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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, 1997

[  ]     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 its charter)

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

                            295 NORTH BERNARDO AVENUE
                         MOUNTAIN VIEW, CALIFORNIA 94043
                                 (650) 960-1630
               (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. [ X ]

Based on the closing sale price of the Common Stock on the NASDAQ National
Market System on March 4, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $93,845,000. 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 10,246,952 at March 4, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy Statement for the Registrant's 1998 Annual Meeting of
Stockholders 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. The Company
may from time to time make additional written and oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its 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 "Certain Factors That May
Affect Future Operating Results" and elsewhere in this report. The Company does
not undertake to update any forward-looking statement that may be made from time
to time by or on behalf of the Company. Readers should carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission.

    Proxim designs, manufactures and markets high performance wireless local
area networking ("LAN") products based on spread spectrum radio frequency ("RF")
technology. Proxim's 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. Proxim's 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. Proxim was
incorporated in California in 1984, and reincorporated in Delaware in 1993.

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.

    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 wired networks. In voice
communications, wireless technology has made possible the extension of wired
networks to serve mobile 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 users, these products increase the accuracy, timeliness and convenience
of data collection and information access, thereby improving productivity and
enhancing customer service.

    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, however, 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 


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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 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. 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, materials 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.

    Concurrent with the emergence of new applications and new vertical markets,
two primary factors have led to an expansion in the worldwide market potential
for wireless LANs. First, from a regulatory perspective, the 2.4 GHz frequency
band has recently been allocated for unlicensed wireless networks in virtually
every developed country around the world. Second, the universal availability of
this unlicensed spectrum has encouraged wireless LAN suppliers to design
standard products and solutions which can be marketed and sold globally.

    The Company believes that the convergence of worldwide spectrum
availability, emerging standards and new high performance products will lead to
more widespread deployment of wireless LAN products in both traditional
industrial data collection applications as well as emerging point-of-service
network applications.

THE PROXIM SOLUTION

    In 1994, Proxim pioneered 2.4 GHz frequency hopping wireless LAN technology
by being first to market with its RangeLAN2 product family. Since then the
Company has captured a substantial number of key design wins with major 2.4 GHz
OEM customers. The Company attributes this success to the architectural
advantages of its RangeLAN2 product line as well as key aspects of the Company's
overall technology approach, including the following:

    -   Seamless Extension of Existing Enterprise Data Networks. Proxim designs
        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 ("GaAs") 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.


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    -   Broad Array of Interoperable Products and Applications. Based on the
        highly integrated design of Proxim's 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.

PRODUCTS

    Since 1989, Proxim has 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.
Proxim designs its products to be small, lightweight, cost-effective and power
efficient in order to meet the needs of its OEM customers and the vertical
markets they serve. Proxim offers wireless networking products based on 2.4 GHz
frequency hopping spread spectrum technology and 900 MHz direct sequence
technology.

    Since the introduction of the RangeLAN2 product family in 1994, Proxim's 2.4
GHz product sales have increased to over 87% of total revenue in 1997. The
Company anticipates that its 2.4 GHz product sales will continue to increase as
a percentage of total revenue based on the worldwide availability of unlicensed
2.4 GHz spectrum as well as the higher throughput and capacity achievable with
2.4 GHz wireless networks.

    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.

    RangeLAN2 packaged products include one-piece PC Card and desktop ISA
wireless LAN adapters for client computer systems as well as network Access
Points for transparent bridging to existing Ethernet and Token Ring 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. Private label versions of these products are currently
marketed by AMP, DEC, Intermec, Kansai Electric, LXE and Percon, among others.

    RangeLAN2 OEM modules are design-in wireless LAN adapters that range in size
from a credit card to a match book. 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 OEM handheld computing and data collection devices by
companies such as Alps Electric (formerly Kalidor), Casio Computer, Cruise
Technologies (formerly Zenith Data Systems), Fujitsu, Furuno Electric, Intermec,
LXE, Nomadic Technology and Norand.

    900 MHz Products. The Company offers several types of products based on the
Company's 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 RangeLAN product family, originally introduced in 1992,
includes Proxim's first generation of open systems wireless LAN adapters.


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CUSTOMERS

    The majority of Proxim's 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. The Company's
OEM partners traditionally target industrial applications in one or more
specific markets such as manufacturing, warehousing, transportation and
retailing. Additionally, Proxim markets its branded 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. Proxim's 2.4 GHz OEM customers include, among
others, AMP, Bass, Casio Computer, Data General, Digital, Fujitsu, Furuno,
Intermec, LXE, Norand, NTT-IT and SpaceLabs Medical.

    In 1997, Intermec, NTT-IT and LXE represented 28%, 17% and 10% respectively,
of the Company's total revenue; in 1996, Intermec, NTT-IT and LXE represented
22%, 22% and 12%, respectively, of the Company's total revenue; in 1995,
Intermec and NTT-IT represented 27% and 14%, respectively, of the Company's
total revenue. Sales to OEM customers were $26,780,000, $24,602,000 and
$17,465,000, in 1997, 1996 and 1995, respectively, representing 62%, 60% and 79%
of total revenue during such periods.

    The Company expects that sales to a limited number of OEM customers will
continue to account for a substantial portion of its revenue during any period
for the foreseeable future. The Company also has experienced quarter to quarter
variability in sales to each of its major OEM customers and expects this pattern
to continue in the future. The loss of, or a significant reduction in sales to,
one or more of the Company's major OEM customers could have a material adverse
effect on the Company's results of operations. See "Certain Factors That May
Affect Future Operating Results --Dependence on a Limited Number of OEM
Customers."

SALES AND MARKETING

    The Company sells its products directly to OEM customers, and indirectly to
value added resellers, systems integrators and end users through regional,
national and international distributors. Proxim offers OEM customers both
design-in products for integration into their wireless computing platforms, and
branded products as private label models.

    Sales of many of the Company's wireless networking products depend in
significant part upon the decision of a prospective OEM customer to develop and
market wireless solutions which incorporate the Company's wireless technology.
OEM customers' orders are affected by a variety of factors such as new product
introductions, in-house engineering capabilities, regulatory approvals, end user
demand for OEM customers' products, product life cycles, inventory levels,
manufacturing strategy, contract awards, competitive conditions and general
economic conditions. Sales of wireless LAN products generally involve
significant commitments of capital and other resources by the Company and its
customers, with the attendant delays associated with procedures to approve such
commitments. In this regard, in the fourth quarter of 1997, the Company took a
one-time charge of $2,400,000 to selling, general and administrative expense
related to two investments: one in a startup wireless services company utilizing
wireless LAN technology and the other in a developer of mobile thin-client
computing technology. For these and other reasons, the design-in cycle
associated with the purchase of the Company's 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 the Company's control. Because of
the lengthy sales cycle, the Company typically plans its production and
inventory levels based on internal forecasts of OEM customer demand, which is
highly unpredictable and can fluctuate substantially. If revenue forecasted from
a specific customer for a particular quarter is not realized in that quarter,
the Company's operating results for that quarter could be materially adversely
affected.


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    The Company generally does not operate with a significant order backlog. In
addition, the Company's 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 have a material adverse effect on
the Company's results of operations. The Company's 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 the Company's
operating results. In addition, there can be no assurance that the Company will
become a qualified supplier for new OEM customers or that the Company will
remain a qualified supplier for existing OEM customers.

    Proxim's branded products are sold to value added resellers, systems
integrators and end users in the U.S. through regional distributors, and through
TechData Corporation, Ingram Micro, Inc. and Anixter Corporation, three
nationwide distribution and sales organizations.

    Distributors generally offer products of several different companies,
including products that may compete with the Company's products. Accordingly,
these distributors may give higher priority to products of other suppliers, thus
reducing their efforts to sell the Company's 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 the Company
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 the Company's future operating results. In addition,
distributors generally have stock rotation rights and price protection on unsold
merchandise, which may adversely impact the Company's profit margins.

    Proxim is expanding the international distribution channels for its
products. The Company is authorized to ship its RangeLAN2 products into more
than 42 countries. In addition to the Company's relationships with numerous OEM
customers who market the RangeLAN2 technology internationally, the Company has
over 30 international authorized distributors in over 42 sales territories.
Revenue from shipments by the Company to customers outside the United States,
principally to a limited number of distributors and OEM customers, represented
26%, 31% and 24% of total revenue during 1997, 1996 and 1995, respectively. The
Company expects 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 including, but not limited to, changes in foreign
government regulations and telecommunications standards, export license
requirements, tariffs and taxes, other trade barriers, fluctuations in currency
exchange rates, difficulty in collecting accounts receivable, difficulty in
staffing and managing foreign operations, and potential political and economic
instability. While international sales are typically denominated in U.S. dollars
and the Company typically extends limited credit terms, fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country. Additionally, payment cycles for international
distributors are typically longer than for distributors in the United States.
There can be no assurance that foreign markets will continue to develop or that
the Company will receive additional orders to supply its products to foreign
customers. The Company's business and operating results could be materially and
adversely affected if foreign markets do not continue to develop or the Company
does not receive additional orders to supply its products for use by foreign
customers. In the latter part of 1997, capital markets in Asia were highly
volatile resulting in fluctuations in Asian currencies and other economic
instabilities. These instabilities may continue or worsen, either of which could
have a material adverse effect on the Company's results of operations. In this
regard, in the third and fourth quarter of 1997, the Company experienced a
significant decrease in orders from NTT-IT, one of the Company's major
Japanese customers, resulting in a significant decrease in quarterly revenue and
an operating loss in the third quarter of 1997.


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    As of December 31, 1997, the Company's selling, general and administrative
department consisted of 44 full-time employees. Selling, general and
administrative expenses were $13,513,000, $9,408,000, and $6,694,000 during
1997, 1996 and 1995, respectively.

MANUFACTURING

    The Company's manufacturing operations consist primarily of final assembly
and testing, quality assurance, packaging and shipping at the Company's
manufacturing facility in Mountain View, California. The Company purchases all
of the circuit boards, integrated circuits and other components used in its
products from third party suppliers. The Company inspects these components for
quality, groups the components into kits by production order, and ships the kits
to its subcontractors for interim assembly and test.

    The Company designs its products to provide a high degree of reliability.
The Company's products have achieved a field failure rate of its installed base
of less than 1% per annum to date. The Company believes that this reliability is
the result of its careful quality assurance procedures. Proxim has developed a
supplier selection procedure and approved vendor list to maintain quality. In
addition, the Company monitors its suppliers' performance to ensure consistent
quality, reliability and yields. While the Company's quality assurance program
is not currently certified under ISO 9000, it is modeled after the ISO 9000
quality standards, including process documentation, test procedures, quality
assurance procedures, process control, equipment maintenance, quality record
keeping and training of personnel. In addition, the Company generally uses ISO
9000 certified manufacturing assembly subcontractors and intends to pursue ISO
9000 certification for its internal manufacturing processes in the future.

    The Company currently has limited manufacturing capability and has no
experience in large scale manufacturing. If the Company's customers were to
place or concurrently place orders for unexpectedly large quantities of the
Company's products, the Company's present manufacturing capacity might be
inadequate to meet such demand. There can be no assurance that the Company 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, the Company will need to achieve significant product cost
reductions. Although the Company intends to achieve cost reductions through
engineering improvements and production economies, there can be no assurance
that the Company will be able to do so. In order to remain competitive, the
Company must continue to introduce new products and processes into its
manufacturing environment. The Company currently conducts its manufacturing
operations for all of its products in a single facility in Mountain View,
California. In addition, the Company relies on certain outside contract
manufacturers for circuit board assemblies which subjects the Company to a
number of risks, including a potential inability to obtain an adequate supply of
assembled circuit boards as well as reduced control over the price, timely
delivery and quality of such assembled circuit boards. If the Company's Mountain
View facility were to become incapable of operating, even temporarily, or were
unable to operate at or near its current or full capacity for an extended
period, the Company's business and operating results could be materially
adversely affected. Further, in order to remain competitive the Company expects
to continue to introduce new processes into its manufacturing environment.
Changes in the manufacturing operations to incorporate new products and
processes could cause disruptions, which, in turn, could adversely affect
customer relationships, cause a loss of market opportunities and have a material
adverse effect on the Company's business and operating results.

    Certain parts and components used in the Company's products, including the
Company's proprietary Application Specific Integrated Circuits ("ASICs"),
Monolithic Microwave Integrated Circuits ("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. The Company's reliance on
these sole source or limited source suppliers involves certain risks and
uncertainties, including the possibility of a shortage or discontinuation of
certain key components and reduced control over delivery schedules,
manufacturing capability, quality and costs. Any reduced availability of such
parts or components when required could 


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materially impair the Company's ability to manufacture and deliver its products
on a timely basis and result in the cancellation of orders, which could have a
material adverse effect on the Company's operating results. In addition, the
purchase of certain key components involves long lead times and, in the event of
unanticipated increases in demand for the Company's products, the Company has in
the past been, and may in the future be, unable to manufacture certain products
in a quantity sufficient to meet its customers' demand in any particular period.
The Company has no guaranteed supply arrangements with its sole or limited
source suppliers, does not maintain an extensive inventory of parts or
components, and customarily purchases 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 or financial
difficulties of a sole or limited source supplier could materially and adversely
impact the Company by increasing product costs, or reducing or eliminating the
availability of such parts or components. In such event, the inability of the
Company to develop alternative sources of supply quickly and on a cost-effective
basis could materially impair the Company's ability to manufacture and deliver
its products on a timely basis and could have a material adverse effect on its
operating results.

RESEARCH AND DEVELOPMENT

    The wireless communications industry is characterized by very rapid
technological change, short product life cycles and evolving industry standards.
To remain competitive, the Company must develop or gain access to new
technologies in order to increase product performance and functionality, reduce
product size and maintain cost-effectiveness. The Company's research and
development efforts are focused on implementing enhancements to existing
products, investigating new technologies and developing new products. Since 1994
the Company's research and development efforts have been concentrated on
enhancing features and performance and reducing the cost of the RangeLAN2-based
products. These efforts include developing and integrating the Company's
technology into ASICs/MMICs, development of wireless protocols and network
software drivers, performance enhancements and cost reductions to wireless
adapter and access point products and efforts related to both domestic and
international product certification. In 1997 the Company substantially increased
its research and development efforts in developing Institute of Electrical and
Electronics Engineers ("IEEE") 802.11 standard based products and 5 GHz
high-speed wireless LAN technology.

    The Company's success is also dependent on its 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 wireless LAN companies, including Proxim, from time to
time have experienced delays in developing and introducing new products. Due to
the intensely competitive nature of the Company's business, any delay in the
commercial availability of new products could have a material adverse effect on
the Company's operating results. If the Company is unable to develop or obtain
access to advanced wireless networking technologies as they become available, or
is unable to design, develop and introduce competitive new products on a timely
basis, or is unable to hire or retain qualified engineers to develop such
technologies and products, its future operating results would be materially and
adversely affected. In particular, the Company has expended substantial
resources in developing products that are designed to conform to the IEEE 802.11
standard that received final approval in June 1997. There can be no assurance
that the Company will introduce IEEE 802.11 compliant products in a timely
manner or that this standard will have a meaningful commercial impact. Any delay
in the commercial availability of the Company's IEEE 802.11 compliant products
could have a material adverse effect on the Company's results of operations,
particularly if its competitors are able to develop and introduce competitive
products which conform to this standard more rapidly than the Company.

    The Company expects to substantially increase its research and development
expenses to develop new technologies related to 5 GHz high-speed wireless LAN
products. In this regard, in the fourth quarter of 1997, the Company took a
one-time pre-tax charge of $2,500,000 to research and development expense for
the 


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purchase of in-process technology related to developing 5 GHz high-speed
wireless LAN products. Given the emerging nature of the wireless LAN market,
there can be no assurance that the RangeLAN2 products and technology, or the
Company's other products or technology, will not be rendered obsolete by
alternative technologies.

    As of December 31, 1997, the Company's research and development department
consisted of 43 full-time employees. Research and development expenses were
$8,720,000, $4,949,000, and $3,288,000 during 1997, 1996 and 1995, respectively.

COMPETITION

    The wireless local area networking market is intensely competitive. The
principal competitive factors in this market include effective RF coverage area,
data throughput, wireless networking protocol sophistication, network
scalability, roaming capability, power consumption, product miniaturization,
product reliability, product time to market, product certifications, price,
effective distribution channels, ability to support new industry standards and
company reputation. Although the Company believes that it currently competes
favorably on the basis of these factors, the Company could be at a disadvantage
to companies that have broader distribution channels and offer more diversified
product lines.

    Proxim has several current competitors which offer 2.4 GHz products,
including Lucent Technologies, Symbol Technologies and Telxon. In addition,
certain other companies have announced their intention to offer competitive 2.4
GHz products and solutions. Some of these competitors have announced their
intention to develop IEEE 802.11 standard-based products or other higher
performance systems in the future. In addition to competition from companies
that offer or have announced their intention to develop wireless LAN products,
the Company could face future competition from companies that offer products
which replace network adapters or offer alternative wireless communications
solutions, or from large computer and network equipment companies. Moreover, the
Company could also face competition from certain of its OEM customers which
have, or could acquire, wireless engineering and product development
capabilities. There can be no assurance that the Company will be able to compete
successfully against these competitors or that competitive pressures faced by
the Company will not adversely affect its business or operating results. For
example, in March 1998, an industry consortium known as the Home Radio Frequency
Working Group (HRFWG) was formed. The HRFWG expects to publish in 1998 an open
specification for home wireless communications, called the Shared Wireless
Access Protocol (SWAP). The HRFWG is led by core members Compaq Computer
Corporation, Ericsson Enterprise Networks, Hewlett-Packard, IBM, Intel,
Microsoft, Motorola, Philips Consumer Communications L.P., Proxim and
Symbionics, and supported by Butterfly Communications, Harris Semiconductor,
Intellon, National Semiconductor, Rockwell Semiconductor Systems and Samsung
Electronics America, Inc. There can be no assurance that the Company will
introduce SWAP compliant products in a timely manner or that this open
specification will have a meaningful commercial impact. Any delay in the
commercial availability of the Company's SWAP compliant products could have a
material adverse effect on the Company's results of operations, particularly if
its competitors are able to develop and introduce competitive products which
conform to this open specification more rapidly than the Company.

    Many of the Company's present and potential competitors have substantially
greater financial, marketing, technical and other resources than the Company
with which to pursue engineering, manufacturing, marketing, and distribution of
their products and 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. There can be no
assurance that the Company will succeed in developing products or technologies
that are more effective than those developed by its competitors. Furthermore,
the Company competes with companies with high volume manufacturing and extensive
marketing and distribution capabilities, areas in which the Company has limited
experience. Increased competition, direct and indirect, could adversely affect
the Company's revenue and profitability through pricing pressure and loss of
market 


                                       9
<PAGE>   10

share. There can be no assurance that the Company will be able to compete
successfully against existing and new competitors as the market evolves and the
level of competition increases.

GOVERNMENT REGULATION

    In the United States, the Company is subject to various FCC rules and
regulations. Current FCC regulations permit license-free operation in certain
FCC-certified bands in the radio spectrum. Proxim's spread spectrum wireless
products are certified for unlicensed operation in the 902-928 MHz and
2.4-2.4835 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 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 the Company's products experience
excessive interference from primary users, market acceptance of the Company's
products could be adversely affected, thereby materially and adversely affecting
the Company's business and results of operations. The FCC, however, has
established certain standards which create an irrebuttable presumption of
noninterference for Part 15 users and the Company believes that its products
comply with such requirements. There can be no assurance that the occurrence of
regulatory changes, including changes in the allocation of available frequency
spectrum or modification to the standards establishing an irrebuttable
presumption for unlicensed Part 15 users, would not significantly impact the
Company's operations by rendering current products obsolete, restricting the
applications and markets served by the Company's products or increasing the
opportunity for additional competition.

    The Company's products are also subject to regulatory requirements in
international markets and, therefore, the Company has been monitoring the
development of spread spectrum regulations in certain countries that represent
potential markets for its products. The Company has extensive experience in
gaining regulatory approval outside of the United States. Several foreign
countries, such as Canada, have regulations that closely follow those of the
FCC. To date, Proxim or its distribution partners have obtained certifications
for the Company's products in over 24 countries as well as approval for use in
over 20 additional countries which rely on or reference certification
requirements of regulatory bodies such as the FCC and the European
Telecommunications Standards Institute ("ETSI"). Each new Proxim product or OEM
customer product must be certified or otherwise qualified for use in each
country. The Company has an ongoing program to obtain certifications for its
products and to assist certain OEM customers in obtaining certification for
their products in all available markets. While there can be no assurance that
the Company will be able to comply with regulations in any particular country,
the Company has designed its RangeLAN2 and IEEE 802.11 products to minimize the
design modifications required to meet various 2.4 GHz international spread
spectrum regulations. Changes in, or the failure by the Company to comply with,
applicable domestic and international regulations could have a material adverse
effect on the Company's business and operating results. In addition, with
respect to those countries that do not follow FCC regulations, Proxim may need
to modify its products to meet local rules and regulations.

    Regulatory changes, including changes in the allocation of available
frequency spectrum, could significantly impact the Company's operations by
restricting the Company's 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. These changes in
the allocation 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 which could have a material adverse
effect on the Company's business and results of operations.


                                       10
<PAGE>   11

PROTECTION OF PROPRIETARY RIGHTS

    The Company relies on a combination of patents, trademarks and
non-disclosure agreements in order to establish and protect its proprietary
rights. Proxim has been issued three U.S. patents which were issued in 1991,
1993 and 1995 and are important to the current business of the Company, and has
six patent applications pending in the U.S. which relate to the Company's core
technology. There can be 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 the Company's technology. In addition, there can
be no assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company. 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, the Company cannot be certain that it was the first creator of
the inventions covered by its issued patents or pending patent applications or
that it was the first to file patent applications for such inventions or that
the Company is not infringing on the patents of others. In addition, the Company
has filed, or reserved its rights to file, a number of patent applications
internationally. There can be no assurance that any such international patent
applications will issue or that the laws of foreign jurisdictions will protect
the Company's proprietary rights to the same extent as the laws of the United
States.

    In view of the rapid technological change in this industry, Proxim believes
that the technical expertise and creative skills of its engineers and other
personnel are crucial in determining the Company's future success. The Company's
ability to compete in the marketplace may be enhanced by its ability to protect
its proprietary information through the ownership of patents, registrations and
trademarks. The Company attempts to protect its trade secrets and other
proprietary information through agreements with customers and suppliers,
proprietary information agreements with employees and other security measures.
However, although the Company intends to protect its rights vigorously, there
can be no assurance that these measures will be successful. Litigation may be
necessary to enforce the Company's patents, trademarks or other intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business and operating results. No intellectual property of the Company has been
invalidated or declared unenforceable. However, there can be no assurance that
in the future such rights will be upheld. Furthermore, there can be no assurance
that any issued patents will provide the Company with a competitive advantage or
will not be challenged by third parties or that the patents of others will not
have an adverse effect on the Company's ability to do business. There can be no
assurance that the measures taken by the Company will prevent misappropriation
of its technology. In addition, there can be no assurance that others will not
independently develop similar products, design around the Company's proprietary
technology or duplicate the Company's products.

EMPLOYEES

    As of December 31, 1997, the Company employed 165 full-time employees and 11
temporary employees. Of these individuals, 43 are in engineering and product
development, 44 are in marketing, sales and customer support, 78 are in
manufacturing and quality assurance, and 11 are in finance and administration.
The Company believes that its future success will depend in large measure on its
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, and there can be no assurance that the Company will be successful in
retaining its key employees or that it will be able to attract, assimilate or
retain the additional skilled personnel that will be required to support the
Company's anticipated growth. None of the Company's employees are represented by
a labor union. The Company believes that its relations with employees are good.


                                       11
<PAGE>   12

EXECUTIVE OFFICERS OF THE REGISTRANT

    The following table sets forth certain information concerning the Company's
executive officers as of December 31, 1997:
<TABLE>
<CAPTION>
                          NAME                   AGE                         POSITION
               -------------------------------   --         ---------------------------------------------
               <S>                               <C>        <C>     
               David C. King..................   38         Chairman of the Board of Directors,
                                                              President and Chief Executive Officer
               Brian T. Button................   39         Vice President of Sales and Marketing
               Thomas J. Carey................   49         Vice President of Operations
               Keith E. Glover................   41         Vice President of Finance and Administration,
                                                              and Chief Financial Officer
               Juan Grau......................   40         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
("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.

    BRIAN T. BUTTON joined Proxim as Vice President of Marketing in June 1994.
In September 1996 Mr. Button was appointed Vice President of Sales and
Marketing. From March 1989 to June 1994, Mr. Button worked for Stratacom
Corporation, where he held several management positions, most recently as
Director, Product Marketing. From May 1982 to February 1989, Mr. Button worked
for Hewlett-Packard Company, where he held several marketing management
positions.

    THOMAS J. CAREY joined Proxim as Director of OEM Services in May 1995. In 
August 1996 Mr. Carey was appointed Vice President of Operations. From 1977 to
May 1995, Mr. Carey worked at Hewlett-Packard Company, where he served in
several engineering and project management positions.

    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.


                                       12
<PAGE>   13

ITEM 2.  PROPERTIES

FACILITIES

    The Company maintains its corporate headquarters in a 40,000 square foot
building located in Mountain View, California pursuant to a lease that expires
in June 2000. The Company subleases a 4,000 square foot warehouse located in
Mountain View, California pursuant to a month-to-month agreement. The Company
also leases sales offices in Atlanta, Georgia, Nashua, New Hampshire and Paris,
France. The Company intends to increase its manufacturing capacity during the
next eighteen months and intends to seek additional space near its present
facility in Mountain View, California. There can be no assurance that the
Company will be able to locate sufficient space near its present facility at
commercially reasonable rates. Furthermore, this expansion and relocation could
cause disruption of operations and unexpected costs which could have a material
adverse effect on the Company's business and operating results.

ITEM 3.  LEGAL PROCEEDINGS

    None.

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

    None.


                                       13
<PAGE>   14

                                     PART II

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

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

<TABLE>
<CAPTION>
                                                          HIGH                     LOW

             1996:
             <S>                                        <C>                    <C>     
                First quarter...................        $ 26.125               $ 15.125
                Second quarter..................        $ 51.25                $ 25.00
                Third quarter...................        $ 42.00                $ 23.75
                Fourth quarter..................        $ 28.75                $ 16.875


             1997:
                First quarter...................        $ 26.50                $ 15.75
                Second quarter................          $ 26.75                $ 15.50
                Third quarter..................         $ 25.50                $ 12.313
                Fourth quarter.................         $ 15.50                $ 10.125
</TABLE>
                


HOLDERS OF RECORD.

    As of March 4, 1998, there were 162 stockholders of record of the Company's
Common Stock.


DIVIDENDS.

    The Company has not declared or paid cash dividends.


                                       14
<PAGE>   15

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                         1997        1996       1995       1994       1993
                                                     --------    --------   --------   --------   --------
<S>                                                  <C>         <C>        <C>        <C>        <C>     
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
     Revenue .....................................   $ 42,951    $ 41,220   $ 22,083   $ 11,297   $  8,078
     Gross profit ................................     20,592      19,837     11,240      6,076      4,171
     Research and development ....................      8,720       4,949      3,288      1,783      1,474
     Selling, general and administrative .........     13,513       9,408      6,694      3,982      2,821
     Income (loss) from operations ...............     (1,641)      5,480      1,258        311       (124)
     Net income (loss) ...........................   $     94    $  6,654   $  2,846   $    745   $    (99)
     Basic net income (loss) per share ...........   $    .01    $    .79   $    .40   $    .11   $   (.06)
     Weighted average common shares ..............     10,048       8,466      7,150      6,922      1,767
     Diluted net income (loss) per share .........   $    .01    $    .71   $    .35   $    .10   $   (.02)
     Weighted average common shares and
       equivalents ...............................     11,108       9,386      8,172      7,738      5,665

BALANCE SHEET DATA:
     Cash and cash equivalents ...................   $ 62,296    $ 54,232   $  6,247   $ 11,300   $ 13,303
     Working capital .............................     73,071      70,559     16,650     14,488     13,980
     Total assets ................................     89,059      81,381     24,107     17,435     15,753
     Stockholders' equity ........................     78,675      75,641     18,450     15,226     14,299
</TABLE>


                                       15
<PAGE>   16

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

    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. The Company
may from time to time make additional written and oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its 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 "Certain Factors That May
Affect Future Operating Results" and elsewhere in this report. The Company does
not undertake to update any forward-looking statement that may be made from time
to time by or on behalf of the Company. Readers should carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission.

    The following discussion should be read in conjunction with the Company's
Financial Statements and Notes thereto.

OVERVIEW

    Since 1989, Proxim has 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, the Company introduced its first commercial product for OEM customers,
a 900 MHz direct sequence spread spectrum RF transceiver. The Company introduced
ProxLink, its 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, the Company began commercial
shipment of RangeLAN2, the industry's first family of 2.4 GHz frequency hopping
spread spectrum wireless LAN products. In 1995, the Company introduced
RangeLINK, a line of 2.4 GHz inter-building wireless remote bridges. In 1996,
the Company introduced an integrated single piece PC Card adapter and a compact
access point product. In 1997, the Company introduced the RangeLAN2 micro
design-in module, Token Ring access point and Extension Point.

    Since the introduction of the RangeLAN2 product family in 1994, Proxim's 2.4
GHz product sales have increased to over 87% of total revenue in 1997. The
Company anticipates that its 2.4 GHz product family will continue to increase as
a percentage of 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, the Company has realized
lower gross margins from sales of its 2.4 GHz products compared to its 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 the Company expects
manufacturing costs to decline over time as a result of greater efficiencies
associated with higher volume production, there can be no assurance that the
Company 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, competitive pricing pressures, the degree of
customization of individual products required by OEM customers and component and
assembly costs.

    Historically, the Company has marketed its products predominantly in the
United States and, until 1995, revenue from international sales was not
significant. Since 1994, the Company obtained regulatory certifications for its
2.4 GHz RangeLAN2 products in over 24 countries and approval to ship to 20
additional countries. These certifications and approvals have significantly
increased the available markets for these products. Revenue from sales directly
to international customers were 26%, 31% and 24% in 1997, 1996 and 1995,
respectively. See "Business -- Sales and Marketing."


                                       16
<PAGE>   17

    A substantial portion of the Company's revenue to date has been derived from
a limited number of customers, most of which are OEM customers. Sales to OEM
customers represented approximately 62%, 60% and 79% of total revenue in 1997,
1996 and 1995, respectively. The Company expects that sales to a limited number
of OEM customers will continue to account for a substantial portion of its
revenue for the foreseeable future. The Company also has experienced quarter to
quarter variability in sales to each of its major OEM customers and expects this
pattern to continue in the future. The loss of, or significant reductions in
sales to, one or more of the Company's major OEM customers could have a material
adverse effect on the Company's 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 the Company to integrate its technologies into, and in certain
cases adapt its products to fit, OEM customers' products. In addition, the
Company's 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. The Company has committed substantial engineering, marketing and sales
resources to develop key OEM relationships and has broadened its OEM customer
base. Due to the Company's current dependency on its OEM customers for a
significant percentage of its total revenue and the nature of its OEM business,
the Company's annual and quarterly operating results are subject to fluctuations
as a result of the level and timing of OEM customer orders. The Company works
closely with its OEM customers to manage the order cycle process in an attempt
to reduce the fluctuations inherent in its OEM business.

    The Company's RangeLAN2 branded products are marketed to value added
resellers, systems integrators and end users primarily through regional and
national distributors. The Company grants 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 the Company's packaged products are also
sold to certain OEM customers. Packaged products sold through distribution
channels under Proxim's brand name and to OEM customers under private label
agreements, represented 67%, 61% and 49% of total revenue in 1997, 1996 and
1995, respectively.

RESULTS OF OPERATIONS

THREE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

    Revenue increased 4% from 1996 to 1997 and 87% from 1995 to 1996. Revenue
increased in 1997 primarily due to increased unit sales of 2.4 GHz OEM products,
RangeLAN2 branded products and private label RangeLAN2 products, including
increased revenue from shipments to distributors and OEM customers that sell
RangeLAN2-based 2.4 GHz product lines in North America and Europe, partially
offset by a significant decrease in orders from NTT-IT, one of the Company's
major customers, in the third and fourth quarters of 1997. Revenue increased in
1996 primarily due to increased unit sales of 2.4 GHz OEM products, RangeLAN2
branded products and private label RangeLAN2 products, including increased
revenue from shipments to international distributors and to OEM customers that
had recently introduced RangeLAN2-based 2.4 GHz product lines in North America,
Europe and Asia.

    Gross profit as a percentage of revenue was 48% in 1997 and 1996, and 51% in
1995. Gross profit as a percentage of revenue was flat in 1997 compared to 1996
due to engineering cost reductions on 2.4 GHz products, partially offset by
declining average selling prices on 2.4 GHz products and a decrease in revenue
from higher gross margin 900 MHz products. Gross profit as a percentage of
revenue decreased in 1996 compared to 1995 due to a change in the mix of revenue
from higher gross margin 900 MHz products to lower gross margin 2.4 GHz OEM
products, and higher costs related to initial manufacturing of and increasing
the capacity for 2.4 GHz product versions designed to meet certification
requirements in North America, Europe and Japan


                                       17
<PAGE>   18

    Research and development expenses consist primarily of personnel costs, and
to a lesser extent, consulting fees, prototype material, other costs of
ASIC/MMIC development and charges related to technology investments. Research
and development expenses are related primarily to the development and
enhancement of radio transceivers, ASICs/MMICs, wireless protocols and network
software drivers. Research and development expenses increased each year
primarily due to the increased number of engineering employees, continued
investment in integrating the Company's technology into ASICs, development of
wireless protocols and network software drivers, costs related to performance
enhancements, cost reductions in the RangeLAN2 architecture, 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. In addition, research and development expenses in 1997
also increased due to a one-time pretax charge of $2,500,000 related to the
purchase of in-process technology. Research and development expenses as a
percentage of revenue were 20%, 12% and 15% in 1997, 1996 and 1995,
respectively. Research and development expenses as a percentage of revenue
increased in 1997 compared to 1996 primarily due to an increase in personnel
costs and the one-time charge for the purchase of in-process technology.
Research and development expenses as a percentage of revenue declined in 1996
compared to 1995 primarily due to increases in revenue. To date, all of the
Company's research and development costs have been expensed as incurred.

    Selling, general and administrative expenses consist primarily of personnel
costs, sales commissions, costs related to both domestic and international
product certifications, customer support, trade show and advertising expenses,
one-time charges related to investments, communications and information systems,
and to a lesser extent, professional fees and facilities costs. Selling, general
and administrative expenses increased each year primarily due to the hiring of
additional marketing and sales personnel to support the Company's growth,
particularly its expansion into international markets, as well as increased
trade show and promotional expenses. Selling, general and administrative
expenses as a percentage of revenue were 31%, 23% and 30% in 1997, 1996 and
1995, respectively. Selling, general and administrative expenses as a percentage
of revenue increased in 1997 compared to 1996 due to an increase in personnel
costs and a $2,400,000 charge related to two investments: one in a startup
wireless services company utilizing wireless LAN technology and the other in a
developer of mobile thin-client computing technology. Selling, general and
administrative expenses as a percentage of revenue declined in 1996 compared to
1995 primarily due to increases in revenue.

    Interest and other income net, is primarily interest income and
non-operating gains. Interest and other income increased significantly from 1996
to 1997 primarily due to proceeds from the follow-on public offering in July
1996 which increased cash balances. Interest and other income increased
significantly from 1995 to 1996 primarily due to proceeds from the follow-on
public offering in July 1996 and a one-time non-operating gain of $1,500,000
related to the November 1996 termination of a proposed merger.

    The Company recognized a provision for income taxes of $1,243,000 in 1997,
$1,664,000 in 1996, and a benefit of $1,051,000 in 1995. The benefit recognized
in 1995 was due to a current provision of $180,000, primarily representing
alternative minimum taxes, offset by the recognition of $1,231,000 of deferred
tax assets based on the Company's assessment that this portion of the deferred
tax assets will be realized. The provision of $1,664,000 in 1996 was due to a
current provision of $2,629,000, offset by the recognition of $965,000 of
deferred tax assets. The provision of $1,243,000 in 1997 was due to a current
provision of $2,490,000, offset by the recognition of $1,247,000 of deferred tax
assets. As of December 31, 1997, the Company had gross deferred tax assets of
$3,805,000 and a related valuation allowance of $362,000. The Company has
established a valuation allowance covering deferred tax assets related to net
operating loss carryforwards which cannot be utilized prior to January 1, 2003
due to limitations on their usage.

INFLATION

    To date, inflation has not had a significant impact on the Company's
operating results.


                                       18
<PAGE>   19


LIQUIDITY AND CAPITAL RESOURCES

    The Company has financed its operations to date primarily through private
placements of its equity securities, and its public offerings in December 1993
and July 1996. As of December 31, 1997, the Company had an accumulated deficit
of $2,403,000.

    In 1997 and 1996, cash provided by operations was $6,548,000 and $633,000,
respectively. In 1995, cash used in operations was $3,853,000. In 1997, cash was
provided primarily by net income, a decrease in accounts receivable and by
increases in other current liabilities, partially offset by cash used to fund
increases in inventories and decreases in accounts payable. In 1996, cash was
provided primarily by net income and by increases in other current liabilities,
partially offset by cash used to fund increases in inventories and accounts
receivable and decreases in accounts payable. In 1995, cash was used primarily
to fund increases in inventories and accounts receivable, partially offset by
cash provided by net income and by increases in accounts payable and other
current liabilities. The increase in inventories in 1997, 1996 and 1995 was
primarily attributable to the addition of new products and the growth in
revenue. The Company believes that to the extent it experiences growth in its
operations, if any, then additional cash will be required to fund increases in
inventories and accounts receivable.

    In 1997, 1996 and 1995, the Company purchased $1,424,000, $3,185,000 and
$1,578,000, respectively, of property and equipment using cash raised in equity
financing. Expenditures related primarily to the acquisition of manufacturing
and engineering test equipment and leasehold improvements. The Company expects
to purchase approximately $2,500,000 of property and equipment during 1998,
consisting primarily of leasehold improvements, telecommunications equipment,
manufacturing and engineering test equipment and tooling, engineering systems
software and equipment, and general office equipment.

    At December 31, 1997, the Company's principal source of liquidity was cash
and cash equivalents of $62,296,000. The Company believes that its existing
working capital and cash generated from operations, if any, will be sufficient
to finance any cash acquisitions which the Company 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, the Company will consider additional financing. There can be no
assurance that such financing will be available on terms acceptable to the
Company, if at all.

CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

    In addition to the other information in this Form 10-K, the following are
important factors that should be considered carefully in evaluating the Company
and its business.

    Potential Fluctuations in Future Operating Results. The Company has
experienced, and may in the future continue to experience, significant annual
and quarterly fluctuations in revenue, gross margins and operating results due
to numerous factors, some of which are outside the Company's control. These
factors include fluctuating market demand for, and declines in the average
selling prices of, the Company's products, the timing of and delays or
cancellations of significant orders from major customers, loss of one or more of
the Company's major customers, the cost, availability and quality of components
from the Company's suppliers, the cost, availability, and quality of assemblies
from subcontractors, the lengthy sales and design-in cycles for OEM products,
delays in the introduction of the Company's new products, competitive product
introductions, market adoption of new technologies, market adoption of
standards-based products (such as those compliant with the recently approved
IEEE 802.11 standard), the mix of products sold, the effectiveness of the
Company's 


                                       19
<PAGE>   20

distribution channels, 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, Year
2000 issues and general economic conditions. Historically, the Company has not
operated with a significant order backlog and a substantial portion of the
Company's revenue in any quarter has been derived from orders booked and shipped
in that quarter. Accordingly, the Company's revenue expectations are based
almost entirely on its internal estimates of future demand and not on firm
customer orders. Planned expense levels are relatively fixed in the short term
and are based in large part on these estimates, and if orders and revenue do not
meet expectations, the Company's operating results could be materially adversely
affected. In this regard, in the third quarter of 1997, the Company experienced
a decrease in revenue and an operating loss as a result of a significant
decrease in orders from two of the Company's major customers. There can be no
assurance that the Company 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, the Company has often recognized a
substantial portion of its 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. It is possible that due to such fluctuations or other
factors, the Company's future operating results could be below the expectations
of securities analysts and investors. In such an event, or in the event that
adverse market conditions prevail or are perceived to prevail generally or with
respect to the Company's business, the price of the Company's Common Stock would
likely be materially adversely affected. For example, in the third quarter of
1997 the Company announced that revenue and operating results were expected to
be significantly below expectations of securities analysts and investors,
resulting in a decrease in the market price of the Company's Common Stock.

    Dependence on a Limited Number of OEM Customers. Historically, a substantial
portion of the Company's revenue has been derived from a limited number of
customers, most of which are OEM customers. Approximately 62%, 60% and 79% of
the Company's sales during the 1997, 1996 and 1995, respectively, were to OEM
customers. In addition, sales to three customers represented approximately 28%,
17% and 10% of the Company's revenue during 1997. Sales to three customers
represented approximately 22%, 22% and 12% of the Company's revenue during 1996.
The Company expects that sales to a limited number of OEM customers will
continue to account for a substantial portion of its revenue for the foreseeable
future. The Company also has experienced quarter to quarter variability in sales
to each of its major OEM customers and expects this pattern to continue in the
future.

    Sales of many of the Company's wireless networking products depend in
significant part upon the decision of a prospective OEM customer to develop and
market wireless solutions which incorporate the Company's wireless technology.
OEM customers' orders are affected by a variety of factors such as new product
introductions, regulatory approvals, end user demand for OEM customers'
products, product life cycles, inventory levels, manufacturing strategy,
contract awards, competitive conditions and general economic conditions. Sales
of wireless LAN products generally involve significant commitments of capital
and other resources by the Company and its customers, with the attendant delays
associated with procedures to approve such commitments. In this regard, in the
fourth quarter of 1997, the Company took a one-time charge of $2,400,000 to
selling, general and administrative expense related to two investments: one in a
startup wireless services company utilizing wireless LAN technology and the
other in a developer of mobile thin-client computing technology. For these and
other reasons, the design-in cycle associated with the purchase of the Company's
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 the Company's control. Because of the lengthy sales cycle, the Company
typically plans its production and inventory levels based on internal forecasts
of OEM customer demand, which is highly unpredictable and can fluctuate
substantially. In addition, the Company's 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
have a material adverse effect on the Company's results of operations. If
revenue forecasted from a specific customer for a particular quarter is not
realized in 


                                       20
<PAGE>   21

that quarter, the Company's operating results for that quarter could
be materially adversely affected. The loss of one or more of, or a significant
reduction in orders from, the Company's major OEM customers could have a
material adverse effect on the Company's results of operations. For example, in
the third quarter of 1997, the Company experienced a significant decrease in
orders from two of the Company's major customers resulting in a decrease in
revenue, an operating loss and higher inventory levels. In addition, there can
be no assurance that the Company will become a qualified supplier for new OEM
customers or that the Company will remain a qualified supplier for existing OEM
customers.

    Sole or Limited Sources of Supply. Certain parts and components used in the
Company's products, including the Company's proprietary ASICs, 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.
The Company's reliance on these sole source or limited source suppliers involves
certain risks and uncertainties, including the possibility of a shortage or
discontinuation of certain key components and reduced control over delivery
schedules, manufacturing capability, quality and costs. Any reduced availability
of such parts or components when required could materially impair the Company's
ability to manufacture and deliver its products on a timely basis and result in
the cancellation of orders, which could have a material adverse effect on the
Company's operating results. In addition, the purchase of certain key components
involves long lead times and, in the event of unanticipated increases in demand
for the Company's products, the Company has in the past been, and may in the
future be, unable to manufacture certain products in a quantity sufficient to
meet its customers' demand in any particular period. The Company has no
guaranteed supply arrangements with its sole or limited source suppliers, does
not maintain an extensive inventory of parts or components, and customarily
purchases 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 or financial difficulties of a sole or
limited source supplier could materially and adversely impact the Company by
increasing product costs, or reducing or eliminating the availability of such
parts or components. In such event, the inability of the Company to develop
alternative sources of supply quickly and on a cost-effective basis could
materially impair the Company's ability to manufacture and deliver its products
on a timely basis and could have a material adverse effect on its operating
results.

    Manufacturing Risks. The Company currently has limited manufacturing
capability and has no experience in large scale manufacturing. If the Company's
customers were to place orders for unexpectedly large quantities of the
Company's products, the Company's present manufacturing capacity could be
inadequate to meet such demand. There can be no assurance that the Company will
be able to develop or contract for additional manufacturing capacity on
acceptable terms on a timely basis. In addition, in order to continue to compete
successfully, the Company will need to achieve significant product cost
reductions. Although the Company intends to achieve cost reductions through
engineering improvements and production economies, there can be no assurance
that the Company will be able to do so. In order to remain competitive, the
Company must continue to introduce new products and processes into its
manufacturing environment. The Company currently conducts its manufacturing
operations for all of its products in a single facility in Mountain View,
California. In addition, the Company relies on certain outside contract
manufacturers for circuit board assemblies which subjects the Company to a
number of risks, including a potential inability to obtain an adequate supply of
assembled circuit boards as well as reduced control over the price, timely
delivery and quality of such assembled circuit boards. If the Company's Mountain
View facility or the facilities of the outside contract manufacturers were
incapable of operating, even temporarily, or were unable to operate at or near
current or full capacity for any extended period, the Company's business and
operating results could be materially adversely affected. Changes in the
manufacturing operations to incorporate new products and processes could cause
disruptions, which, in turn, could adversely affect customer relationships,
cause a loss of market opportunities and have a material adverse effect on the
Company's business and operating results.


                                       21
<PAGE>   22

    During the second and third quarters of 1995, the Company experienced higher
than expected demand for its 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. Although the Company has taken certain steps to minimize such delays
in the future by increasing its manufacturing capacity and stocking certain
critical and long lead time components, due to the complex nature of the
Company's products and manufacturing processes, the worldwide demand for certain
wireless technology components and other factors, there can be no assurance that
delays in the delivery of products will not occur in the future.

    The Company intends to increase its manufacturing capacity during the next
eighteen months and intends to seek additional space near its present facility
in Mountain View, California. There can be no assurance that the Company will be
able to locate sufficient space near its present facility at commercially
reasonable rates. Furthermore, this expansion and relocation could cause
disruption of operations and unexpected costs which could have a material
adverse effect on the Company's business and operating results.

    Rapid Technological Change; Ongoing New Product Development Requirements;
Evolving Industry Standards. The wireless communications industry is
characterized by very rapid technological change, short product life cycles and
evolving industry standards. To remain competitive, the Company must develop or
gain access to new technologies in order to increase product performance and
functionality, reduce product size and maintain cost-effectiveness. The
Company's research and development efforts are focused on implementing
enhancements to existing products, investigating new technologies and developing
new products. Since 1994 the Company's research and development efforts have
been concentrated on enhancing features and performance and reducing the cost of
the RangeLAN2-based products. These efforts include developing and integrating
the Company's technology into ASICs/MMICs, development of wireless protocols and
network software drivers, performance enhancements and cost reductions to
wireless adapter and access point products and efforts related to both domestic
and international product certification. In 1997 the Company substantially
increased its research and development efforts in developing IEEE 802.11
standard based products and 5 GHz high-speed wireless LAN technology.

    The Company's success is also dependent on its 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 wireless LAN companies, including Proxim, from time to
time have experienced delays in developing and introducing new products. Due to
the intensely competitive nature of the Company's business, any delay in the
commercial availability of new products could have a material adverse effect on
the Company's operating results. If the Company is unable to develop or obtain
access to advanced wireless networking technologies as they become available, or
is unable to design, develop and introduce competitive new products on a timely
basis, or is unable to hire or retain qualified engineers to develop such
technologies and products, its future operating results would be materially and
adversely affected. In particular, the Company has expended substantial
resources in developing products that are designed to conform to the IEEE 802.11
standard that received final approval in June 1997. There can be no assurance
that the Company will introduce IEEE 802.11 compliant products in a timely
manner or that this standard will have a meaningful commercial impact. Any delay
in the commercial availability of the Company's IEEE 802.11 compliant products
could have a material adverse effect on the Company's results of operations,
particularly if its competitors are able to develop and introduce competitive
products which conform to this standard more rapidly than the Company.

    The Company expects to substantially increase its research and development
expenses to develop new technologies related to 5 GHz high-speed wireless LAN
products. In this regard, in the fourth quarter of 1997, the Company took a
one-time pre-tax charge of $2,500,000 to research and development expense for
the 


                                       22
<PAGE>   23

purchase of in-process technology related to developing 5 GHz high-speed
wireless LAN products. Given the emerging nature of the wireless LAN market,
there can be no assurance that the RangeLAN2 products and technology, or the
Company's other products or technology, will not be rendered obsolete by
alternative technologies.

    Competition. The wireless local area networking market is intensely
competitive. The principal competitive factors in this market include effective
RF coverage area, data throughput, wireless networking protocol sophistication,
network scalability, roaming capability, power consumption, product
miniaturization, product reliability, product time to market, product
certifications, price, effective distribution channels, ability to support new
industry standards and company reputation. Although the Company believes that it
currently competes favorably on the basis of these factors, the Company could be
at a disadvantage to companies that have broader distribution channels and offer
more diversified product lines.

    Proxim has several current competitors which offer 2.4 GHz products,
including Lucent Technologies, Symbol Technologies and Telxon. In addition,
certain other companies have announced their intention to offer competitive 2.4
GHz products and solutions. Some of these competitors have announced their
intention to develop IEEE 802.11 standard-based products or other higher
performance systems in the future. In addition to competition from companies
that offer or have announced their intention to develop wireless LAN products,
the Company could face future competition from companies that offer products
which replace network adapters or offer alternative wireless communications
solutions, or from large computer and network equipment companies. Moreover, the
Company could also face competition from certain of its OEM customers which
have, or could acquire, wireless engineering and product development
capabilities. There can be no assurance that the Company will be able to compete
successfully against these competitors or that competitive pressures faced by
the Company will not adversely affect its business or operating results. For
example, in March 1998, an industry consortium known as the HRFWG was formed.
The HRFWG expects to publish in 1998 an open specification for home wireless
communications, called SWAP. The HRFWG is led by core members Compaq Computer
Corporation, Ericsson Enterprise Networks, Hewlett-Packard, IBM, Intel,
Microsoft, Motorola, Philips Consumer Communications L.P., Proxim and
Symbionics, and supported by Butterfly Communications, Harris Semiconductor,
Intellon, National Semiconductor, Rockwell Semiconductor Systems and Samsung
Electronics America, Inc. There can be no assurance that the Company will
introduce SWAP compliant products in a timely manner or that this open
specification will have a meaningful commercial impact. Any delay in the
commercial availability of the Company's SWAP compliant products could have a
material adverse effect on the Company's results of operations, particularly if
its competitors are able to develop and introduce competitive products which
conform to this open specification more rapidly than the Company.

    Many of the Company's present and potential competitors have substantially
greater financial, marketing, technical and other resources than the Company
with which to pursue engineering, manufacturing, marketing, and distribution of
their products and 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. There can be no
assurance that the Company will succeed in developing products or technologies
that are more effective than those developed by its competitors. Furthermore,
the Company competes with companies with high volume manufacturing and extensive
marketing and distribution capabilities, areas in which the Company has limited
experience. Increased competition, direct and indirect, could adversely affect
the Company's revenue and profitability through pricing pressure and loss of
market share. There can be no assurance that the Company will be able to compete
successfully against existing and new competitors as the market evolves and the
level of competition increases.

    International Sales. Revenue from shipments by the Company to customers
outside the United States, principally to a limited number of international
distributors and OEM customers, represented 26%, 31% and 24% of total revenue
during 1997, 1996 and 1995, respectively. The Company expects that revenue from
shipments to international customers will vary over time as a percentage of
revenue. Sales to international 


                                       23
<PAGE>   24

customers or to U.S. OEM customers who ship to international locations are
subject to a number of risks and uncertainties including, but not limited to,
changes in foreign government regulations and telecommunications standards,
export license requirements, tariffs and taxes, other trade barriers,
fluctuations in currency exchange rates, difficulty in collecting accounts
receivable, difficulty in staffing and managing foreign operations, and
potential political and economic instability. While international sales are
typically denominated in U.S. dollars and the Company generally extends limited
credit terms, fluctuations in currency exchange rates could cause the Company's
products to become relatively more expensive to customers in a particular
country, leading to a reduction in sales or profitability in that country.
Additionally, payment cycles for international customers are usually longer than
for customers in the United States. There can be no assurance that foreign
markets will continue to develop or that the Company will receive additional
orders to supply its products to foreign customers. The Company's business and
operating results could be materially and adversely affected if foreign markets
do not continue to develop or the Company does not receive additional orders to
supply its products for use by foreign customers. In the latter part of 1997,
capital markets in Asia were highly volatile resulting in fluctuations in Asian
currencies and other economic instabilities. These instabilities may continue or
worsen, either of which could have a material adverse effect on the Company's
results of operations. In this regard, in the third and fourth quarter of 1997,
the Company experienced a significant decrease in orders from NTT-IT, one of the
Company's major Japanese customers, resulting in a significant decrease in
quarterly revenue and an operating loss in the third quarter of 1997.

    Protection of Proprietary Rights. The Company relies on a combination of
patents, trademarks and non-disclosure agreements in order to establish and
protect its proprietary rights. Proxim has been issued three U.S. patents which
are important to the current business of the Company, and has six patent
applications pending in the U.S. which relate to the Company's core technology.
There can be 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 the Company's technology. In addition, there can
be no assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company. Since U.S. patent applications are
maintained in secrecy until patents issue, and since publication of inventions
in the technical or patent literature tend to lag behind such inventions by
several months, the Company cannot be certain that it was the first creator of
the inventions covered by its issued patents or pending patent applications or
that it was the first to file patent applications for such inventions or that
the Company is not infringing on the patents of others. In addition, the Company
has filed, or reserved its rights to file, a number of patent applications
internationally. There can be no assurance that any such international patent
applications will issue or that the laws of foreign jurisdictions will protect
the Company's proprietary rights to the same extent as the laws of the United
States.

    In view of the rapid technological change in this industry, Proxim believes
that the technical expertise and creative skills of its engineers and other
personnel are crucial in determining the Company's future success. The Company's
ability to compete in the marketplace may be enhanced by its ability to protect
its proprietary information through the ownership of patents, registrations, and
trademarks. The Company attempts to protect its trade secrets and other
proprietary information through agreements with customers and suppliers,
proprietary information agreements with employees and other security measures.
Although the Company intends to protect its rights vigorously, there can be no
assurance that these measures will be successful. Litigation may be necessary to
enforce the Company's patents, trademarks or other intellectual property rights,
to protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others or to defend against claims of infringement.
Such litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business and operating
results. No intellectual property of the Company has been invalidated or
declared unenforceable. However, there can be no assurance that in the future
such rights will be upheld. Furthermore, there can be no assurance that any
issued patents will provide the Company with a competitive advantage or will not
be challenged by third parties or that the patents of others will not have an
adverse effect on the Company's ability to do business. There can be no
assurance that the measures taken by the Company will prevent misappropriation
of its technology. In 


                                       24
<PAGE>   25

addition, there can be no assurance that others will not independently develop
similar products, design around the Company's proprietary technology or
duplicate the Company's products.

    Management of Growth. The Company's growth to date has caused, and will
continue to cause, a significant strain on its management, operational,
financial and other resources. The Company's ability to manage its growth
effectively will require it to improve its operational and financial systems.
These demands will require the addition of new management personnel and the
development of additional expertise by existing management. The failure of the
Company's management team to effectively manage growth, should it occur, could
have a material adverse impact on the Company's results of operations.

    Uncertain Government Regulation. In the United States, the Company is
subject to various FCC rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio spectrum.
Proxim's spread spectrum wireless products are certified for unlicensed
operation in the 902-928 MHz and 2.4-2.4835 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 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 the
Company's products experience excessive interference from primary users, market
acceptance of the Company's products could be adversely affected, thereby
materially and adversely affecting the Company's business and results of
operations. The FCC, however, has established certain standards which create an
irrebuttable presumption of noninterference for Part 15 users and the Company
believes that its products comply with such requirements. There can be no
assurance that the occurrence of regulatory changes, including changes in the
allocation of available frequency spectrum or modification to the standards
establishing an irrebuttable presumption for unlicensed Part 15 users, would not
significantly impact the Company's operations by rendering current products
obsolete, restricting the applications and markets served by the Company's
products or increasing the opportunity for additional competition.

    The Company's products are also subject to regulatory requirements in
international markets and, therefore, the Company has been monitoring the
development of spread spectrum regulations in certain countries that represent
potential markets for its products. The Company has limited experience in
gaining regulatory approval outside of the United States. Several foreign
countries, such as Canada, have regulations that closely follow those of the
FCC. To date, Proxim or its distribution partners have obtained certifications
for the Company's products in over 24 countries as well as approval for use in
over 20 additional countries which rely on or reference certification
requirements of regulatory bodies such as the FCC and ETSI. Each new Proxim 
product or OEM customer product must be certified or otherwise qualified for 
use in each country. The Company has an ongoing program to obtain certifications
for its products and to assist certain OEM customers in obtaining certification
for their products in all available markets. While there can be no assurance 
that the Company will be able to comply with regulations in any particular 
country, the Company has designed its RangeLAN2 and IEEE 802.11 products to 
minimize the design modifications required to meet various 2.4 GHz 
international spread spectrum regulations. Changes in, or the failure by the 
Company to comply with, applicable domestic and international regulations could
have a material adverse effect on the Company's business and operating results.
In addition, with respect to those countries that do not follow FCC regulations,
Proxim may need to modify its products to meet local rules and regulations.

    Regulatory changes, including changes in the allocation of available
frequency spectrum, could significantly impact the Company's operations by
restricting the Company's 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. These changes in
the allocation 


                                       25
<PAGE>   26

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 which could have a material adverse effect on the
Company's business and results of operations.

    Emission of Electromagnetic Radiation. The intentional emission of
electromagnetic radiation has been the subject of recent public concern
regarding possible health and safety risks, and though the Company's products,
when installed in any of the intended configurations, will not exceed the
maximum permissible exposure limits listed in Section 1.1311 of the Federal
Communications Commission Regulations, there can be no assurance that such
safety issues will not arise in the future and will not have a materially
adverse effect on the Company's business.

    Expanded Distribution Required for Branded Products. To date, a substantial
percentage of Proxim's revenue has been derived from OEM customers through the
Company's direct sales force. The Company sells its branded RangeLAN2 products
through domestic and international distributors. In general, distributors offer
products of several different companies, including products that may compete
with the Company's products. Accordingly, these distributors may give higher
priority to products of other suppliers, thus reducing their efforts to sell the
Company's 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 the Company may have a material adverse effect
on the Company's 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 the Company's future operating results.

    Dependence on Key Employees. The Company is highly dependent on the
technical and management skills of its key employees, in particular David C.
King, Chairman, President and Chief Executive Officer, and Juan Grau, Vice
President of Engineering. The Company does not have employment agreements with,
or life insurance on the life of, either person. The loss of the services of any
key employee could adversely affect the Company's business and operating
results. The Company's success also depends in large part on a limited number of
key technical, marketing and sales employees and on the Company's 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. There can be no assurance that the Company
will be successful in retaining its key employees or that it can attract,
assimilate or retain the additional skilled personnel as required.

    Volatility of Stock Price. Recently, the price of the Company's Common Stock
has been volatile. The Company believes that the price of its Common Stock may
continue to fluctuate, perhaps substantially, as a result of factors such as
announcements of developments relating to the Company's business, fluctuations
in the Company's 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 the Company or its competitors, developments in
patent, copyrights or other intellectual property rights and developments in the
Company's relationships with its customers, distributors and suppliers. In the
third quarter of 1997, the Company announced revenue and operating results below
expectations of securities analysts and investors, resulting in a decrease in
the market price of the Company's 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 the Company's Common Stock will not
experience significant fluctuations in the future, including fluctuations that
are unrelated to the Company's performance.


                                       26
<PAGE>   27

    Year 2000 Impact. Customary computer programming practices, developed prior
to the upcoming change in the century becoming a concern, have used two digits
rather than four to identify the year in a date field. If not corrected, many
computer applications may fail to treat year dates intended to represent years
in the twenty-first century as such but instead treat them as still in the
twentieth century, potentially resulting in system failure or miscalculations
disruptive of business operations, including, among other things, an inability
to initiate, receive, process, invoice or otherwise complete normal business
activities. These Year 2000 issues affect virtually all companies and
organizations.

    The Year 2000 issues affect the Company's internal operations. The Company
is working with outside contractors to develop and install a new corporate-wide
information system. The new system was identified as a strategic business
initiative independent of Year 2000 considerations. While the new information
system will be a dynamic one permitting ongoing improvements as business needs
are identified, the basic operational systems are expected to be substantially
completed during early 1999 at a total estimated expenditure of approximately $2
million. Those time and cost targets are management's current best estimates
based on presently available information and numerous assumptions. Given the
uncertainties and complexities inherent in any new system installation, there
can be no assurance that the project will be completed within the estimated time
and cost parameters. The portions of the Company's existing information system
which would require correction for Year 2000 issues will be superseded as part
of this larger, new system implementation, which is being designed to be Year
2000 compliant.

    The impact of Year 2000 issues on the Company will also be affected by the
Year 2000 readiness of its customers as well as of its suppliers of raw
materials, components and software, outside contract manufacturers, and its
providers of facilities, equipment and services and any failure on their part to
achieve readiness in their own operations or with respect to the items they
supply or otherwise provide to the Company. While the Company is beginning to
consider what inquiries might be appropriate to make of such other parties
(principally of its suppliers and other providers) in these regards, there can
be no assurance that the Year 2000 issues confronting such other parties and any
failure on their part to timely address them will not have a material adverse
effect on the Company.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Not applicable.


                                       27
<PAGE>   28

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
                                                                                       PAGE
         INDEX TO FINANCIAL STATEMENTS
         <S>                                                                           <C>
         Report of Independent Accountants......................................        29

         Balance Sheet at December 31, 1997 and 1996............................        30

         Statement of Operations for the Years Ended
              December 31, 1997, 1996 and 1995..................................        31

         Statement of Stockholders' Equity for the Years Ended
              December 31, 1997, 1996 and 1995..................................        32

         Statement of Cash Flows for the Years Ended
              December 31, 1997, 1996 and 1995..................................        33

         Notes to Financial Statements..........................................        34
</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.


                                       28
<PAGE>   29

                        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
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Proxim, Inc. at December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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 the opinion expressed above.


PRICE WATERHOUSE LLP

San Jose, California
January 19, 1998


                                       29
<PAGE>   30

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

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                      -------------------------
                                                                                         1997            1996
                                                                                      ---------       ---------
                                            ASSETS
      <S>                                                                            <C>             <C>       
      Current assets:
        Cash and cash equivalents...............................................      $  62,296       $  54,232
        Accounts receivable, net................................................          6,879          10,271
        Inventories.............................................................         12,309          10,479
        Deferred tax assets.....................................................          1,625           1,116
        Other current assets....................................................            346             201
                                                                                      ---------       ---------
          Total current assets..................................................         83,455          76,299
      Property and equipment, net...............................................          3,786           4,002
      Deferred tax assets.......................................................          1,818           1,080
                                                                                      ---------       ---------
                                                                                      $  89,059       $  81,381
                                                                                      =========       =========


                                   LIABILITIES AND STOCKHOLDERS' EQUITY

      Current liabilities:
        Accounts payable........................................................      $   1,354       $   1,833
        Other current liabilities...............................................          9,030           3,907
                                                                                      ---------       ---------
          Total current liabilities.............................................         10,384           5,740
                                                                                      ---------       ---------

      Commitments (Note 10)

      Stockholders' equity:
        Common Stock, $.001 par value, 25,000 shares authorized; 10,194 and 
         9,787 shares issued and outstanding....................................             10              10
        Additional paid-in capital..............................................         81,068          78,128
        Accumulated deficit.....................................................         (2,403)         (2,497)
                                                                                      --------        ---------
          Total stockholders' equity............................................         78,675          75,641
                                                                                      ---------       ---------
                                                                                      $  89,059       $  81,381
                                                                                      =========       =========
</TABLE>

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


                                       30
<PAGE>   31


                                  PROXIM, INC.
                             STATEMENT OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                     -------------------------------
                                                         1997        1996       1995
                                                     --------    --------   --------
<S>                                                  <C>         <C>        <C>     
Revenue ..........................................   $ 42,951    $ 41,220   $ 22,083
Cost of revenue ..................................     22,359      21,383     10,843
                                                     --------    --------   --------
Gross profit .....................................     20,592      19,837     11,240
                                                     --------    --------   --------

Operating expenses:
  Research and development .......................      8,720       4,949      3,288
  Selling, general and administrative ............     13,513       9,408      6,694
                                                     --------    --------   --------
    Total operating expenses .....................     22,233      14,357      9,982
                                                     --------    --------   --------
Income (loss) from operations ....................     (1,641)      5,480      1,258
Interest and other income, net ...................      2,978       2,838        537
                                                     --------    --------   --------
Income before income taxes .......................      1,337       8,318      1,795
Provision (benefit) for income taxes .............      1,243       1,664     (1,051)
                                                     --------    --------   --------
Net income .......................................   $     94    $  6,654   $  2,846
                                                     ========    ========   ========

Basic net income per share .......................   $    .01    $    .79   $    .40
                                                     ========    ========   ========
Weighted average common shares ...................     10,048       8,466      7,150
                                                     ========    ========   ========
Diluted net income per share .....................   $    .01    $    .71   $    .35
                                                     ========    ========   ========
Weighted average common shares and equivalents ...     11,108       9,386      8,172
                                                     ========    ========   ========
</TABLE>


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


                                       31
<PAGE>   32


                                  PROXIM, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    COMMON STOCK               ADDITIONAL
                                              -----------------------           PAID-IN       ACCUMULATED
                                              SHARES           AMOUNT           CAPITAL         DEFICIT            TOTAL
                                              ------           ------          ----------     -----------          -----
<S>                                           <C>                              <C>             <C>                <C>

Balance at December 31, 1994 .......            7,011         $      7         $ 27,216         $(11,997)         $ 15,226
Exercise of stock options ..........              172               --              102               --               102
Issuance of Common Stock under Stock
   Purchase Plan ...................               74               --              276               --               276
Net income .........................               --               --               --            2,846             2,846
                                             --------         --------         --------         --------          --------
Balance at December 31, 1995 .......            7,257                7           27,594           (9,151)           18,450
Exercise of stock options ..........              381                1              822               --               823
Issuance of Common Stock under
   Stock Purchase Plan .............              136               --              610               --               610
Issuance of Common Stock in
  follow-on public offering, net ...            2,013                2           47,002               --            47,004
Tax benefit of stock options .......               --               --            2,100               --             2,100
Net income .........................               --               --               --            6,654             6,654
                                             --------         --------         --------         --------          --------

Balance at December 31, 1996 .......            9,787               10           78,128           (2,497)           75,641
Exercise of stock options ..........              306               --            1,068               --             1,068
Issuance of Common Stock under Stock
   Purchase Plan ...................              101               --              692               --               692
Tax benefit of stock options .......               --               --            1,180               --             1,180
Net income .........................               --               --               --               94                94
                                             --------         --------         --------         --------          --------

Balance at December 31, 1997 .......           10,194         $     10         $ 81,068         $ (2,403)         $ 78,675
                                             ========         ========         ========         ========          ========
</TABLE>


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


                                       32
<PAGE>   33

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


<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                      ------------------------------------
                                                                          1997          1996          1995
                                                                      --------      --------      --------
<S>                                                                   <C>           <C>           <C>     
Cash flows from operating activities:
  Net income ....................................................     $     94      $  6,654      $  2,846
  Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
  Depreciation and amortization .................................        1,640           983           516
  Deferred tax assets ...........................................       (1,247)         (965)       (1,231)
  Changes in assets and liabilities:
    Accounts receivable .........................................        3,392        (3,461)       (4,681)
    Inventories .................................................       (1,830)       (2,588)       (4,865)
    Other assets ................................................         (145)          (73)          114
    Accounts payable ............................................         (479)       (1,914)        2,060
    Other current liabilities ...................................        5,123         1,997         1,388
                                                                      --------      --------      --------
        Net cash provided by (used in) operating activities .....        6,548           633        (3,853)
                                                                      --------      --------      --------
Cash flows used in investing activities for purchase of
    property and equipment ......................................       (1,424)       (3,185)       (1,578)
                                                                      --------      --------      --------
Cash flows from financing activities:
  Proceeds from issuance of Common Stock, net ...................        1,760        48,437           378
  Tax benefit of stock options ..................................        1,180         2,100            --
                                                                      --------      --------      --------
      Net cash provided by financing activities .................        2,940        50,537           378
                                                                      --------      --------      --------
                                                                                                       
Net increase (decrease) in cash and cash equivalents ............        8,064        47,985        (5,053)
Cash and cash equivalents, beginning of period ..................       54,232         6,247        11,300
                                                                      --------      --------      --------
Cash and cash equivalents, end of period ........................     $ 62,296      $ 54,232      $  6,247
                                                                      ========      ========      ========
</TABLE>

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


                                       33
<PAGE>   34
                                  PROXIM, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY:

    Proxim, Inc. (the "Company") designs, manufactures and markets high
performance wireless local area data networking products. Based on spread
spectrum radio frequency technology, Proxim's 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. The Company operates in one industry
segment and assets located outside of the United States are not significant.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash Equivalents

    The Company considers 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.

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.

Revenue

    Product revenue is generally recognized upon shipment to the customer. The
Company grants 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. The provision for estimated future warranty is recorded at the
time revenue is recognized.

Software Development Costs

    Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards No. 86
requires the capitalization of certain software development costs once
technological feasibility is established, which the Company defines 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, the Company has not
capitalized any software development costs.


                                       34
<PAGE>   35

Income Taxes

    A deferred tax liability or asset, net of 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, using the
treasury stock method based on the average stock price for the period.

Stock-Based Compensation

    The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No.
25,"Accounting for Stock Issued to Employees," and related Interpretations. The
Company provides additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." (See Note 6)

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.

New Accounting Pronouncements

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (FAS No. 130), "Reporting Comprehensive
Income" and No.131 (FAS No.131), "Disclosures About Segments of an Enterprise
and Related Information." FAS No.130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. FAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. FAS No.131
supercedes FAS No. 14 and requires segment information be reported on the basis
that it is used internally for evaluating segment performance and deciding how
to allocate resources to segments in quarterly and annual reports. FAS No. 131
is effective for annual reports for fiscal years beginning after December 15,
1997, and applicable to interim financial statements beginning in the second
year of application, along with comparative information for interim periods in
the initial year of application.


                                       35
<PAGE>   36

NOTE 3 -- BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                -----------------------
                                                                  1997           1996
                                                                --------       --------
                                                                    (IN THOUSANDS)
<S>                                                             <C>            <C>     
 Accounts receivable:
    Gross accounts receivable ............................      $  7,379       $ 10,371
    Less: allowance for doubtful accounts ................          (500)          (100)
                                                                --------       --------
                                                                $  6,879       $ 10,271
                                                                ========       ========
 Inventories:
    Raw materials ........................................      $  6,032       $  3,978
    Work-in-process ......................................         5,831          6,341
    Finished goods .......................................           446            160
                                                                --------       --------
                                                                $ 12,309       $ 10,479
                                                                ========       ========
 Property and equipment:
    Computer and test equipment ..........................      $  7,179       $  5,883
    Furniture and fixtures ...............................           522            511
    Leasehold improvements ...............................           975            858
                                                                --------       --------
                                                                   8,676          7,252
    Less: accumulated depreciation and amortization ......        (4,890)        (3,250)
                                                                --------       --------
                                                                $  3,786       $  4,002
                                                                ========       ========
 Other current liabilities:
    Income taxes payable .................................      $  1,751       $    680
    Accrued compensation .................................         1,366          1,580
    Deferred revenue .....................................           422            392
    Other accrued liabilities ............................         5,491          1,255
                                                                --------       --------
                                                                $  9,030       $  3,907
                                                                ========       ========
</TABLE>

NOTE 4 -- INCOME TAXES:

    The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                    -------------------------------
                                                     1997        1996        1995
                                                    -------     -------     -------
<S>                                                 <C>         <C>         <C>    
Current:
  Federal ......................................    $ 2,309     $ 1,974     $   149
  State ........................................        181         655          31
                                                    -------     -------     -------
                                                      2,490       2,629         180
                                                    -------     -------     -------
Deferred:
  Federal ......................................     (1,082)       (995)     (1,093)
  State ........................................       (165)         30        (138)
                                                    -------     -------     -------
                                                     (1,247)       (965)     (1,231)
                                                    -------     -------     -------
                                                    $ 1,243     $ 1,664     $(1,051)
                                                    =======     =======     =======
</TABLE>


                                       36
<PAGE>   37

    The tax provision (benefit) reconciles to the amount computed by multiplying
income before tax by the U.S. federal statutory rate of 34% as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ----------------------------------
                                                                1997         1996         1995
                                                              --------     --------     --------
<S>                                                           <C>          <C>          <C>     
Tax at federal statutory rate ............................    $    455     $  2,911     $    628
State taxes, net of federal tax benefit ..................         118          452          109
Research and development credits .........................        (104)        (100)          --
Permanent difference .....................................         912           --           --
Net operating loss carryforwards, net of minimum tax
    effect ...............................................          --         (843)        (503)
Change in valuation allowance ............................        (204)        (758)      (1,231)
Other ....................................................          66            2          (54)
                                                              --------     --------     --------
                                                              $  1,243     $  1,664     $ (1,051)
                                                              ========     ========     ========
</TABLE>

    Deferred tax assets comprise the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                         ---------------------
                                                           1997         1996
                                                         --------     --------
<S>                                                      <C>          <C>     
Net operating loss and credit carryforwards .........    $  1,406     $  1,740
Capitalized research and development costs ..........          98          131
Depreciation and amortization .......................       1,215          193
Accrued expenses and reserves .......................       1,086          698
                                                         --------     --------
Total deferred tax assets ...........................       3,805        2,762
Valuation allowance .................................        (362)        (566)
                                                         --------     --------
                                                         $  3,443     $  2,196
                                                         ========     ========
</TABLE>

    At December 31, 1997, the Company had approximately $4,000,000 of net
operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income; such carryforwards expire through 2008.

    The amounts of and the benefits from net operating losses that can be
carried forward may be impaired or limited in certain circumstances. Events
which may cause such limitations include, but are not limited to, a cumulative
stock ownership change of greater than 50%, as defined, over a three year
period. As a result of a prior financing which resulted in a cumulative
ownership change in 1991 of greater than 50%, the Company's net operating loss
carryforwards are limited to usage of approximately $600,000 per year. The
Company has established a valuation allowance covering deferred tax assets
related to net operating loss carryforwards which cannot be utilized prior to
January 1, 2003.

NOTE 5 -- STOCKHOLDERS' EQUITY:

Initial and Follow-on Public Offerings

    In December 1993, the Company completed an initial public offering of
1,500,000 shares of Common Stock at $9.00 per share and realized proceeds of
approximately $11.7 million, net of issuance costs of $812,000. In July 1996,
the Company completed a follow-on public offering of 2,012,500 shares of Common
Stock at $25.00 per share and realized proceeds of approximately $47.0 million,
net of issuance costs of $795,000.


                                       37
<PAGE>   38

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, 1997, no Preferred
Stock had been issued.

Preferred Share Purchase Rights

    In March 1997, the Company declared a dividend distribution of one Preferred
Share Purchase Right (the "Rights") on each outstanding share of the Company's
Common Stock. Each right will entitle stockholders to buy one one-thousandth of
a share of the Company's 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 the Company's
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. The Company 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 the Company's Common Stock.

    If, prior to redemption of the Rights, a person or group acquires 15% or
more of the Company's Common Stock, each Right not owned by a holder of 15% or
more of the Common Stock will entitle its 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 the Company's Common Stock, Proxim sells more
than 50% of its assets or earning power or is 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 its affiliates) for Common
Stock of the Company at an exchange ratio of one share of Common Stock per
Right.

NOTE 6 - STOCK PLANS:

1986 Stock Option Plan

    The Company's 1986 Stock Option Plan (the "1986 Plan") provided for the
grant of stock options to employees and consultants at prices not less than 85%
of the fair market value of the Company's 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 the Company's Common Stock on the dates of
grant. An aggregate of 2,272,088 shares of Common Stock were 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 its terms on March 20, 1996.

1995 Long-Term Incentive Plan

    In April 1995, the Company established the 1995 Long-Term Incentive Plan
(the "1995 Plan") and reserved 250,000 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 1,000,000 shares
to an aggregate of 1,250,000 shares. In May 1997, the Board of Directors
increased the number of shares of Common Stock authorized for issuance

                                       38
<PAGE>   39

under the 1995 Plan by 500,000 shares to an aggregate of 1,750,000 shares. The
1995 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, consultants and officers at prices not less than 100% of
the of the fair market value of the Company's Common Stock on the date of grant.
The options terminate ten years after the date of grant. Through December 31,
1997, 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.

1994 Director Option Plan

    In May 1994, the Company adopted the 1994 Director Option Plan (the
"Directors' Plan") which provides for the grant of stock options to directors at
the fair market value of the Company's 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 the Company's 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
100,000 shares to an aggregate of 200,000 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 the Company's
stock option plans (shares in thousands):

<TABLE>
<CAPTION>
                                               SHARES           OPTIONS       WEIGHTED AVERAGE
                                              AVAILABLE        OUTSTANDING     EXERCISED PRICE
                                              ---------        -----------     ---------------
<S>                                           <C>              <C>            <C>  
Balance at December 31, 1994 ..........             556            1,161         $   2.19
   Shares authorized ..................             250               --
   Options granted ....................            (382)             382             8.69
   Options exercised ..................              --             (172)             .59
   Options canceled ...................              36              (36)            4.53
                                               --------          -------
Balance at December 31, 1995 ..........             460            1,335             4.20
   Shares authorized ..................           1,000               --
   Termination of 1986 Plan ...........            (120)              --
   Options granted ....................            (602)             602            20.19
   Options exercised ..................              --             (380)            2.21
   Options canceled ...................              41              (41)           13.45
                                               --------          -------
Balance at December 31, 1996 ..........             779            1,516            10.79
   Shares authorized ..................             600               --
   Termination of 1986 Plan ...........             (40)              --
   Options granted ....................          (1,589)           1,589            11.16
   Options exercised ..................              --             (305)            3.37
   Options canceled ...................             560             (560)           18.80
                                               --------          -------
Balance at December 31, 1997 ..........             310            2,240         $  10.06
                                               ========          =======
</TABLE>

    At December 31, 1997, 1996 and 1995, options for 551,000, 556,000 and
528,000 shares of common stock, respectively, were vested but not exercised. In
October 1997, the Company canceled 467,000 options outstanding for non-officer
employees under the option plans with exercise prices greater than $10.75, and
reissued the options with an exercise price of $10.75.


                                       39
<PAGE>   40

    The following table summarizes information concerning outstanding and
exercisable stock options as of December 31, 1997 (shares in thousands):

<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                                     ----------------------------------     -----------------------------
                                     WEIGHTED AVERAGE       WEIGHTED                          WEIGHTED
RANGE OF EXERCISE       NUMBER          REMAINING            AVERAGE          NUMBER          AVERAGE
     PRICES           OUTSTANDING    CONTRACTUAL LIFE    EXERCISE PRICE     EXERCISABLE    EXERCISE PRICE
----------------      -----------    ----------------    --------------     -----------    --------------
<S>                   <C>            <C>                 <C>                <C>            <C>   
$  .15 -- $ 1.50             158           5.70               $  .82            158           $  .82
$ 4.00 -- $ 9.63             385           7.10               $ 6.38            284           $ 6.32
$10.38 -- $18.63           1,637           8.52               $11.13             89           $16.34
$22.75 -- $29.88              50           8.72               $25.68             10           $27.59
$45.50 -- $45.50              10           8.38               $45.50             10           $45.50
                         -------                                               ---
$  .15 -- $45.50           2,240           8.08               $10.06            551           $ 7.46
                         =======                                               ===
</TABLE>

1993 Employee Stock Purchase Plan

    In September 1993, the Company established the 1993 Employee Stock Purchase
Plan (the "Purchase Plan"). The Company initially reserved 200,000 shares of
Common Stock for issuance to employees under the Purchase Plan. In March 1996,
the Company's Board of Directors increased the number of shares of Common Stock
reserved for issuance under the Purchase Plan by 200,000 shares to an aggregate
of 400,000 shares. In May 1997, the Company's Board of Directors increased the
number of shares of Common Stock reserved for issuance under the Purchase Plan
by 200,000 shares to an aggregate of 600,000 shares. Under the Purchase Plan, an
eligible employee may purchase shares of Common Stock from the Company 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 the Company's
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 1997, 1996 and
1995, the Company issued 99,709, 135,736 and 74,354 shares, respectively, of
Common Stock under the Purchase Plan.

Pro Forma Disclosure

    The weighted average estimated grant date fair value, as defined by FAS 123,
for stock options granted under the Company's stock option plans during 1997,
1996 and 1995 was $5.59, $13.31 and $5.21 per share, respectively. The weighted
average estimated grant date fair value of stock purchase rights granted
pursuant to the Company's employee stock purchase plan during 1997, 1996 and
1995 was $1.81, $2.05 and $3.73 per share, respectively. The estimated grant
date fair value disclosed by the Company 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 the Company's 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.


                                       40
<PAGE>   41

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

<TABLE>
<CAPTION>
                                                    1997         1996         1995
                                                  --------     --------     --------
<S>                                               <C>          <C>          <C> 
Stock option plans:
  Expected dividend yield ...................         0.0%         0.0%         0.0%
  Expected stock price volatility ...........        99.0%       109.8%       109.8%
  Risk free interest rate ...................        6.27%        6.19%        5.88%
  Expected life (years) .....................        2.68         2.68         2.68

Stock purchase plan:
  Expected dividend yield ...................         0.0%         0.0%         0.0%
  Expected stock price volatility ...........        64.0%       152.4%        61.8%
  Risk free interest rate ...................        5.63%        5.29%        5.75%
  Expected life (years) .....................         0.5          0.5          0.5
</TABLE>

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

    Had the Company recorded compensation based on the estimated grant date fair
value, as defined by SFAS 123, for awards granted under its stock option plans
and stock purchase plan, the Company's net income and net income per share would
have been reduced to the pro forma amounts below for the years ended December
31, 1997, 1996 and 1995 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                          1997        1996      1995
                                                         -------     ------    ------
<S>                                                      <C>         <C>       <C>   
Net income as reported ..............................    $    94     $6,654    $2,846
Pro forma net income (loss) .........................    $(2,474)    $4,828    $2,087

Diluted net income per share as reported ............    $  0.01     $ 0.71    $ 0.35
Pro forma diluted net income (loss) per share .......    $ (0.24)    $ 0.52    $ 0.26
</TABLE>

    The pro forma effect on net income and net income per share for 1997, 1996
and 1995 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.


                                       41
<PAGE>   42

NOTE 7 - 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,
                                                          ----------------------------------------
                                                            1997            1996            1995
                                                          --------        --------        --------
                                                           (in thousands, except per share data)
<S>                                                       <C>             <C>             <C>     
BASIC NET INCOME PER SHARE
Net income available to Common Stockholders ......        $     94        $  6,654        $  2,846
                                                          ========        ========        ========
Weighted average common shares ...................          10,048           8,466           7,150
                                                          ========        ========        ========
Basic net income per share .......................        $    .01        $    .79        $    .40
                                                          ========        ========        ========
DILUTED NET INCOME PER SHARE
Net income available to Common Stockholders ......        $     94        $  6,654        $  2,846
                                                          ========        ========        ========
Weighted average common shares ...................          10,048           8,466           7,150
Dilutive common stock equivalents ................           1,060             945           1,022
                                                          --------        --------        --------
Weighted average common shares and equivalents ...          11,108           9,386           8,172
                                                          ========        ========        ========
Diluted net income per share .....................        $    .01        $    .71        $    .35
                                                          ========        ========        ========
</TABLE>

    During 1997 and 1996, options to purchase 94,771 and 61,000 shares of Common
Stock, respectively, were antidilutive and excluded from the dilutive net income
per share calculations because the options' exercise price was greater than the
average market price of the common shares.

NOTE 8 -- NON-OPERATING GAIN

    During 1996, the Company entered into an agreement with DSP Communications,
Inc. ("DSPC") whereby Proxim was to merge with DSPC. In November 1996, the
merger agreement was terminated. The Company recorded a one-time non-operating
gain of $1,500,000, net of related expenses, resulting from termination fees
paid by DSPC as provided in the agreement.

NOTE 9 -- CONCENTRATION OF SALES AND CREDIT RISK

    Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable. The Company places its cash and cash equivalents
primarily in market rate accounts and highly rated commercial paper. The
Company, by policy, limits the amount of credit exposure to any one financial
institution or commercial issuer.

    The Company generally extends 30-day credit terms to its customers, which is
consistent with industry business practices. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. To date the Company has not experienced any
material credit losses. All sales transactions are denominated in U.S. dollars.

    During 1997, revenue from three customers represented 28%, 17% and 10% of
total revenue. During 1996, revenue from three customers represented 22%, 22%
and 12% of total revenue. During 1995, revenue from two customers represented
27% and 14% of total revenue.

    Revenue from shipments to customers outside the United States, primarily in
Asia Pacific, Europe and South America, represented 26%, 31% and 24% of total
revenue in 1997, 1996 and 1995, respectively. Revenue from shipments to
customers in Asia Pacific represented 20% , 22% and 14% of total revenue in
1997, 1996 and 1995 respectively.


                                       42
<PAGE>   43
    At December 31, 1997, outstanding receivables from three customers
represented 19%, 17% and 11% of gross receivables. At December 31, 1996,
outstanding receivables from three customers represented 32%, 24% and 17% of
gross receivables.

NOTE 10 -- COMMITMENTS:

    The Company occupies its facility under a non-cancelable operating lease
agreement which expires in June 2000 and which requires payment for property
taxes, insurance, maintenance and utilities. Total rental expense related to
this operating lease was $504,000, $456,000 and $364,000 for 1997, 1996 and
1995, respectively.

    Future minimum lease payments under non-cancelable leases at December 31,
1997 were as follows (in thousands):

<TABLE>
      <S>                                                <C>    
      Year ending December 31,
        1998............................................ $   504
        1999............................................     504
        2000............................................     252
                                                         -------
        Total minimum lease payments                     $ 1,260
                                                         =======
</TABLE>


                                       43
<PAGE>   44

                                    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, 1997.

10.b.   Information with respect to directors and executive officers is included
        at the end of PART I, Item 1. on page 12 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, 1997.

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, 1997.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Not Applicable.


                                       44
<PAGE>   45

                                     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 28 of this Report.

   (2)  Financial Statement Schedules: See Item 8. on page 28 of this Report.

   (3)  Exhibits:

<TABLE>
EXHIBIT #           DESCRIPTION OF DOCUMENT
---------           -----------------------
<S>                 <C>
 3.1(1)             Amended Articles of Incorporation.

 3.2(1)             Certificate of Incorporation of Registrant.

 3.3(1)             Restated Certificate of Incorporation.

 3.4(1)             Bylaws of Registrant.

 3.5(6)             Preferred Shares Rights Agreement.

 4.1(1)             Form of Common Stock Certificate.

 4.2(1)             Series A Preferred Stock Purchase Agreement dated May 2, 1991.

 4.3(1)             Registration and Information Rights and Modification Agreement dated May 2, 1991.

10.1(1)(5)          Form of Registrant's Indemnification Agreement for Officers and Directors, Delaware.

10.2(1)(5)          1993 Employee Stock Purchase Plan and form of Subscription Agreement.

10.3(1)(5)          1986 Incentive Stock Option Plan and form of Stock Option Agreement.

10.4(1)             Services Agreement dated June 17, 1992 between Proxim and Sears Technology Services Inc.

10.5(1)             Lease Agreement dated February 18, 1993 between Proxim and Vanni Business Park Partnership.

10.6(1)             Security and Loan Agreement dated August 17, 1993 between Proxim, Inc. and Imperial Bank.

10.7(2)             Amendment to Lease Agreement dated August 28, 1994 between Proxim, Inc. and
                       Vanni Business Park Partnership.

10.8(3)(5)          1994 Director Option Plan and form of Subscription Agreement.

10.9(4)(5)          1995 Long-Term Incentive Plan and form of Subscription Agreement.

23.1                Consent of Independent Accountants.

27.1                Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K:

    1. A report on Form 8-K (File No. 000-22700) was filed pursuant to the
       Securities Exchange Act of 1934, as amended, on July 21, 1997, relating
       to the amendment and restatement of the Company's Preferred Share Rights
       Agreement.

(c) Exhibits: See 14(a) above.

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

----------

(1) Incorporated by reference to the Registrant's Registration Statement No.
    33-70712 filed with the Securities and Exchange Commission on December 15,
    1993.

(2) Incorporated by reference to the Registrant's Form 10-Q for the period ended
    September 30, 1994 filed with the Securities and Exchange Commission on
    November 14, 1994.

(3) Incorporated by reference to the Registrant's definitive proxy materials
    filed with the Securities and Exchange Commission on April 15, 1994.

(4) Incorporated by reference to the Registrant's Registration Statement No.
    33-94910 filed with the Securities and Exchange Commission on July 19, 1995.

(5) 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.

(6) Incorporated by Reference to the Registrant's Registration Statement filed
    with the Securities and Exchange Commission on April 7, 1997.
    
                                       45
<PAGE>   46

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Mountain View, State of California, on the 26th day of March, 1998.

                                     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 and              March 26, 1998
-------------------------------------    Chief Executive Officer (Principal Executive Officer)
         (David C. King)            

    /s/  KEITH E. GLOVER                 Vice President of Finance and Administration and               March 26, 1998
-------------------------------------    Chief Financial Officer (Principal Financial and
         (Keith E. Glover)               Accounting Officer)

    /s/  RAYMOND CHIN                    Director                                                       March 26, 1998
-------------------------------------
         (Raymond Chin)

    /s/  LESLIE G. DENEND                Director                                                       March 26, 1998
-------------------------------------
         (Leslie G. Denend)

    /s/  MICHAEL D. KAUFMAN              Director                                                       March 26, 1998
-------------------------------------
         (Michael D. Kaufman)

    /s/  G. RUSSELL MORTENSON            Director                                                       March 26, 1998
-------------------------------------
         (G. Russell Mortenson)

    /s/  GREG REYES                      Director                                                       March 26, 1998
-------------------------------------
         (Greg Reyes)

    /s/  JEFFREY D. SAPER                Director and Secretary                                         March 26, 1998
-------------------------------------
         (Jeffrey D. Saper)
</TABLE>


                                       46
<PAGE>   47
                                EXHIBIT INDEX


<TABLE>
EXHIBIT #           DESCRIPTION OF DOCUMENT
---------           -----------------------
<S>                 <C>
 3.1(1)             Amended Articles of Incorporation.

 3.2(1)             Certificate of Incorporation of Registrant.

 3.3(1)             Restated Certificate of Incorporation.

 3.4(1)             Bylaws of Registrant.

 3.5(6)             Preferred Shares Rights Agreement.

 4.1(1)             Form of Common Stock Certificate.

 4.2(1)             Series A Preferred Stock Purchase Agreement dated May 2, 1991.

 4.3(1)             Registration and Information Rights and Modification Agreement dated May 2, 1991.

10.1(1)(5)          Form of Registrant's Indemnification Agreement for Officers and Directors, Delaware.

10.2(1)(5)          1993 Employee Stock Purchase Plan and form of Subscription Agreement.

10.3(1)(5)          1986 Incentive Stock Option Plan and form of Stock Option Agreement.

10.4(1)             Services Agreement dated June 17, 1992 between Proxim and Sears Technology Services Inc.

10.5(1)             Lease Agreement dated February 18, 1993 between Proxim and Vanni Business Park Partnership.

10.6(1)             Security and Loan Agreement dated August 17, 1993 between Proxim, Inc. and Imperial Bank.

10.7(2)             Amendment to Lease Agreement dated August 28, 1994 between Proxim, Inc. and
                       Vanni Business Park Partnership.

10.8(3)(5)          1994 Director Option Plan and form of Subscription Agreement.

10.9(4)(5)          1995 Long-Term Incentive Plan and form of Subscription Agreement.

23.1                Consent of Independent Accountants.

27.1                Financial Data Schedule
</TABLE>

(b) Reports on Form 8-K:

    1. A report on Form 8-K (File No. 000-22700) was filed pursuant to the
       Securities Exchange Act of 1934, as amended, on July 21, 1997, relating
       to the amendment and restatement of the Company's Preferred Share Rights
       Agreement.

(c) Exhibits: See 14(a) above.

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

----------

(1) Incorporated by reference to the Registrant's Registration Statement No.
    33-70712 filed with the Securities and Exchange Commission on December 15,
    1993.

(2) Incorporated by reference to the Registrant's Form 10-Q for the period ended
    September 30, 1994 filed with the Securities and Exchange Commission on
    November 14, 1994.

(3) Incorporated by reference to the Registrant's definitive proxy materials
    filed with the Securities and Exchange Commission on April 15, 1994.

(4) Incorporated by reference to the Registrant's Registration Statement No.
    33-94910 filed with the Securities and Exchange Commission on July 19, 1995.

(5) 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.

(6) Incorporated by Reference to the Registrant's Registration Statement filed
    with the Securities and Exchange Commission on April 7, 1997.