Working Group are Compaq, Intel, Motorola, National
Semiconductor, Proxim and Siemens. Introduced in April 2000, the first version
of HomeRF products are based on 2.4 GHz frequency hopping spread spectrum
technology with an initial data rate of 1.6 Mbps. The HomeRF protocol includes
an Ethernet-like protocol for data networking and four voice channels based on
the industry proven Digital Enhanced Cordless Telephone, or DECT, standard.
Proxim developed the initial data networking technology, and Siemens developed
the initial voice communications technology. The second version of the HomeRF
products are planned to be introduced during 2001 and are expected to support
data rates up to 10 Mbps.

   Wireless LAN technology that can offer both data and voice functionality may
also become important to the broadband services business. The broadband services
business is bringing high-speed Internet access to homes, small business and
enterprises. The leading technologies for broadband services today include
hybrid fiber-coaxial cable, asymmetric digital subscriber line (ADSL) over
telephone lines, and wireless metropolitan multipoint distribution systems
(MMDS). Broadband service providers, including cable TV operators, regional
telephone operating companies, and long distance telephone companies, are
seeking to offer complete packages of services, including broadband Internet
connectivity, local and long distance telephony, and, in certain cases,
multimedia audio and video applications. The challenge is to offer systems that
cost-effectively provide these services, including installation and future
expansion, with minimal labor costs, particularly in home and small office
environments. We believe that wireless LANs are uniquely suited to provide
in-premise distribution of voice and data services today, with the potential to
provide video distribution in the future. We believe that HomeRF-based wireless
LANs will enable broadband service providers to seamlessly extend their
connection to multiple data and voice devices in and around homes and small
offices, and reduce the cost of installation and changes.

   Another new application for wireless LAN technology is connectivity for
business travelers on the road. Wireless LAN technology is being deployed in
public places such as airport terminals and hotels, where business travelers
with notebook PCs can connect to the Internet. Wireless LAN technology has the
potential to provide products that can operate at home, in the office and on the
road.

   Concurrent with the emergence of new applications and new markets, we believe
that three primary factors are contributing to an expansion in the worldwide
market potential for wireless LANs. First, from a regulatory perspective, the
2.4 GHz frequency band has been allocated for unlicensed wireless networks in
most developed countries around the world. Second, the wide availability of this
unlicensed spectrum has encouraged wireless LAN suppliers to design standard
products and solutions that can be marketed and sold globally. Third, the cost
of 2.4 GHz products continues to decline through both advanced design
integration, volume manufacturing efficiencies and economies of scale.

   We believe that the convergence of worldwide spectrum availability, emerging
standards and lower cost wireless and computing products, as well as higher
performance products, will lead to more widespread deployment of wireless LANs.
We further believe that this will lead to increased use of wireless LAN products
in traditional industrial data collection applications, developing
point-of-service network applications, traditional enterprise networking
applications such as email, and access to intranets and the Internet, as well as
the emerging home and small office PC networking market.

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THE PROXIM SOLUTION

   In 1994, we pioneered first generation 2.4 GHz frequency hopping wireless LAN
technology by being first to market with our RangeLAN2 product family. Since
then we have captured a substantial number of key design wins with major 2.4 GHz
OEM customers. We attribute this success to the architectural advantages of our
RangeLAN2 product line and key aspects of our overall technology approach. These
advantages include:

   -  Seamless Extension of Existing Enterprise Data Networks. We design high
      performance open systems wireless communications products that
      transparently extend the reach of existing enterprise LANs using standard
      network interfaces and protocols.

   -  Robust, Scalable Wireless Network Architecture. RangeLAN2's unique
      frequency hopping systems architecture and wireless LAN protocols create a
      robust RF network environment that cost-effectively expands to accommodate
      an increasing number of mobile users and applications.

   -  Superior Product Performance and Functionality. The RangeLAN2 family
      incorporates a number of industry-leading technology innovations to
      achieve superior product performance and functionality, including a
      fully-integrated, single chip gallium arsenide RF transceiver for enhanced
      radio sensitivity and power amplification, a high throughput frequency
      hopping modulation approach with a fallback mode for extended range and
      coverage, and sophisticated wireless networking protocols for
      state-of-the-art roaming and power management capabilities.

   -  Broad Array of Interoperable Products and Applications. Based on the
      highly integrated design of our RangeLAN2 credit card and match book-sized
      OEM adapter products, numerous mobile systems and handheld device
      manufacturers have designed RangeLAN2 technology into their products. The
      availability of RangeLAN2-based mobile computer and peripheral systems
      allows end users to select from numerous interoperable products in meeting
      their application requirements.

   In 1998, we introduced the Symphony product family of cordless networking
products designed to address the requirements of the emerging home and small
office data networking markets. The unique advantages of our Symphony cordless
networking solution include:

   -  Robust Cordless Networking Architecture. Based on RangeLAN2's commercially
      proven frequency hopping system architecture and wireless LAN protocols,
      Symphony products create a robust RF network environment operating at a
      1.6 Mbps data rate.

   -  Cost Effective Design. Taking advantage of continued integration of the
      RangeLAN2 design and improved manufacturing economies of scale, Symphony
      products are manufactured and sold at cost-effective price points, similar
      to advanced cordless phones and other PC peripheral products.

   -  Ease of Use. Using standard networking interfaces and protocols, Symphony
      products include software designed with menu-based wireless network
      configuration and diagnostic tools. These tools simplify numerous
      networking and resource sharing configuration issues required to properly
      set up a PC network.

   -  Sharing of PC Resources. Symphony products allow multiple PC users to
      easily share various resources such as printers and disc drives while
      enabling simultaneous shared Internet access and multiplayer PC gaming.
      All Symphony products feature our unique modem sharing software that
      provides simultaneous Internet access through a single modem and a single
      Internet Service Provider account.

   In December 1999, after completion of our acquisition of WaveSpan, we began
offering our new Stratum family of high-speed wireless building-to-building
communications products. Stratum is a family of 5 GHz ultra-broadband

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wireless bridges delivering speeds of up to 100 Mbps in both directions, that
can transport data, voice and video information between buildings up to 7 miles
apart, extending corporate intranets and increasing wireless Internet backhaul
capacity. With what believe to be the highest throughput of any FCC-approved,
license-free wireless link shipping today, Stratum is being deployed in
enterprise networks and by ISPs, primarily in North America.

   In 2000, we introduced our second generation Symphony product family,
Symphony HomeRF, based on the HomeRF Working Group protocol. Symphony HomeRF
cordless networking products are designed to address the requirements of the
emerging home and small office networking markets, providing both data
networking and voice communications on a shared frequency basis. The result will
be a cost-effective and robust system offering features and functionality that
other technologies cannot offer. We expect the Symphony HomeRF cordless
networking solution to include all of the unique advantages of the original
Symphony system, plus the added improvement of low-cost DECT-based telephony.
The initial versions of our Symphony HomeRF products began shipping in April
2000.

   In June 2000, after the completion of our acquisition of Farallon, we began
offering plug-and-play networking solutions for Macintoshes and PCs. We believe
these solutions broaden our offerings for the home networking, small business
and education markets by adding Macintosh-compatible wireless connectivity
solutions and other complimentary broadband networking products.

   In August 2000, the United States Federal Communications Commission, or FCC,
approved an amendment to Part 15 of the FCC regulations that enables development
of wideband frequency-hopping systems operating in the unlicensed 2.4 GHz band.
We believe this ruling will facilitate the creation of a new generation of
high-speed HomeRF products that combine the benefits of 10+ Mbps broadband data
with toll-quality multi-line voice as well as streaming audio and video
capabilities. By utilizing fast frequency-hopping technology, we expect that
these products will not only be lower-cost and more power efficient, but offer
superior interference protection, physical layer security and network
scalability compared to existing high-speed data-only wireless systems. We are
developing and intend to introduce both Symphony HomeRF(TM) home networking
products and Harmony(TM) enterprise wireless LAN systems based on the amended
FCC regulations. We expect future HomeRF wideband frequency-hopping products
with multi-line voice and streaming media support will be compatible with our
existing home networking solutions. Likewise, we expect that current home
networking products offered by other leading HomeRF Working Group companies
including Compaq, Intel, Motorola and Siemens will be compatible with the
upcoming 10+ Mbps generation of HomeRF technology.

   In October 2000, we introduced Harmony(TM), a new wirefree networking
infrastructure solution for the enterprise market. We believe Harmony is the
first wirefree networking solution to embrace all current and forthcoming
wireless LAN standards, including OpenAir, IEEE 802.11b, Bluetooth, and future
wideband frequency hopping and 5 GHz technologies, in a single, homogeneous
architecture. For enterprise customers implementing wirefree solutions, Harmony
reduces equipment acquisition costs, installation complexity and long-term
operating costs by centralizing network management, communication and security
services. Harmony protects current and future wirefree infrastructure
investments by supporting the leading and forthcoming wireless LAN protocols.
Existing RangeLAN2, OpenAir-compatible and IEEE 802.11b products are all fully
compatible with Harmony. Customers will be able to make seamless transitions to
new LAN standards by adding low-cost access points without changing the
management interface or disturbing existing wireless network users. Harmony
further reduces network costs through its SmartArchitecture(TM), a wirefree
management system that provides one-click, system-wide security updates and
remote office infrastructure management through a single interface. The system
can be managed through a Web-based interface, which provides customizable
network maps and traffic statistics, or through standard enterprise SNMP
packages. Harmony's SmartArchitecture also greatly reduces the time and expense
of installation by avoiding many of the hidden costs of a wirefree
infrastructure. Harmony Access Points may be connected to any portion of the
Ethernet network, eliminating the need for special wireless subnets common in
other installations. Harmony clients also roam seamlessly anywhere there is
wireless coverage, without the need for extra client software. In addition,
Harmony SmartAttach(TM) software auto-discovers and configures new access points
upon connection to the Ethernet network, simplifying installation. Where
electrical wiring is not available, the optional Harmony Power Server delivers
power to access points over Ethernet, eliminating the need for additional
wiring.


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   In November 2000, we introduced Stratum MP, which we believe is the world's
highest speed 2.4 GHz unlicensed multipoint bridging product. Its
point-to-multipoint queuing protocol and channel access fairness algorithm
enables the operator to establish traffic priority for each node within a
multipoint cell. TRANSEC security is implemented at the radio transmission layer
in the direct sequence code to block unauthorized parties from using the network
or intercepting data. Proxim patents, which we believe are fundamental to high
data rate spread spectrum signaling, are used within the Stratum MP. Designed
for connecting service provider towers, office buildings, schools and
residential complexes quickly and economically, Stratum MP offers a new level of
wirefree networking performance. Stratum MP enables deployment of low-cost
infrastructure that provides customers with wirefree, broadband access within a
wide geographic area. We believe that Stratum MP provides higher throughput and
lower packet delay than other leading 2.4 GHz building-to-building solutions.

PRODUCTS

   Since 1989, we have focused on supplying spread spectrum RF transceiver
modules and wireless LAN adapters to OEM customers for integration into mobile
computing platforms, handheld data terminals and portable peripheral devices. We
design our products to be small, lightweight, cost-effective and power efficient
in order to meet the needs of our OEM customers and the vertical markets they
serve. In addition, Symphony and Symphony HomeRF products are designed to meet
the ease of use requirements of the emerging home PC networking market. We offer
wireless networking products based on 2.4 GHz frequency hopping spread spectrum
technology, 2.4 GHz direct sequence spread spectrum technology and 900 MHz
direct sequence technology. We also offer high performance building-to-building
wireless products that operate in the unlicensed 2.4 GHz and 5 GHz frequency
bands.

   2.4 GHz Products. Introduced in 1994, RangeLAN2 was the industry's first
FCC-certified 2.4 GHz frequency hopping wireless LAN product family. The
RangeLAN2 family consists of two product lines: OEM design-in modules and
packaged "off the shelf" products. The design-in modules are integrated by OEM
customers into handheld computing and data collection devices. Packaged products
are used with standard notebook and desktop computers to extend existing
enterprise networks and to create ad hoc wireless networks. All RangeLAN2
products are designed to share the same software and are functionally
interoperable. In 1998, we introduced the Symphony product family, delivering
high-speed peer-to-peer cordless networking to the home and small office
environment. In 2000, we announced plans to develop a second generation of
Symphony cordless networking products based on the SWAP specification from the
HomeRF Working Group. In 2000, we introduced the RangeLAN-DS product family,
which is based on 2.4 GHz direct sequence spread spectrum technology operating
at up to 11 Mbps, and includes many of the innovative software and network
management features provided by RangeLAN2 products. In 2000, we also introduced
the Harmony wireless LAN product family, and Stratum MP building-to-building
wireless bridge.

   RangeLAN2 packaged products include both client adapters and network
infrastructure products. Packaged client adapters include the following form
factors: one-piece PC Card, desktop ISA board, Ethernet and Serial external
adapters. Packaged network infrastructure products include Ethernet and Token
Ring access points for transparent bridging to existing wireline LANs. In
addition, RangeLAN2 packaged products are available as private label models,
enabling OEM customers to offer a complete line of 2.4 GHz wireless LAN products
under their brand name.

   RangeLAN2 OEM modules are design-in wireless LAN adapters that range in size
from credit card-sized devices to a match book-sized units. These modules are
highly integrated, miniaturized products which reduce the design-in cycle time
and expedite the time to market for OEMs by offering industry standard
interfaces and, if required, the ability to port to non-standard interfaces and
computing platforms with software tools and licensed source code. RangeLAN2 OEM
modules have been designed into numerous handheld computing and data collection
devices by various OEM partners.

   The Symphony product family provides high-speed peer-to-peer cordless
networking for the home and small office markets operating at a 1.6 Mbps data
rate. Symphony products currently include a cordless ISA and PCI adapter for
desktop PCs, a cordless PC Card adapter for notebook and sub-notebook computers,
a standalone Cordless Modem that

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provides plug-and-play V.90 56 Kbps modem sharing and a Cordless Ethernet Bridge
for connectivity to broadband Internet devices such as cable modems, xDSL
gateways and ISDN routers. Symphony HomeRF products include the wireless LAN
industries first USB adapter for desktop computers, a cordless PC Card for
notebook computers, a Cordless Ethernet Bridge for connectivity to broadband
Internet devices such as cable modems, xDSL gateways and ISDN routers, and a
miniature OEM design-in module for radio integration into products such as
broadband Internet gateways. Symphony and Symphony HomeRF products also include
the "Composer Installation Wizard" software setup tool, the "Conductor" modem
sharing software to use an existing PC modem, and the "Maestro" network
management software tool.

   RangeLAN-DS products include a one-piece PC Card for client computer systems
as well as network access points for transparent bridging to existing Ethernet
LANs. The RangeLAN-DS product family also includes OEM design-in modules for
integration in a wide variety of mobile computing platforms. Operating at up to
11 Mbps, RangeLAN-DS products comply with the recently adopted Institute of
Electrical and Electronics Engineers, or IEEE, 802.11b direct sequence wireless
LAN standard.

   Harmony is the first wirefree networking solution to embrace leading current
and forthcoming wireless LAN standards, including OpenAir, IEEE 802.11b,
Bluetooth, and announced wideband frequency hopping and 5 GHz technologies, in a
single, homogeneous architecture. Harmony products include an Access Point
Controller which centralizes communication, management and security services,
Access Points which deliver low-cost radio coverage and may be placed anywhere
within the network, a Power System which delivers power to up to six access
points over Ethernet at distances of up to 300 feet, and the related wireless
LAN client adapters.

   Farallon products include cross-platform connectivity solutions for both Mac
and PC environments. These products include a suite of wireless, HomeLAN,
100/1000 Ethernet and 10 Mbps Ethernet networking solutions.

   The Stratum MP product is a direct sequence spread spectrum wirefree bridge
which operates under license-free 2.4 GHz ISM band rules. With a 10 Base-T
Ethernet interface, Stratum MP includes a MAC layer learning bridge and delivers
10 Mbps half-duplex throughput in point-to-point or point-to-multipoint cellular
architectures.

   900 MHz Products. We offer several types of products based on our 900 MHz
direct sequence spread spectrum technology: RF transceivers; dual board
radio-modems that combine a RF transceiver, controller and RS-232 interface in a
single unit; ProxLink, a packaged version of the dual board radio-modem units;
and RangeLAN, a family of wireless LAN adapters. The RF transceiver products and
dual board radio-modems are OEM design-in products. ProxLink products,
originally introduced in 1991, are self-contained ruggedized networking devices
which enable both point-to-point and multipoint wireless data communications.
The 900 MHz RangeLAN product family, originally introduced in 1992, was our
first generation of open systems wireless LAN adapters.

   5 GHz Products. We offer two types of products based on our 5 GHz
ultra-broadband wireless technology: The Stratum 100 and the Stratum 20, which
operate at 100 Mbps and 20 Mbps respectively, offer full duplex communications
for 100 Base-T Ethernet and two T-1 connections. The Stratum operates in the
recently allocated 5.15 -- 5.35 GHz and 5.725 -- 5.825 GHz unlicensed National
Information Infrastructure, or U-NII, frequency bands. Operation in the 5 GHz
spectrum allows the Stratum link to be resistant to interference from rain, snow
and fog, making it technically superior to millimeter wave, infrared or laser
optic solutions. Stratum performance is comparable to the best fiber links with
better than 10(-12) bit error rate. With industry-standard 100 Base-T and MII
interfaces, Stratum connects easily to a router or switch. Similarly, ANSI
standard DS-1 ports connect to digital PBX, video codec and other equipment with
T1 interfaces, which enable a seamless fit into existing data and voice
networks. Management and monitoring can be enabled via built-in SNMP MIBs. User
interface choices include native HTML for standard web browsers, and VT-100
displays and Telnet are supported.


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<PAGE>   10

CUSTOMERS

   The majority of our revenue has been derived from sales to OEM customers that
offer wireless LAN products as part of a complete solution that typically
includes specialized mobile computers developed by the OEM, network
infrastructure systems, peripheral devices, software and services. Our OEM
partners traditionally target industrial applications in one or more specific
markets such as manufacturing, warehousing, transportation and retailing. Our
2.4 GHz OEM customers include, among others, Casio Computer, Data General,
Fujitsu, Furuno Electric, Hand Held Products, Intermec/Norand, LXE, Matsushita,
Mitsubishi, Motorola, Percon, Sharp, Teklogix and Toshiba.

   We market our branded RangeLAN2 products to value-added resellers and systems
integrators in emerging wireless markets that include healthcare, hospitality,
education and financial services, where access to real-time information is
critical. In healthcare, Integrated Software Vendors, or ISVs, such as HBO &
Company, SMS, Cerner, IDX, Puritan/Bennett, MediServe, Healthpoint, Medic, Emtek
and PACE are sales partners that drive the information technology decision
making process. In addition, RangeLAN2 software drivers are integrated into
Microsoft's Windows CE, Handheld PC Professional Edition software utilized by
leading handheld PC vendors including Casio Computer, Compaq Computer,
Hewlett-Packard, Hitachi, LG Electronics, NEC, Philips, Sharp and Vadem.

   We market our Symphony products to national and regional PC and electronics
retailers, computer catalogs, and on-line retail sites over the Internet,
including our e-commerce Web site. In addition, we are establishing OEM
relationships for our Symphony and Symphony HomeRF family of home networking
products. Symphony and Symphony HomeRF products serve emerging wireless markets
that include home and small office networking, traveling professional and
University campus networks, where mobility and price are critical. For our
Symphony and Symphony HomeRF technology and products, we have established
relationships with Intel and Motorola, each of which made a $10 million equity
investment in Proxim during 1999, as well as with Compaq Computer, Kansai
Electric and Siemens.

   In 2000, sales to Intermec represented 12% of our total revenue. In 1999,
sales to Intermec represented 30% of our total revenue. In 1998, sales to
Intermec and LXE represented 41% and 11%, respectively, of our total revenue.

   We expect that sales to a limited number of OEM customers will continue to
account for a substantial portion of our revenue during any period for the
foreseeable future. We also have experienced quarter to quarter variability in
sales to each of our major OEM customers and expect this pattern to continue in
the future. The loss of or a significant reduction in sales to, one or more of
our major OEM customers could have a material adverse effect on our results of
operations. See "Risk Factors - We Depend Significantly on a Limited Number of
OEM Customers."

SALES AND MARKETING

   We sell our commercial products directly to OEM customers and indirectly to
value-added resellers, systems integrators and end users through regional,
national and international distributors. We offer OEM customers both design-in
products for integration into their wireless computing platforms, and branded
products as private label models. We have developed channels for marketing and
selling our Symphony product line, including sales through national and regional
PC and electronics retailers, computer catalogs, and on-line retail sites over
the Internet, including our e-commerce Web site. Additionally, we have developed
channels for marketing and selling our Symphony and Symphony HomeRF product line
to OEM and private label partners. Our 5 GHz ultra-broadband products are sold
to value-added resellers, systems integrators and end users primarily through
regional distributors.

   Sales of many of our wireless networking products depend upon the decision of
a prospective OEM customer to develop and market wireless solutions, which
incorporate our wireless technology. OEM customers' orders are affected by a
variety of factors, many of which cause the design-in cycle associated with the
purchase of our products by OEM customers to be quite lengthy. For a detailed
discussion of these factors see "Risk Factors - We Depend Significantly on a
Limited Number of OEM Customers."


                                       10
<PAGE>   11

   Sales of wireless LAN products generally involve significant commitments of
capital and other resources by our customers and us, with the attendant delays
associated with procedures to approve such commitments. In this regard, during
2000, 1999, and 1998, we made investments of $10,500,000, $3,000,000, and
$1,000,000, respectively, in startup technology companies. Due to the nature of
these entities and their operations, there can be no assurance that these
investments will be realizable or will result in marketable and/or successful
products. In 2000 and 1998 we charged $2,500,000 and $1,000,000 to selling,
general and administration expense, respectively, due to the uncertainty in
recovering these investments.

   We generally do not operate with a significant order backlog. Our sales to
any single OEM customer are also subject to significant variability from quarter
to quarter. Such fluctuations could have a material adverse effect on our
operating results. In addition, there can be no assurance that we will become a
qualified supplier for new OEM customers or that we will remain a qualified
supplier for existing OEM customers.

   Our branded RangeLAN2, RangeLAN-DS and Harmony products are sold to
value-added resellers, systems integrators and end users in the U.S. through
regional distributors, and through Tech Data Corporation, Ingram Micro, Inc. and
Anixter Corporation, three nationwide distribution and sales organizations.

   We have established distribution channels and OEM partnerships for our
Symphony HomeRF family of cordless home and small office networking products.
Symphony HomeRF products are currently sold through national and regional
computer and electronics retailers, leading computer catalogs, and numerous
on-line retail sites over the Internet, including our e-commerce Web site. Our 5
GHz ultra-broadband products are sold to value-added resellers, systems
integrators and end users primarily through regional distributors.

   Distributors generally offer products of several different companies,
including products that may compete with our products. Accordingly, these
distributors may give higher priority to products of other suppliers, thus
reducing their efforts to sell our products. Agreements with distributors are
generally terminable at the distributor's option. A reduction in sales efforts
or termination of a distributor's relationship with us could have a material
adverse effect on future operating results. Use of distributors also entails the
risk that distributors will build up inventories in anticipation of substantial
growth in sales. If such growth does not occur as anticipated, these
distributors may substantially decrease the amount of product ordered in
subsequent quarters. Such fluctuations could contribute to significant
variations in our future operating results. In addition, distributors generally
have stock rotation rights and price protection on unsold merchandise, which may
adversely impact our profit margins.

   We are expanding the international distribution channels for our products. We
are authorized to ship our RangeLAN2 and Symphony products into more than 50
countries. In addition to our relationships with numerous OEM customers who
market the RangeLAN2 and Symphony technology internationally, we have more than
30 authorized international distributors in over 50 sales territories. We are
actively working to receive the same authorizations for our HomeRF and Harmony
products lines that were introduced in 2000. Revenue from shipments by us to
customers outside the United States, principally to a limited number of
distributors and OEM customers, represented 18%, 21%, and 17% of total revenue
during 2000, 1999, and 1998, respectively. We expect that revenue from shipments
to international customers will vary as a percentage of total revenue. Sales to
international customers or to U.S. OEM customers who ship to international
locations are subject to a number of risks and uncertainties. For a discussion
of the risks we face from our international business, see "Risk Factors - We
Depend Upon International Sales and Our Ability to Sustain and Increase
International Sales Is Subject to Many Risks, Which Could Adversely Affect Our
Operating Results."

   As of December 31, 2000, our selling, general and administrative department
consisted of 158 full-time employees. Selling, general and administrative
expenses were $22,430,000, $13,575,000, and $12,555,000 during 2000, 1999, and
1998, respectively.


                                       11
<PAGE>   12

MANUFACTURING

   Our manufacturing operations consist primarily of final assembly and testing,
quality assurance, packaging and shipping at our manufacturing facility in
Sunnyvale, California. We purchase all of the circuit boards, integrated
circuits and other components used in our products from third party suppliers.
We inspect these components for quality, group the components into kits by
production order, and ship the kits to our subcontractors for interim assembly
and test. We manufacture our Symphony products through turnkey contract
manufacturers.

   We design our products to provide a high degree of reliability. Our products
have achieved a field failure rate of our installed base of less than 1% per
annum to date. We believe that this reliability is the result of our careful
quality assurance procedures. We have developed a supplier selection procedure
and approved vendor list to maintain quality. In addition, we monitor our
suppliers' performance to ensure consistent quality, reliability and yields. We
received ISO 9002 certification in January 2000 and follow the ISO 9002 quality
standards, including process documentation, test procedures, quality assurance
procedures, process control, equipment maintenance, quality record keeping and
training of personnel. In addition, we generally use ISO 9002 certified
manufacturing assembly subcontractors and contract manufacturers.

   We currently have limited manufacturing capability and no experience in large
scale or foreign manufacturing. If our customers were to concurrently place
orders for unexpectedly large product quantities, our present manufacturing
capacity might be inadequate to meet the demand. We can offer no assurance that
we will be able to develop or contract for additional manufacturing capacity on
acceptable terms on a timely basis. In addition, in order to compete
successfully, we will need to achieve significant product cost reductions.
Although we intend to achieve cost reductions through engineering improvements,
production economies, and manufacturing at lower cost locations including
outside the United States, we can offer no assurance that we will be able to do
so. In order to remain competitive, we also must continue to introduce new
products and processes into our manufacturing environment, and we can offer no
assurance that any such new products will not create obsolete inventories
related to older products.

   We currently conduct our manufacturing operations for RangeLAN2, Harmony,
Stratum and 900 MHz products at our corporate headquarters in Sunnyvale,
California. In addition, we rely on contract and subcontract manufacturers for
turnkey manufacturing and circuit board assemblies which subjects us to
additional risks, including a potential inability to obtain an adequate supply
of finished assemblies and assembled circuit boards and reduced control over the
price, timely delivery and quality of such finished assemblies and assembled
circuit boards. If our Sunnyvale facility were to become incapable of operating,
even temporarily, or were unable to operate at or near our current or full
capacity for an extended period, our business and operating results could be
materially adversely affected.

   We currently outsource manufacturing for our HomeRF products with Flextronics
International, Inc., a top tier turnkey contract manufacturer. We expect
Flextronics to provide domestic manufacturing for new product introductions and
off-shore manufacturing for lower-cost high-volume manufacturing of HomeRF
products. In addition, we expect Flextronics to work directly with our HomeRF
manufacturing license partners to manage product supply, factory capacity,
product quality and manufacturability, and cost reductions. Changes in our
manufacturing operations to incorporate new products and processes, or to
manufacture at lower cost locations outside the United States, could cause
disruptions, which, in turn, could adversely affect customer relationships,
cause a loss of market opportunities and negatively affect our business and
operating results.

   We have in the past experienced higher than expected demand for our products.
This resulted in delays in the delivery of certain products due to temporary
shortages of certain components, particularly components with long lead times,
and insufficient manufacturing capacity. Due to the complex nature of our
products and manufacturing processes, including products manufactured by our
licensing partners, the worldwide demand for some wireless technology components
and other factors, we can offer no assurance that delays in the delivery of
products will not occur in the future.


                                       12
<PAGE>   13

   Certain parts and components used in our products, including our proprietary
application specific integrated circuits, or ASICs, and assembled circuit
boards, are only available from single sources, and certain other parts and
components are only available from a limited number of sources. Our reliance on
these sole source or limited source suppliers involves risks and uncertainties,
including the following:

   -  the possibility of a shortage or discontinuation of key components; and

   -  reduced control over delivery schedules, manufacturing capability,
      quality, yields and costs.

   Any reduced availability of these parts or components when required could
significantly impair our ability to manufacture and deliver our products on a
timely basis and result in the cancellation of orders, which could materially
adversely affect our operating results. In addition, the purchase of some key
components involves long lead times and, in the event of unanticipated increases
in demand for our products, we have in the past been, and may in the future be,
unable to manufacture some products in a quantity sufficient to meet our
customers' demand in any particular period. We have no guaranteed supply
arrangements with our sole or limited source suppliers, do not maintain an
extensive inventory of parts or components, and customarily purchase sole or
limited source parts and components pursuant to purchase orders placed from time
to time in the ordinary course of business. Business disruptions, production
shortfalls, production quality or financial difficulties of a sole or limited
source supplier could materially and adversely affect our business by increasing
product costs, or reducing or eliminating the availability of parts or
components. In an event like this, our inability to develop alternative sources
of supply quickly and on a cost-effective basis could significantly impair our
ability to manufacture and deliver our products on a timely basis and could
materially adversely affect our business and operating results.

RESEARCH AND DEVELOPMENT

   The wireless communications industry is characterized by rapid technological
change, short product life cycles and evolving industry standards. To remain
competitive, we must develop or gain access to new technologies in order to
increase product performance and functionality, reduce product size and maintain
cost-effectiveness. If we are unable to enter a particular market in a timely
manner with internally developed products, we may license technology or acquire
products from other businesses, or we may acquire other businesses as
alternatives to internal research and development. Our research and development
efforts are focused on implementing enhancements to existing products,
investigating new technologies and developing new products. Since 1994, our
research and development efforts have been concentrated on enhancing features
and performance and reducing the cost of our 2.4 GHz frequency hopping products
including RangeLAN2, Symphony and Symphony HomeRF products. These efforts
include developing and integrating our technology into ASICs, development of
wireless protocols and network software drivers, development of software to
simplify the setup and management of our products, development of software and
hardware tools to facilitate the integration of our products into customer
products, performance enhancements and cost reductions to wireless adapter and
access point products and efforts related to both domestic and international
product certification. In 1998, 1999 and 2000 we substantially increased our
research and development efforts in developing Symphony and Symphony HomeRF
products, IEEE, 802.11 standard based products and 5 GHz high-speed wireless LAN
technology. In 1999, we acquired 5 GHz ultra-broadband wireless technology and
products through the acquisition of WaveSpan. In 2000, we acquired a license
from Siemens to develop integrated DECT-based voice technology related to our
HomeRF products. We also hired a team of Siemens engineers based in Austin,
Texas, to develop integrated HomeRF voice and data technology.

   Our success is also dependent on our ability to develop new products for
existing and emerging wireless communications markets, to introduce such
products in a timely manner and to have them designed into new products
developed by OEM customers. The development of new wireless networking products
is highly complex, and, from time to time, we have experienced delays in
developing and introducing new products. Due to the intensely competitive nature
of our business, any delay in the commercial availability of new products could
materially and adversely affect our business, reputation and operating results.
In addition, if we are unable to develop or obtain access to advanced wireless
networking technologies as they become available, or are unable to design,
develop and introduce competitive new products on a timely basis, or are unable
to hire or retain qualified engineers to develop new technologies and products,


                                       13
<PAGE>   14


our future operating results would be materially and adversely affected. We have
expended substantial resources in developing products that are designed to
conform to the IEEE 802.11 standard and the HomeRF specification. We can offer
no assurance, however, that our IEEE 802.11 compliant products and our Symphony
HomeRF products will have a meaningful commercial impact. In this regard, in the
second quarter of 2000, we recorded a charge of $1,859,000 to cost of sales
related to first generation IEEE 802.11 inventories.

   In 1999, the IEEE approved a new 2.4 GHz wireless LAN standard, designated as
802.11b. Based on direct sequence spread spectrum technology, this new standard
increased the nominal data rate from 2 Mbps to 11 Mbps. In October 2000, we
began to offer 802.11b products sourced from a third party developer and
manufacturer, and there can be no assurance that our products will be
competitive in the market. In addition, we are developing higher-speed frequency
hopping technology based on the FCC Part 15 rule change adopted in August 2000,
that will allow for wider band hopping channels and increase the data rate from
1.6 Mbps to up to 10 Mbps. There can be no assurance that we will be able to
complete our development of 10 Mbps frequency hopping products in a timely
manner, or that any such new products will compete effectively with IEEE 802.11b
standard compliant products.

   In 1999, a group of computer and telecommunications industry leaders, led by
Ericsson, began developing a short range RF method to connect mobile devices
without cables called Bluetooth. Based on low power 2.4 GHz frequency hopping
spread spectrum technology, numerous organizations are planning to deploy
Bluetooth technology in a wide variety of mobile devices such as cellular
telephones, notebook computers and handheld computers. We have not developed
products that comply with Bluetooth. While Bluetooth technology is available to
develop or acquire in the market, there can be no assurance that we will develop
or acquire such technology, or that if we do develop or acquire such technology,
that our products will be competitive in the market.

   In 2000, the IEEE approved a new 5 GHz wireless LAN standard designated as
802.11a. This new standard is based on Orthogonal Frequency Division
Multiplexing, or OFDM, technology with multiple data rates ranging from below 10
Mbps to approximately 50 Mbps. In 1999, the European Telecommunications
Standards Institute Project BRAN (Broadband Radio Access Networks) committee
approved a new 5 GHz wireless LAN standard designated as HiperLAN2, also based
on OFDM technology. While these two new 5 GHz standards apply to future
generations of technology, no companies are currently shipping wireless LAN
products based on these technologies. We are currently working with a third
party developer of 802.11a components developing products based on either of
these two new standards, but there can be no assurance that we will develop or
acquire technology compliant with these standards.

   If we are unable to enter a particular market in a timely manner with
internally developed products, we may license technology from other businesses
or acquire other businesses as an alternative to internal research and
development. In this regard, in the fourth quarter of 1997, we recorded a charge
of $2,500,000 to in-process research and development related to a license of
technology to be used in 5 GHz highspeed in-building wireless LAN products. In
1999, we recorded a total of $7,883,000 in charges related to acquisition of 5
GHz ultra-broadband wireless building-to-building technology.

   In addition, we are a core member of the HomeRF Working Group, an industry
consortium that is establishing an open industry standard, called the HomeRF
specification, for wireless digital communications between PCs and consumer
electronic devices, including a common interface specification that supports
wireless data and voice services in and around the home. We can offer no
assurance that the HomeRF specification, or the Symphony HomeRF products that we
have developed to comply with the specification will have a meaningful
commercial impact. Further, given the emerging nature of the wireless LAN
market, we can offer no assurance that the RangeLAN2 and Symphony products and
technology, or our other products or technology, will not be rendered obsolete
by alternative or competing technologies.

   As of December 31, 2000, our research and development department consisted of
93 full-time employees. Research and development expenses were $12,082,000,
$9,316,000, and $7,630,000, during 2000, 1999, and 1998, respectively.


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<PAGE>   15

COMPETITION

   The wireless local area network and building-to-building markets are
extremely competitive, and we expect that competition will intensify in the
future. Increased competition could adversely affect our business and operating
results through pricing pressures, the loss of market share and other factors.
The principal competitive factors in the wireless LAN market include the
following: data throughput; effective RF coverage area; interference immunity;
network scalability; price; integration with voice technology; wireless
networking protocol sophistication; ability to support industry standards;
roaming capability; power consumption; product miniaturization; product
reliability; ease of use; product costs; product manufacturability, product
features and applications; product time to market; product certifications; brand
recognition; OEM partnerships; marketing alliances; manufacturing capabilities
and experience; effective distribution channels; and company reputation.

   We could be at a disadvantage to competitors, particularly Cisco Systems and
Lucent Technologies, that have broader distribution channels, brand recognition,
extensive patent portfolios and more diversified product lines.

   We have several competitors in our commercial wireless LAN business,
including Breezecom, Cisco Systems (which recently acquired Aironet Wireless
Communications), Intersil, Lucent Technologies, Nokia, Symbol Technologies,
Western Multiplex and 3COM, among others. We also face competition from a
variety of companies that offer different technologies in the nascent home
networking market, including several companies developing competing wireless
networking products. Additionally, numerous companies have announced their
intention to develop competing products in both the commercial wireless LAN and
home networking markets. In addition to competition from companies that offer or
have announced their intention to develop wireless LAN products, we could face
future competition from companies that offer products which replace network
adapters or offer alternative communications solutions, or from large computer
companies, PC peripheral companies, as well as other large networking equipment
companies. Furthermore, we could face competition from certain of our OEM
customers which have, or could acquire, wireless engineering and product
development capabilities. We can offer no assurance that we will be able to
compete successfully against these competitors or that those competitive
pressures we face will not adversely affect our business or operating results.

   Many of our present and potential competitors have substantially greater
financial, marketing, technical and other resources with which to pursue
engineering, manufacturing, marketing, and distribution of their products. These
competitors may succeed in establishing technology standards or strategic
alliances in the wireless LAN market, obtain more rapid market acceptance for
their products, or otherwise gain a competitive advantage. We can offer no
assurance that we will succeed in developing products or technologies that are
more effective than those developed by our competitors. Furthermore, we compete
with companies that have high volume manufacturing and extensive marketing and
distribution capabilities, areas in which we have only limited experience. We
can offer no assurance that we will be able to compete successfully against
existing and new competitors as the wireless LAN market evolves and the level of
competition increases.

GOVERNMENT REGULATION

   In the United States, we are subject to various Federal Communications
Commission, or FCC, rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio spectrum. Our
spread spectrum wireless products are certified for unlicensed operation in 902
-- 928 MHz, 2.4 -- 2.4835 GHz, 5.15 -- 5.35 GHz and 5.725 -- 5.825 GHz frequency
bands. Operation in these frequency bands is governed by rules set forth in Part
15 of the FCC regulations. The Part 15 rules are designed to minimize the
probability of interference to other users of the spectrum but accord Part 15
systems secondary status in the frequency. In the event that there is
interference between a primary user and a Part 15 user, a higher priority user
can require the Part 15 user to curtail transmissions that create interference.
In this regard, if users of our products experience excessive interference from
primary users, market acceptance of our products could be adversely affected,
which could materially and adversely affect our business and operating results.
The FCC, however, has established certain standards that create an irrefutable
presumption of noninterference for Part 15 users and we believe that our
products comply with such requirements. We can offer no

                                       15
<PAGE>   16

assurance that the occurrence of regulatory changes, including changes in the
allocation of available frequency spectrum, changes in the use of allocated
frequency spectrum, or modification to the standards establishing an irrefutable
presumption for unlicensed Part 15 users, would not significantly affect our
operations by rendering current products obsolete, restricting the applications
and markets served by our products or increasing the opportunity for additional
competition.

   Our products are also subject to regulatory requirements in international
markets and, therefore, we must monitor the development of spread spectrum and
other radio frequency regulations in certain countries that represent potential
markets for our products. While we can offer no assurance that we will be able
to comply with regulations in any particular country, we design our RangeLAN2,
RangeLAN-DS, Harmony, Symphony and Symphony HomeRF products to minimize the
design modifications required to meet various 2.4 GHz international spread
spectrum regulations. In addition, we will seek to obtain international
certifications for the Symphony and Symphony HomeRF product line in countries
where there is a substantial market for home PCs and Internet connectivity.
Changes in, or the failure by us to comply with, applicable domestic and
international regulations could materially adversely affect our business and
operating results. In addition, with respect to those countries that do not
follow FCC regulations, we may need to modify our products to meet local rules
and regulations.

   Regulatory changes by the FCC or by regulatory agencies outside the United
States, including changes in the allocation of available frequency spectrum,
could significantly affect our operations by restricting our development
efforts, rendering current products obsolete or increasing the opportunity for
additional competition. In September 1993 and in February 1995, the FCC
allocated additional spectrum for personal communications services. In January
1997, the FCC authorized 300 MHz of additional unlicensed frequencies in the 5
GHz frequency range in Part 15 Subpart E which regulates U-NII devices operating
in the 5.15 -- 5.35 GHz and 5.725 -- 5.825 GHz frequency bands. In August 2000,
the FCC issued an amendment to Part 15 that changed the way allocated
frequencies are utilized by frequency hopping spread spectrum systems. These
approved changes in the allocation and use of available frequency spectrum could
create opportunities for other wireless networking products and services.

   There can be no assurance that new regulations will not be promulgated that
could materially and adversely affect our business and operating results.

PROTECTION OF PROPRIETARY RIGHTS

   We rely on a combination of patents, trademarks, non-disclosure agreements,
invention assignment agreements and other security measures in order to
establish and protect our proprietary rights. We have been issued ten U.S.
patents, which are important to our current business, and we have five patent
applications pending in the United States which relate to our core technologies
and product designs. We can offer no assurance that patents will issue from any
of these pending applications or, if patents do issue, that the claims allowed
will be sufficiently broad to protect our technology. In addition, we can offer
no assurance that any patents issued to us will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will adequately protect
us. Since United States patent applications are maintained in secrecy until
patents issue, and since publication of inventions in the technical or patent
literature tends to lag behind such inventions by several months, we cannot be
certain that we first created the inventions covered by our issued patents or
pending patent applications or that we were the first to file patent
applications for such inventions or that we are not infringing on the patents of
others. In addition, we have filed, or reserved our rights to file, a number of
patent applications internationally. We can offer no assurance that any
international patent application will issue or that the laws of foreign
jurisdictions will protect our proprietary rights to the same extent as the laws
of the United States.

   Although we intend to protect our proprietary rights vigorously, there can be
no assurance that the measures we have taken or may take to protect our
proprietary rights will be successful. We expect that litigation may be
necessary to enforce our patents, trademarks or other intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, to establish the validity of any technology
licenses offered to patent infringers, to prevent the importation of infringing
products into the United States, or to defend against claims of infringement.
Litigation could

                                       16
<PAGE>   17

result in substantial costs and diversion of resources and could materially and
adversely affect our business and operating results. Moreover, we can offer no
assurance that in the future these rights will be upheld. Furthermore, there can
be no assurance that any of our issued patents will provide a competitive
advantage or will not be challenged by third parties or that the patents of
others will not adversely impact our ability to do business. As the number of
products in the wireless LAN market increases, and related features and
functions overlap, we may become increasingly subject to infringement claims.
These claims also might require us to enter into royalty or license agreements.
Any such claims, with or without merit, could cause costly litigation and could
require significant management time. There can be no assurance that, if
required, we could obtain such royalty or license agreements on terms acceptable
to us. There can be no assurance that the measures we have taken or may take in
the future will prevent misappropriation of our technology or that others will
not independently develop similar products, design around our proprietary or
patented technology or duplicate our products.

EMPLOYEES

   As of December 31, 2000, we had employed 347 full-time employees and 40
temporary employees. Of these individuals, 102 are in engineering and product
development, 148 are in marketing, sales and customer support, 121 are in
manufacturing and quality assurance, and 16 are in finance and administration.
We believe that our future success will depend in large measure on our ability
to retain certain key technical and management personnel and to attract and
retain additional highly skilled employees. Competition for qualified personnel
in the wireless data communications and networking industries is intense,
particularly in the Silicon Valley region of Northern California, and there can
be no assurance that we will be successful in retaining key employees or that we
will be able to attract, assimilate or retain the additional skilled personnel
that will be required to support our anticipated growth. None of our employees
are represented by a labor union. We believe that our relations with employees
are good.


                                       17
<PAGE>   18

EXECUTIVE OFFICERS OF THE REGISTRANT

   The following table sets forth certain information concerning our executive
officers as of December 31, 2000:

<TABLE>
<CAPTION>

    NAME                                       AGE                       POSITION
    ----                                       ---                       --------
    <S>                                        <C>  <C>
    David C. King..........................    41   Chairman of the Board of Directors, President and
                                                    Chief Executive Officer
    Kurt F. Bauer..........................    41   Vice President of Sales and Marketing
    Keith E. Glover........................    44   Vice President of Finance and Administration, and
                                                    Chief Financial Officer
    Juan Grau..............................    43   Vice President of Engineering
</TABLE>




   DAVID C. KING joined Proxim in December 1992 as Vice President of Marketing
and acting Chief Financial Officer, in July 1993 was appointed President, Chief
Executive Officer and Director, and in January 1996 was named Chairman of the
Board of Directors. From December 1990 to November 1992, Mr. King served in
various executive capacities at Vitalink Communications Corporation, or
Vitalink, a LAN internetworking subsidiary of Network Systems Corporation, most
recently as Vice President of Marketing and Customer Services. From 1985 to
1990, Mr. King was Senior Manager in the San Francisco office of McKinsey &
Company, Inc., an international management consulting firm, where he was a
member of the firm's high technology and health care practices.

   KURT F. BAUER joined Proxim as Vice President of Marketing in December 1999
and was promoted in July 2000 to Vice President and General Manager responsible
for worldwide sales, marketing, customer support and the Farallon operations.
From March 1997 to December 1999, Mr. Bauer worked for Ascend Communications,
acquired by Lucent Technologies in 1998, where he held several management
positions, most recently as Vice President of Marketing. Before joining Ascend,
Mr. Bauer held marketing and engineering management positions for other
telecommunications and data communications companies, including Adaptive
(Network Equipment Technologies), ACC (Advanced Computer Communications),
Vitalink and Tymnet (British Telecom).

   KEITH E. GLOVER has served as the Vice President of Finance and
Administration and Chief Financial Officer since he joined Proxim in September
1993. From March 1986 to June 1993, Mr. Glover worked for Vitalink, where he
held several financial management positions, most recently as Vice President of
Finance.

   JUAN GRAU joined Proxim in August 1988 as RF Communications Manager. Mr. Grau
was promoted to Director of Product Engineering in November 1989 and, in June
1991, was appointed Vice President of Engineering. From 1980 to 1988, Mr. Grau
worked at Hewlett-Packard Company, where he served in several engineering and
project management positions.


                                       18
<PAGE>   19

ITEM 2.  PROPERTIES

FACILITIES

   Our corporate headquarters, primary research and development, and
manufacturing operations are located in approximately 139,000 square feet in
Sunnyvale, California under leases that expire August 31, 2009. In addition, we
maintain 40,000 square feet of office space in Mountain View, California under a
lease and sublease that expires March 31, 2006, 8,000 square feet of office
space in Wakefield, Massachusetts under a lease that expires May 30, 2004,
16,000 square feet in Austin, Texas under a lease that expires March 31, 2005,
46,600 square feet of office space and a distribution center in San Leandro,
California under leases that expire December 31, 2004 and December 31, 2002, and
11,000 square feet of warehouse space in Santa Clara, California under a lease
that expires September 30, 2005. Management considers the above facilities
suitable and adequate to meet our current requirements. We also lease sales
offices in Atlanta, Georgia; Nashua, New Hampshire; Paris, France; and Tokyo,
Japan.

ITEM 3.  LEGAL PROCEEDINGS

   None.

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

   None.


                                       19
<PAGE>   20

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK.

   Prior to December 15, 1993, the date of our initial public offering, there
was no public market for our Common Stock. Since December 15, 1993, our Common
Stock has been available for quotation through the Nasdaq National Market under
the symbol "PROX." The following table sets forth, for the period indicated, the
high and low sale prices per share of our Common Stock as reported by the Nasdaq
National Market:

<TABLE>
<CAPTION>

                                                              HIGH        LOW
                                                              ----        ---
                 1999:
                 <S>                                         <C>         <C>
                   First quarter ......................      $17.44      $10.38
                   Second quarter .....................      $29.10      $14.07
                   Third quarter ......................      $30.69      $19.13
                   Fourth quarter .....................      $59.00      $17.32

                 2000:
                   First quarter ......................      $88.00      $40.25
                   Second quarter .....................      $64.00      $28.50
                   Third quarter ......................      $68.75      $34.00
                   Fourth quarter .....................      $68.50      $34.13
</TABLE>

HOLDERS OF RECORD.

   As of January 31, 2001, there were 117 stockholders of record of our Common
Stock.

DIVIDENDS.

   We have not declared or paid cash dividends.

RECENT SALES OF UNREGISTERED SECURITIES.

   In January 2000, in connection with our acquisition of Micrilor, we issued
292,000 shares of our common stock valued at approximately $12.7 million. In
June 2000, in connection with our acquisition of Farallon, we issued 243,308
shares of our common stock valued at approximately $10 million. In September
2000, in connection with our acquisition of the Siemens development group, we
issued 500,000 shares of our common stock valued at approximately $21.3 million.
These transactions were exempt from the registration requirements of Section 5
of the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Act.


                                       20
<PAGE>   21
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                               YEAR ENDED DECEMBER 31,
                                                        -----------------------------------------------------------------------
                                                          2000            1999           1998           1997            1996
                                                        ---------       ---------      ---------      ---------       ---------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>             <C>            <C>            <C>             <C>
 INCOME STATEMENT DATA:
      Revenue ....................................      $ 107,498       $  70,067      $  52,047      $  45,091       $  43,405
      Gross profit ...............................         46,135          32,872         25,136         21,605          20,959
      Research and development ...................         12,082          10,057          8,082          6,683           5,375
      Purchased in-process research and
          development ............................          8,531           7,883             --          2,500              --
      Selling, general and administrative ........         22,430          13,575         12,555         13,513           9,408
      Amortization of goodwill ...................          3,457             169             --             --              --
      Income (loss) from operations ..............           (365)          1,188          4,499         (1,091)          6,176
      Net income .................................      $   2,149       $     409      $   5,153      $     447       $   7,078
      Basic net income per share .................      $     .08       $     .02      $     .25      $     .02       $     .41
      Weighted average common shares .............         25,868          22,968         20,928         20,388          17,224
      Diluted net income per share ...............      $     .07       $     .02      $     .23      $     .02       $     .37
      Weighted average common shares and
           equivalents ...........................         29,933          25,696         22,728         22,508          19,064
</TABLE>

<TABLE>
<CAPTION>

                                                                                        DECEMBER 31,
                                                          -----------------------------------------------------------------------
                                                            2000            1999           1998           1997            1996
                                                          ---------       ---------      ---------      ---------       ---------
                                                                                       (IN THOUSANDS)
<S>                                                       <C>             <C>            <C>            <C>             <C>
BALANCE SHEET DATA:
     Cash , cash equivalents and marketable
         securities .................................     $  69,716       $  68,265      $  67,727      $  63,068       $  54,974
     Working capital ................................       121,354          90,804         81,950         73,901          71,181
     Total assets ...................................       198,170         145,555         95,626         90,163          82,217
     Long-term debt .................................           542             542             --             --              --
     Stockholders' equity ...........................     $ 181,463       $ 131,053      $  86,699      $  79,637       $  76,351
</TABLE>


                                       21
<PAGE>   22

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

   The discussion and analysis below contain trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may from
time to time make additional written and oral forward-looking statements,
including statements contained in our filings with the United States Securities
and Exchange Commission and in our reports to stockholders. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below under "Risk Factors" and elsewhere in this
report. We do not undertake to update any forward-looking statement that may be
made from time to time by or on our behalf. Readers should carefully review the
risk factors described in other documents we file from time to time with the
United States Securities and Exchange Commission.

   The following discussion should be read in conjunction with our Financial
Statements and Notes thereto.

OVERVIEW

   Since 1989, we have focused on supplying spread spectrum RF transceiver
modules and wireless LAN adapters to OEM customers for integration into mobile
computing platforms, pen-based portables and handheld data collection terminals.
In 1990, we introduced our first commercial product for OEM customers, a 900 MHz
direct sequence spread spectrum RF transceiver. We introduced ProxLink, our
first branded wireless data communications product for the commercial end user
market in 1991, and RangeLAN, a family of 900 MHz direct sequence wireless LAN
adapters in 1992. In 1994, we began commercial shipment of RangeLAN2, the
industry's first FCC certified family of 2.4 GHz frequency hopping spread
spectrum wireless LAN products. In 1996, we introduced an integrated single
piece PC Card adapter and a compact access point product. In 1997, we introduced
our RangeLAN2 micro design-in module, Token Ring Access Point and Extension
Point. In 1998, we introduced our RangeLAN802 frequency hopping product family
based on the IEEE 802.11 standard, RangeLAN2 Ethernet and Serial external
adapters and the Symphony product family, a low-cost cordless networking
solution for home and small office environments. In December 1999, we introduced
a 5 GHz ultra-broadband 100 Mbps product family as a result of our acquisition
of WaveSpan. In April 2000, we introduced our Symphony HomeRF product family of
cordless networking products designed to address the requirements of the
emerging home and small office networking markets, providing both data
networking and voice communications on a shared frequency, based on the HomeRF
protocol. In June 2000, we introduced plug-and-play networking solutions for
Macintoshes and PCs as a result of our acquisition of Farallon. In October 2000,
we introduced Harmony, a wirefree networking solution designed to operate with
current and future wireless LAN standards, including OpenAir, IEEE 802.11b,
Bluetooth, and future wideband frequency hopping and 5 GHz technologies, in a
single, homogeneous architecture. In October 2000, we also introduced our
RangeLAN-DS family of IEEE 802.11b compliant wireless LAN products. In November
2000, we introduced Stratum MP, a 2.4 GHz unlicensed direct sequence spread
spectrum wirefree bridge that provides 10 Mbps half-duplex throughput in
point-to-point or point-to-multipoint cellular architectures.

   Since the introduction of the RangeLAN2 product family in 1994, our 2.4 GHz
product sales have increased to $73,109,000, more than 68% of total revenue in
2000. We anticipate that our 2.4 GHz product families will continue to represent
a substantial majority of our total revenue as a result of the worldwide
availability of unlicensed 2.4 GHz spectrum as well as the higher throughput and
capacity achievable with 2.4 GHz wireless networks. To date, we have realized
lower gross margins from sales of our 2.4 GHz products compared to our 900 MHz
products due primarily to the higher component costs, higher manufacturing costs
associated with early production of various 2.4 GHz products and declining
average selling prices on 2.4 GHz products. While we expect manufacturing costs
to decline over time as a result of greater efficiencies associated with higher
volume production, there can be no assurance that we will be able to achieve
higher gross margins with respect to 2.4 GHz product sales. Gross margins will
be affected by a variety of factors, including manufacturing efficiencies, the
degree to which our manufacturing is outsourced, the location of manufacturing,
potential manufacturing licenses of our products, product mix, competitive
pricing pressures, the degree of customization of individual products required
by OEM customers and component and assembly costs.

                                       22
<PAGE>   23
   We have obtained regulatory certifications and authorizations for our 2.4 GHz
RangeLAN2 products in over 50 countries. These certifications and authorizations
have significantly increased the available markets for these products. Revenue
from sales directly to international customers were 18%, 21%, and 17% in 2000,
1999, and 1998 , respectively. See "Business - Sales and Marketing."

   A substantial portion of our revenue to date has been derived from a limited
number of customers, most of which are OEM customers. We expect that sales to a
limited number of OEM customers will continue to account for a substantial
portion of our revenue for the foreseeable future. We also have experienced
quarter to quarter variability in sales to each of our major OEM customers and
expect this pattern to continue in the future. The loss of, or significant
reductions in sales to, one or more of our major OEM customers could have a
material adverse effect on our results of operations. The development of
products for OEM customer applications is characterized by a lengthy sales
process and design-in cycle which typically lasts from six months to two years
and requires us to integrate our technologies into, and in certain cases adapt
our products to fit, OEM customers' products. In addition, our OEM customers'
products are generally required to be certified by the FCC or the equivalent
regulatory agency in each country where such products are sold. We have
committed substantial engineering, marketing and sales resources to develop key
OEM relationships and have broadened our OEM customer base. Due to our current
dependency on our OEM customers for a significant percentage of our total
revenue and the nature of our OEM business, our annual and quarterly operating
results are subject to fluctuations as a result of the level and timing of OEM
customer orders. We work closely with our OEM customers to manage the order
cycle process in an attempt to reduce the fluctuations inherent in our OEM
business.

   Our RangeLAN2, RangeLAN-DS and Harmony branded products are marketed and sold
to value-added resellers, systems integrators and end users primarily through
regional and national distributors. Our Symphony, Symphony HomeRF and Farallon
branded products are marketed and sold through PC/Macintosh and electronics
retailers, computer catalogs, and on-line retail sites over the Internet,
including our e-commerce Web site. In addition, our Symphony and Symphony HomeRF
products are marketed to OEM and private label partners. Our Stratum 5 GHz
ultra-broadband products and Stratum MP wireless bridge products are sold to
value-added resellers, systems integrators and end users primarily through
regional and national distributors. We grant certain distributors limited rights
of return and price protection on unsold products. Product revenue on shipments
to distributors, which have rights of return and price protection, is recognized
upon shipment by the distributor. Many of our packaged products are also sold to
OEM customers.

RESULTS OF OPERATIONS

THREE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

   Revenue increased by 53% from $70.1 million in 1999 to $107.5 million in
2000, and by 35% from $52.0 million in 1998 to $70.1 million in 1999. Revenue
increased in 2000 compared to 1999 primarily due to increased unit shipments of
2.4 GHz wireless LAN product lines, including RangeLAN2, Symphony and Symphony
HomeRF products, in North America, Europe and Japan, Stratum
building-to-building products, and to a lesser extent Harmony, RangeLAN-DS and
Macintosh connectivity products. The increases were partially offset by
declining average selling prices for 2.4 GHz wireless LAN products, decreased
revenue from 900 MHz products and completion of non-recurring engineering
contracts recognized by Micrilor, Inc. in 1999. Revenue increased in 1999
compared to 1998 primarily due to increased unit shipments to distributors and
OEM customers that sell RangeLAN2-based 2.4 GHz product lines in North America,
Europe and Japan and, to a lesser extent, shipments of Symphony and 5 GHz
Stratum products. The increases were partially offset by lower revenue from 900
MHz products.

   Gross profit as a percentage of revenue was 42.9%, 46.9% and 48.3% during
2000, 1999, and 1998, respectively. Included in cost of revenue in 2000 was a
charge of $2,124,000 for amortization of intangible assets related to
acquisitions and a charge of $1,859,000 related to first generation IEEE 802.11
inventories. Excluding the amortization and the charge,

                                       23
<PAGE>   24

gross profit as a percentage of revenue was 46.6% in 2000. Excluding the
amortization and the charge, gross profit as a percentage of revenue decreased
slightly in 2000 compared to 1999 due primarily to declining average selling
prices for RangeLAN2 and Symphony products, an increase in revenue from lower
margin Symphony HomeRF and 5 GHz Stratum products and a decrease in revenue from
higher gross margin 900 MHz products. Gross profit as a percentage of revenue
decreased in 1999 compared to 1998 due to declining average selling prices on
RangeLAN2 and Symphony products, an increase in revenue from lower margin
Symphony and 5 GHz Stratum products and a decrease in revenue from higher gross
margin 900 MHz products. We expect gross profit as a percentage of revenue to
fluctuate in future periods depending primarily on the mix of revenue between
existing 2.4 GHz, 5 GHz and 900 MHz products, and potential manufacturing and
technology license arrangements.

   Research and development expenses consist primarily of personnel costs and,
to a lesser extent, consulting fees, prototype material, and other costs of
application specific integrated circuits, or ASICs, and software development.
Research and development expenses are related primarily to the development and
enhancement of radio transceivers, ASICs, wireless protocols and network
software drivers. Research and development expenses increased by 20% from $10.1
million in 1999 to $12.1 million in 2000, and by 24% from $8.1 million in 1998
to $10.1 million in 1999. Research and development expenses increased in 2000
compared to 1999 primarily due to the increased number of engineering employees,
including employees added as a result of the WaveSpan merger and the Siemens
development group acquisition, continued investment in integrating our
technology into ASICs development of wireless protocols and network software
drivers, costs related to product performance enhancements, cost reductions in
the RangeLAN2 architecture, costs related to both domestic and international
product certifications, development of Symphony and Symphony HomeRF products,
development of building-to-building products, development of Harmony and
RangeLAN-DS products and development of 5 GHz high-speed wireless LAN
technology. Research and development expenses increased in 1999 compared to 1998
primarily due to an increased number of engineering employees, continued
investment in integrating our technology into ASICs, development of wireless
protocols and network software drivers, costs related to product performance
enhancements, cost reductions in 2.4 GHz products, costs related to both
domestic and international product certifications, development of products based
on the IEEE 802.11 standard, and development of 5 GHz high-speed wireless LAN
technology. Research and development expenses as a percentage of revenue were
11%, 14% and 16% in 2000, 1999 and 1998, respectively. Research and development
expenses as a percentage of revenue declined in 2000 compared to 1999, and in
1999 compared to 1998 primarily due to the increases in revenue, partially
offset by increases in personnel and engineering development program costs. We
expect research and development expenses to increase in absolute terms and
fluctuate as a percentage of revenue as we continue to invest in technology to
address potential market opportunities. If we are unable to enter a particular
market in a timely manner with internally developed products, we may license
technology from other businesses or acquire other businesses as an alternative
to internal research and development. To date, all of our research and
development costs have been expensed as incurred.

   Purchased in-process research and development consist primarily of acquired
technology that has not reached technological feasibility and a minority
investment in a technology company. The amount expensed to purchased in-process
research and development in 2000 relates to in-process technology acquired from
the Farallon and Siemens development group purchase transactions. In the second
quarter of 2000, based upon an independent third party valuation analysis, we
charged $491,000 to purchased in-process research and development related to
technology acquired in the Farallon purchase transaction which was calculated by
estimating the fair value of the technology currently under development using
the income approach, which discounts expected future cash flows to present
value. In the third quarter of 2000, based on an independent third party
valuation analysis, we charged $8,040,000 to purchased in-process research and
development related to HomeRF technology acquired from the Siemens development
group transaction which was calculated by estimating the fair value of the
technology currently under development using the income approach. The amount
charged to purchased in-process research and development in 1999 included a
$2,000,000 charge for developing 5 GHz ultra-broadband wireless technology. In
the fourth quarter of 1999, based upon an independent third party valuation
analysis, we also charged $5,883,000 to purchased in-process research and
development related to technology acquired in the WaveSpan purchase transaction
which was calculated by estimating the fair value of the technology under
development using the income approach.


                                       24
<PAGE>   25

   We do not expect to achieve a material amount of expense reductions or
synergies as a result of integrating the acquired in-process technology.
Therefore, the valuation assumptions do not include any anticipated synergies or
cost savings associated with each transaction. We expect that products
incorporating the acquired technology will be completed and begin to generate
cash flows between six to nine months after integration. However, development of
these technologies remain a significant risk due to the effort required to
achieve technological feasibility, rapidly changing customer markets, uncertain
standards for new products, and significant competitive threats. Failure to
bring these products to market in a timely manner could result in a loss of
market share, or a lost opportunity to capitalize on emerging markets, and could
have a material adverse impact on the value of assets acquired.

   Selling, general and administrative expenses consist primarily of personnel
costs, sales commissions and other incentives, costs related to domestic and
international product certifications, customer support, trade show and
advertising expenses, charges related to investments in startup companies,
issuance costs related to the acquisition of Micrilor, communications and
information systems, and to a lesser extent, professional fees and facilities
costs. Selling, general and administration expenses increased by 65% from $13.6
million in 1999 to $22.4 million in 2000, and increased by 8% from $12.6 million
in 1998 to $13.6 million in 1999. Selling, general and administrative expenses
increased in 2000 compared to 1999 primarily due to the hiring of additional
marketing and sales personnel to support our growth, particularly our expansion
into international and consumer markets, employees added as a result of the
WaveSpan and Farallon acquisitions, increased trade show and promotional
expenses, $217,000 of issuance costs related to the acquisition of Micrilor, and
a $2,500,000 charge related to an investment in a startup Internet service
provider and a company developing Internet appliances. Selling, general and
administrative expenses increased in 1999 compared to 1998 primarily due to
additional marketing and sales personnel to support our growth, particularly our
expansion into international and consumer markets, as well as increased trade
show and promotional expenses, partially offset by $1,000,000 charge related to
an investment in a startup wireless services company in 1998. Selling, general
and administrative expenses as a percentage of revenue were 21%, 19% and 24% in
2000, 1999 and 1998, respectively. Selling, general and administrative expenses
as a percentage of revenue increased in 2000 compared to 1999 due to an increase
in personnel costs, employees added as a result of acquisitions, issuance costs
and charges related to investments, partially offset by increases in revenue.
Selling, general and administrative expenses as a percentage of revenue declined
in 1999 compared to 1998 due to the increases in revenue, partially offset by
increases in personnel costs, and by the charge related to an investment in
1998.

   Interest income, net of interest expense, increased from $4.1 million in 1999
to $4.2 million in 2000 primarily due to higher yields on cash balances.
Interest income, net, increased from $3.4 million in 1998 to $4.1 million in
1999 primarily due to higher yields on cash balances.

   We recognized a provision for income taxes of $1,672,000, $4,892,000 and
$2,745,000 in 2000, 1999 and 1998, respectively. The effective tax rates in
2000, 1999 and 1998 were 43.8%, 92.3%, and 34.8%, respectively. The effective
rates in 2000 and 1999 were higher than federal statutory rate of 35% plus state
tax rate of 6%, net of federal benefits, primarily due to expenses related to
the charges for purchased in-process research and development and equity
investments that were not deductible for income tax purpose. Such expenses
amount to $11,031,000, $7,883,000 and $1,000,000 in 2000, 1999 and 1998,
respectively. The effective income tax rate in 1998 was lower than the federal
statutory tax rate plus the state tax rate, net of the federal benefits,
primarily due to a research and development credit and a change in the valuation
allowance offset by the non tax deductible expense related to the equity
investment.

INFLATION

   To date, inflation has not had a significant impact on our operating results.



                                       25
<PAGE>   26
LIQUIDITY AND CAPITAL RESOURCES

   To date we have funded our operations through sales of equity securities as
well as through cash flows from operations. As of December 31, 2000, we had
retained earnings of $5,907,000.

   In 2000, cash used in operations was $9,035,000. In 1999 and 1998, cash
provided by operations was $5,880,000 and $5,265,000, respectively. In 2000,
cash was used primarily to fund increases in inventories and accounts receivable
and a decrease in other current liabilities, partially offset by net income
after the effect of non cash charges. In 1999, cash was provided primarily by
net income after the effect of non cash charges, partially offset by cash used
to fund increases in inventory and accounts receivable and a decrease in other
current liabilities. In 1998, cash was provided primarily by net income after
the effect of non cash charges, a decrease in inventories and by an increase in
accounts payable. This was partially offset by cash used to fund increases in
accounts receivable and by a decrease in other liabilities. We believe that to
the extent we experience growth in our operations, if any, then additional cash
will be required to fund increases in inventories and accounts receivable.

   In 2000, 1999 and 1998, we purchased $4,237,000, $5,365,000 and $1,244,000,
respectively, of property and equipment. Expenditures related primarily to the
acquisition of manufacturing and engineering test equipment, leasehold
improvements, client/server application software, and furniture for our new
corporate headquarters and manufacturing facility. We expect to purchase
approximately $8,000,000 of property and equipment during 2001, consisting
primarily of manufacturing and engineering test equipment and tooling, and
engineering systems software and equipment.

   In 2000, 1999 and 1998, we made equity investments totaling $10,500,000,
$5,000,000 and $1,000,000, respectively. In 2000, we made investments in a
wireless service provider, a company developing wireless Internet appliances, a
broadband gateway company and a company developing wireless services in China,
of which $2,500,000 was recorded to selling, general and administrative expense
due to the uncertainty in recovering the investments. The remaining $8,000,000
was recorded as an equity investment. In 1999, we made investments in a wireless
services company and a startup company developing 5 GHz ultra-broadband wireless
products of which $2,000,000 was recorded as purchased in-process research and
development. The remaining $3,000,000 was recorded as an equity investment. The
investment made in 1998 was for a wireless services company and was recorded as
selling, general and administrative expense.

   In June 2000, the company acquired Farallon Communications, Inc. for 243,308
shares of our common stock and $4 million of cash. The total purchase price was
$14.9 million, including acquisition costs of $900,000, and the acquisition was
accounted for as a purchase. In September 2000, the company entered into a
cross-licensing and technology exchange and purchase agreement with Siemens in
which we acquired certain technology under development, intellectual property
rights, engineering resources and other assets in exchange for certain
manufacturing and technology rights and 500,000 shares of our common stock. The
total purchase price was $21.8 million, including acquisition costs of $525,000,
and the acquisition was accounted for as a purchase. In December 1999, we
acquired WaveSpan Corporation in a merger transaction, for 340,000 shares of our
common stock and $2.2 million of cash. The value of the purchase price was $12.9
million, including acquisition costs of $900,000, and the acquisition was
accounted for as a purchase.

   In 2000, 1999 and 1998, we generated $8,670,000, $27,418,000 and $1,844,000
from issuance of common stock. In 2000 we generated cash from the exercise of
employee stock options and issuance of common stock under our employee stock
purchase plan. In 1999 we generated cash from the exercise of employee stock
options, issuance of common stock under our employee stock purchase plan and
issuance of common stock to investors. In 1998 we generated cash from the
exercise of employee stock options and issuance of common stock under our
employee stock purchase plan.

   As of December 31, 2000 our principal sources of liquidity included cash,
cash equivalents and marketable securities totaling approximately $70.2 million.
We believe that our existing working capital and cash generated from operations,
if any, will be sufficient to finance any cash acquisition, which we may
consider and provide adequate working capital for the foreseeable future.
However, to the extent that additional funds may be required in the future to
address working capital needs and to provide funding for capital expenditures,
expansion of the business or acquisitions, we will consider additional
financing. There can be no assurance that such financing will be available on
terms acceptable, if at all.


                                       26
<PAGE>   27

FORWARD-LOOKING STATEMENTS

   This Form 10-K and the documents incorporated herein by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual results could differ materially from those expressed
or forecasted in any such forward-looking statements as a result of certain
factors, including those set forth in "Risk Factors" below, as well as those
noted in the documents incorporated herein by reference. In connection with
forward-looking statements, which appear in these disclosures, investors should
carefully review the factors set forth in this Form 10-K under "Risk Factors."

RISK FACTORS

   You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.

   If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline and you could
lose all or part of your investment.

   This Form 10-K also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this Form 10-K.

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY FAIL TO MEET
OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, CAUSING OUR
STOCK PRICE TO DECLINE.

   Our operating results have fluctuated in the past and are likely to continue
to fluctuate in the future on an annual and quarterly basis, due to numerous
factors, many of which are outside of our control. Some of the factors that may
cause these fluctuations include:

   -  changing market demand for, and declines in the average selling prices of,
      our products;
   -  the timing of and delays or cancellations of significant orders from major
      customers;
   -  the loss of one or more of our major customers;
   -  the cost, availability and quality of components from our suppliers;
   -  the cost, availability, and quality of assemblies from contract and
      subcontract manufacturers;
   -  the lengthy sales and design-in cycles for original equipment
      manufacturer, or OEM, products;
   -  delays in the introduction of our new products;
   -  competitive product announcements and introductions;
   -  market adoption of new technologies;
   -  market adoption of radio frequency, or RF, standards-based products (such
      as those compliant with the HomeRF, IEEE 802.11b, or Bluetooth
      specifications);
   -  the mix of products sold;


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<PAGE>   28

   -  the effectiveness of our distribution channels and our success in
      maintaining our current distribution channels and developing new
      distribution channels;
   -  the sell-through rate of our Symphony and Symphony HomeRF products through
      consumer retail channels;
   -  management of retail channel inventories;
   -  excess and obsolete inventories related to evolving product technologies
      and industry standards;
   -  the failure to anticipate changing customer product requirements;
   -  seasonality in demand;
   -  manufacturing capacity and efficiency;
   -  changes in the regulatory environment, product health and safety concerns;
      and
   -  general economic conditions.

   Historically, we have not operated with a significant order backlog and a
substantial portion of our revenue in any quarter has been derived from orders
booked and shipped in that quarter. Accordingly, our revenue expectations are
based almost entirely on internal estimates of future demand and not on firm
customer orders. Planned operating expense levels are relatively fixed in the
short term and are based in large part on these estimates. If orders and revenue
do not meet expectations, our operating results could be materially adversely
affected. In this regard, in the third quarter of 1997, we experienced a
decrease in revenue and an operating loss as a result of a significant decrease
in orders from two of our major customers. We can offer no assurance that we
will not experience future quarter to quarter decreases in revenue or quarterly
operating losses. In addition, due to the timing of orders from OEM customers,
we have often recognized a substantial portion of our revenue in the last month
of a quarter. As a result, minor fluctuations in the timing of orders and the
shipment of products have caused, and may in the future cause, operating results
to vary significantly from quarter to quarter.

WE DEPEND SIGNIFICANTLY ON A LIMITED NUMBER OF OEM CUSTOMERS.

   A substantial portion of our revenue has been derived from a limited number
of customers, most of which are OEM customers. Sales to one customer represented
approximately 12% of our revenue during 2000. Sales to one customer represented
approximately 30% of our revenue during 1999. Sales to two customers represented
approximately 41% and 11% of our revenue during 1998. We expect that sales to a
limited number of OEM customers will continue to account for a substantial
portion of our revenue for the foreseeable future. We also have experienced
quarter to quarter variability in sales to each of our major OEM customers and
expect this pattern to continue in the future.

   Sales of many of our wireless networking products depend upon the decision of
a prospective OEM customer to develop and market wireless solutions, which
incorporate our wireless technology. OEM customers' orders are affected by a
variety of factors, including the following:

   -  new product introductions;
   -  regulatory approvals;
   -  end-user demand for OEM customers' products;
   -  product life cycles;
   -  inventory levels;
   -  manufacturing strategies;
   -  pricing;
   -  contract awards;
   -  competitive situations; and
   -  general economic conditions.

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<PAGE>   29

   For these and other reasons, the design-in cycle associated with the purchase
of our wireless products by OEM customers is quite lengthy, generally ranging
from six months to two years, and is subject to a number of significant risks,
including customers' budgeting constraints and internal acceptance reviews, that
are beyond our control. Because of the lengthy sales cycle, we typically plan
our production and inventory levels based on internal forecasts of OEM customer
demand, which is highly unpredictable and can fluctuate substantially. In
addition, our agreements with OEM customers typically do not require minimum
purchase quantities and a significant reduction, delay or cancellation of orders
from any of these customers could materially and adversely affect our operating
results. If revenue forecasted from a specific customer for a particular quarter
is not realized in that quarter, our operating results for that quarter could be
materially adversely affected. The loss of one or more of, or a significant
reduction in orders from, our major OEM customers could materially and adversely
affect our operating results. In addition, we can offer no assurance that we
will become a qualified supplier for new OEM customers or that we will remain a
qualified supplier for existing OEM customers.

WE PURCHASE SEVERAL KEY COMPONENTS USED IN THE MANUFACTURE OR INTEGRATION OF OUR
PRODUCTS FROM SOLE OR LIMITED SOURCES.

   Certain parts and components used in our products, including our proprietary
application specific integrated circuits, or ASICs, monolithic microwave
integrated circuits, or MMICs, and assembled circuit boards, are only available
from single sources, and certain other parts and components are only available
from a limited number of sources. Our reliance on these sole source or limited
source suppliers involves risks and uncertainties, including the following:

   -  the possibility of a shortage or discontinuation of key components; and
   -  reduced control over delivery schedules, manufacturing capability,
      quality, yields and costs.

   Any reduced availability of these parts or components when required could
significantly impair our ability to manufacture and deliver our products on a
timely basis and result in the cancellation of orders, which could materially
adversely affect our operating results. In addition, the purchase of some key
components involves long lead times and, in the event of unanticipated increases
in demand for our products, we have in the past been, and may in the future be,
unable to manufacture some products in a quantity sufficient to meet our
customers' demand in any particular period. We have no guaranteed supply
arrangements with our sole or limited source suppliers, do not maintain an
extensive inventory of parts or components, and customarily purchase sole or
limited source parts and components pursuant to purchase orders placed from time
to time in the ordinary course of business. Business disruptions, production
shortfalls, production quality or financial difficulties of a sole or limited
source supplier could materially and adversely affect our business by increasing
product costs, or reducing or eliminating the availability of parts or
components. In an event like this, our inability to develop alternative sources
of supply quickly and on a cost-effective basis could significantly impair our
ability to manufacture and deliver our products on a timely basis and could
materially adversely affect our business and operating results.

WE NEED TO EXPAND OUR LIMITED MANUFACTURING CAPABILITY AND INCREASINGLY DEPEND
ON CONTRACT MANUFACTURERS FOR OUR MANUFACTURING REQUIREMENTS.

   We currently have limited manufacturing capability and no experience in large
scale or foreign manufacturing. If our customers were to concurrently place
orders for unexpectedly large product quantities, our present manufacturing
capacity might be inadequate to meet the demand. We can offer no assurance that
we will be able to develop or contract for additional manufacturing capacity on
acceptable terms on a timely basis. In addition, in order to compete
successfully, we will need to achieve significant product cost reductions.
Although we intend to achieve cost reductions through engineering improvements,
production economies, and manufacturing at lower cost locations including
outside the United States, we can offer no assurance that we will be able to do
so. In order to remain competitive, we also must continue to introduce new
products and processes into our manufacturing environment, and we can offer no
assurance that any such new products will not create obsolete inventories
related to older products.


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<PAGE>   30

   We currently conduct our manufacturing operations for RangeLAN2, Harmony,
Stratum and 900 MHz products at our corporate headquarters in Sunnyvale,
California. In addition, we rely on contract and subcontract manufacturers for
turnkey manufacturing and circuit board assemblies which subjects us to
additional risks, including a potential inability to obtain an adequate supply
of finished assemblies and assembled circuit boards and reduced control over the
price, timely delivery and quality of such finished assemblies and assembled
circuit boards. If our Sunnyvale facility were to become incapable of operating,
even temporarily, or were unable to operate at or near our current or full
capacity for an extended period, our business and operating results could be
materially adversely affected.

   We currently outsource manufacturing for our HomeRF products with Flextronics
International, Inc., a top tier turnkey contract manufacturer. We expect
Flextronics to provide domestic manufacturing for new product introductions and
off-shore manufacturing for lower-cost high-volume manufacturing of HomeRF
products. In addition, we expect Flextronics to work directly with our HomeRF
manufacturing license partners to manage product supply, factory capacity,
product quality and manufacturability, and cost reductions. Changes in our
manufacturing operations to incorporate new products and processes, or to
manufacture at lower cost locations outside the United States, could cause
disruptions, which, in turn, could adversely affect customer relationships,
cause a loss of market opportunities and negatively affect our business and
operating results.

   We have in the past experienced higher than expected demand for our products.
This resulted in delays in the delivery of certain products due to temporary
shortages of certain components, particularly components with long lead times,
and insufficient manufacturing capacity. Due to the complex nature of our
products and manufacturing processes, including products manufactured by our
licensing partners, the worldwide demand for some wireless technology components
and other factors, we can offer no assurance that delays in the delivery of
products will not occur in the future.

WIRELESS COMMUNICATIONS AND NETWORKING MARKETS ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE AND TO COMPETE, WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS
THAT ACHIEVE BROAD MARKET ACCEPTANCE.

   The wireless communications industry is characterized by rapid technological
change, short product life cycles and evolving industry standards. To remain
competitive, we must develop or gain access to new technologies in order to
increase product performance and functionality, reduce product size and maintain
cost-effectiveness.

   Our success is also dependent on our ability to develop new products for
existing and emerging wireless communications markets, to introduce such
products in a timely manner and to have them designed into new products
developed by OEM customers. The development of new wireless networking products
is highly complex, and, from time to time, we have experienced delays in
developing and introducing new products. Due to the intensely competitive nature
of our business, any delay in the commercial availability of new products could
materially and adversely affect our business, reputation and operating results.
In addition, if we are unable to develop or obtain access to advanced wireless
networking technologies as they become available, or are unable to design,
develop and introduce competitive new products on a timely basis, or are unable
to hire or retain qualified engineers to develop new technologies and products,
our future operating results would be materially and adversely affected. We have
expended substantial resources in developing products that are designed to
conform to the IEEE 802.11 standard and the HomeRF specification. We can offer
no assurance, however, that our IEEE 802.11 compliant products and our Symphony
HomeRF products will have a meaningful commercial impact. In this regard, in the
second quarter of 2000, we recorded a charge of $1,859,000 to cost of sales
related to first generation IEEE 802.11 inventories.

   In 1999, the IEEE approved a new 2.4 GHz wireless LAN standard, designated as
802.11b. Based on direct sequence spread spectrum technology, this new standard
increased the nominal data rate from 2 Mbps to 11 Mbps. In October 2000, we
began to offer 802.11b products sourced from a third party developer and
manufacturer, and there can be no assurance that our products will be
competitive in the market. In addition, we are developing higher-speed frequency
hopping technology based on the FCC Part 15 rule change adopted in August 2000,
that will allow for wider band hopping channels and increase the data rate from
1.6 Mbps to up to 10 Mbps. There can be no assurance that we will be able to


                                       30
<PAGE>   31


complete our development of 10 Mbps frequency hopping products in a timely
manner, or that any such new products will compete effectively with IEEE 802.11b
standard compliant products.

   In 1999, a group of computer and telecommunications industry leaders, led by
Ericsson, began developing a short range RF method to connect mobile devices
without cables called Bluetooth. Based on low power 2.4 GHz frequency hopping
spread spectrum technology, numerous organizations are planning to deploy
Bluetooth technology in a wide variety of mobile devices such as cellular
telephones, notebook computers and handheld computers. We have not developed
products that comply with Bluetooth. While Bluetooth technology is available to
develop or acquire in the market, there can be no assurance that we will develop
or acquire such technology, or that if we do develop or acquire such technology,
that our products will be competitive in the market.

   In 2000, the IEEE approved a new 5 GHz wireless LAN standard designated as
802.11a. This new standard is based on Orthogonal Frequency Division
Multiplexing, or OFDM, technology with multiple data rates ranging from below 10
Mbps to approximately 50 Mbps. In 1999, the European Telecommunications
Standards Institute Project BRAN (Broadband Radio Access Networks) committee
approved a new 5 GHz wireless LAN standard designated as HiperLAN2, also based
on OFDM technology. While these two new 5 GHz standards apply to future
generations of technology, no companies are currently shipping wireless LAN
products based on these technologies. We are currently working with a third
party developer of 802.11a components developing products based on either of
these two new standards, but there can be no assurance that we will develop or
acquire technology compliant with these standards.

   If we are unable to enter a particular market in a timely manner with
internally developed products, we may license technology from other businesses
or acquire other businesses as an alternative to internal research and
development. In this regard, in the fourth quarter of 1997, we recorded a charge
of $2,500,000 to in-process research and development related to a license of
technology to be used in 5 GHz highspeed in-building wireless LAN products. In
1999, we recorded a total of $7,883,000 in charges related to acquisition of 5
GHz ultra-broadband wireless building-to-building technology.

   In addition, we are a core member of the HomeRF Working Group, an industry
consortium that is establishing an open industry standard, called the HomeRF
specification, for wireless digital communications between PCs and consumer
electronic devices, including a common interface specification that supports
wireless data and voice services in and around the home. We can offer no
assurance that the HomeRF specification, or the Symphony HomeRF products that we
have developed to comply with the specification will have a meaningful
commercial impact. Further, given the emerging nature of the wireless LAN
market, we can offer no assurance that the RangeLAN2 and Symphony products and
technology, or our other products or technology, will not be rendered obsolete
by alternative or competing technologies.

   If we are unable to enter a particular market in a timely manner with
internally developed products, we may license technology from other businesses
or acquire other businesses as an alternative to internal research and
development. In this regard, in the fourth quarter of 1997, we recorded a charge
of $2,500,000 to in-process research and development related to a license of
technology to be used in 5 GHz highspeed in-building wireless LAN products. In
1999, we recorded a total of $7,883,000 in charges related to the acquisition of
5 GHz ultra-broadband wireless building-to-building products. In second quarter
of 2000, we recorded a charge of $491,000 related to acquisition of products
that address home and small office networking requirements, as well as Apple
Macintosh computer connectivity. In the third quarter of 2000, we recorded a
charge of $8,040,000 related to the acquisition of HomeRF technology.

THE WIRELESS LOCAL AREA NETWORKING MARKET IS INTENSELY COMPETITIVE AND SOME OF
OUR COMPETITORS ARE LARGER AND BETTER ESTABLISHED.

The wireless local area networking and building to building markets are
extremely competitive and we expect that competition will intensify in the
future. Increased competition could adversely affect our business and operating
results through pricing pressures, the loss of market share and other factors.
The principal competitive factors include the following: data throughput;
effective RF coverage area; interference immunity; network scalability; price;
integration with voice technology; wireless networking protocol sophistication;
ability to support industry standards; roaming capability;



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<PAGE>   32

power consumption; product miniaturization; product reliability; ease of use;
product costs; product features and applications; product time to market;
product certifications; brand recognition; OEM partnerships; marketing
alliances; manufacturing capabilities and experience; effective distribution
channels; and company reputation.

   We could be at a disadvantage to competitors, particularly Cisco Systems and
Lucent Technologies, that have broader distribution channels, brand recognition,
extensive patent portfolios and more diversified product lines.

   We have several competitors in our commercial wireless business, including
without limitation Breezecom, Cisco Systems (which acquired Aironet Wireless
Communications), Intersil, Lucent Technologies, Nokia, Symbol Technologies,
Western Multiplex and 3COM. We also face competition from a variety of companies
that offer different technologies in the nascent home networking market,
including several companies developing competing wireless networking products.
Additionally, numerous companies have announced their intention to develop
competing products in both the commercial wireless and home networking markets.
In addition to competition from companies that offer or have announced their
intention to develop wireless LAN products, we could face future competition
from companies that offer products which replace network adapters or offer
alternative communications solutions, or from large computer companies, PC
peripheral companies, as well as other large networking equipment companies.
Furthermore, we could face competition from certain of our OEM customers, which
have, or could acquire, wireless engineering and product development
capabilities. We can offer no assurance that we will be able to compete
successfully against these competitors or those competitive pressures we face
will not adversely affect our business or operating results.

   Many of our present and potential competitors have substantially greater
financial, marketing, technical and other resources with which to pursue
engineering, manufacturing, marketing, and distribution of their products. These
competitors may succeed in establishing technology standards or strategic
alliances in the wireless LAN and building to building markets, obtain more
rapid market acceptance for their products, or otherwise gain a competitive
advantage. We can offer no assurance that we will succeed in developing products
or technologies that are more effective than those developed by our competitors.
Furthermore, we compete with companies that have high volume manufacturing and
extensive marketing and distribution capabilities, areas in which we have only
limited experience. We can offer no assurance that we will be able to compete
successfully against existing and new competitors as the wireless LAN market
evolves and the level of competition increases.

THE MARKET FOR INTEGRATED VOICE AND DATA PRODUCTS AND COMBINED SERVICES MAY NOT
GROW AS ANTICIPATED.

   In 2000, we announced our HomeRF product family designed to integrate both
voice communications and data networking on a shared frequency basis. A
substantial part of our future growth is dependent on the widespread deployment
of these integrated voice and data products for combined voice and data
services. To date, service providers including competitive telephone carriers
have not deployed such combined services broadly. Unless such products are
broadly deployed we can offer no assurance that our Symphony HomeRF integrated
voice and data products will have a meaningful commercial impact. If such growth
does not occur as anticipated, this could contribute to significant variations
in our future operating results.

WE DEPEND UPON INTERNATIONAL SALES AND OUR ABILITY TO SUSTAIN AND INCREASE
INTERNATIONAL SALES IS SUBJECT TO MANY RISKS, WHICH COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.

   Revenue from shipments by us to customers outside the United States,
principally to a limited number of distributors and OEM customers, represented
18%, 21% and 17% of total revenue during 2000, 1999 and 1998. We expect that
revenue from shipments to international customers will vary as a percentage of
total revenue.


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<PAGE>   33

   Sales to international customers or to U.S. OEM customers who ship to
international locations are subject to a number of risks and uncertainties
including:

   -  changes in foreign government regulations and telecommunications
      standards;
   -  export license and documentation requirements;
   -  tariffs, duties taxes and other trade barriers;
   -  fluctuations in currency exchange rates;
   -  longer payment cycles for international distributors;
   -  difficulty in collecting accounts receivable;
   -  competition from local manufacturers with lower costs;
   -  difficulty in staffing and managing foreign operations; and
   -  potential political and economic instability.

   While international sales are typically denominated in U.S. dollars and we
typically extend limited credit terms, fluctuations in currency exchange rates
could cause our products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. We can offer no assurance that foreign markets will continue to develop
or that we will receive additional orders to supply our products to foreign
customers. Our business and operating results could be materially adversely
affected if foreign markets do not continue to develop or if we do not receive
additional orders to supply our products for use by foreign customers. In the
latter part of 1997 and throughout 1998, capital markets in Asia were highly
volatile, resulting in fluctuations in Asian currencies and other economic
instabilities. In this regard, in the third quarter of 1997 and continuing
through the second quarter of 1998, we experienced a significant decrease in
orders from NTT-IT, one of our major Japanese customers, resulting in a
significant decrease in quarterly revenue and an operating loss in the third
quarter of 1997.

OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS COULD ADVERSELY AFFECT
OUR ABILITY TO COMPETE EFFECTIVELY.

   We rely on a combination of patents, trademarks, non-disclosure agreements,
invention assignment agreements and other security measures in order to
establish and protect our proprietary rights. We have been issued ten U.S.
patents, which are important to our current business, and we have five patent
applications pending in the U.S. which relate to our core technologies and
product designs. We can offer no assurance that patents will issue from any of
these pending applications or, if patents do issue, that the claims allowed will
be sufficiently broad to protect our technology. In addition, we can offer no
assurance that any patents issued to us will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will adequately protect us.
Since U.S. patent applications are maintained in secrecy until patents issue,
and since publication of inventions in the technical or patent literature tends
to lag behind such inventions by several months, we cannot be certain that we
first created the inventions covered by our issued patents or pending patent
applications or that we were the first to file patent applications for such
inventions or that we are not infringing on the patents of others. In addition,
we have filed, or reserved our rights to file, a number of patent applications
internationally. We can offer no assurance that any international patent
application will issue or that the laws of foreign jurisdictions will protect
our proprietary rights to the same extent as the laws of the United States.

   Although we intend to protect our proprietary rights vigorously, there can be
no assurance that the measures we have taken or may take to protect our
proprietary rights will be successful. We expect that litigation may be
necessary to enforce our patents, trademarks or other intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, to establish the validity of any technology
licenses offered to patent infringers, to prevent the importation of infringing
products into the United States, or to defend against claims of infringement.
Litigation could result in substantial costs and diversion of resources and
could materially and adversely affect our business and operating results.
Moreover, we can offer no assurance that in the future these rights will be
upheld. Furthermore, there can be no assurance that any of our issued patents
will provide a competitive advantage or will not be challenged by third parties
or

                                       33
<PAGE>   34


that the patents of others will not adversely impact our ability to do business.
As the number of products in the wireless LAN market increases, and related
features and functions overlap, we may become increasingly subject to
infringement claims. These claims also might require us to enter into royalty or
license agreements. Any such claims, with or without merit, could cause costly
litigation and could require significant management time. There can be no
assurance that, if required, we could obtain such royalty or license agreements
on terms acceptable to us. There can be no assurance that the measures we have
taken or may take in the future will prevent misappropriation of our technology
or that others will not independently develop similar products, design around
our proprietary or patented technology or duplicate our products.

WE NEED TO EFFECTIVELY MANAGE OUR GROWTH.

   Our growth to date has caused, and will continue to cause, a significant
strain on our management, operational, financial and other resources. Our
ability to manage growth effectively will require us to improve our management,
operational and financial processes and controls as well as the related
information and communications systems. These demands will require the addition
of new management personnel and the development of additional expertise by
existing management. The failure of our management team to effectively manage
growth, should it occur, could materially and adversely affect our business and
operating results.

COMPLIANCE WITH GOVERNMENTAL REGULATIONS IN MULTIPLE JURISDICTIONS WHERE WE SELL
OUR PRODUCTS IS DIFFICULT AND COSTLY.

   In the United States, we are subject to various Federal Communications
Commission, or FCC, rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio spectrum. Our
spread spectrum wireless products are certified for unlicensed operation in the
902 -- 928 MHz, 2.4 -- 2.4835 GHz, 5.15 -- 5.35 GHz and 5.725 -- 5.825 GHz
frequency bands. Operation in these frequency bands is governed by rules set
forth in Part 15 of the FCC regulations. The Part 15 rules are designed to
minimize the probability of interference to other users of the spectrum and,
thus, accord Part 15 systems secondary status in the frequency. In the event
that there is interference between a primary user and a Part 15 user, a higher
priority user can require the Part 15 user to curtail transmissions that create
interference. In this regard, if users of our products experience excessive
interference from primary users, market acceptance of our products could be
adversely affected, which could materially and adversely affect our business and
operating results. The FCC, however, has established certain standards that
create an irrefutable presumption of noninterference for Part 15 users and we
believe that our products comply with such requirements. We can offer no
assurance that the occurrence of regulatory changes, including changes in the
allocation of available frequency spectrum, changes in the use of allocated
frequency spectrum, or modification to the standards establishing an irrefutable
presumption for unlicensed Part 15 users, would not significantly affect our
operations by rendering current products obsolete, restricting the applications
and markets served by our products or increasing the opportunity for additional
competition.

   Our products are also subject to regulatory requirements in international
markets and, therefore, we must monitor the development of spread spectrum and
other radio frequency regulations in certain countries that represent potential
markets for our products. While we can offer no assurance that we will be able
to comply with regulations in any particular country, we design our RangeLAN2,
RangeLAN-DS, Harmony, Symphony and Symphony HomeRF products to minimize the
design modifications required to meet various 2.4 GHz international spread
spectrum regulations. In addition, we will seek to obtain international
certifications for the Symphony and Symphony HomeRF product line in countries
where there is a substantial market for home PCs and Internet connectivity.
Changes in, or the failure by us to comply with, applicable domestic and
international regulations could materially adversely affect our business and
operating results. In addition, with respect to those countries that do not
follow FCC regulations, we may need to modify our products to meet local rules
and regulations.

   Regulatory changes by the FCC or by regulatory agencies outside the United
States, including changes in the allocation of available frequency spectrum,
could significantly affect our operations by restricting our development
efforts, rendering current products obsolete or increasing the opportunity for
additional competition. In September 1993

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<PAGE>   35

and in February 1995, the FCC allocated additional spectrum for personal
communications services. In January 1997, the FCC authorized 300 MHz of
additional unlicensed frequencies in the 5 GHz frequency range in Part 15
Subpart E which regulates U-NII devices operating in the 5.15 -- 5.35 GHz and
5.725 -- 5.825 GHz frequency bands. In August 2000, the FCC issued an amendment
to Part 15 that changed the way allocated frequencies are utilized by frequency
hoppingspread spectrum systems. These approved changes in the allocation and use
of available frequency spectrum could create opportunities for other wireless
networking products and services.

   There can be no assurance that new regulations will not be promulgated, that
could materially and adversely affect our business and operating results.

THERE MAY BE POTENTIAL HEALTH AND SAFETY RISKS RELATED TO OUR PRODUCTS WHICH
COULD NEGATIVELY AFFECT OUR BUSINESS AND PRODUCT SALES.

   The intentional emission of electromagnetic radiation has been the subject of
recent public concern regarding possible health and safety risks, and though our
products, when installed in any of the intended configurations, are designed not
to exceed the maximum permissible exposure limits listed in Section 1.1311 of
the FCC Regulations, we can offer no assurance that safety issues will not arise
in the future and materially and adversely affect our business and operating
results.

TO COMPETE EFFECTIVELY, WE MUST ESTABLISH AND EXPAND NEW DISTRIBUTION CHANNELS
FOR OUR HOME NETWORKING PRODUCTS.

   To date, a substantial percentage of our revenue has been derived from OEM
customers through our direct sales force. We sell our branded RangeLAN2 products
through domestic and international distributors. We are also establishing new
distribution channels for our Symphony family of cordless home and small office
networking products. Symphony products are currently sold through national
retailers such as Best Buy, CompUSA, OfficeMax, Office Depot and Staples
computer retailers such as Fry's Electronics, J&R Computer World, BrandSmart,
Comp-u-Tech, DataVision, Nationwide, leading computer catalogs such as CDW,
MobilePlanet and PC Connection, and numerous on-line retail sites over the
Internet, including our e-commerce Web site at www.proxim.com. In general,
distributors and retailers offer products of several different companies,
including products that may compete with our products. Accordingly, they may
give higher priority to products of other suppliers, thus reducing their efforts
to sell our products. Agreements with distributors and retailers are generally
terminable at their option. Any reduction in sales efforts or termination of a
relationship may materially and adversely affect our business and operating
results. Use of distributors and retailers also entails the risk that they will
build up inventories in anticipation of substantial growth in sales. If such
growth does not occur as anticipated, they may substantially decrease the amount
of product ordered in subsequent quarters. Such fluctuations could contribute to
significant variations in our future operating results.

IF WE LOSE KEY PERSONNEL OR WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL
AS NECESSARY, WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR BUSINESS OR ACHIEVE
OUR OBJECTIVES.

   We are highly dependent on the technical and management skills of our key
employees, in particular David C. King, Chairman, President and Chief Executive
Officer, and Juan Grau, Vice President of Engineering. We do not have employment
agreements with or life insurance on the life of, either person. In addition,
given the rapid technological change in this industry, we believe that the
technical expertise and creative skills of our engineers and other personnel are
crucial in determining our future success. The loss of the services of any key
employee could adversely affect our business and operating results. Our success
also depends in large part on a limited number of key marketing and sales
employees and on our ability to continue to attract, assimilate and retain
additional highly talented personnel. Competition for qualified personnel in the
wireless data communications and networking industries is intense. We can offer
no assurance that we will be successful in retaining our key employees or that
we can attract, assimilate or retain the additional skilled personnel as
required.


                                       35
<PAGE>   36
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.

   Recently, the price of our common stock has been volatile. We believe that
the price of our common stock may continue to fluctuate, perhaps substantially,
as a result of factors including:

   -  announcements of developments relating to our business;
   -  fluctuations in our operating results;
   -  general conditions in the wireless communications industry or the
      worldwide economy;
   -  a shortfall in revenue or earnings from securities analysts' expectations
      or other changes in financial estimates by securities analysts;
   -  announcements of technological innovations or new products or enhancements
      by us or our competitors;
   -  developments in patent, copyright or other intellectual property rights;
      and
   -  developments in our relationships with customers, distributors and
      suppliers.

   In the third quarter of 1997, we announced revenue and operating results
below expectations of securities analysts and investors, resulting in a decrease
in the market price of our common stock. In addition, in recent years the stock
market in general, and the market for shares of high technology stocks in
particular, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. There can be no
assurance that the market price of our common stock will not experience
significant fluctuations in the future, including fluctuations that are
unrelated to our performance.

RISKS RELATED TO THE PROPOSED MERGER WITH NETOPIA

     PROXIM WILL FACE SIGNIFICANT CHALLENGES IN INTEGRATING PROXIM AND NETOPIA
AND, AS A RESULT, MAY NOT REALIZE THE EXPECTED BENEFITS OF THE MERGER.

     Integrating the operations, systems and personnel of Proxim and Netopia
will be a complex process, and Proxim is uncertain that the integration will be
completed in a timely manner or will achieve the anticipated benefits of the
merger. The challenges involved in this integration include:

     - retaining relationships with existing customers and business partners of
       both Proxim and Netopia;

     - retaining and integrating management and other employees of both Proxim
       and Netopia;

     - minimizing disruption of the combined company's ongoing business and
       distraction of its management;

     - coordinating research and development and marketing activities to enhance
       introduction of new products, services and technologies that integrate
       Proxim's and Netopia's existing technologies and technologies under
       development;

     - transitioning systems to a common information technology system;

     - developing and maintaining uniform standards, controls, procedures and
       policies; and

     - limiting expenses related to integration of the two companies.

     The combined company may not succeed in addressing these challenges or any
other problems encountered in connection with the merger. The diversion of the
attention of the combined company's management and any difficulties encountered
in the process of combining the companies could cause the disruption of, or a
loss of momentum in, the activities of Proxim's and Netopia's businesses.


                                       36
<PAGE>   37
     IF PROXIM DOES NOT SUCCESSFULLY INTEGRATE NETOPIA OR IF THE OPERATING
RESULTS OF THE COMBINED COMPANY DO NOT MEET THE EXPECTATIONS OF INVESTORS OR
FINANCIAL OR INDUSTRY ANALYSTS, THE MARKET PRICE OF PROXIM COMMON STOCK MAY
DECLINE.

     The market price of Proxim common stock may decline as a result of the
merger if:

     - the integration of Proxim and Netopia is not completed in a timely and
       efficient manner;

     - the effect of the merger on the combined company's financial results or
       the perceived benefits of the merger are not consistent with the
       expectations of financial or industry analysts;

     - Netopia's business model and operations, considered separately, require
       Proxim to expend additional capital to fund operating losses of these
       operations; or

     - significant stockholders of Proxim following the merger decide to dispose
       of their shares because the results of the merger are not consistent with
       their expectations.

     AS A RESULT OF THE MERGER, SOME OF PROXIM'S CUSTOMERS AND BUSINESS PARTNERS
MAY CURTAIL OR NOT DO BUSINESS WITH THE COMBINED COMPANY, WHICH COULD CAUSE A
DECLINE IN THE SALES OF THE COMBINED COMPANY.

     The announcement and consummation of the merger may cause some of Proxim's
customers and business partners to end or curtail their relationships with the
combined company. Some of Proxim's current customers offer broadband Internet
equipment that competes with Netopia's products. In addition, Proxim has OEM
relationships with third parties which compete with business partners of
Netopia. These business partners may decide not to do business or may curtail
their relationships with the combined company. The loss or reduction in sales to
these customers and business partners could cause a decline in sales of the
combined company.

     IF WE ARE NOT ABLE TO INTEGRATE THE TECHNOLOGIES OF PROXIM AND NETOPIA INTO
INTEGRATED NETWORKING SOLUTIONS IN A TIMELY AND EFFICIENT MANNER, WE MAY NOT
REALIZE THE EXPECTED BENEFITS OF THE MERGER.

     The combined company intends to develop and market a "single box"
residential gateway that will provide wide area and local area voice and data
services over DSL, cable, wireless or any other type of broadband access. In
order to achieve its strategic objectives, the combined company must integrate
the technologies of Proxim and Netopia into products that are competitively
priced and easy to install, configure and use. The development of integrated
networking products is highly complex. From time to time, both Proxim and
Netopia have experienced delays in developing and introducing new products. If
the combined company is not able to successfully develop and market these
products in a timely and cost-effective manner, or if these new products do not
achieve market acceptance, we may not realize the expected benefits of the
merger.

     THE GROWTH OF OUR BUSINESS WILL DEPEND IN PART ON THE GROWTH OF THE MARKET
FOR INTEGRATED RESIDENTIAL GATEWAY PRODUCTS AND OUR ABILITY TO MEET THE NEEDS OF
THIS MARKET, WHICH WE ARE UNABLE TO PREDICT.

     The growth of our business will depend in part on the development of a
market for integrated residential gateway products. The market for these
products is rapidly evolving. If these products are not widely adopted by
carriers and service providers, we may not realize the expected benefits of the
merger and our business and results of operations may be harmed. Some of the
critical issues concerning adoption of these products, including price, ease of
deployment and use and quality of service, remain unresolved and, if we are
unable to address these issues, our business may be harmed. The market for
residential gateway products may not develop as we expect, and even if it does,
we may not be able to compete successfully in this market.

     IF WE ARE UNABLE TO TAKE ADVANTAGE OF OPPORTUNITIES TO MARKET AND SELL
PROXIM'S AND NETOPIA'S PRODUCTS AND SERVICES TO EACH OTHER'S TRADITIONAL
CUSTOMERS, DISTRIBUTION CHANNELS AND BUSINESS PARTNERS, WE MAY NOT REALIZE SOME
OF THE EXPECTED BENEFITS OF THE MERGER.

     Prior to the merger, Proxim and Netopia have each maintained separate and
distinct customer bases, distribution channels and business partners specific to
their respective wirefree networking and broadband Internet equipment
businesses. Following the merger, the combined company expects to take advantage
of the customer bases and distribution of the formerly separate Proxim and
Netopia businesses in order to promote and sell the products and services of one
company to the traditional customers and business partners of the other company.
The products and services of Proxim and Netopia are highly technical and the
salespersons of one company may not be successful in marketing the products and
services of the other company. In the event that the traditional customers and
business partners of either Proxim or Netopia are not receptive to the products
and services of the other, we may not realize some of the expected benefits of
the merger, and the business of the combined company may be harmed.

                                      37
<PAGE>   38
     PROXIM AND NETOPIA MAY LOSE KEY PERSONNEL, CUSTOMERS AND BUSINESS PARTNERS
DUE TO UNCERTAINTIES ASSOCIATED WITH THE MERGER.

     Current and prospective employees, customers and business partners of
Proxim and Netopia may experience uncertainty about their future relationships
with the combined company. Such uncertainty may adversely affect the combined
company's ability to attract and retain key management, sales, marketing and
technical personnel. Current and prospective customers and business partners
may, in response to the announcement or consummation of the merger, delay or
cancel purchasing decisions. Any delay in, or cancellation of, in purchasing
decisions could adversely affect the business of the combined company.

     PROXIM'S OPERATING RESULTS COULD BE HARMED AS A RESULT OF PURCHASE
ACCOUNTING TREATMENT, THE IMPACT OF AMORTIZATION OF GOODWILL AND OTHER
INTANGIBLES RELATING TO THE MERGER.

     Under United States generally accepted accounting principles that apply to
Proxim, Proxim will account for the merger using the purchase method of
accounting. Proxim will record the market value of its common stock issued in
connection with the merger, the fair market value of the options to purchase
Netopia common stock that will be converted into options to purchase Proxim
common stock, and the amount of direct transaction costs as the total cost of
acquiring the business of Netopia. Proxim will allocate that cost to the
individual assets acquired and liabilities assumed, including various
identifiable intangible assets such as acquired technology, acquired trademarks
and trade names and acquired workforce, to deferred compensation for the
intrinsic value of unvested options to purchase Netopia common stock, and to
in-process research and development, based on their respective fair values.
Netopia's in-process research and development, which is currently estimated at
$35 million, will be expensed in the quarter when the merger closes. Intangible
assets, including goodwill, generally will be amortized over a period of three
to five years. Deferred compensation will be amortized over the remaining
vesting period of stock options, estimated to be 2.5 years. The amount of
purchase cost allocated to goodwill and other intangibles is estimated to be
approximately $97.2 million. If goodwill and other intangible assets were
amortized in equal quarterly amounts over a five-year period following
completion of the merger, the accounting charge attributable to these items
would be approximately $5.8 million per quarter and $23.1 million per fiscal
year. As a result, purchase accounting treatment of the merger will decrease the
net income of Proxim in the foreseeable future, which could have a material and
adverse effect on the market value of Proxim common stock following completion
of the merger. These amounts are only estimates, however, and the actual amounts
as determined at the effective time of the merger may differ from these
estimates.

                                      38
<PAGE>   39


     FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT OUR BUSINESS AND
THE MARKET PRICE OF OUR COMMON STOCK.

     If the merger is not completed for any reason, we will be subject to a
number of risks that may affect our business and stock price, including:

     - the market price of our common stock may decline to the extent that the
       current market price of such shares reflects a market assumption that the
       merger will be completed;

     - costs related to the merger, such as legal and accounting fees and a
       portion of the investment banking fees, must be paid even if the merger
       is not completed;

     - benefits that we expect to realize from the merger, such as the
       potentially enhanced financial and competitive position of the combined
       company, would not be realized; and

     - the diversion of management attention from the day-to-day business and
       the unavoidable disruption to our employees and our relationships with
       customers and suppliers during the period before consummation of the
       merger, may make it difficult for us to regain our financial and market
       position if the merger does not occur.


                                      39
<PAGE>   40

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements.

   Interest Rate Sensitivity. We maintain a short-term investment portfolio
consisting mainly of government and corporate bonds purchased with an average
maturity of less than one year. These available-for-sale securities are subject
to interest rate risk and will decline in value if market interest rates
increase. If market interest rates were to increase immediately and uniformly by
10 percent from levels at December 31, 2000, the fair value of the portfolio
would decline by an immaterial amount. We generally have the ability to hold our
fixed income investments until maturity and therefore do not expect our
operating results or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates on our securities portfolio.


                                       40
<PAGE>   41


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

                                                                                                 PAGE
                                                                                                 ----
<S>                                                                                        <C>
INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants........................................................         F-1

Balance Sheet at December 31, 2000 and 1999..............................................         F-2

Income Statement for the Years Ended December 31, 2000, 1999 and 1998....................         F-3

Statement of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998...         F-4

Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.............         F-5

Notes to Financial Statements............................................................   F-6 through F-20
</TABLE>


FINANCIAL STATEMENT SCHEDULES

   All financial statement schedules have been omitted because the information
is not required to be set forth herein, is not applicable or is included in the
financial statements or notes thereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

   None.
<PAGE>   42

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Proxim, Inc.

   In our opinion, the accompanying balance sheet and the related statements of
income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Proxim, Inc. at December 31, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Jose, California
January 23, 2001


                                      F-1
<PAGE>   43

                                  PROXIM, INC.
                                  BALANCE SHEET
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                                                   -------------------------
                                                                     2000            1999
                                                                   ---------       ---------
                                  ASSETS
<S>                                                                <C>             <C>
Current assets:
    Cash and cash equivalents ...............................      $  49,355       $  46,924
    Marketable securities ...................................         20,361          21,341
    Accounts receivable, net ................................         24,482          15,819
    Inventories .............................................         35,343          14,862
    Deferred tax assets .....................................          3,598           3,390
    Other current assets ....................................            573             670
                                                                   ---------       ---------
        Total current assets ................................        133,712         103,006

Property and equipment, net .................................          8,774           7,157
Goodwill and other intangibles ..............................         38,966          11,324
Marketable securities, long-term ............................            466          19,868
Equity investment ...........................................         11,000           3,000
Deferred tax assets .........................................          5,252           1,200
                                                                   ---------       ---------
                                                                   $ 198,170       $ 145,555
                                                                   =========       =========

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable ........................................      $   6,515       $   3,199
    Other current liabilities ...............................          5,843           9,003
                                                                   ---------       ---------
         Total current liabilities ..........................         12,358          12,202

Long-term debt ..............................................            542             542
Deferred tax liabilities ....................................          3,807           1,758
                                                                   ---------       ---------
        Total liabilities ...................................         16,707          14,502
                                                                   ---------       ---------

Commitments (Note 11)

Stockholders' equity:
    Common Stock, $.001 par value, 100,000 shares
     authorized; 26,922 and 24,644 shares issued and
     outstanding ............................................             27              25
    Additional paid-in capital ..............................        175,585         127,649
    Unrealized losses on investments ........................            (56)           (379)
    Retained earnings .......................................          5,907           3,758
                                                                   ---------       ---------
        Total stockholders' equity ..........................        181,463         131,053
                                                                   ---------       ---------
                                                                   $ 198,170       $ 145,555
                                                                   =========       =========
</TABLE>


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

                                      F-2
<PAGE>   44
                                  PROXIM, INC.
                                INCOME STATEMENT
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                      YEAR ENDED DECEMBER 31,
                                                             ----------------------------------------
                                                                2000            1999           1998
                                                             ---------       ---------      ---------
<S>                                                          <C>             <C>            <C>
Revenue ...............................................      $ 107,498       $  70,067      $  52,047
Cost of revenue .......................................         61,363          37,195         26,911
                                                             ---------       ---------      ---------
        Gross profit ..................................         46,135          32,872         25,136
                                                             ---------       ---------      ---------

Operating expenses:
    Research and development ..........................         12,082          10,057          8,082
    Purchased in-process research and development .....          8,531           7,883             --
    Selling, general and administrative ...............         22,430          13,575         12,555
    Amortization of goodwill ..........................          3,457             169             --
                                                             ---------       ---------      ---------
        Total operating expenses ......................         46,500          31,684         20,637
                                                             ---------       ---------      ---------
Income (loss) from operations .........................           (365)          1,188          4,499
Interest income, net ..................................          4,186           4,113          3,399
                                                             ---------       ---------      ---------
Income before income taxes ............................          3,821           5,301          7,898
Provision for income taxes ............................          1,672           4,892          2,745
                                                             ---------       ---------      ---------
        Net income ....................................      $   2,149       $     409      $   5,153
                                                             =========       =========      =========

Basic net income per share ............................      $     .08       $     .02      $     .25
Weighted average common shares ........................         25,868          22,968         20,928
                                                             =========       =========      =========
Diluted net income per share ..........................      $     .07       $     .02      $     .23
Weighted average common shares and equivalents ........         28,933          25,696         22,728
                                                             =========       =========      =========
</TABLE>


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


                                      F-3
<PAGE>   45
                                  PROXIM, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                                            UNREALIZED
                                           COMMON STOCK           ADDITIONAL                 LOSSES ON                    COMPRE-
                                      -----------------------      PAID-IN      RETAINED       INVEST-                    HENSIVE
                                        SHARES        AMOUNT       CAPITAL      EARNINGS        MENTS         TOTAL        INCOME
                                      ---------     ---------     ---------     ---------     ---------     ---------     --------

<S>                                   <C>           <C>           <C>           <C>         <C>             <C>           <C>
Balance at December 31, 1997 ........    20,680     $      21     $  81,251     $  (1,635)           --     $  79,637      $     --
Exercise of stock options ...........       380            --         1,272            --            --         1,272            --
Issuance of Common Stock
  under Stock Purchase Plan .........       102            --           572            --            --           572            --
Tax benefit of stock options ........        --            --           253            --            --           253            --
Distribution ........................                                                (169)                       (169)
Comprehensive income:
 Net income .........................                                               5,153                        5,153         5,153
Unrealized loss on investments ......                                                               (18)          (18)          (18)
                                                                                                                          ---------
Total comprehensive income ..........        --            --            --            --            --            --     $   5,135
                                      ---------     ---------     ---------     ---------     ---------     ---------     =========
Balance at December 31, 1998 ........    21,162            21        83,348         3,349           (18)       86,700            --
Exercise of stock options ...........     1,726             2         8,042            --            --         8,044            --
Issuance of Common Stock
  under Stock Purchase Plan .........       136            --           774            --            --           774            --
Issuance of Common Stock to
  investors for cash, net of
  issuance costs ....................     1,212             2        18,598            --            --        18,600            --
Issuance of Common Stock
  to acquire WaveSpan
 Corporation ........................       340            --         9,800            --            --         9,800            --
Issuance of Common Stock to
  extinguish debt ...................        68                       1,920                                     1,920
Tax benefit of stock options ........        --            --         5,167            --            --         5,167            --
Comprehensive income:
 Net income .........................        --            --            --           409                         409           409
 Unrealized loss on investments .....        --            --            --            --          (361)         (361)         (361)
                                                                                                                          ---------
Total comprehensive income ..........        --            --            --            --            --            --     $      48
                                      ---------     ---------     ---------     ---------     ---------     ---------     =========
Balance at December 31, 1999 ........    24,644            25       127,649         3,758          (379)      131,053
Exercise of stock options ...........     1,432             1         7,743            --            --         7,744            --
Issuance of Common Stock
  under Stock Purchase Plan .........       103            --           926            --            --           926            --
Issuance of Common Stock
  to acquire Farallon
 Corporation ........................       243            --        10,000            --            --        10,000            --
Issuance of Common Stock
  to acquire Siemens
 Development Group ..................       500             1        21,249            --            --        21,250            --
Tax benefit of stock options ........        --            --         8,018            --            --         8,018            --
Comprehensive income:
 Net income .........................        --            --            --         2,149                       2,149         2,149
Unrealized income on investments ....        --            --            --            --           323           323           323
                                                                                                                          ---------
Total comprehensive income ..........        --            --            --            --            --            --     $   2,472
                                      ---------     ---------     ---------     ---------     ---------     ---------     =========
Balance at December 31, 2000 ........    26,922     $      27     $ 175,585     $   5,907     $     (56)    $ 181,463
                                      =========     =========     =========     =========     =========     =========
</TABLE>

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

                                      F-4
<PAGE>   46

                                         PROXIM, INC.
                                   STATEMENT OF CASH FLOWS
                                        (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                YEAR ENDED DECEMBER 31,
                                                                           ----------------------------------
                                                                             2000         1999         1998
                                                                           --------     --------     --------
             <S>                                                           <C>          <C>          <C>
             Cash flows (used in) provided by operating activities:
               Net income .............................................    $  2,149     $    409     $  5,153
               Adjustments to reconcile net income to net cash
                  provided by operating activities:
               Charges for equity investments .........................       2,500           --        1,000
               In-process research and development ....................       8,531        7,883           --
               Depreciation ...........................................       3,116        1,961        1,704
               Amortization ...........................................       5,581          323           --
               Deferred taxes .........................................      (5,084)        (539)         558
               Tax benefit of stock options ...........................       8,018        5,167          253
               Changes in assets and liabilities, net of
                acquisition effect:
                 Accounts receivable ..................................      (6,445)      (6,348)      (2,337)
                 Inventories ..........................................     (19,692)      (2,425)         484
                 Other assets .........................................         493         (286)          49
                 Accounts payable .....................................        (696)        (143)         971
                 Other liabilities ....................................      (7,506)        (122)      (2,570)
                                                                           --------     --------     --------
                     Net cash (used in) provided by operating
                         activities ...................................      (9,035)       5,880        5,265
                                                                           --------     --------     --------

             Cash flows provided by (used in) investing activities:
                 Purchase of property and equipment ...................      (4,237)      (5,365)      (1,244)
                 Marketable securities ................................      20,705      (12,960)     (28,462)
                 Equity investments ...................................     (10,500)      (5,000)      (1,000)
                 Cash paid for acquisitions ...........................      (3,172)      (2,166)         (19)
                                                                           --------     --------     --------
                     Net cash provided by (used in) investing
                         activities ...................................       2,796      (25,491)     (30,725)
                                                                           --------     --------     --------

             Cash flows provided by financing activities:
                 Issuance of Common Stock, net ........................       8,670       27,418        1,844
                 Distributions to shareholders ........................          --           --         (169)
                                                                           --------     --------     --------
                     Net cash provided by financing activities ........       8,670       27,418        1,675
                                                                           --------     --------     --------

             Net increase (decrease) in cash and cash equivalents .....       2,431        7,807      (23,785)

             Cash and cash equivalents, beginning of year .............      46,924       39,117       62,902
                                                                           --------     --------     --------
             Cash and cash equivalents, end of year ...................    $ 49,355     $ 46,924     $ 39,117
                                                                           ========     ========     ========

             Supplemental disclosures of cash flow information:
               Income taxes ...........................................    $     --     $  2,536     $    552
             Supplemental disclosures of non cash investing
                activities:
               Issuance of Common Stock for acquisitions ..............    $ 31,250     $  9,800  $        --
               Issuance of Common Stock to extinguish debt ............    $     --     $  1,920  $        --
</TABLE>

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


                                      F-5
<PAGE>   47

                                  PROXIM, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY:

   We design, manufacture and market high performance wireless networking
products. Based on radio frequency technology, our highly integrated wireless
client adapters and network infrastructure systems seamlessly extend existing
enterprise LANs to enable mobility-driven applications in a wide variety of
in-building and campus area environments, as well as building-to-building
networking products. In addition, our products are designed to address the
requirements for networking personal computers in home and small office
environments. All historical financial information and analysis have been
restated to reflect the acquisition of Micrilor, Inc. in January 2000, which was
accounted for as a pooling of interest.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of 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 the financial statements, and
reported amounts of revenue, cost of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Financial Instruments

   We consider all highly liquid instruments with a maturity of three months or
less when purchased to be cash equivalents. Cash equivalents consist primarily
of market rate accounts and highly rated commercial paper that are stated at
cost, which approximate fair value. Investments include deposits and corporate
debt obligations, with maturities greater than three months and less than one
year as of the date of the balance sheet are classified as marketable
securities. Investments with maturities greater than one year are classified as
marketable securities, long-term. Marketable securities are classified as
available-for-sale as of the balance sheet date in accordance with statement of
Financial Accounting Standard, or SFAS, No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and are reported at fair value, with
unrealized gains and losses recorded in stockholders' equity.

Inventories

   Inventories are stated at the lower of cost or market, cost being determined
using the first in, first out method.

Property and Equipment

   Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, ranging from two to five years. Amortization of leasehold improvements
is computed using the straight-line method over the shorter of the remaining
lease term or the estimated useful lives of the improvements.

Long-Lived Assets

   Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, we estimate the future cash flows
expected to


                                      F-6
<PAGE>   48
result from the use of the asset and its eventual disposition. If the
undiscounted expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized. To date no impairment loss has been
recognized.

Revenue

   Product revenue is generally recognized upon shipment to the customers. We
grant certain distributors limited rights of return and price protection on
unsold products. Product revenue on shipments to distributors, which have rights
of return and price protection, is deferred until shipment to end customers by
the distributors. The provision for estimated future warranty is recorded at the
time revenue is recognized based on historical experience.

Acquisition-related Intangible assets

   Intangible assets result from business acquisitions, which were accounted for
under the purchase method and consist of the values of identifiable intangible
assets including developed technology, acquired workforce, core technology,
in-process technology and goodwill. Goodwill is the amount by which the cost of
the acquired identifiable net assets exceeded the fair values of the acquired
net assets on the date of purchase. Intangible assets are reported at cost, net
of accumulated amortization. Identifiable intangible assets and goodwill are
amortized on a straight-line basis over their estimated useful lives ranging
from one to five years.

Software Development Costs

   Software development costs are capitalized once technological feasibility is
established, which we define as completion of a working model. The capitalized
cost is then amortized on a straight-line basis over the estimated product life,
or on the ratio of current revenues to total projected product revenues,
whichever is greater. To date, the period between achieving technological
feasibility and the general availability of such software has been short and
software development costs qualifying for capitalization have been
insignificant. Accordingly, we have not capitalized any software development
costs.

Income Taxes

   A deferred tax liability or asset, net of a valuation allowance, is
established for the expected future consequences resulting from the differences
between the financial reporting and income tax bases of assets and liabilities
and from net operating loss carryforwards.

Net Income Per Share

   Basic net income per share is computed by dividing net income available to
Common Stockholders by the weighted average number of common shares outstanding
during the period. Diluted net income per share is calculated using the weighted
average number of outstanding shares of Common Stock plus dilutive Common Stock
equivalents. Common Stock equivalents consist of stock options and warrants,
using the treasury stock method based on the average stock price for the period.
The net income per share and number of shares used in the computation have been
restated for all periods presented to reflect the two-for-one stock split that
was effective August 21, 2000.

Stock-Based Compensation

   We account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion, or APB No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. We provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards No.123 (FAS 123), "Accounting for Stock-Based
Compensation." (See Note 8)


                                      F-7
<PAGE>   49

Comprehensive Income

   SFAS No. 130, "Reporting Comprehensive Income establishes new rules for the
reporting of comprehensive income and our components. Comprehensive income is
defined to include all changes in equity during a period except those resulting
from investments by owners and distributions to owners.

Segment Reporting

   SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that companies report separately in the financial
statements certain financial and descriptive information about operating
segments' profit or loss, certain specific revenue and expense items and segment
assets. Additionally, companies are required to report information about revenue
and assets by geographic areas and about major customers. We operate in one
industry segment, and assets located outside of the United States are not
significant.

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
established new standards of accounting and reporting for derivative instruments
and hedging activities. SFAS 133 requires that all derivatives be recognized at
fair value in the statement of financial position, and that the corresponding
gains or loses be reported either in the income statement or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
In July 1999, the Financial Accounting Standard Board deferred the effective
date of SFAS 133 until the first quarter for fiscal years beginning after June
15, 2000. In June 2000, the Financial Accounting Standards Board issued SFAS No.
138, "Accounting for Derivative Instruments and Hedging Activities - An
Amendment of FASB Statement No. 133." SFAS 138 amends the accounting and
reporting standards for certain derivatives and hedging activities such as net
settlement contracts, foreign currency transactions and inter company
derivatives. We will adopt SFAS 133 in the quarter ended March 31, 2001. We do
not currently hold derivative instruments or engage in hedging activities. We do
not expect that the requirements of SFAS 133 and SFAS 138 will have a material
effect on our financial statements and related disclosures.

    In December 1999, the SEC issued Staff accounting Bulletin No. 101, or SAB
101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In June 2000, the SEC issued SAB
101B to defer the effective date of implementation of SAB 101 until the fourth
quarter of fiscal 2000. The adoption of SAB 101 did not have a material effect
on our operations or financial position.

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving
Stock Compensation--an Interpretation of APB 25. This Interpretation clarifies
(a) the definition of employee for purposes of applying APB 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
however certain conclusions in this Interpretation cover specific events that
occur after either December 15, 1998, or January 12, 2000. To the extent that
this Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. The adoption of FIN 44 did not have a significant effect on
our results of operations or our financial position.


                                      F-8
<PAGE>   50

NOTE 3 -- BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>

                                                        DECEMBER 31,
                                                   ---------------------
                                                     2000         1999
                                                   --------     --------
                                                       (IN THOUSANDS)
Marketable securities:
<S>                                                <C>          <C>
  Corporate bonds and time deposits ...........    $ 20,827     $ 41,209
  Less: current portion .......................     (20,361)     (21,341)
                                                   --------     --------
  Long-term portion ...........................    $    466     $ 19,868
                                                   ========     ========

Accounts receivable:
   Gross accounts receivable ..................    $ 25,762     $ 16,438
   Less: allowance for doubtful accounts ......      (1,280)        (619)
                                                   --------     --------
                                                   $ 24,482     $ 15,819
                                                   ========     ========
Inventories:
   Raw materials ..............................    $ 19,720     $  8,047
   Work-in-process ............................      13,274        6,542
   Finished goods .............................       2,349          273
                                                   --------     --------
                                                   $ 35,343     $ 14,862
                                                   ========     ========
Property and equipment:
   Computer and test equipment ................    $ 15,062     $ 10,833
   Furniture and fixtures .....................       2,626        2,259
   Leasehold improvements .....................       3,134        2,573
                                                   --------     --------
                                                     20,822       15,665
   Less: accumulated depreciation .............     (12,048)      (8,508)
                                                   --------     --------
                                                   $  8,774     $  7,157
                                                   ========     ========

Intangible assets:
   Goodwill ...................................    $ 32,447     $  7,100
   Core technology ............................       5,513        4,030
   OEM relationships ..........................       2,718           --
   Acquired workforce .........................       1,627          151
   Developed technology .......................       1,591          300
   Tradename ..................................         908           --
   Patents ....................................          66           66
                                                   --------     --------
                                                     44,870       11,647
   Less: accumulated amortization .............      (5,904)        (323)
                                                   --------     --------
                                                   $ 38,966     $ 11,324
                                                   ========     ========
Other current liabilities:
   Accrued compensation .......................    $  2,625     $  3,636
   Deferred revenue ...........................       1,386        1,223
   Other accrued liabilities ..................       1,832        4,144
                                                   --------     --------
                                                   $  5,843     $  9,003
                                                   ========     ========
</TABLE>


NOTE 4 - BUSINESS COMBINATIONS:

MERGER WITH MICRILOR:

    In January 2000, the company acquired privately-held Micrilor, Inc. for
292,000 shares of our common stock. The merger was accounted for as a pooling
transaction, and all historical financial information contained herein has been
revised to reflect the acquisition. The company recorded $217,000 of acquisition
costs as a result of the merger in the first quarter of 2000.


                                      F-9
<PAGE>   51
   The revenue and net income (loss) for the two fiscal years immediately before
the merger were as follows:

<TABLE>
<CAPTION>
                                   PROXIM                 MICRICOR                   TOTAL
                                 DECEMBER 31,            DECEMBER 31,             DECEMBER 31,
                             ------------------      ------------------       ------------------
                               1999       1998         1999       1998          1999       1998
                             -------     ------      -------     ------       -------     ------
                                                         (IN THOUSANDS)
<S>                          <C>         <C>         <C>         <C>          <C>         <C>
Revenue ..................   $69,067     $49,711     $ 1,000     $ 2,336      $70,067     $52,047
Net income (loss) ........   $   805     $ 4,698     $  (396)    $   455      $   409     $ 5,153
                             =======     =======     =======     =======      =======     =======
</TABLE>



PURCHASE TRANSACTIONS:

ACQUISITION OF WAVESPAN CORPORATION:

   In December 1999, the company entered into an agreement to acquire WaveSpan
Corporation ("WaveSpan"), a private California corporation, in a merger
transaction accounted for as a purchase business combination. WaveSpan designs
and markets 5 GHz ultra-broadband building-to-building wireless products. The
purchase price comprised of 340,000 shares of Common Stock valued at
approximately $9.8 million and cash of $2.2 million totaling $12 million. In
addition, the company incurred approximately $900,000 in acquisition-related
expenses, consisting primarily of professional service fees and other direct
transaction costs. The total purchase price, which aggregated approximately
$12.9 million was allocated to the tangible and identifiable intangible assets
and goodwill acquired and liabilities assumed on the basis of their relative
fair values as follows (in thousands):

<TABLE>

        <S>                                                                    <C>
        Current assets ....................................................    $    788
        Property, plant and equipment .....................................         343
        Core technology ...................................................       4,030
        Developed technology ..............................................         151
        Acquired workforce ................................................         300
        Long term deferred tax assets .....................................       1,200
        Liabilities assumed ...............................................      (5,102)
        Long-term deferred tax liabilities ................................      (1,793)
        Acquired in-process research and development ......................       5,883
        Goodwill ..........................................................       7,100
                                                                               --------
                                                                               $ 12,900
                                                                               ========
</TABLE>

    The current assets consist primarily of cash and cash equivalents, accounts
receivable and inventory. Liabilities assumed consist principally of accounts
payable and other liabilities.

    The core and developed technology acquired included the first generation
Stratum products which have already achieved technological feasibility in the
marketplace. The fair value assigned to the core technology and developed
technology totaled $4,030,000 and $151,000 respectively, and is being amortized
over the expected life of its cash flows.

    In-process research and development ("IPR&D") consisted of second generation
Stratum technology, which had not yet reached technological feasibility and had
no alternative future use as of the date of acquisition. This was a new
building-to-building product that required a new operating system,
microprocessor and system interface. The value of the IPR&D was determined by
estimating the net cash flows from potential sales of the products resulting
from completion of this project, reduced by the portion of net cash flows from
the revenue attributable to core and developed technology. The resulting cash
flows were then discounted back to their present value using a discount rate of
40%. At the time of the acquisition, the fair value assigned to the IPR&D
totaled $5,883,000 and was expensed at the time of the acquisition.



                                      F-10
<PAGE>   52


    Goodwill and other identifiable intangibles are being amortized on a
straight-line basis over the following estimated periods of benefit:


Goodwill                     5 years
Core technology              5 years
Developed technology         1 year
Acquired workforce           3 years


ACQUISITION OF FARALLON COMMUNICATIONS, INC.:

   In May 2000, the company entered into an agreement to acquire Farallon
Communications, Inc. ("Farallon"), a private California corporation, in a merger
transaction accounted for as a purchase business combination. Farallon designs
and markets plug and play networking solutions for both Macintoshes and PCs. The
purchase price comprised of 243,308 shares of Common Stock valued at
approximately $10 million and cash of $4 million totaling $14 million. In
addition, the company incurred approximately $900,000 in acquisition-related
expenses, consisting primarily of professional service fees and other direct
transaction costs. The total purchase price, which aggregated approximately
$14.9 million was allocated to the tangible and identifiable intangible assets
and goodwill acquired and liabilities assumed on the basis of their relative
fair values as follows (in thousands):
<TABLE>
<CAPTION>

<S>                                                          <C>
Current assets ........................................      $  4,232
Property, plant and equipment .........................           145
OEM relationships .....................................         2,718
Core technology .......................................         1,483
Developed technology
                                                                1,291
Acquired workforce ....................................           782
Tradename .............................................           908
Long-term deferred tax assets .........................        (2,873)
Liabilities assumed ...................................        (6,808)
Acquired in-process research and development ..........           491
Goodwill ..............................................        12,531
                                                             --------

                                                             $ 14,900
                                                             ========
</TABLE>

    The current assets consist primarily of cash and cash equivalents,
marketable securities, accounts receivable and inventory. Liabilities assumed
consist principally of accounts payable and other liabilities.

    The core and developed technology acquired included the existing networking
solutions which have already achieved technological feasibility in the
marketplace. The fair value assigned to the core technology and developed
technology totaled $1,483,000 and $1,291,000 respectively, and is being
amortized over the expected life of its cash flows.

    IPR&D consisted of Farallon's next generation network devices which
consisted of wireless, HomeLAN, 100/1000 Ethernet and 10Mb Ethernet solutions,
which had not yet reached technological feasibility and had no alternative
future use as of the date of acquisition. The value of the IPR&D was determined
by estimating the net cash flows from potential sales of the products resulting
from completion of this project, reduced by the portion of net cash flows from
the revenue attributable to core and developed technology. The resulting cash
flows were then discounted back to their present value using a discount rate of
24%. At the time of the acquisition, the fair value assigned to the IPR&D
totaled $491,000 and was expensed at the time of the acquisition.



                                      F-11
<PAGE>   53


    Goodwill and other identifiable intangibles are being amortized on a
straight-line basis over the following estimated periods of benefit:

Goodwill                     5 years
Core technology              5 years
Developed technology         3 years
Acquired workforce           3 years
OEM relationships            5 years
Tradename                    4 years


ACQUISITION OF SIEMENS DEVELOPMENT GROUP:

   In September 2000, the company entered into a cross-licensing and technology
exchange and purchase agreement with Siemens in which we acquired certain
technology under development, intellectual property rights, engineering
resources and other assets in exchange for certain technology and manufacturing
rights and Common Stock. The purchase price comprised of 500,000 shares of
Common Stock valued at approximately $21.3 million. In addition, the company
incurred approximately $525,000 in acquisition-related expenses, consisting
primarily of professional service fees and other direct transaction costs. The
total purchase price, which aggregated approximately $21.8 million was allocated
to the tangible and identifiable intangible assets and goodwill acquired and
liabilities assumed on the basis of their relative fair values as follows (in
thousands):
<TABLE>
<CAPTION>

<S>                                                         <C>
Property, plant and equipment ........................      $    350
Acquired workforce ...................................           694
Liabilities assumed ..................................          (125)
Acquired in-process research and development .........         8,040
Goodwill .............................................        12,816
                                                            --------

                                                            $ 21,775
                                                            ========
</TABLE>


   As of the valuation date, Siemens had not released a commercially viable
product based on HomeRF technology, and therefore, there was no core or
developed technology. As of December 31, 2000, development of this product has
not been completed.

    IPR&D consisted of Home RF technology, which had not yet reached
technological feasibility and had no alternative future use as of the date of
acquisition. The value of the IPR&D was determined by estimating the net cash
flows from potential sales of the products resulting from completion of this
project. The resulting cash flows were then discounted back to their present
value using a discount rate of 30%. At the time of the acquisition, the fair
value assigned to the IPR&D totaled $8,040,000 and was expensed at the time of
the acquisition.

    Goodwill and other identifiable intangibles are being amortized on a
straight-line basis over the following estimated periods of benefit:

Goodwill                     5 years
Acquired workforce           3 years


PRO FORMA FINANCIAL INFORMATION (UNAUDITED):

    The following table represents unaudited pro forma financial information for
the year ended December 31, 2000 and 1999 had Proxim, Farallon, WaveSpan and
Siemens development group been combined as of January 1, 1999, and for the year
ended December 31, 1998 had WaveSpan been combined as of January 1, 1998. The
pro forma financial

                                      F-12

<PAGE>   54
information are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations of future
periods or the results that actually would have resulted had Proxim, Farallon,
WaveSpan and Siemens development group been a combined company during the
specified periods. The pro forma results include the effects of the amortization
of acquired intangible assets and goodwill and adjustments to the income tax
provision or benefits. The pro forma combined results exclude the $491,000,
$5,883,000 and $8,040,000 charges for acquired in-process technology from
Farallon, WaveSpan and Siemens Development Group acquisitions.

<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                                             ---------------------------------------------
                                                                 2000             1999             1998
                                                             -----------      -----------      -----------
                                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                          <C>              <C>              <C>
Revenue ...............................................      $   117,686      $    94,372      $    50,278
Net income (loss) .....................................              184           (8,434)          (6,771)

Basic net income (loss) per share .....................      $       .01      $      (.35)     $      (.32)
                                                             ===========      ===========      ===========

Diluted net income (loss) per share ...................      $       .01      $      (.35)     $      (.32)
                                                             ===========      ===========      ===========
</TABLE>


NOTE 5- EQUITY INVESTMENTS:

   We made cash payments of $1 million, $3 million and $2 million in 1998, 1999,
and 2000, respectively, for the equity of MobileStar, a privately-held start-up
wireless services company. In 1998 the investment was expensed due to both the
uncertainty in recovering the investment and MobileStar's operating losses. In
1999 and 2000 the investments were accounted for under the cost method. At
December 31, 2000 our investment represented approximately 11% of the equity of
MobileStar. The following is a summary of our transactions with MobileStar (in
thousands):

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                                  --------------------------
                                                   2000        1999    1998
                                                  ------      ------   -----
<S>                                               <C>         <C>      <C>
Net sales for the year .....................      $4,592      $3,491   $   2
Accounts receivable at year end ............           0       1,583       2
Cash collections ...........................       6,175       1,910      --
</TABLE>


   We also made a cash payment of $2 million for an equity investment in a 5 GHz
ultra-broadband company that was expensed as in-process research and development
as the investee spent the funds. In 2000 the investee ceased operations and was
liquidated without completing the research and development project. In 2000 we
made payments of $8.5 million for equity investments in a wireless service
provider, a company developing wireless internet appliances, a broadband gateway
company and a company developing wireless services in China. In 2000 we charged
$2.5 million to selling, general and administrative expense due to the
uncertainty of recovering the investments. The remaining $6 million was
accounted for under the cost method.

NOTE 6 -- INCOME TAXES:

   The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>


                                                                  YEAR ENDED DECEMBER 31,
                                                             ----------------------------------
                                                               2000          1999         1998
                                                             -------       -------       ------
               <S>                                           <C>           <C>           <C>
               Current:
                 Federal ..............................      $ 6,862       $ 4,355       $1,898
                 State ................................          953           813          289
                                                             -------       -------       ------
                                                               7,815         5,168        2,187
                                                             -------       -------       ------
               Deferred:
                 Federal ..............................       (4,804)         (238)         480
                 State ................................       (1,339)          (38)          78
                                                             -------       -------       ------
                                                              (6,143)         (276)         558
                                                             -------       -------       ------
                                                             $ 1,672       $ 4,892       $2,745
                                                             =======       =======       ======
</TABLE>


                                      F-13
<PAGE>   55

   The tax provision reconciles to the amount computed by applying the U.S.
federal statutory rate to income before taxes as follows (in thousands):

<TABLE>
<CAPTION>

                                                                   YEAR ENDED DECEMBER 31,
                                                             -----------------------------------
                                                               2000          1999          1998
                                                             -------       -------       -------
<S>                                                          <C>           <C>           <C>
Tax at federal statutory rate .........................      $ 1,329       $ 1,821       $ 2,691
State taxes, net of federal tax benefit ...............          112           276           251
Research and development credits ......................       (1,069)         (720)         (239)
Permanent difference related to equity
 investments expensed for financial
 reporting purpose ....................................        1,265         3,304           404
Other .................................................           35           211          (362)
                                                             -------       -------       -------
                                                             $ 1,672       $ 4,892       $ 2,745
                                                             =======       =======       =======
</TABLE>



   Net deferred tax assets comprise the following (in thousands):

<TABLE>
<CAPTION>

                                                                         DECEMBER 31,
                                                                     ---------------------
                                                                      2000          1999
                                                                     -------       -------
<S>                                                                  <C>           <C>
Net deferred tax assets:
WaveSpan net operating loss carryforwards .....................      $ 1,200       $ 1,200
Credit carryforwards ..........................................          884           984
Capitalized research and development costs ....................          571            81
Depreciation and amortization .................................        3,795           241
Accrued expenses and reserves .................................        2,400         2,084
                                                                     -------       -------
Total deferred tax assets .....................................        8,850         4,590
Deferred tax liabilities related to intangible assets .........       (3,807)       (1,758)
                                                                     -------       -------
Net deferred tax assets .......................................      $ 5,043       $ 2,832
                                                                     =======       =======
</TABLE>


   The Company's income taxes payable for federal and state purposes have been
reduced by the tax benefits associated with dispositions of employee stock
options. The Company receives an income tax benefit calculated as the difference
between the fair market value of the stock issued at the time of exercise and
the option price, tax effected. These benefits were credited directly to
shareholder's equity and amounted to $8,018,000, $5,167,000 and $253,000 for the
tax years 2000, 1999 and 1998, respectively.

NOTE 7 -- STOCKHOLDERS' EQUITY:

Preferred Stock

   In December 1993, the stockholders approved a class of Preferred Stock
consisting of 5,000,000 shares, at a par value of $.001 per share, issuable in
series and having such rights, preferences, privileges and restrictions as may
be determined by the Board of Directors. As of December 31, 2000, no Preferred
Stock had been issued.

Preferred Share Purchase Rights

   In March 1997, we declared a dividend distribution of one Preferred Share
Purchase Right (the "Rights") on each outstanding share of our Common Stock.
Each right will entitle stockholders to buy one one-thousandth of a share of our
Series A Participating Preferred Stock at an exercise price of $115.00. The
Rights will become exercisable following the tenth day after a person or group
announces acquisition of 15% or more of our Common Stock or announces
commencement of a tender offer the consummation of which would result in
ownership by the person or group of 15% or more of the Common Stock. We will be
entitled to redeem the Rights at $0.001 per Right at any time on or before the
tenth day following acquisition by a person or group of 15% or more of our
Common Stock.



                                      F-14
<PAGE>   56


   If, prior to redemption of the Rights, a person or group acquires 15% or more
of our Common Stock, each Right not owned by a holder of 15% or more of the
Common Stock will entitle the holder to purchase, at the Right's then current
exercise price, that number of shares of Common Stock of the Company (or, in
certain circumstances as determined by the Board, cash, other property or other
securities) having a market value at that time of twice the Right's exercise
price. If, after the tenth day following acquisition by a person or group of 15%
or more of our Common Stock, we will sell more than 50% of our assets or earning
power or be acquired in a merger or other business combination transaction, the
acquiring person must assume the obligations under the Rights and the Rights
will become exercisable to acquire Common Stock of the acquiring person at the
discounted price. At any time after an event triggering exercisability of the
Rights at a discounted price and prior to the acquisition by the acquiring
person of 50% or more of the outstanding Common Stock, the Board of Directors of
the Company may exchange the Rights (other than those owned by the acquiring
person or our affiliates) for Common Stock of the Company at an exchange ratio
of one share of Common Stock per Right.

Warrants

   On April 27, 1999 we issued a warrant to one Common Stockholder in
conjunction with the issuance of 640,000 shares of our Common Stock at a price
of $15.63 per share. The warrant entitles the shareholder to purchase an
aggregate of 192,000 shares of Common Stock at a price of $22.50 per share. The
warrant will expire on April 28, 2002.

   On June 2, 1999 we issued a warrant to one Common Stockholder in conjunction
with the issuance of 571,428 shares of our Common Stock at a price of $17.50 per
share. The warrant entitles the shareholder to purchase an aggregate of 171,428
shares of Common Stock at a price of $25 per share. The warrant will expire on
June 2, 2002.

   At December 31, 2000, these warrants were outstanding.

NOTE 8 - STOCK PLANS:

1986 Stock Option Plan

   Our 1986 Stock Option Plan, or the 1986 Plan, provides for the grant of stock
options to employees and consultants at prices not less than 85% of the fair
market value of our Common Stock on the date of grant. The options terminate ten
years after the date of grant. All options granted have been at the fair market
value of our Common Stock on the dates of grant. An aggregate of 4,544,176
shares of Common Stock was reserved for issuance pursuant to the 1986 Plan.
Unless otherwise provided for by the Board of Directors, the options are
exercisable only upon vesting. Options generally vest ratably over a 48-month
period. The 1986 Plan (but not outstanding options issued thereunder) terminated
by our terms on March 20, 1996.

1995 Long-Term Incentive Plan

   In April 1995, we established the 1995 Long-Term Incentive Plan, or the 1995
Plan, and reserved 500,000 shares of Common Stock for issuance to employees,
consultants and officers upon the exercise of awards granted thereunder. In
March 1996, the Board of Directors increased the number of shares of Common
Stock authorized for issuance under the 1995 Plan by 2,000,000 shares to an
aggregate of 2,500,000 shares. In May 1997, the Board of Directors increased the
number of shares of Common Stock authorized for issuance under the 1995 Plan by
1,000,000 shares to an aggregate of 3,500,000 shares. In May 1998, the Board of
Directors increased the number of shares of Common Stock authorized for issuance
under the 1995 Plan by 1,000,000 shares to an aggregate of 4,500,000 shares. In
May 1999, the Board of Directors increased the number of shares of Common Stock
authorized for issuance under the 1995 Plan by 1,800,000 shares to an aggregate
of 6,300,000 shares. In May 2000, the Board of Directors increased the number of
shares of Common Stock authorized for issuance under the 1995 Plan by 2,000,000
shares to an aggregate of 8,300,000 shares. The 1995 Plan provides for the grant
of awards in the form of stock options, restricted stock, performance shares,
restricted



                                      F-15
<PAGE>   57


stock units, and stock unit awards to employees, consultants and officers at
prices not less than 100% of the fair market value of our Common Stock on the
date of grant. The options terminate ten years after the date of grant. Through
December 31, 1999, only stock options have been granted under the 1995 Plan and
all such options have been granted at the fair market value of the stock at the
dates of grant. Unless otherwise provided for by the Board of Directors, the
options are exercisable only upon vesting. Options generally vest ratably over a
48-month period.

1999 Nonstatutory Stock Option Plan

   In November 1999, we established the 1999 Nonstatutory Stock Option Plan, or
the 1999 Plan, and reserved 800,000 shares of Common Stock for issuance to
employees and officers upon exercise of awards granted thereunder. In July 2000,
the Board of Directors increased the number of shares of Common Stock authorized
for issuance under the 1999 Plan by 1,000,000 shares to an aggregate of
1,800,000 shares. In October 2000, the Board of Directors increased the number
of shares of Common Stock authorized for issuance under the 1999 Plan by 700,000
shares to an aggregate of 2,500,000 shares. The 1999 Plan provides for the grant
of awards in the form of stock options, restricted stock, performance shares,
restricted stock units, and stock unit awards to employees and officers at
prices not less than 100% of the fair market value of our Common Stock on the
date of grant. The options terminate ten years after the date of grant. Through
December 31, 2000, only stock options have been granted under the 1999 Plan and
all such options have been granted at the fair market value of the stock at the
dates of grant. Unless otherwise provided for by the Board of Directors, the
options are exercisable only upon vesting. Options generally vest ratably over a
48-month period.

1994 Director Option Plan

   In May 1994, we adopted the 1994 Director Option Plan, or the Directors'
Plan, which provides for the grant of stock options to directors at the fair
market value of our Common Stock on the date of grant. The options terminate 10
years after the date of grant. All options granted have been at the fair market
value of our Common Stock at the dates of grant. In May 1997, the Board of
Directors increased the number of shares of Common Stock authorized for issuance
under the 1994 Director Option Plan by 200,000 shares to an aggregate of 400,000
shares. In May 1999, the Board of Directors increased the number of shares of
Common Stock authorized for issuance under the 1994 Director Option Plan by
200,000 shares to an aggregate of 600,000 shares. Options granted under the
Directors' Plan are exercisable only upon vesting. Grants made prior to January
1, 1996 vest ratably over a 48-month period, and grants made on or after January
1, 1996 fully vest one year from the date of grant.

   The following table summarizes stock option activity under our stock option
plans (shares in thousands):

<TABLE>
<CAPTION>

                                                           SHARES                OPTIONS           WEIGHTED AVERAGE
                                                          AVAILABLE            OUTSTANDING         EXERCISED PRICE
                                                       ---------------       ---------------       ---------------
         <S>                                           <C>                   <C>                   <C>
         Balance at December 31, 1997 ...........                  620                 4,480                  5.03
         Shares authorized ......................                1,000                    --
         Options granted ........................               (1,538)                1,538                  6.18
         Options exercised ......................                   --                  (380)                 3.26
         Options canceled .......................                  346                  (406)                 6.97
                                                       ---------------       ---------------
         Balance at December 31, 1998 ...........                  428                 5,232                  5.35
         Shares authorized ......................                2,800                    --
         Options granted ........................               (1,772)                1,772                 20.28
         Options exercised ......................                   --                (1,724)                 4.70
         Options canceled .......................                  196                  (204)                 6.70
                                                       ---------------       ---------------
         Balance at December 31, 1999 ...........                1,652                 5,076                 10.72
         Shares authorized ......................                3,700                    --
         Options granted ........................               (1,600)                1,600                 31.76
         Options exercised ......................                   --                (1,432)                 5.41
         Options canceled .......................                  733                  (746)                21.37
                                                       ---------------       ---------------
         Balance at December 31, 2000 ...........                4,485                 4,498                 17.87
                                                       ===============       ===============
</TABLE>



                                      F-16
<PAGE>   58

   At December 31, 2000, 1999 and 1998, options for 1,331,000, 1,302,000 and
1,962,000 shares of common stock, respectively, were vested but not exercised.

   The following table summarizes information concerning outstanding and
exercisable stock options as of December 31, 2000 (shares in thousands):
<TABLE>
<CAPTION>


                                         OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE
                            ------------------------------------------   -------------------------
                                              WEIGHTED
                                               AVERAGE       WEIGHTED                     WEIGHTED
                                              REMAINING       AVERAGE                      AVERAGE
       RANGE OF EXERCISE        NUMBER       CONTRACTUAL     EXERCISE        NUMBER       EXERCISE
            PRICES            OUTSTANDING       LIFE           PRICE       EXERCISABLE      PRICE
      ------------------    ----------------------------- -------------  -------------------------
      <S>                   <C>              <C>            <C>          <C>             <C>          <C>
      $   .38 -- $    5.19        842           6.69          $  5.03         470          $  4.90
      $  5.31 -- $    8.41        943           6.75          $  5.94         362          $  5.84
      $  8.88 -- $   16.13        238           7.35          $ 11.67         145          $ 11.22
      $ 18.19 -- $   30.60      1,265           8.84          $ 19.28         321          $ 18.37
      $ 30.78 -- $   55.00      1,210           9.49          $ 35.85          33          $ 37.78
                                -----                                       -----
      $   .38 -- $   55.00      4,498           8.09          $ 17.87       1,331          $   9.9
                                =====                                       =====
</TABLE>


1993 Employee Stock Purchase Plan

   In September 1993, we established the 1993 Employee Stock Purchase Plan, or
the Purchase Plan. We initially reserved 400,000 shares of Common Stock for
issuance to employees under the Purchase Plan. In March 1996, our Board of
Directors increased the number of shares of Common Stock reserved for issuance
under the Purchase Plan by 400,000 shares to an aggregate of 800,000 shares. In
May 1997, our Board of Directors increased the number of shares of Common Stock
reserved for issuance under the Purchase Plan by 400,000 shares to an aggregate
of 1,200,000 shares. In May 1998, our Board of Directors increased the number of
shares of Common Stock reserved for issuance under the Purchase Plan by 400,000
shares to an aggregate of 1,600,000 shares. In May 2000, our Board of Directors
increased the number of shares of Common Stock reserved for issuance under the
Purchase Plan by 400,000 shares to an aggregate of 2,000,000 shares. Under the
Purchase Plan, an eligible employee may purchase shares of Common Stock from us
through payroll deductions of up to 10% of his or her total compensation, at a
price per share equal to 85% of the lesser of the fair market value of our
Common Stock at the first day or last day of each six-month offering period.
Offering periods commence on August 15 and February 15. During 2000, 1999 and
1998, we issued 102,739, 135,866, and 103,250 shares, respectively, of Common
Stock under the Purchase Plan.

Pro Forma Net Income (Loss) and Net Income Per Share

   The weighted average estimated grant date fair value, as defined by FAS 123,
for stock options granted under our stock option plans during 2000, 1999 and
1998 was $35.81, $11.94 and $3.87 per share, respectively. The weighted average
estimated grant date fair value of stock purchase rights granted pursuant to our
employee stock purchase plan during 2000, 1999 and 1998 was $9.03, $5.71 and
$2.47 per share, respectively. The estimated grant date fair value disclosed by
us is calculated using the Black-Scholes model. The Black-Scholes model, as well
as other currently accepted option valuation models, was developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from our stock option and purchase
awards. These models also require highly subjective assumptions, including
future stock price volatility and expected time until exercise, which greatly
affect the calculated grant date fair value.


                                      F-17
<PAGE>   59

   The following weighted average assumptions are included in the estimated
grant date fair value calculations for our stock option and purchase awards:

<TABLE>
<CAPTION>

                                                               2000          1999          1998
                                                             -------       -------       -------
<S>                                                          <C>           <C>           <C>
Stock option plans:
  Expected dividend yield .............................          0.0%          0.0%          0.0%
  Expected stock price volatility .....................        102.9%         91.0%         92.0%
  Risk free interest rate .............................         6.11%         5.53%         5.07%
  Expected life (years) ...............................         3.00          3.00          2.68


                                                               2000          1999          1998
                                                             -------       -------       -------
Stock purchase plan:
  Expected dividend yield .............................          0.0%          0.0%          0.0%
  Expected stock price volatility .....................        120.9%         87.0%         70.5%
  Risk free interest rate .............................         6.17%         4.99%         4.97%
  Expected life (years) ...............................          0.5           0.5           0.5
</TABLE>


   Had we recorded compensation based on the estimated grant date fair value, as
defined by FAS 123, for awards granted under our stock option plans and stock
purchase plan, our net income and net income per share would have been reduced
to the pro forma amounts below for the years ended December 31, 2000, 1999 and
1998 (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                               2000          1999          1998
                                                             -------       -------       -------
<S>                                                          <C>           <C>           <C>
Net income as reported ................................      $ 2,149       $   409       $ 5,153

Pro forma net income (loss) ...........................      $(9,231)      $(3,832)      $ 1,535

Diluted net income per share as reported ..............      $  0.07       $  0.02       $  0.23

Pro forma diluted net income (loss) per share .........      $ (0.33)      $ (0.16)      $  0.07
</TABLE>


   The pro forma effect on net income and net income per share for 2000, 1999
and 1998 is not representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma compensation expense
related to grants made prior to 1996.

NOTE 9 - NET INCOME PER SHARE:

   The following table is a reconciliation of the numerators and denominators of
the basic and diluted net income per share calculations:


<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31,
                                                             -----------------------------------
                                                              2000          1999          1998
                                                             -------       -------       -------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>           <C>           <C>
  BASIC NET INCOME PER SHARE:
    Net income available to Common Stockholders .......      $ 2,149       $   409       $ 5,153
                                                             =======       =======       =======
    Weighted average common shares ....................       25,868        22,968        20,928
                                                             =======       =======       =======
    Basic net income per share ........................      $   .08       $   .02       $   .25
                                                             =======       =======       =======

  DILUTED NET INCOME PER SHARE:
    Net income available to Common Stockholders .......      $ 2,149       $   409       $ 5,153
                                                             =======       =======       =======
    Weighted average common shares ....................       25,868        22,968        20,928
    Dilutive common stock equivalents .................        3,065         2,728         1,800
                                                             -------       -------       -------
    Weighted average common shares and equivalents ....       28,933        25,696        22,728
                                                             =======       =======       =======
    Diluted net income per share ......................      $   .07       $   .02       $   .23
                                                             =======       =======       =======
</TABLE>


                                      F-18
<PAGE>   60

   Options to purchase 40,000, 416,000 and 276,630 shares of common stock were
excluded from the diluted net income per share calculations for 2000, 1999 and
1998, respectively. Warrants to purchase 363,428 shares of common stock were
excluded from the diluted net income per share calculations for 1999. The
options and warrants were antidilutive because the exercise prices were greater
than the average market price of the common shares during the respective
periods.

NOTE 10 -- CONCENTRATION OF SALES AND CREDIT RISK

   Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash and cash equivalents,
marketable securities and trade accounts receivable. We place our cash and cash
equivalents and marketable securities primarily in market rate accounts and
highly rated commercial paper. Our policy limits the amount of credit exposure
to any one financial institution or commercial issuer. The carrying amounts of
certain of our other financial instruments including accounts receivable,
accounts payable and accrued expenses approximate fair value due to their short
maturities.

   We generally extend 30-day credit terms to our customers, which is consistent
with industry business practices. We perform ongoing credit evaluations of our
customers' financial condition and, generally, require no collateral from our
customers. To date we have not experienced any material credit losses. All sales
transactions are denominated in U.S. dollars.

   During 2000, revenue from one customer represented 12% of total revenue.
During 1999, revenue from one customer represented 30% of total revenue. During
1998, revenue from two customers represented 41% and 11% of total revenue.

   Revenue from shipments to customers outside the United States, primarily in
Asia Pacific, Europe and South America, represented 18%, 21% and 17% of total
revenue in 2000, 1999 and 1998, respectively. Revenue from shipments to
customers in Japan represented 7%, 11% and 4% of total revenue in 2000, 1999 and
1998, respectively.

   At December 31, 2000, outstanding receivables from one customer represented
18% of gross receivables. At December 31, 1999, outstanding receivables from one
customer represented 26% of gross receivables.

NOTE 11 -- COMMITMENTS:

   We occupy our facilities under several non-cancelable operating lease
agreements which expire in August 2009 and March 2006, respectively, and
require payment of property taxes, insurance, maintenance and utilities. Total
rental expense related to these operating leases were $4,089,000, $2,074,000 and
$504,000 for 2000, 1999 and 1998, respectively.

   Future minimum lease payments under non-cancelable operating leases at
December 31, 2000 were as follows (in thousands):

<TABLE>
<CAPTION>

                   YEAR ENDING DECEMBER 31,
                   <S>                                         <C>
                     2001...................................    $ 4,808
                     2002...................................      4,945
                     2003...................................      5,175
                     2004...................................      5,584
                     2005...................................      5,289
                     thereafter.............................     15,212
                                                                -------
                     Total minimum lease payments...........    $41,013
                                                                =======
</TABLE>


   During 2000, we subleased our facilities to third parties under
non-cancelable sublease rent agreements, which expire in September 2001 and
September 2002, respectively. Total sublease rent income for the year ended
December 31, 2000


                                      F-19
<PAGE>   61

was $3,019,000. Total sublease rent income for the years ended December 31, 2001
and December 31, 2002 will be $2,855,000 and $1,667,000, respectively.

NOTE 12 - SUBSEQUENT EVENT:

   On January 23, 2001, we announced that we have entered into a definitive
agreement to acquire Netopia, Inc., in a stock-for-stock merger. Under the terms
of the merger agreement, each share of Netopia common stock will be converted
into 0.3 shares of Proxim common stock, resulting in an aggregate purchase price
of approximately $223 million, based on the closing price of our stock on
January 23, 2001. The acquisition will be accounted for as a purchase
transaction and is expected to be completed during late in the first calendar
quarter or early in the second calendar quarter of 2001. The closing is subject
to regulatory approval, Proxim and Netopia stockholder approval and customary
closing conditions. Netopia designs, develops, markets and sells broadband
Internet equipment solutions.

NOTE 13 - INTERIM FINANCIAL INFORMATION (UNAUDITED):

<TABLE>
<CAPTION>
                                                                          QUARTER ENDED
                           ---------------------------------------------------------------------------------------------------------
                           MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                             1999       1999          1999            1999         2000       2000          2000           2000
                           ---------   --------   -------------   ------------   ---------   --------   -------------   -----------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                        <C>         <C>          <C>            <C>           <C>         <C>           <C>            <C>
Revenue .................. $15,119     $16,341      $18,229        $20,378       $20,051     $24,523       $29,297        $33,627

Gross profit ............. $ 7,215     $ 7,709      $ 8,571        $ 9,377       $ 9,125     $ 8,972       $12,812        $15,226

Net income (loss) ........ $   754     $ 1,220      $ 2,300        $(3,865)      $ 2,216     $   505       $(2,542)       $ 1,970

Basic net income (loss)
     per share ........... $  0.04     $  0.05      $  0.10        $ (0.16)      $  0.09     $  0.02       $ (0.10)       $  0.07

Diluted net income (loss)
     per share ........... $  0.03     $  0.05      $  0.09        $ (0.16)      $  0.08     $  0.02       $ (0.10)       $  0.07
                           =======     =======      =======        =======       =======     =======       =======        =======
</TABLE>









                                      F-20
<PAGE>   62

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

10.a.  Information with respect to directors is incorporated by reference from
       the information under the caption "Election of Directors," in the
       Registrant's Proxy Statement, which will be filed with the Securities and
       Exchange Commission within 120 days after December 31, 2000.

10.b.  Information with respect to directors and executive officers is included
       at the end of PART I, Item 1 on page 16 of this Report under the caption
       "Executive Officers of the Registrant."

ITEM 11.  EXECUTIVE COMPENSATION

   Incorporated by reference from the information under the captions "Executive
Compensation" in the Registrant's Proxy Statement, which will be filed, with the
Securities and Exchange Commission within 120 days after December 31, 2000.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Incorporated by reference from the information under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy
Statement, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 2000.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Not Applicable.
<PAGE>   63

                                     PART IV

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

(a)(1)  Financial Statements: See Index to Financial Statements at Item 8. on
        page 36 of this Report.

   (2)  Financial Statement Schedules:  See Item 8. on page 36 of this Report.

   (3)  Exhibits:

<TABLE>
<CAPTION>

    EXHIBIT #     DESCRIPTION OF DOCUMENT
    ---------     -----------------------
    <S>           <C>
     2.1(1)       Agreement and Plan of Reorganization by and among Proxim, Inc., WS Acquisition Corp.,
                  WaveSpan Corporation and Certain Shareholders of WaveSpan Corporation dated as of November
                  30, 1999.
     3.1          Restated Certificate of Incorporation.
     3.2          Certificate of Designation of Rights Preferences and Privileges of Series A Participating
                  Preferred Stock.
     3.3          Certificate of Amendment of Restated Certificate of Incorporation.
     3.4(2)       Bylaws of Registrant.
     3.5(8)       Preferred Shares Rights Agreement.
     4.1(2)       Form of Common Stock Certificate.
     4.2(12)      Warrant to Purchase Common Stock of Proxim, Inc. issued to Intel Corporation on April 27,
                  1999.
     4.3(12)      Investor Rights Agreement dated as of April 27, 1999 between Proxim, Inc. and Intel
                  Corporation.
     4.4(12)      Warrant to Purchase Common Stock of Proxim, Inc. issued to Motorola Corporation on June 2,
                  1999.
     4.5(12)      Investor Rights Agreement dated as of June 2, 1999 between Proxim, Inc. and Motorola
                  Corporation.
     4.6(3)       Registration Rights Agreement between Proxim, Inc. and Siemens Aktiengesellshaft and
                  Siemens Information and Communication Mobile LLC dated September 27, 2000.
    10.1(2)(7)    Form of Registrant's Indemnification Agreement for Officers and Directors, Delaware.
    10.2(2)(7)    1993 Employee Stock Purchase Plan and form of Subscription Agreement.
    10.3(2)(7)    1986 Incentive Stock Option Plan and form of Stock Option Agreement.
    10.5(2)       Lease Agreement dated February 18, 1993 between Proxim and Vanni Business Park
                  Partnership.
    10.7(4)       Amendment to Lease Agreement dated August 28, 1994 between Proxim, Inc. and Vanni Business
                  Park Partnership
    10.8(5)(7)    1994 Director Option Plan and form of Subscription Agreement.
    10.9(6)(7)    1995 Long-Term Incentive Plan and form of Subscription Agreement.
    10.10(7)(9)   Change of Control Severance Agreement entered into June 18, 1998 between Registrant and
                  David C. King.
    10.12(7)(9)   Change of Control Severance Agreement entered into June 18, 1998 between Registrant and
                  Keith E. Glover.
    10.13(7)(9)   Change of Control Severance Agreement entered into June 18, 1998 between Registrant and
                  Juan Grau.
    10.14(10)     Sublease Agreement between Applied Materials , Inc. (sublandlord) and Proxim, Inc.
                  (subtenant) dated March 3, 1999.
    10.15(7)(11)  1999 Nonstatutory Stock Option Plan and form of Subscription Agreement.
    23.1          Consent of Independent Accountants.
</TABLE>


(b)  Reports on Form 8-K:

     A current report on Form 8-K (File No. 000-22700) was filed pursuant to the
     Securities Exchange Act of 1934, as amended, on January 6, 2000, to report
     the merger of WS Acquisition Corp., a wholly owned subsidiary of the
     Registrant with and into WaveSpan Corporation.

     A current report on Form 8-K/A (File No. 000-22700) was filed pursuant to
     the Securities Exchange Act of 1934, as amended, on February 16, 2000
     to report pro forma financial information related to the acquisition of
     WaveSpan Corporation.

(c)  Exhibits: See 14(a) above.
(d)  Financial Statement Schedules: See 14(a) above.

-----------

(1)  Incorporated by reference to the Registrant's current report on Form 8-K
     filed with the Securities and Exchange Commission on January 6, 2000.
(2)  Incorporated by reference to the Registrant's Registration Statement No.
     33-70712 filed with the Securities and Exchange Commission on December 15,
     1993.
(3)  Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on November 14, 2000
(4)  Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on November 14, 1994.
(5)  Incorporated by reference to the Registrant's definitive proxy materials
     filed with the Securities and Exchange Commission on April 15, 1994.
(6)  Incorporated by reference to the Registrant's Registration Statement No.
     33-94910 filed with the Securities and Exchange Commission on July 19,
     1995.
(7)  Management contract or compensation plan or arrangement required to be
     filed as an exhibit to this Report on Form 10-K pursuant to item 14(c) of
     this Report.
(8)  Incorporated by reference to the Registrant's report on Form 8-K filed with
     the Securities and Exchange Commission on April 7, 1997.
(9)  Incorporated by reference to the Registrant's report on Form 10-K filed
     with the Securities and Exchange Commission on March 31, 1999.
(10) Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on May 17, 1999.
(11) Incorporated by reference to the Registrant's Registration Statement No.
     333-54390 on Form S-8 filed with the Securities and Exchange Commission on
     January 26, 2001.
(12) Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on August 13, 1999.
<PAGE>   64

                                   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
our behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the 6th day of February, 2001.

                                       PROXIM, INC.


                                       By:       /s/   KEITH E. GLOVER
                                            -----------------------------------
                                           (Keith E. Glover, Vice President of
                                           Finance and Administration, and
                                           Chief Financial Officer)

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David C. King and Keith E. Glover, jointly and
severally, his attorneys-in-fact, each with full power of substitution, for him
in any and all capacities, to sign on behalf of the undersigned any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, and each of the undersigned does hereby ratify and confirm all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed by the following persons in the capacities and on
the dates indicated:

<TABLE>
<CAPTION>

                  SIGNATURE                                       TITLE                            DATE
                  ---------                                       -----                            ----

<S>                                            <C>                                            <C>
             /s/   DAVID C. KING               Chairman of the Board of Directors, President  February 6, 2001
--------------------------------------------   and Chief Executive Officer (Principal
               (David C. King)                 Executive Officer)


            /s/   KEITH E. GLOVER              Vice President of Finance and Administration,  February 6, 2001
--------------------------------------------   and Chief Financial Officer (Principal
               (Keith E. Glover)               Financial and Accounting Officer)

             /s/   RAYMOND CHIN                Director                                       February 6, 2001
--------------------------------------------
               (Raymond Chin)

           /s/   LESLIE G. DENEND              Director                                       February 6, 2001
--------------------------------------------
             (Leslie G. Denend)

               /s/  GREG REYES                 Director                                       February 6, 2001
--------------------------------------------
                (Greg Reyes)

            /s/  JEFFREY D. SAPER              Director and Secretary                         February 6, 2001
--------------------------------------------
             (Jeffrey D. Saper)
</TABLE>
<PAGE>   65
                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

    EXHIBIT #     DESCRIPTION OF DOCUMENT
    ---------     -----------------------
    <S>           <C>
     2.1(1)       Agreement and Plan of Reorganization by and among Proxim, Inc., WS Acquisition Corp.,
                  WaveSpan Corporation and Certain Shareholders of WaveSpan Corporation dated as of November
                  30, 1999.
     3.1          Restated Certificate of Incorporation.
     3.2          Certificate of Designation of Rights Preferences and Privileges of Series A Participating
                  Preferred Stock.
     3.3          Certificate of Amendment of Restated Certificate of Incorporation.
     3.4(2)       Bylaws of Registrant.
     3.5(8)       Preferred Shares Rights Agreement.
     4.1(2)       Form of Common Stock Certificate.
     4.2(12)      Warrant to Purchase Common Stock of Proxim, Inc. issued to Intel Corporation on April 27,
                  1999.
     4.3(12)      Investor Rights Agreement dated as of April 27, 1999 between Proxim, Inc. and Intel
                  Corporation.
     4.4(12)      Warrant to Purchase Common Stock of Proxim, Inc. issued to Motorola Corporation on June 2,
                  1999.
     4.5(12)      Investor Rights Agreement dated as of June 2, 1999 between Proxim, Inc. and Motorola
                  Corporation.
     4.6(3)       Registration Rights Agreement between Proxim, Inc. and Siemens Aktiengesellshaft and
                  Siemens Information and Communication Mobile LLC dated September 27, 2000.
    10.1(2)(7)    Form of Registrant's Indemnification Agreement for Officers and Directors, Delaware.
    10.2(2)(7)    1993 Employee Stock Purchase Plan and form of Subscription Agreement.
    10.3(2)(7)    1986 Incentive Stock Option Plan and form of Stock Option Agreement.
    10.5(2)       Lease Agreement dated February 18, 1993 between Proxim and Vanni Business Park
                  Partnership.
    10.7(4)       Amendment to Lease Agreement dated August 28, 1994 between Proxim, Inc. and Vanni Business
                  Park Partnership
    10.8(5)(7)    1994 Director Option Plan and form of Subscription Agreement.
    10.9(6)(7)    1995 Long-Term Incentive Plan and form of Subscription Agreement.
    10.10(7)(9)   Change of Control Severance Agreement entered into June 18, 1998 between Registrant and
                  David C. King.
    10.12(7)(9)   Change of Control Severance Agreement entered into June 18, 1998 between Registrant and
                  Keith E. Glover.
    10.13(7)(9)   Change of Control Severance Agreement entered into June 18, 1998 between Registrant and
                  Juan Grau.
    10.14(10)     Sublease Agreement between Applied Materials , Inc. (sublandlord) and Proxim, Inc.
                  (subtenant) dated March 3, 1999.
    10.15(7)(11)  1999 Nonstatutory Stock Option Plan and form of Subscription Agreement.
    23.1          Consent of Independent Accountants.
</TABLE>


(b)  Reports on Form 8-K:

     A current report on Form 8-K (File No. 000-22700) was filed pursuant to the
     Securities Exchange Act of 1934, as amended, on January 6, 2000, to report
     the merger of WS Acquisition Corp., a wholly owned subsidiary of the
     Registrant with and into WaveSpan Corporation.

     A current report on Form 8-K/A (File No. 000-22700) was filed pursuant to
     the Securities Exchange Act of 1934, as amended, on February 16, 2000
     to report pro forma financial information related to the acquisition of
     WaveSpan Corporation.

(c)  Exhibits: See 14(a) above.
(d)  Financial Statement Schedules: See 14(a) above.

-----------

(1)  Incorporated by reference to the Registrant's current report on Form 8-K
     filed with the Securities and Exchange Commission on January 6, 2000.
(2)  Incorporated by reference to the Registrant's Registration Statement No.
     33-70712 filed with the Securities and Exchange Commission on December 15,
     1993.
(3)  Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on November 14, 2000
(4)  Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on November 14, 1994.
(5)  Incorporated by reference to the Registrant's definitive proxy materials
     filed with the Securities and Exchange Commission on April 15, 1994.
(6)  Incorporated by reference to the Registrant's Registration Statement No.
     33-94910 filed with the Securities and Exchange Commission on July 19,
     1995.
(7)  Management contract or compensation plan or arrangement required to be
     filed as an exhibit to this Report on Form 10-K pursuant to item 14(c) of
     this Report.
(8)  Incorporated by reference to the Registrant's report on Form 8-K filed with
     the Securities and Exchange Commission on April 7, 1997.
(9)  Incorporated by reference to the Registrant's report on Form 10-K filed
     with the Securities and Exchange Commission on March 31, 1999.
(10) Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on May 17, 1999.
(11) Incorporated by reference to the Registrant's Registration Statement No.
     333-54390 on Form S-8 filed with the Securities and Exchange Commission on
     January 26, 2001.
(12) Incorporated by reference to the Registrant's report on Form 10-Q filed
     with the Securities and Exchange Commission on August 13, 1999.