Edgar Filing: PARADYNE NETWORKS INC

As filed with the Securities and Exchange Commission on May 6, 2002

SCHEDULE 14-A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]

Check the appropriate box:
[_]Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))

[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Rule 14a-12

Paradyne Networks, Inc.
(Name of Registrant As Specified In Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X] No Fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

--------------------------------------------------------------------------------
(5) Total fee paid:

--------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.

--------------------------------------------------------------------------------
(1) Amount previously paid:

--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

--------------------------------------------------------------------------------
(3) Filing Party:

--------------------------------------------------------------------------------
(4) Date Filed:

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

[LOGO] PARADYNE(R)

May 6, 2002

Dear Stockholder:

You are cordially invited to attend the 2002 annual meeting of stockholders
of Paradyne Networks, Inc., which will be held on June 11, 2002 at 10:00 a.m.,
local time, at our corporate headquarters, 8545 126th Avenue North, Largo,
Florida 33773.

At the annual meeting, stockholders will be asked to vote on the following
matters:

. the election of a director to serve until the 2005 annual meeting of
stockholders;

. the adoption of an amendment to our amended and restated certificate of
incorporation, as amended, to reduce the minimum vote required to approve
amendments to the amended and restated certificate of incorporation, as
amended, other than amendments of articles V, VI and VII thereof, from at
least 66 2/3% to a majority of the outstanding stock entitled to vote
thereon; and

. such other business as properly may come before the annual meeting or any
adjournments or postponements of the annual meeting, including, if
submitted to a vote of the stockholders, a motion to adjourn the annual
meeting to another time and place for the purpose of soliciting
additional proxies.

The above matters are described in the accompanying proxy statement. It is
important that your stock be represented at the meeting regardless of the
number of shares you hold and whether you plan to attend the meeting. You can
submit your proxy voting instructions via the Internet, by touch-tone telephone
or by marking and returning the enclosed proxy card. Please see the
instructions on how to vote attached to the notice of proxy. The method by
which you vote by proxy now will not limit your right to vote at the meeting if
you decide to attend in person. If you do attend and wish to vote in person,
you may simply revoke your proxy at the meeting.

If you plan to attend the meeting, please let us know when you vote via the
Internet or by touch-tone telephone or when you return your proxy card. If your
shares are not registered in your name (i.e., they are held in "street name" by
a bank or brokerage firm) and you would like to attend the meeting, please ask
the broker, bank or other nominee holding the shares to provide you with
evidence of your share ownership so that you may be admitted to the meeting.
Additionally, if you are a "street name" stockholder who wishes to vote at the
meeting, you will need to obtain a proxy form from the institution that holds
your shares.

Sincerely,

/s/ Sean E. Belanger
Sean E. Belanger
President and Chief Executive Officer

WE NEED YOUR PARTICIPATION. PLEASE VOTE EARLY.

Paradyne Networks, Inc.
8545 126th Avenue North
Largo, Florida 33773

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

NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 2002
10:00 A.M., EASTERN TIME

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

NOTICE HEREBY IS GIVEN that the 2002 annual meeting of stockholders of
Paradyne Networks, Inc. will be held at our corporate headquarters, 8545 126th
Avenue North, Largo, Florida 33773, on Tuesday, June 11, 2002 at 10:00 a.m.,
local time. The purpose of the meeting is for the stockholders to consider and
vote upon:

. the election of a director to serve until the 2005 annual meeting of
stockholders;

Information relating to these matters is set forth in the attached proxy
statement. Only stockholders of record at the close of business on April 24,
2002 are entitled to receive notice of and to vote at the annual meeting and
any adjournments or postponements thereof. A list of those stockholders
entitled to vote at the annual meeting will be available for inspection during
normal business hours from May 31, 2002, through the time of the annual meeting
on June 11, 2002 at our principal offices at 8545 126th Avenue North, Largo,
Florida, for any purposes germane to the meeting. The list of stockholders will
also be provided and kept at the location of the annual meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present.

Your vote is important. The proposal to elect a director to serve until the
2005 annual meeting of stockholders requires the approval of a plurality of the
votes represented at the annual meeting and entitled to be cast on the
proposal. The proposal to adopt an amendment to our amended and restated
certificate of incorporation, as amended, requires the approval of the holders
of at least 66 2/3% of the outstanding stock entitled to vote on the record
date.

You are urged to read this document carefully. It is very important that
your shares be represented at the annual meeting. Whether or not you expect to
attend the annual meeting, please vote in any one of the following ways:

. use the toll-free telephone number (for calls made in the United States
and Canada) shown on the proxy card or voting instruction card;

. use the Internet website shown on the proxy card or voting instruction
card; or

. mark, sign, date and promptly return the enclosed proxy card or voting
instruction card in the postage paid envelope so that it will be received
no later than June 10, 2002. It requires no postage if mailed in the
United States.

All shares represented by properly completed and submitted proxies that are
not revoked before they are voted at the annual meeting will be voted in
accordance with the specifications of the proxy. If no such specifications are
made, proxies will be voted FOR the election of the director nominated by the
board of directors, FOR the adoption of the amendment of our amended and
restated certificate of incorporation, as amended, and FOR any adjournment or
postponement of the annual meeting for the purpose of soliciting additional
proxies.

If you attend the annual meeting, you may vote in person if you wish, even
though you have previously returned your proxy or submitted your vote using the
telephone or the Internet. Action may be taken on the proposals set forth above
at the annual meeting specified above or any dates to which the annual meeting
may be adjourned or postponed.

By order of the board of directors,

/s/ Patrick M. Murphy
Patrick M. Murphy
Senior Vice President, Chief
Financial Officer,
Treasurer and Secretary

Largo, Florida
May 6, 2002

HOW TO VOTE

Vote By Internet

You can submit your proxy voting instructions via the Internet at the
website identified on the enclosed proxy card. Internet voting is available 24
hours a day and will be accessible until 11:00 a.m. Eastern Standard Time on
June 10, 2002. You will be given the opportunity to confirm that your voting
instructions have been properly recorded. Our Internet voting procedures are
designed to authenticate stockholders' identities by using individual control
numbers. If you vote via the Internet, you do not need to return your proxy
card.

Vote By Telephone

You can submit your proxy voting instructions by touch-tone telephone by
calling the toll-free phone number identified on the enclosed proxy card.
Telephone voting is available 24 hours a day and will be available until 11:00
a.m. Eastern Standard Time on June 10, 2002. As with Internet voting, you will
be given the opportunity to confirm that your voting instructions have been
properly recorded. In addition, our telephone voting procedures are designed to
authenticate stockholders' identities by using individual control numbers. If
you vote via touch-tone telephone, you do not need to return your proxy card.

Vote By Mail

If you choose to submit your proxy voting instructions by mail, please mark
the enclosed proxy card, date and sign it and return it in the enclosed
postage-paid envelope.

YOU CAN SPARE US THE EXPENSE OF FURTHER PROXY SOLICITATION
BY VOTING PROMPTLY BY PROXY IN ONE OF THE THREE WAYS DESCRIBED ABOVE.

Vote at the Annual Meeting

You can vote in person if you attend the annual meeting. However, we
encourage you to vote now by proxy in one of the three ways described above. If
you then attend the annual meeting and wish to vote in person at the annual
meeting, you can simply change your prior vote at the meeting. If your shares
are not registered in your own name and you would like to attend the meeting,
please ask the broker, bank or other nominee holding the shares to provide you
with evidence of your share ownership so that you may be admitted to the
meeting.

PROXY STATEMENT

TABLE OF CONTENTS

PAGE
----

VOTING.......................................................... 1
General...................................................... 1
Quorum and Vote Required..................................... 1
Cost of Proxy Solicitation................................... 3
STOCK OWNERSHIP................................................. 3
PROPOSAL 1--ELECTION OF DIRECTOR................................ 6
Nominee...................................................... 6
Information Regarding Nominees and Continuing Directors...... 6
Meetings and Committees of the Board of Directors............ 8
Director Compensation........................................ 9
Executive Officers........................................... 9
PROPOSAL 2--AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION................................................. 10
EXECUTIVE COMPENSATION.......................................... 12
Summary of Compensation...................................... 12
Employment Agreements........................................ 13
Option Grants................................................ 14
Option Exercises and Fiscal Year-End Option Values........... 14
INDEPENDENT PUBLIC ACCOUNTANTS.................................. 15
Services and Fees of PricewaterhouseCoopers LLP During 2000.. 15
*REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS........ 16
*REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS. 18
Introduction................................................. 18
Compensation Policy for Executive Officers................... 18
Chief Executive Officer's Compensation....................... 19
Policy With Respect to Deductibility of Compensation Expense. 19
Conclusion................................................... 19
Compensation Committee....................................... 19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION..... 20
CERTAIN TRANSACTIONS............................................ 20
*STOCK PERFORMANCE GRAPH........................................ 23
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......... 23
STOCKHOLDERS' PROPOSALS FOR 2003 ANNUAL MEETING................. 24

* The indicated sections do not constitute soliciting material and should be
not deemed filed or incorporated by reference into any of our other filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934 except
to the extent that we specifically incorporate any such section by reference
thereon.

NOTE: We have mailed a copy of our 2001 Annual Report, which contains a copy of
our 2001 Form 10-K report to the Securities and Exchange Commission, to our
stockholders together with these proxy materials.

PARADYNE NETWORKS, INC.

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

PROXY STATEMENT

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

FOR THE 2002 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 2002

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

The board of directors of Paradyne Networks, Inc., a Delaware corporation,
is furnishing this proxy statement to solicit your proxy for the voting of your
shares at the 2002 annual meeting of stockholders and at any adjournments or
postponements thereof. We will hold the annual meeting on Tuesday, June 11,
2002 at 10:00 a.m., local time, at our corporate headquarters, 8545 126/th
Avenue North, Largo, Florida 33773. /

We are mailing this proxy statement and the accompanying proxy card to
stockholders on or about May 6, 2002.

VOTING

General

The securities that can be voted at the annual meeting consist of common
stock, $.001 par value per share. Each share of common stock entitles its
holder to cast one vote on each matter submitted to the stockholders at the
annual meeting.

The record date for determining the stockholders who are entitled to receive
notice of and to vote at the annual meeting has been fixed by the board of
directors as the close of business on April 24, 2002. On the record date,
41,631,082 shares of common stock were outstanding and eligible to be voted at
the annual meeting.

Quorum and Vote Required

A majority of our shares outstanding and entitled to vote on the record date
must be represented, either in person or by proxy, to constitute a quorum at
the annual meeting. The proposal to elect a director to serve until the 2005
annual meeting must be approved by a plurality of the votes represented at the
annual meeting and entitled to be cast on the proposal. The proposal to adopt
an amendment to our amended and restated certificate of incorporation, as
amended, to reduce the minimum vote required to approve amendments thereof
(other than amendments of articles V, VI and VII thereof), to a majority of the
outstanding stock entitled to vote thereon requires the affirmative vote of the
holders of at least 66 2/3% of the shares outstanding and entitled to vote on
the record date.

As of April 15, 2002, our directors and executive officers and their
affiliates beneficially owned approximately 36% of the shares of our common
stock outstanding and entitled to vote.

Proxies

All shares of our common stock represented by properly submitted proxies or
voting instructions received before or at the annual meeting will, unless the
proxies or voting instructions are revoked, be voted in accordance with the
instructions indicated on those proxies or voting instructions. If no
instructions are indicated on a properly submitted proxy or voting instruction,
the shares will be voted (1) FOR the election of the director nominee named in
Proposal 1, (2) FOR the adoption of an amendment of our amended and restated
certificate of incorporation, as amended, described in Proposal 2 and (3) to
approve those other matters, including, without limitation, adjournments or
postponements for the purpose of soliciting additional proxies, that may
properly come before the annual meeting at the discretion of the persons named
in the proxy. You are urged to indicate how to vote your shares by marking the
boxes on the proxy card or the voting instruction card or by following the
instructions if submitting your proxy or voting instructions by telephone or
the Internet.

If a stockholder submits a properly executed proxy or voting instruction and
the stockholder has withheld authority from voting on the election of a
director to serve until the 2005 annual meeting, the common stock represented
by the proxy or voting instruction will be considered present at the annual
meeting for purposes of determining a quorum but will have no effect on the
outcome of the nominee election. If a stockholder submits a properly executed
proxy or voting instruction and the stockholder has abstained from voting on
the adoption of the amendment of our amended and restated certificate of
incorporation, as amended, the common stock represented by the proxy or voting
instruction will be considered present at the annual meeting for purposes of
determining a quorum, but will have the effect of a vote against the adoption
of the amendment of our amended and restated certificate of incorporation, as
amended.

If your shares are held in an account at a brokerage firm or bank, you
should instruct them on how to vote your shares. New York Stock Exchange rules
determine whether proposals presented at stockholder meetings are routine or
not routine. If a proposal is routine, a broker or other entity holding shares
for an owner in street name may vote for the proposal without voting
instructions from the owner. If a proposal is not routine, the broker or other
entity may vote on the proposal only if the owner has provided voting
instructions. A "broker non-vote" occurs when the broker or other entity is
unable to vote on the proposal because the proposal is not routine and the
owner does not provide any instructions.

The New York Stock Exchange has informed us that the election of a director
is a routine item and that the amendment to our amended and restated
certificate of incorporation, as amended, is not a routine matter. As such, if
an executed proxy card is returned by a broker or bank holding shares which
indicates that the broker or bank does not have discretionary authority to vote
on whether to approve the adoption of the amendment of our amended and restated
certificate of incorporation, as amended, the shares will be considered present
for purposes of determining the presence of a quorum, but will have the effect
of a vote against the adoption of the amendment of our amended and restated
certificate of incorporation, as amended.

As to the proposal to elect a director to serve until the 2005 annual
meeting, your broker or bank will have discretionary authority to vote on your
behalf if you do not provide instructions on how to vote. As to the proposal to
adopt the amendment to our amended and restated certificate of incorporation,
as amended, your broker or bank will vote your shares only if you provide
instructions on how to vote by following the information provided to you by
your broker.

Our annual meeting may be adjourned or postponed in order to permit further
solicitation of proxies. No proxy that withholds authority with respect to the
election of a director to serve until the 2005 annual meeting or against the
proposal to adopt an amendment to our amended and restated certificate of
incorporation, as amended, will be voted in favor of any proposal to adjourn or
postpone the annual meeting in order to solicit additional proxies that is
submitted to the stockholders for a vote. We do not expect any matter other
than approval of the election of a director to serve until the 2005 annual
meeting and approval of the adoption of an amendment to our amended and
restated certificate of incorporation, as amended, will be brought before the
annual meeting. If, however, other matters are properly presented, the persons
named as proxies will vote in accordance with their judgment with respect to
those matters, unless authority to do so is withheld on the proxy card.

A stockholder may revoke his or her proxy or voting instruction at any time
before it is voted by:

. notifying in writing the Secretary of Paradyne Networks, Inc. at 8545
126th Avenue North, Largo, Florida 33773, if you are a stockholder of
record;

. notifying your brokerage firm or bank, if you hold your shares in an
account at a brokerage firm or bank;

. granting a subsequently dated proxy or voting instructions (by mail,
through the Internet or by telephone); or

. appearing in person and voting at the annual meeting if you are a holder
of record.

Attendance at the annual meeting will not in and of itself constitute
revocation of a proxy.

Voting Procedures

Because Delaware, the state in which we are incorporated, permits electronic
submission of proxies through the Internet or by telephone, instead of
submitting proxies by mail on the enclosed proxy card or voting instruction
card, our stockholders will have the option to submit their proxies or voting
instructions electronically through the Internet or by telephone. Please note
that there are separate arrangements for using the Internet or telephone
depending on whether your shares are registered in our stock records in your
name or in the name of the brokerage firm or bank. Stockholders should check
their proxy card or the voting instruction card forwarded by their broker, bank
or other holder of record to see which options are available.

The Internet and telephone procedures described below for submitting your
proxy or voting instructions are designed to authenticate stockholders'
identities, to allow stockholders to have their shares voted and to confirm
that their instructions have been properly recorded. Stockholders submitting
proxies or voting instructions via the Internet should understand that there
may be costs associated with electronic submission, such as usage charges from
Internet access providers and telephone companies, that would be borne by the
stockholder.

Our holders of record may submit their proxies:

. through the Internet by visiting a website established for that purpose
at http://www.eproxy.com/pdyn/ and following the instructions;

. by telephone by calling the toll-free number 1-800-240-6326 in the United
States or Canada on a touch-tone telephone and following the recorded
instructions; or

. by completing and mailing the enclosed proxy card.

Stockholders should confirm the website and toll-free number on their proxy
card or voting instruction card and use that website or toll-free number if
they are different from those listed above.

You can find the results of the voting on the proposals in our Quarterly
Report on Form 10-Q for the quarter ending June 30, 2002, which we will file
with the Securities and Exchange Commission in August 2002.

Cost of Proxy Solicitation

We are soliciting your proxy on behalf of the board of directors, and we
will bear all of the related costs. We have not engaged a proxy solicitation
firm to assist with the solicitation of proxies at this time, but we may decide
to do so prior to the annual meeting. In this case, we would engage a
nationally recognized proxy solicitation firm to assist with the solicitation
of proxies for an estimated fee of not more than $10,000, plus expenses. We
will reimburse brokers, fiduciaries and custodians for their costs in
forwarding proxy materials to beneficial owners of common stock held in their
names. Our employees also may communicate with you to solicit your proxy, but
we will not pay them any additional compensation for doing so.

STOCK OWNERSHIP

The following table sets forth information as of April 15, 2002 regarding
the beneficial ownership of our voting stock by each person known by us to own
more than 5% of any class of our voting securities, each director and nominee
for director, each executive officer named in the table under the caption
"Executive Compensation--Summary Compensation," and all directors and executive
officers as a group.

Pursuant to Securities and Exchange Commission rules, the number of shares
of common stock beneficially owned by a specified person or group includes
shares of our common stock subject to options that are presently exercisable or
exercisable within 60 days after April 15, 2002. Such shares are deemed to be
outstanding for the purpose of computing the percentage of the class
beneficially owned by such person or group, but are not deemed to be
outstanding for the purpose of computing the percentage of the class
beneficially owned by any other person or group.

The persons named in the table gave us the stock ownership information about
themselves or we obtained this information for our corporate records. Except as
explained in the footnotes below, the named persons have sole voting and
investment power with regard to the shares shown as beneficially owned by them.

Amount and Nature of Beneficial
Ownership
------------------------------
Total Common Stock Percent of
Beneficially Owned Class Owned
- ------------------ -----------
Five Percent Stockholders
-------------------------

Texas Pacific Group (1)........................................ 10,982,870 26.41%
301 Commerce Street
Suite 3300
Fort Worth, Texas 76102
Nortel Networks Inc............................................ 3,291,199 7.92
8200 Dixie Road
Suite 100
Brampton, ON L6T 5, Canada

Executive Officers and Directors
--------------------------------
Sean E. Belanger (2)........................................... 1,235,524 2.89
Patrick M. Murphy (3).......................................... 507,941 1.21
John A. Koehler (4)............................................ 9,434 *
David Bonderman (5)............................................ 10,992,870 26.43
Thomas E. Epley (6)............................................ 677,598 1.63
Keith B. Geeslin (7)........................................... 1,632,733 3.93
William R. Stensrud (8)........................................ 358,935 0.86

All directors and executive officers as a group (7 persons) (9) 15,405,601 35.53

--------
* Represents beneficial ownership of less than 1%.
(1) Includes 9,541,209 shares held by TPG Partners, L.P., 943,680 shares held
by TPG Parallel I, L.P., 165,336 shares held by Communication GenPar, Inc.,
212,034 shares held by TPG Genpar, L.P., 35,726 shares held by FOF
Partners, L.P. and 84,885 shares held by TPG Equity Partners, L.P. The
foregoing entities are affiliated with Texas Pacific Group.
(2) Includes 1,230,747 shares subject to options which are exercisable within
60 days of April 15, 2002.
(3) Includes 503,143 shares subject to options which are exercisable within 60
days of April 15, 2002.
(4) Mr. Koehler was no longer employed by Paradyne Networks, Inc. as of January
2002.
(5) Includes 10,000 shares subject to options under the 1999 Non-Employee
Directors' Stock Option Plan and 10,982,870 shares beneficially owned by
Texas Pacific Group. See footnote (1) for a description of Texas Pacific
Group's beneficial ownership. Mr. Bonderman, through various investment
partnerships and corporations, has a pecuniary interest in the shares held
by Texas Pacific Group. However, Mr. Bonderman disclaims beneficial
ownership of the shares beneficially owned by Texas Pacific Group, except
to the extent of his pecuniary interest therein.

(6) Includes 20,000 shares subject to options under the 1999 Non-Employee
Directors' Stock Option Plan, 524,925 shares held by the Thomas E. Epley
Trust, 110,357 shares held by the Anderson Epley Family Trust, 11,158
shares held by the Epley Children's Trust FBO Thomas E. Epley, Jr. and
11,158 shares held by the Epley Children's Trust FBO Jacqueline E. Epley.
Mr. Epley is the trustee of each of these trusts.
(7) Includes 21,781 shares held by Mr. Geeslin individually, 5,000 shares
subject to options under the 1999 Non-Employee Directors' Stock Option Plan
and 1,605,952 shares beneficially owned by The Sprout Group. The 1,605,952
shares beneficially owned by the Sprout Group include 75,936 shares held by
DLJ Capital Corporation (on a proprietary basis), 52,288 shares held by DLJ
Capital Corporation (for the benefit of an employee deferred compensation
plan), 628,962 shares held by Sprout Capital VII, L.P., 514,193 shares held
by Sprout Growth II, L.P., 7,306 shares held by Sprout CEO Fund, L.P.,
261,459 shares held by DLJ First ESC, L.P., 63,738 shares held by Credit
Suisse First Boston (USA), Inc. (f/k/a Donaldson, Lufkin & Jenrette, Inc.),
1,417 shares held by DLJ Growth Associates II, Inc. and 653 shares held by
DLJ Capital Associates VII, Inc. The foregoing entities are associated with
The Sprout Group. Of the aggregate of 1,605,952 shares beneficially owned
by these entities, 1,305,873 shares are subject to a voting trust agreement
and are held and voted by an independent third party, Norwest Bank Indiana,
N.A., as voting trustee. Mr. Geeslin occupies various positions of control
of the entities associated with The Sprout Group. As such, he may be deemed
to have voting and dispositive power over the shares beneficially owned by
entities associated with The Sprout Group. However, Mr. Geeslin disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein.
(8) Includes 353,690 shares held by the Stensrud Family Trust, 245 shares held
indirectly by Mr. Stensrud's son and 5,000 shares subject to options under
the 1999 Non-Employee Directors' Stock Option Plan.
(9) Includes 1,773,890 shares subject to options which are exercisable within
60 days of April 15, 2002.

PROPOSAL 1

ELECTION OF DIRECTOR

Nominee

Pursuant to our amended and restated certificate of incorporation, as
amended, and bylaws the number of persons to serve on our board of directors is
determined by resolution of our board of directors from time to time. The board
is now comprised of five directors and is divided into three classes. The
stockholders elect the directors in each class for a term of three years and
until their successors are elected and qualified. The term of office of one
class of directors expires each year at the annual meeting, and the
stockholders elect a new class of directors each year at that time.

At the annual meeting, the term of the Class III director, William R.
Stensrud, will expire. The board of directors has nominated this individual for
re-election at the annual meeting. The nominee has consented to serve if
elected. If re-elected, Mr. Stensrud will serve a three-year term that will
expire at the 2005 annual meeting. If he should be unavailable to serve for any
reason, which is not anticipated, the board of directors may:

. designate a substitute nominee, in which case the persons named as
proxies will vote the shares represented by all valid proxies for the
election of such substitute nominee;

. allow the vacancy to remain open until a suitable candidate is located
and nominated; or

. adopt a resolution to decrease the authorized number of directors.

The board of directors unanimously recommends that you vote ''FOR'' the
proposal to re-elect William R. Stensrud as a Class III Director for a
three-year term expiring at the 2005 annual meeting of stockholders and until
his successor has been duly elected and qualified.

Information Regarding Nominee and Continuing Directors

Listed below is the name of the board's nominee for election as director,
his age as of April 15, 2002, his business experience and the year he first
became a director. Also listed is similar information about each of the four
incumbent directors whose terms will continue following the annual meeting.

Class III Director Nominated to Serve Until the 2005 Annual Meeting

William R. Stensrud......... William R. Stensrud, age 51, has served as a
director of Paradyne since June 1996. Mr.
Stensrud has been a general partner at the
venture capital investment firm of Enterprise
Partners since January 1997. From February 1997
to June 1997, he served as President and Chief
Executive Officer of Rhythms NetConnections,
Inc., a network service provider. From January
1992 to July 1995, Mr. Stensrud served as
President and Chief Executive Officer of Primary
Access Corporation which was acquired by 3Com
Corporation, and where Mr. Stensrud remained as
an executive at Primary Access Corporation
through March 1996. Mr. Stensrud is a director of
several public and privately held companies,
including iAsiaWorks, Inc., Packeteer, Inc., and
Juniper Networks, Inc. Mr. Stensrud holds a B.S.
in electrical engineering and computer science
from the Massachusetts Institute of Technology.

Class I Directors to Serve Until the 2003 Annual Meeting

David Bonderman............. David Bonderman, age 59, has served as a director
of Paradyne since June 1999. Mr. Bonderman has
been a managing partner of Texas Pacific Group, a
limited partner in Communication Partners, LP,
since its formation in 1992. Prior to forming
Texas Pacific Group, Mr. Bonderman had served as
the Chief Operating Officer of the Robert M. Bass
Group, Inc. since 1983. He is a director of
several public and privately held companies
including Continental Airlines, Inc., ProQuest
Company (formerly Bell & Howell, Inc.), Ducati
Motor Holding, S.P.A., Costar Group, Inc.,
Denbury Resources, Inc., Washington Mutual, Inc.,
Oxford Health Plans, Inc., Agenesys, Inc., J.
Crew Group, Inc., Ryanair Holdings, plc., Punch
Group Ltd., Korea First Bank, Evolution Global
Managing Partners, LDC, ON Semiconductor
Corporation, Seagate Technology, Inc. and
Magellan Health Services, Inc. Mr. Bonderman
holds a B.A. degree from the University of
Washington and a JD from Harvard Law School.

Thomas E. Epley............. Thomas E. Epley, age 61, has served as the
Chairman of the board of directors since August
1996. He also served as President from August
1996 to December 1996 and Chief Executive Officer
from August 1996 to May 1997. From August 1996 to
April 1997, Mr. Epley was Chief Executive Officer
and President of GlobeSpan, Inc. He has served as
a director of GlobeSpan from August 1996 to June
16, 2001 and was Chairman of the board of
directors from August 1996 to March 1999. He has
served as a director and President and Chief
Executive Officer of Paradyne Credit Corp. from
August 1996 to June 1999. From 1993 to 1996, he
was a director of Carlton Communications. From
1991 to 1996, he served as Chairman and Chief
Executive Officer of Technicolor, a provider of
services and products to the entertainment
industry. He is also a limited partner in
Communication Partners, L.P. Mr. Epley holds a BS
degree in mechanical engineering from the
University of Cincinnati and an MBA from the
Kellogg School of Northwestern University.

Class II Directors to Serve Until the 2004 Annual Meeting

Sean E. Belanger............ Sean E. Belanger, age 46, has served as Chief
Executive Officer and President since December
2000, when he also became a director. From April
2000 to December 2000 he served as Paradyne's
President and Chief Operating Officer. From June
1997 to May 2000 he served as Senior Vice
President of WorldWide Sales. From November 1996
to May 1997, he served as Vice President and
General Manager of 3Com Corporation's Network
Service Provider division. From September 1992 to
November 1996, he was Vice President of Sales for
Primary Access Corporation. Mr. Belanger holds a
B.S. in business management from Virginia
Polytechnic Institute and State University.

Keith B. Geeslin............ Keith B. Geeslin, age 49, has served as a
director of Paradyne since June 1999. Mr. Geeslin
is a general partner of The Sprout Group, a
venture capital firm, where he has been employed
since July 1984. In addition, he is a general or
limited partner in a series of investment funds
associated with The Sprout Group, a division of
DLJ Capital Corporation, which is a subsidiary of
Credit Suisse First Boston (USA), Inc. The Sprout
Group are direct and indirect equity owners in
Communication Partners, L.P. Mr. Geeslin is also
a director of Innoveda, Inc. and Synaptics and
several privately held companies. Mr. Geeslin
received a B.S. degree in electrical engineering
from Stanford University, an M.A. degree in
philosophy, politics and economics from Oxford
University and a M.S. degree in engineering and
economic systems from Stanford University.

Meetings and Committees of the Board of Directors

The board of directors conducts its business through meetings of the full
board and through its two standing committees of the board. These committees
are the audit committee and the compensation committee. During 2001, the board
of directors held 6 formal meetings, the audit committee held 2 formal meetings
and the compensation committee did not hold any formal meetings, but held
several informal meetings to resolve key compensation issues. Each of the
current directors attended at least 75% of all meetings of the full board of
directors and of the committees on which he served during 2001.

The audit committee reviews with our independent accountants their audit
plan, the scope and results of their audit engagement and the accompanying
management letter, if any. Members also consult with the independent
accountants and management with regard to our accounting methods and the
adequacy of our internal accounting controls, and review the range of the
independent accountants' audit and nonaudit fees. The audit committee also
reviews our quarterly and annual financial statements with management and the
auditors prior to our filing them as part of our quarterly and annual reports
to the Securities and Exchange Commission and discusses with the auditors the
results of their quarterly reviews and annual audits.

The audit committee also discusses with and receives assurances from the
auditors regarding their independence from the Company and management. In
addition, each of the audit committee members is financially literate and has
the financial management expertise required by the rules of The Nasdaq Stock
Market, Inc. Further information regarding the duties of the audit committee is
contained in the Audit Committee Charter.

The audit committee is comprised of Thomas E. Epley, Keith B. Geeslin and
William R. Stensrud. Peter Van Camp served on the audit committee during all of
2001 but resigned from the audit committee on March 28, 2002 when he resigned
from the board of directors. Mr. Van Camp did not resign because of a
disagreement with Paradyne's operations, policies or practices. All audit
committee members are "independent" as defined in the applicable listing
standards of the NASD, except Mr. Epley, who serves as a non-independent member
of the audit committee. Mr. Epley formerly was employed by Paradyne, most
recently pursuant to the terms of a Key Employment Agreement that terminated on
June 30, 1999. Mr. Epley was first elected to the audit committee on July 27,
2000 by our board of directors and re-elected to that committee on March 28,
2002 by our board of directors. The board of directors determined that the
addition of Mr. Epley to the audit committee is an appropriate and acceptable
appointment because of his extensive industry and financial expertise and
background and is required by the best interests of Paradyne and its
stockholders. The board of directors determined that Mr. Epley's appointment to
the audit committee complies with the conditions stipulated in the NASD
independence rules that allow "one non-independent director" to serve on the
audit committee of the board of directors under exceptional and limited
circumstances.

The compensation committee evaluates and approves the salaries and incentive
compensation for our executives and makes recommendations regarding our Amended
and Restated 1996 Equity Incentive Plan, 1999 Employee Stock Purchase Plan,
1999 Non-Employee Directors' Stock Option Plan, 2000 Broad-Based Stock Plan and
Key Employee Stock Option Plan. Administration of these plans includes, among
other things, determining which directors, officers and employees will receive
awards under the plan, when the awards will be granted, the type of awards to
be granted, the number of shares involved in each award, the time when any
options granted will become exercisable and, subject to certain conditions, the
price and duration of such options. The compensation committee is comprised of
Keith B. Geeslin and William R. Stensrud.

The board of directors as a whole functions as a nominating committee to
select management's nominees for election to the board. The board of directors
will also consider nominees recommended by stockholders. For a description of
requirements regarding stockholder nominations and other proposals, see
"Stockholders' Proposals For 2003 Annual Meeting."

Director Compensation

Upon the commencement of their service as directors, we grant each of our
non-employee directors an option to purchase 10,000 shares of common stock
under our 1999 Non-Employee Directors Stock Option Plan. For each year they
continue to serve and attend at least 75% of the regularly scheduled meetings
of the board of directors and the committees of which he or she is a member
during that year, we grant each director an additional option to purchase 5,000
shares of common stock. Options granted under the 1999 Non-Employee Director
Stock Option Plan upon the commencement of service as a director may, at the
discretion of the board of directors, be fully vested on the grant date or be
vested as to 50% of the shares with the remaining 50% vesting on the first
anniversary of the grant date. No option granted under the 1999 Non-Employee
Director Stock Option Plan may have a term in excess of ten years from the date
on which it was granted. The exercise price of options granted under the 1999
Non-Employee Director Stock Option Plan will equal the fair market value of the
common stock on the date of grant.

As of April 15, 2002, 115,000 options (net of cancellations) to purchase
common stock had been granted pursuant to the 1999 Non-Employee Director Stock
Option Plan, of which options to acquire 60,000 shares were outstanding on such
date.

Since July 15, 1999, our non-employee directors have received $1,500 for
participation in meetings of the board of directors and $750 for participation
in committee meetings held on days other than those on which the board of
directors are held. We paid a total of $24,000 in directors' fees in 2001.

We do not compensate directors who are also our employees for their service
as directors.

Executive Officers

Our executive officers serve at the discretion of the board of directors and
are comprised of the following officers, in addition to Sean E. Belanger, who
is identified above:

Patrick M. Murphy, age 45, has served as Senior Vice President, Chief
Financial Officer and Treasurer since August 1996 and Secretary since August
2000. He also has served as a director and Chief Executive Officer of Paradyne
Credit Corp. since July 2001, and Vice President, Chief Financial Officer and
Treasurer from August 1996 to July 2001. From August 1996 to July 1998 he
served as Vice President, Treasurer and Chief Financial Officer of GlobeSpan,
Inc. From January 1987 to August 1996, he served as Chief Financial Officer of
Continental Broadcasting, Ltd., a television and radio broadcast company. Mr.
Murphy holds a B.S./B.A. in finance from John Carroll University and is a
certified public accountant.

Michael S. Ward, age 40, has served as Senior Vice President of Worldwide
Sales and Service since January 17, 2002. From July 2000 to November 2001, Mr.
Ward was President of Sales, North America for Corvis Corporation. From April
1995 to July 2000 Mr. Ward was a Sales Vice President at Ascend Communications
(which was purchased by Lucent Technologies in July 1999) and Lucent
Technologies. Mr. Ward holds a B.S. in electrical engineering from Virginia
Tech and a M.S. in electrical management from the University of South Florida.

PROPOSAL 2

AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

On April 20, 2002, the board of directors formally recommended that our
amended and restated certificate of incorporation, as amended, be further
amended, subject to approval by our stockholders, to reduce the minimum vote
required to approve future amendments to our certificate of incorporation,
other than amendments of articles V, VI and VII thereof, to a majority of the
outstanding stock entitled to vote thereon.

The board of directors unanimously recommends that you vote "FOR" the
proposal to adopt an amendment to our amended and restated certificate of
incorporation, as amended.

A summary of the proposed amendment is set forth below. The summary is
qualified in its entirety by reference to the full text of the proposed
amendment which is attached to this proxy statement as APPENDIX A.

The board of directors believes that the proposed amendment will provide
several long-term advantages to us and our stockholders. Currently, our amended
and restated certificate of incorporation, as amended, requires the affirmative
vote of the holders of at least 66 2/3% of the voting power of the then
outstanding shares of our voting stock, voting together as a single class, to
amend any provision of our certificate of incorporation. By reducing the
minimum vote required to approve amendments to our certificate of
incorporation, other than amendments of articles V, VI and VII thereof, to a
majority of the outstanding stock entitled to vote thereon, the amendment will
provide us with greater flexibility in amending, altering or repealing certain
provisions of our certificate of incorporation, by requiring the approval of
only a majority of the outstanding stock entitled to vote, rather than the
approval of a supermajority of the outstanding stock entitled to vote. The
proposed amendment will also reduce expenses to us in soliciting proxies to
amend certain provisions of the certificate of incorporation because we will no
longer be required to solicit approval from a supermajority of the outstanding
stock entitled to vote on certain routine matters. During the recent
acquisition of Elastic Networks Inc., for example, we spent significant amounts
of time and money in soliciting the supermajority approval necessary to
increase the number of our authorized shares of common stock in a circumstance
where stockholders who voted voted overwhelmingly in favor of the proposals
presented to them. Paradyne believes that it is not standard to have a
supermajority voting requirement on every provision of a corporation's
certificate of incorporation, and that the proposed amendment would better
align Paradyne's certificate of incorporation with those of other public
companies.

The proposed amendment would allow the following articles to be amended by a
majority vote, rather than a supermajority vote, as well as amending our
certificate of incorporation to add any new articles:

. Article I - The name of the corporation;

. Article II - The name and address of the registered office and registered
agent;

. Article III - The purpose of the corporation; and

. Article IV - The number of authorized shares of capital stock and rights
related thereto, including the currently authorized common stock and
preferred stock.

The proposed amendment will not have any immediate anti-takeover effects,
but could allow provisions of our certificate of incorporation to be amended or
adopted in the future with fewer stockholder votes. For example, the proposed
amendment would only require a majority of the voting power of outstanding
shares of Paradyne common stock to increase the number of shares of authorized
common or preferred stock, which could then have an anti-takeover effect in
that additional shares could then be issued (within the limits imposed by
applicable law) in transactions that could make a change in control or takeover
of Paradyne more difficult. In addition, new provisions that have an
anti-takeover nature could be adopted by a majority of the Paradyne shares so
long as they are not inconsistent with articles V, VI or VII. Paradyne
currently has no intention to propose any such future amendment. Further any
such future amendment would still require the approval of a majority of the
Paradyne shares, and could not be implemented directly by the board of
directors or management.

The proposed amendment would not affect articles V, VI and VII of the
amended and restated certificate of incorporation, as amended, because
amendment of these provisions will continue to require the approval of at least
66 2/3% of the outstanding stock entitled to vote thereon. The articles that
will continue to require at least a 66 2/3% vote for amendment are:

. Article V - Which deals with the number and classification of directors
(including providing for a staggered board of directors), vacancies and
newly created directorships, removal of directors (for cause and a
prohibition on without cause removals), bylaw amendments and other
stockholder actions;

. Article VI - Which eliminates the liability of directors for monetary
damages to the fullest extent under applicable law; and

. Article VII - Which addresses procedures future amendments to our
certificate of incorporation, including amendments affecting articles V,
VI or VII.

Therefore, if this proposal is adopted at our stockholder meeting, the
approval of at least 66 2/3% of the outstanding stock entitled to vote will
continue to be required as to any amendments to articles V, VI or VII of our
amended and restated certificate of incorporation, as amended. Any other
amendments to our certificate of incorporation would require the approval of a
majority of the outstanding stock entitled to vote.

If the proposed amendment is approved, section B of article VII of our
amended and restated certificate of incorporation, as amended, would be amended
to read as follows:

"B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the voting stock of the corporation
required by law, this Certificate of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the corporation, voting
together as a single class, shall be required to alter, amend, repeal, or
adopt any provision inconsistent with, Articles V, VI or VII hereof."

The only change to article VII of our amended and restated certificate of
incorporation, as amended and as currently in effect, that would be effected if
the amendment is approved is the change set forth above and attached as
Appendix A. The effect of amending this article of our amended and restated
certificate of incorporation, as amended, will be to allow Section 242 of the
Delaware General Corporation Law to govern future amendments to our certificate
of incorporation by requiring the approval of the holders of a majority of our
outstanding stock entitled to vote on certain matters that do not involve the
amendment or adoption of provisions inconsistent with articles V, VI or VII. A
complete copy of our amended and restated certificate of incorporation, as
amended, is attached to this proxy statement as APPENDIX B.

If the amendment to our amended and restated certificate of incorporation,
as amended, is approved by the stockholders at the annual meeting, we will file
a Certificate of Amendment with the Delaware Secretary of State amending
section B of article VII, which will become effective at the time the Secretary
of State accepts the filing.

EXECUTIVE COMPENSATION

Summary of Compensation

The following table summarizes the compensation paid or accrued by us in
each of the fiscal years ended December 31, 1999, 2000 and 2001 with regard to
Sean E. Belanger, our President and Chief Executive Officer, Patrick M. Murphy
and John Koehler, our other executive officer as of December 31, 2001 whose
annual compensation and bonus was $100,000 or more for 2001. We refer to these
executives as the named executive officers. This table does not include
information for Michael S. Ward who began serving as an executive officer in
January 2002. For further information, see "-- Employment Agreements" below.

Summary Compensation Table

Long-Term
Compensation
Annual Compensation (1) Awards
---------------------------------- ------------
Securities
Underlying All Other
Name and Principal Position Fiscal Year Salary ($) Bonus ($) Options (#) Compensation ($)
--------------------------- ----------- ---------- --------- ------------ ----------------

Sean E. Belanger............. 2001 $301,473(2) $244,450 24,739 $454(3)
President, Chief Executive 2000 219,402(2) 49,750 2,050,000 306(3)
Officer; Director 1999 200,838(2) 98,333 80,000 389(3)

Patrick M. Murphy............ 2001 206,280(4) 174,360 16,926 281(5)
Senior Vice President, Chief 2000 225,663(4) 23,333 740,000 211(5)
Financial Officer, Treasurer 1999 224,396(4) 70,000 110,000 383(5)
And Secretary

John Koehler................. 2001 178,107 56,869 414,989 336(7)
Former Senior Vice President
and General Manager - DSL
and World Wide Services (6)

--------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits which are available generally to all salaried
employees of Paradyne and other perquisites and personal benefits received
which do not exceed the lesser of $50,000 or 10% of any officer's salary
and bonus disclosed in this table.
(2) Includes $0, $60,000 and $47,344 contributed to the Key Employee Stock
Option Plan for the years 2001, 2000 and 1999 respectively.
(3) Mr. Belanger received life insurance benefits during 2001, 2000 and 1999.
(4) Includes $0, $29,999 and $60,000 contributed to the Key Employee Stock
Option Plan for the years 2001, 2000 and 1999 respectively.
(5) Mr. Murphy received life insurance benefits during 2001, 2000 and 1999.
(6) Mr. Koehler was hired by Paradyne in January 2001 and resigned in January
2002.
(7) Mr. Koehler received life insurance benefits during 2001.

Employment Agreements

Under employment agreements with Messrs. Belanger and Murphy, dated as of
December 8, 2000, Mr. Belanger serves as President and Chief Executive Officer,
and Mr. Murphy serves as Senior Vice President, Chief Financial Officer,
Treasurer and Secretary. Each of the agreements has a term of one year with
automatic daily extensions. Under the agreement, the officer is entitled to an
annual base salary (currently $330,000 in the case of Mr. Belanger and $225,810
in the case of Mr. Murphy) and an annual performance bonus opportunity
(currently $150,000 in the case of Mr. Belanger and $70,000 in the case of Mr.
Murphy), and he is entitled to

participate in all incentive, savings, retirement and welfare plans provided by
Paradyne to its senior executive officers generally. Pursuant to his employment
agreement, the executive was granted stock options to acquire shares of
Paradyne common stock (1,200,000 shares in the case of Mr. Belanger and 430,000
shares in the case of Mr. Murphy) at an exercise price equal to the fair market
value of the underlying shares on the date of grant. The options vest in equal
monthly installments over a 36-month period, provided that, upon the earlier
occurrence of a change in control, the options will vest immediately as to a
portion of the shares (those that would have vested in the next 12 months with
respect to Mr. Belanger, and one-half of the unvested options in the case of
Mr. Murphy), and as to another portion of the shares if the officer's
employment is terminated under certain conditions within one year after the
change in control (those that would have vested in the 24 months after the
change in control with respect to Mr. Belanger, and the remainder of the
unvested shares with respect to Mr. Murphy). In addition, pursuant to the
employment agreement, all of the officer's other options that were outstanding
on December 8, 2000 were amended to provide that upon the officer's termination
of employment due to his death, disability or retirement, or his termination
without cause or voluntary resignation for any reason, such options will remain
exercisable for 12 months. Either party to the employment agreements may
terminate the agreement at any time for any reason. If we terminate the
officer's employment without cause or if he resigns for good reason, he will
receive (i) a prorated target annual bonus for the year of termination, (ii) a
severance payment equal to one year's salary, and (iii) reimbursement for the
cost of twelve months of continued health insurance coverage under COBRA. Each
of the employment agreements provides for a limitation of severance and other
benefits to the extent necessary to avoid the imposition of a golden parachute
excise tax, but only if such limitation would result in a more favorable
after-tax result for the officer. The employment agreements contain covenants
against the disclosure of confidential information or the solicitation of
Paradyne's customers or employees for a period of six months after the
officer's termination of employment.

We entered into an employment agreement with Michael S. Ward on January 17,
2002. Under the agreement, Mr. Ward is entitled to an annual base salary in the
amount of $200,000 and an annual commission opportunity of $100,000 based on
attainment of an annual quota. The commission rate will double for all amounts
exceeding the annual quota. Mr. Ward will also be entitled to a quarterly bonus
of $12,500 if he meets quarterly objectives. He is entitled to participate in
all incentive, savings, retirement and welfare plans provided by Paradyne to
its senior executive officers generally. Pursuant to his employment agreement,
the executive was granted stock options to acquire 550,000 shares of Paradyne
common stock, of which 400,000 shares were granted with a fair market value
option price at the date of grant and the remaining 150,000 shares were granted
at $1 per share. The options vest over a four year period with the first
vesting of 25% of the total occurring one year from the date of grant.
Thereafter, options vest on a quarterly basis. Upon the earlier occurrence of a
change in control, however, the options will vest immediately as to a portion
of the shares (those that would have vested in the next 12 months), and as to
another portion of the shares if the officer's employment is terminated under
certain conditions within one year after the change in control (those that
would have vested in the 24 months after the change in control). Any options
exercisable upon the officer's termination of employment due to his death,
disability or retirement, or his termination without cause or voluntary
resignation for any reason, will remain exercisable for 6 months. Either party
to the employment agreements may terminate the agreement at any time for any
reason. If we terminate the officer's employment without cause or if he resigns
for good reason and within 90 days after the occurrence of the event giving
rise to good reason he will receive (i) a severance payment equal to one year's
salary, and (ii) reimbursement for the cost of twelve months of continued
health insurance coverage under COBRA.

Option Grants

The following table provides information with regard to stock option grants
to the named executive officers pursuant to The Amended and Restated 1996
Equity Incentive Plan, or the 1996 Plan, and the 2000 Broad-Based Plan, or the
Broad-Based Plan, during 2001. With certain exceptions noted below, most
options expire ten years from the date of grant and become exercisable at the
rate of 25% on the first anniversary of the grant date and 6.25% every three
months thereafter, for full vesting after four years.

Option Grants in the Last Fiscal Year

Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of
Underlying Granted to Exercise of Stock Price Appreciation
Options Employees in Base Price Expiration for Option Term
Name Granted (#) Fiscal Year (1) ($/SH) Date 5% ($) 10%($)
---- ----------- --------------- ----------- ---------- -------- ----------

Sean E. Belanger. 24,739(2) 0.73% $2.00 06/04/2011 $ 31,116 $ 78,855
Patrick M. Murphy 16,926(2) 0.50 2.00 06/04/2011 21,289 53,951
John Koehler..... 400,000 11.800 1.81 01/02/2011 455,949 1,155,463
14,989 .44 2.00 06/04/2011 18,853 47,777

--------
(1) Options to purchase a total of 3,390,565 shares of common stock were
granted to employees in fiscal 2001 under our 1996 Plan and Broad-Based
Plan.
(2) Represents options granted to executive, based on amount of salary
reduction incurred, which vest on a monthly basis over 36 months.

Amounts reported in the last two columns represent hypothetical amounts that
may be realized upon exercise of options immediately prior to the expiration of
their term, assuming the specified compounded rates of appreciation of the
common stock over the term of the options. The numbers shown in these two
columns are calculated based on Securities and Exchange Commission rules and do
not reflect our estimate of future stock price growth. Actual gains, if any, on
stock option exercises and common stock holdings depend on the timing of such
exercises and the future performance of the common stock. We do not guarantee
that the rates of appreciation assumed in these two columns can be achieved or
that the amounts reflected will be received by the named executive officers.
The two columns do not take into account any appreciation of the price of the
common stock from the date of grant to the current date.

Option Exercises and Fiscal Year-End Option Values

The following table sets forth information regarding (1) the number of
shares of common stock received upon exercise of options by the named executive
officers during 2001, (2) the net value realized upon such exercise, (3) the
number of unexercised options held at December 31, 2001 and (4) the aggregate
dollar value of unexercised options held at December 31, 2001. The net value
realized upon exercise is equal to the difference between the option exercise
price and the fair market value of our common stock at the date of exercise or
at fiscal year end. The closing sale price of our common stock on the Nasdaq
National Market on December 31, 2001 was $3.90 per share.

Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option
Values

Number of Securities
Underlying Unexercised Value of Unexercised
Options at December 31, In-The-Money Options at
2001 (#) December 31, 2001 ($)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ------------ ------------------------- -------------------------

Sean E. Belanger. -- -- 915,374 / 1,359,365 $1,198,248 / 1,941,230
Patrick M. Murphy -- -- 378,655 / 513,271 411,060 / 709,042
John Koehler..... -- -- 2,499 / 412,490 5,217 / 786,076

INDEPENDENT PUBLIC ACCOUNTANTS

The board of directors has appointed the firm of PricewaterhouseCoopers LLP
to serve as independent auditors of the Company for the fiscal year ending
December 31, 2002. PricewaterhouseCoopers LLP has served as our independent
auditors since 1996.

Representatives of PricewaterhouseCoopers will be present at the annual
meeting, where they will have an opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions.

Services and Fees of PricewaterhouseCoopers LLP During 2001

Audit Fees. PricewaterhouseCoopers LLP's fees were $177,000 and they billed
us $0 for expenses in connection with its audit of our annual financial
statements for 2001 and its reviews of our quarterly financial statements
included in our three Quarterly Reports on Form 10-Q that we filed with the
Securities and Exchange Commission during 2001.

Financial Information Systems Design and Implementation
Fees. PricewaterhouseCoopers LLP billed us $0 in fees and $0 for expenses in
connection with financial information systems design and implementation
services in 2001.

All Other Fees. PricewaterhouseCoopers LLP billed us $36,000 in fees and $0
for expenses in connection with all other services that they rendered to us in
2001. A substantial portion of the fees for these services relates to services
traditionally provided by auditors, including consulting regarding FASB and
Securities and Exchange Commission pronouncements, other Securities and
Exchange Commission related work and income tax services other than those
directly related to the audit of the Company's income tax accrual.

The audit committee has determined that the provision by
PricewaterhouseCoopers LLP of non-audit services to us in 2001 is compatible
with PricewaterhouseCoopers LLP's maintaining its independence.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The audit committee oversees the Company's financial reporting process on
behalf of the board of directors. The audit committee operates under a written
charter adopted by the board of directors. This report reviews the actions
taken by the audit committee with regard to the Company's financial reporting
process during 2001 and particularly with regard to the Company's audited
consolidated financial statements as of December 31, 2001 and 2000 and for the
three years in the period ended December 31, 2001.

The audit committee is comprised of Thomas E. Epley, Keith B. Geeslin and
William R. Stensrud. Peter Van Camp served on the audit committee during 2001
but resigned from the audit committee on March 28, 2002 when he resigned from
the board of directors. All audit committee members are "independent" as
defined in the applicable listing standards of the NASD, except Mr. Epley, who
serves as a non-independent member of the audit committee. Mr. Epley formerly
was employed by Paradyne, most recently pursuant to the terms of a Key
Employment Agreement that terminated on June 30, 1999. Mr. Epley was originally
elected to the audit committee on July 27, 2000 and re-elected to that
committee on March 28, 2002 by our board of directors. The board of directors
determined that the addition of Mr. Epley to the audit committee is an
appropriate and acceptable appointment because of his extensive industry and
financial expertise and background and is required in the best interest of
Paradyne and its stockholders. The board of directors determined that Mr.
Epley's appointment to the audit committee complies with the conditions
stipulated in the NASD independence rules that allow "one non-independent
director" to serve on the audit committee of the Board of Directors under
exceptional and limited circumstances. As further required by such rules, each
of the committee members is financially literate and has financial management
expertise.

The Company's management has the primary responsibility for the Company's
financial statements and reporting process, including the systems of internal
controls. The Company's independent auditors are responsible for performing an
independent audit of the company's consolidated financial statements in
accordance with generally accepted auditing standards and issuing a report
thereon. The committee's responsibility is to monitor and oversee these
processes and to recommend annually to the board of directors the accountants
to serve as the Company's independent auditors for the coming year.

The audit committee has implemented procedures to ensure that during the
course of each fiscal year it devotes the attention that it deems necessary or
appropriate to fulfill its oversight responsibilities under the audit
committee's charter. To carry out its responsibilities, the audit committee met
two times during 2001.

In fulfilling its oversight responsibilities, the audit committee reviewed
with management the audited financial statements to be included in the
Company's Annual Report on Form 10-K for 2001, including a discussion of the
quality (rather than just the acceptability) of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements.

The audit committee also reviewed with the Company's independent auditors,
PricewaterhouseCoopers LLP, their judgments as to the quality (rather than just
the acceptability) of the Company's accounting principles and such other
matters as are required to be discussed with the audit committee under
Statement on Auditing Standards No. 61, Communication with Audit Committees. In
addition, the audit committee discussed with PricewaterhouseCoopers LLP their
independence from management and the Company, including the matters in the
written disclosures required of PricewaterhouseCoopers LLP by Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees.
The audit committee also considered whether the provision of services during
2001 by PricewaterhouseCoopers LLP that were unrelated to their audit of the
financial statements referred to above and to their reviews of the Company's
interim financial statements during 2001 is compatible with maintaining
PricewaterhouseCoopers LLP's independence.

Additionally, the audit committee discussed with the Company's independent
auditors the overall scope and plan for their audits. The audit committee met
with the independent auditors, with and without any management present, to
discuss the results of their examinations, their evaluations of the Company's
internal controls and the overall quality of the Company's financial reporting.

In reliance on the reviews and discussions referred to above, the audit
committee recommended to the board of directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for 2001 for
filing with the Securities and Exchange Commission.

Audit Committee:

Thomas E. Epley
Keith B. Geeslin
William R. Stensrud

April 18, 2002

REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS

Introduction

The compensation committee is responsible for developing the Company's
executive compensation policies and advising the board of directors with
respect to these policies. This report reviews the compensation committee's
policies generally with respect to the compensation of all executive officers
as a group for 2001 and specifically reviews the compensation established for
Michael Ward, who became Senior Vice President of Worldwide Sales and Services
on January 17, 2002.

The members of the compensation committee are Keith B. Geeslin and William
R. Stensrud. None of the committee members is or has been an officer or
employee of the Company or any of its subsidiaries.

Compensation Policy for Executive Officers

The executive compensation program for 2001 was designed to attract and
retain a highly qualified and motivated management team, reward individual
performance and link the interests of the senior executives directly with those
of the stockholders. The 2001 compensation program, like those in prior years,
is comprised of base salary, annual bonuses and long-term incentive pay in the
form of stock options. This program applies to all key management personnel,
including the Chief Executive Officer. All of the executives also are eligible
for other employee benefits, including life, health, disability and dental
insurance and the Company's retirement savings plan and employee stock purchase
plan.

Base Salary. The compensation committee set the base salaries of top
management for 2001 after reviewing salary levels for comparable executive
positions in the telecommunications industry. The compensation committee set
salaries at levels competitive with the base salaries of similarly situated
executives at companies of similar size and revenue levels in the
telecommunications industry.

Annual Bonuses. The compensation committee based annual cash bonuses for
executive officers in 2001 on the Company's financial performance targets. The
compensation committee established the target bonus amounts after reviewing
similar information presented in independent surveys. The compensation
committee's review ranged from broad-based overviews of the entire
telecommunications industry to information regarding entities more similar to
the Company in revenues. Based on such comparative information, the
compensation committee used "median" as a guide for setting average and target
bonus amounts for the Company's top management positions. The compensation
committee generally uses the achievement of new equipment revenue and the
attainment of a profitability target as its two principal performance
measurements. Additionally, the compensation committee may use its discretion
to adjust the annual bonus payment based on an executive satisfying key
deliverables. In 2001, we greatly improved both our operational and financial
performance due in large part to our tight control of expenses and our
significant contract with BBT Technologies, Inc., resulting in a strong second
half of 2001 in a very difficult business environment. Furthermore, we closely
controlled our cash usage and significantly improved our liquidity by the end
of 2001. As a result, the compensation committee approved discretionary bonus
payments to Messrs. Belanger and Murphy.

Stock Options. Stock options are granted periodically under the 1996 Plan
to the executive officers. Generally, options granted to executive officers, as
with all of the Company's employees, have an exercise price equal to the fair
market value of the underlying stock on the date of grant, expire ten years
from the date of grant and become exercisable at the rate of 25% on the first
anniversary of the grant date and 6.25% every three months thereafter, for full
vesting after four years. Messrs. Belanger and Murphy received stock option
grants in 2001 under the 1996 Plan that vest in equal monthly installments over
thirty-six months beginning one month from the date of grant. In granting
options, the board reviews the amount of options granted to executives at other
comparable companies in the telecommunications industry, the awards granted to
other employees within the

Company, the individual's position at the Company, options granted to the
individual in prior years and his role in helping the Company achieve its
goals. For more information about the options granted and exercised by the
Company's named executive officers in 2001 and year-end stock option values,
see "Executive Compensation--Option Grants" and "-- Aggregated Option Exercises
in the Last Fiscal Year and Fiscal Year-End Option Values."

Chief Executive Officer's Compensation

Mr. Belanger became the Company's Chief Executive Officer in December 2000.
Mr. Belanger received a base salary of $301,473 in 2001. Based on the Company's
financial performance in 2001, Mr. Belanger earned an annual incentive bonus of
$112,500. Mr. Belanger's other incentive pay includes a $100,000 discretionary
bonus and a $31,950 amount paid due to the Company's strong financial results
in the last half of 2001, as a partial return of monies he lost due to the
Company's salary reduction program. Mr. Belanger received 24,739 stock option
grants during 2001. The number of stock options granted to Mr. Belanger during
2001 were based on the reduction in salary he incurred as part of a broad
company cost cutting measure. Mr. Belanger's total compensation for 2001 is
provided in detail in the Summary Compensation Table under "Executive
Compensation."

Policy With Respect to Deductibility of Compensation Expense

Section 162(m) of the Internal Revenue Code limits the tax deduction that
the Company may take with respect to the compensation of certain executive
officers, unless the compensation is "performance based" as defined in the
Code. The 1996 Plan is designed to comply with Section 162(m) of the Code so
that the grant of options and other awards under the 1996 Plan, including those
that are conditioned on performance goals, will be excluded from the
calculation of annual compensation and will be fully deductible by the Company.
No awards other than stock options have been granted to date under the 1996
Plan that are conditioned on performance goals. The Broad-Based Plan does not
comply with Section 162(m) of the Code and, therefore, grants to executive
officers under the Broad-Based Plan may not be fully deductible by the Company.

Conclusion

The executive compensation program is designed to closely link pay with
performance and the creation of stockholder value. If the Company achieves
average financial performance levels, its executives will be compensated at
"median levels" for comparable companies. If the Company's performance is
exceptionally higher than the targeted levels, executive compensation will
exceed such "median levels." The compensation committee believes that the
program has been and will continue to be successful in supporting the Company's
financial growth and other business objectives.

Compensation Committee:

Keith B. Geeslin
William R. Stensrud

April 18, 2002

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

From January 1, 2001 to September 30, 2001, the compensation committee
consisted of David M. Stanton and William R. Stensrud. Since October 1, 2001,
the compensation committee has consisted of Keith B. Geeslin and William R.
Stensrud.

In 2001, Mr. Stanton (who resigned as a director of Paradyne on September
30, 2001), served as a director of Globespan, Inc. and Paradyne Credit Corp.;
Mr. Geeslin served as a director of Rhythms NetConnections and Globespan; and
Mr. Stensrud served as a director of Rhythms NetConnections, Inc. For a
description of transactions involving Paradyne Credit Corp. and Globespan, see
"Certain Transactions" below.

CERTAIN TRANSACTIONS

In July 1996, Communication Partners, L.P., a limited partnership controlled
by Texas Pacific Group, acquired our business as well as the businesses of
Paradyne Credit Corp. and GlobeSpan, Inc. as part of a divestiture by Lucent
Technologies Inc. As of May 1999, Communication Partners, L.P. owned
approximately 97.1% of our outstanding common stock and approximately 83.2% of
the outstanding capital stock of GlobeSpan. In May 1999, Communication
Partners, L.P. distributed its Paradyne shares and its GlobeSpan shares to its
general and limited partners. Communication Partners, L.P. continues to own
100% of the capital stock of Paradyne Credit Corp.

Mr. Murphy, our Senior Vice President, Chief Financial Officer, Treasurer
and Secretary, is the Chief Executive Officer and director of Paradyne Credit
Corp.

Messrs. Epley and Stensrud, two of our directors, either directly or through
various investment partnerships and corporations, are limited partners of
Communication Partners, L.P. Mr. Bonderman is a managing partner in Texas
Pacific Group, a limited partner in Communications Partners, L.P.

Transactions With Globespan, Inc.

Cross-License Agreement. As part of the divestiture by Lucent, we entered
into a cross-license agreement with GlobeSpan. Under this agreement, each party
granted to the other party a non-exclusive, non-transferable, irrevocable,
world-wide, royalty-free license to the patents Lucent assigned to the granting
party in the divestiture, for use in the other party's products that existed as
of the date of the divestiture, and subsequent modifications to those products.
Each party also granted to the other party a non-exclusive, non-transferable,
irrevocable, worldwide, royalty-free license to the granting party's other
technical information and intellectual property existing at the time of the
divestiture. These licenses give us the right to make, have made, use, sell and
import our products within the scope of the license grants as well as the tools
used to develop, manufacture, test or repair such products. We were also given
the right to convey to any of our customers the right to use and resell such
products. Each party also granted to the other party a non-exclusive,
non-transferable, irrevocable, world wide, royalty-free license to use
particular listed trademarks. All of these licenses have an indefinite
duration, subject to the expiration of patent and copyright terms.

Cooperative Development Agreement/Termination Agreement/Supply
Agreement. Effective December 1998, GlobeSpan and we terminated a Cooperative
Development Agreement pursuant to a termination agreement. In conjunction with
the signing of the termination agreement we entered into a four-year supply
agreement with GlobeSpan, which gives us preferential pricing and other terms
in connection with the purchase of GlobeSpan products. Under the terms of this
agreement, GlobeSpan is required to honor our orders for GlobeSpan products in
quantities at least consistent with our past ordering practices and must afford
us at least the same priority for its orders as GlobeSpan affords other
similarly situated highly preferred customers. We were also granted immunity
under GlobeSpan's intellectual property rights for all our customers that
purchase our products that incorporate GlobeSpan products. GlobeSpan has been
selling products to us pursuant to these terms since July 1998. In 2001, we
purchased from GlobeSpan a total of $1.0 million of products under the supply
agreement.

Real Property Agreements. Under a sublease dated August 1997, and
subsequently amended in August 1998, between GlobeSpan and us, GlobeSpan
subleased property at 100 Schulz Drive, Red Bank, New Jersey. The sublease
reimburses us for 100% of all costs we incur under the primary lease. GlobeSpan
paid us approximately $68,000 a month for approximately 50,000 rentable square
feet, plus approximately $10,000 per month for rent and operating costs. In
October 2000, the rent increased to approximately $79,000 a month. Pursuant to
a Mutual Release and Surrender Agreement dated March 20, 2001, we terminated
our obligations as a lessor under the lease of this property which consequently
terminated our sublease arrangement with Globespan.

Transactions With Paradyne Credit Corp.

As part of the divestiture by Lucent, we entered into an intercompany
services agreement with Paradyne Credit Corp., our equipment leasing affiliate,
under which we agreed to provide:

. general management consulting and services administration, including
rental contract servicing administration and remarketing services;

. administrative services, including risk management, financial and cash
management, tax management and accounting services;

. human resources, staffing and legal services; and

. operational services, including facilities management, office
communications, telecommunication systems, systems management and other
services.

In exchange for these services, Paradyne Credit Corp. pays us a monthly
service fee to equal to the sum of: (i) all direct costs incurred by us to
provide services to Paradyne Credit Corp., (ii) all indirect costs incurred by
us to provide services to Paradyne Credit Corp. and (iii) a 5% mark up on all
charges. Paradyne Credit Corp. may terminate this agreement upon 60 days notice
and by us upon 180 days notice. Amounts charged for these services totaled
approximately $621,000 for the year ended December 31, 2001.

Transactions with Nortel Networks Inc.

As a result of our March 5, 2002 acquisition of Elastic Networks, Nortel
Networks Inc. became a greater than 5% owner of our common stock. Elastic
Networks has a Distribution Agreement with Nortel that will continue after the
acquisition. Under this Distribution Agreement, Elastic Networks supplies
Nortel's customers with access product. Although Elastic Networks paid an
agency fee of 7.5% of sales to specified customers under the Distribution
Agreement, this agency fee was terminated in connection with the acquisition.
During 2001 Elastic Networks sold $13.6 million through Nortel. During 2001,
Paradyne's total business transactions with Nortel were less than $60,000.

Limitations On Directors' and Executive Officers' Liability and Indemnification

Our amended and restated certificate of incorporation, as amended, and
bylaws provide for indemnification and limitation of liability of our directors
and executive officers. In addition, we have entered into indemnification
agreements with Messrs. Belanger, Bonderman, Epley, Geeslin, Andrew May (who
resigned as a director on March 6, 2002), Murphy, Stensrud, and Van Camp (who
resigned as a director on March 28, 2002). Under the agreements, we agreed to
reimburse and indemnify each individual for civil or criminal proceedings or
governmental investigations relating to his actions as a director or officer,
except if such conduct was committed in bad faith or was a breach of his duty
of loyalty to us.

On December 7, 2000, in connection with several securities class action
lawsuits against Paradyne, Messrs. May, Murphy and Epley, we agreed, consistent
with our certificate of incorporation, bylaws and the above-mentioned indemnity
agreements, to reimburse Messrs. May, Murphy and Epley, each of whom is a
defendant in the lawsuits. As of April 15, 2002, we have not made any payments
to Messrs. May, Murphy and Epley.

Other Director Or Five Percent Stockholder Relationships

William R. Stensrud, the nominee for election on our board of directors,
served as director of Rhythms NetConnections, Inc. during fiscal 2001. Mr.
Stensrud resigned from his position on the board of directors of Rhythms
NetConnections in the fourth quarter of 2001. For the year ended December 31,
2001, we sold products totaling approximately $1.9 million to Rhythms
NetConnections. We believe that our transactions with Rhythms NetConnections
were completed at rates similar to those available to our other customers of
similar size and nature.

As of April 15, 2002, Texas Pacific Group beneficially owns 26.41% of our
common stock and also beneficially owns convertible preferred stock
representing ownership of 15.4% of Zhone Technologies, Inc., a company with
whom we have a distribution agreement. This convertible preferred stock is
convertible to common stock on a one-to-one exchange ratio at the earlier of an
election to convert by the Texas Pacific Group or upon an initial public
offering of Zhone. Pursuant to this distribution agreement, we purchase Zhone's
IMACS system and have exclusive rights to distribute it under our private label
as the Acculink Access Controller. For the year ended December 31, 2001 we made
total payments to Zhone for purchases of IMACS of approximately $8.0 million.

Promissory Notes From Officers and Director

In 1999, two of our executive officers and one former director--Sean
Belanger, Patrick Murphy and Andrew May--issued to us promissory notes in
connection with the purchase of shares of our common stock. The full recourse
notes accrued interest at rates ranging from 4.72% to 5.15%. The principal
balance of the notes and accrued interest was payable at the earlier of
termination of employment or five years from the date of the note. The notes
were secured by the shares of common stock acquired with the note, which shares
were held in escrow by us. The shares purchased vest either on a quarterly
basis or 25% vest on the first anniversary of the note with the remainder
vesting in equal quarterly installments thereafter. All unvested shares
purchased with the notes were subject to repurchase by us if these executive
officers terminated their employment prior to becoming fully vested in the
shares. During 2001 and the first quarter of 2002, Messrs. Belanger, Murphy and
May paid to us the outstanding balances of $199,800, $74,925, and $37,485 and
$99,900, respectively, plus accrued interest. Therefore, all promissory notes
with our executive officers and directors and the associated interest have been
paid off as of April 15, 2002.

STOCK PERFORMANCE GRAPH

The following stock performance graph and accompanying table compare the
stockholders' cumulative return on the common stock from July 16, 1999 to
December 31, 2001 with the cumulative total return of the S&P 500 Index (U.S.)
and the Nasdaq Telecom Index over the same period. The comparative data assumes
that $100.00 was invested on the date of our initial public offering, July 16,
1999, in the common stock and in each of the indices referred to above and that
any dividends were reinvested. The stock price performance shown in the table
set forth below is not necessarily indicative of future stock price performance.

[CHART]

Paradyne Networks, Inc. S & P 500 Index Nasdaq Telecom Index
----------------------- --------------- --------------------
Jul-99 $100.00 $100.00 $100.00
1999 160.29 107.71 136.44
2000 10.66 97.90 58.11
2001 22.94 86.27 38.90

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The United States securities laws require our directors, executive officers
and any persons who beneficially own more than 10% of our common stock to file
with the Securities and Exchange Commission and the Nasdaq Stock Market initial
reports of ownership and subsequent reports of changes in ownership of our
securities. To our knowledge, based solely on a review of the copies of the
reports furnished to us and written representations that no other reports were
required, during 2001 all directors, executive officers and beneficial owners
of more than 10% of our common stock made all required filings.

STOCKHOLDERS' PROPOSALS FOR 2003 ANNUAL MEETING

Under Securities and Exchange Commission rules, proposals of stockholders
that are intended to be presented by such stockholders at our 2003 annual
meeting and that stockholders desire to have included in our proxy statement
and form of proxy for the 2003 annual meeting must be submitted to us in
writing no later than January 6, 2003, which is 120 calendar days prior to the
anniversary of the mailing date of this proxy statement, and must be in
compliance with applicable laws and regulations in order to be considered for
possible inclusion in the proxy materials.

If a stockholder wishes to present a proposal at our 2003 annual meeting,
and the proposal is not intended to be included in our proxy statement relating
to that meeting, the stockholder must deliver written notice of the proposal to
Paradyne not less than 90 days nor more than 120 days before the first
anniversary of the prior year's meeting. Assuming that our 2003 annual meeting
is held on schedule, we must receive this notice no earlier than February 11,
2003 and no later than March 13, 2003. If a stockholder gives notice of a
proposal after this deadline, the stockholder will not be permitted to present
the proposal to the stockholders for a vote at the meeting. The requirements
for submitting such proposals are set forth in our bylaws.

All director nominations and other proposals of stockholders with regard to
the 2003 annual meeting should be submitted by certified mail, return receipt
requested, to Paradyne Networks, Inc., 8545 126/th Avenue North, Largo, Florida
33773, Attention: Patrick M. Murphy, Senior Vice President, Chief Financial
Officer, Treasurer and Secretary. /

By order of the board of directors,

/s/ Patrick M. Murphy
Patrick M. Murphy
Senior Vice President, Chief
Financial Officer,
Treasurer and Secretary

Largo, Florida
May 6, 2002

APPENDIX A

CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED,
OF PARADYNE NETWORKS, INC.

Paradyne Networks, Inc. (the "Corporation"), a corporation duly organized
and existing under the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify as follows:

FIRST: That in accordance with the requirements of Section 141 and 242 of
the DGCL, the Board of Directors of the Corporation, acting by written consent
on April 20, 2002, duly adopted resolutions: (1) proposing and declaring
advisable the amendment to the Amended and Restated Certificate of
Incorporation, as amended, of the Corporation to reduce the minimum vote
required to approve amendments to the Amended and Restated Certificate of
Incorporation, as amended, other than amendments of Articles V, VI and VII
thereof, to a majority of the outstanding stock entitled to vote thereon and
(2) recommending that such amendment be submitted to the stockholders of the
Corporation for their consideration and approval at a special meeting of
stockholders.

SECOND: That the amendment to the Amended and Restated Certificate of
Incorporation, as amended, of the Corporation is as follows:

Section B of Article VII of the Amended and Restated Certificate of
Incorporation, as amended, of the Corporation is hereby deleted in it is
entirety and replaced with the following:

THIRD: That thereafter, pursuant to resolutions of the Board of Directors,
the stockholders of the Corporation duly approved the aforesaid amendment to
the Amended and Restated Certificate of Incorporation, as amended, of the
Corporation.

FOURTH: That the aforesaid amendment to the Amended and Restated
Certificate of Incorporation, as amended, of the Corporation was duly adopted
in accordance with the provisions of Sections 141, 211 and 242 of the DGCL.

FIFTH: That said amendment is to become effective upon the filing of this
Certificate of Amendment.

IN WITNESS WHEREOF, Paradyne Networks, Inc. has caused this certificate to
be signed by its authorized officer, this day of June, 2002.

By: -----------------------------
Patrick M. Murphy
Title: Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary

APPENDIX B

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF PARADYNE NETWORKS, INC.

The name of this corporation is Paradyne Networks, Inc.

II.

The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, and the name of the registered agent of the corporation
in the State of Delaware at such address is The Corporation Trust Company.

III.

The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.

IV.

A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Sixty-Five
Million (65,000,000) shares. Sixty Million (60,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001). Upon the filing of this Amended and Restated
Certificate of Incorporation, every two (2) outstanding shares of Common Stock
of this corporation shall be combined into one (1) share of Common Stock.

B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.

For the management of the business and for the conduct of the affairs of the
corporation, and in further definition, limitation and regulation of the powers
of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:

A. Number and Classification of Directors

1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.

B-1

2. Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "1933 Act"),
covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes
designated as Class I, Class II and Class III, respectively. Directors shall
be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term
of office of the Class I directors shall expire and Class I directors shall
be elected for a full term of three years. At the second annual meeting of
stockholders following the closing of the Initial Public Offering, the term
of office of the Class II directors shall expire and Class II directors
shall be elected for a full term of three years. At the third annual meeting
of stockholders following the closing of the Initial Public Offering, the
term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a
full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.

Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

3. Vacancies

a. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled
by the stockholders, except as otherwise provided by law, be filled only
by the affirmative vote of a majority of the directors then in office,
even though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.

b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any
such increase), the Delaware Court of Chancery may, upon application of
any stockholder or stockholders holding at lest ten percent (10%) of the
total number of the shares at the time outstanding having the right to
vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in offices as aforesaid, which
election shall be governed by Section 211 of the DGCL.

4. Removal

a. Neither the Board of Directors nor any individual director may be
removed without cause.

b. Subject to any limitation imposed by law, any individual director
or directors may be removed with cause by the holders of a majority of
the voting power of the corporation entitled to vote at an election of
directors.

B. Bylaws and Stockholder Actions

1. Subject to paragraph (h) of Section 42 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66 2/3%) of the voting power of all
of the then-outstanding shares of the voting stock of the corporation
entitled to vote. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.

B-2

2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.

3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the Bylaws, and following the closing of the Initial Public Offering,
no action shall be taken by stockholders by written consent.

4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the corporation shall be given in the manner provided
in the Bylaws of the corporation.

VI.

A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.

B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.

VII.

A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.

B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock of the corporation required by
law, this Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of all of the then-outstanding shares of the
voting stock of the corporation, voting together as a single class, shall be
required to alter, amend or repeal Articles.

B-3

CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PARADYNE NETWORKS, INC.

Paradyne Networks, Inc. (the "Corporation"), a corporation duly organized
and existing under the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify as follows:

FIRST: That in accordance with the requirements of Section 141 and 242 of
the DGCL, the Board of Directors of the Corporation, acting at a meeting duly
called and convened on December 27, 2001, duly adopted resolutions: (1)
proposing and declaring advisable the amendment to the Amended and Restated
Certificate of Incorporation of the Corporation to increase the number of
shares of the Corporation's common stock, $.001 par value per share, that the
Corporation is authorized to issue from 60,000,000 shares to 80,000,000 shares
and (2) recommending that such amendment be submitted to the stockholders of
the Corporation for their consideration and approval at a special meeting of
stockholders.

SECOND: That the amendment to the Amended and Restated Certificate of
Incorporation of the Corporation is as follows:

Section A of Article IV of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby deleted in it is entirety and
replaced with the following:

"A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Eighty-Five
Million (85,000,000) shares. Eighty Million (80,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($.001). Five
Million (5,000,000) shares shall be Preferred Stock, each having a par value
of one-tenth of one cent ($.001)."

FOURTH: That the aforesaid amendment to the Amended and Restated
Certificate of Incorporation of the Corporation was duly adopted in accordance
with the provisions of Sections 141, 211 and 242 of the DGCL.

FIFTH: That said amendment is to become effective upon the filing of this
Certificate of Amendment.

IN WITNESS WHEREOF, Paradyne Networks, Inc. has caused this certificate to
be signed by its authorized officer, this 5th day of March, 2002.

/s/ Patrick M. Murphy
-------------------------------
By: Patrick M. Murphy
Title: Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary

B-4

PARADYNE NETWORKS, INC.

ANNUAL MEETING OF STOCKHOLDERS

TUESDAY, JUNE 11, 2002
10:00 A.M.

8545 126TH AVENUE NORTH
LARGO, FLORIDA

--------------------------------------------------------------------------------
PARADYNE NETWORKS, INC.
C/O SHAREOWNER SERVICES(sm)
P.O. BOX 64873
ST. PAUL, MN 55164 PROXY
--------------------------------------------------------------------------------

REVOCABLE PROXY
COMMON STOCK

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 2002 ANNUAL MEETING
OF STOCKHOLDERS. IF YOU CHOOSE TO SUBMIT YOUR PROXY VOTING INSTRUCTIONS VIA THE
INTERNET OR BY TOUCH-TONE TELEPHONE, THEN DO NOT RETURN THIS PROXY CARD.

The undersigned stockholder of Paradyne Networks, Inc., a Delaware corporation
("Paradyne"), hereby acknowledges receipt of the Notice of 2002 Annual Meeting
of Stockholders and the related proxy statement and hereby appoints Sean E.
Belanger and Patrick M. Murphy, and each of them, proxies, with full power of
substitution and resubstitution, for and in the name of the undersigned, to
vote all shares of Paradyne common stock which the undersigned held of record
on April 24, 2002, at the 2002 Annual Meeting of Stockholders to be held on
June 11, 2002 at 10:00 a.m. local time, at 8545 126th Avenue North, Largo,
Florida 33773, and at any adjournments or postponements thereof. If a quorum is
present, the chairman of the meeting or the affirmative vote of a majority of
the shares casting votes at the meeting may authorize the adjournment or
postponement of the meeting, and if a quorum is not present, the chairman of
the meeting or the affirmative vote of a majority of the shares represented at
the meeting may authorize the adjournment or postponement of the meeting;
provided, however, that no proxy which withholds authority as to Proposal 1 or
is voted against Proposal 2 will be voted in favor of any adjournments or
postponements to solicit further proxies for either of such proposals.

SEE REVERSE FOR VOTING INSTRUCTIONS.

COMPANY #
CONTROL #

THERE ARE THREE WAYS TO VOTE YOUR PROXY

YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE PROXIES TO VOTE YOUR SHARES IN
THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.

VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE

* Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 11:00 a.m. (EST) on June 10, 2002.

* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.

* Follow the simple instructions the voice provides you.

VOTE BY INTERNET -- HTTP://WWW.EPROXY.COM/PDYN/ -- QUICK *** EASY *** IMMEDIATE

* Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
11:00 a.m. (EST) on June 10, 2002.

* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Paradyne Networks, Inc., c/o Shareowner
Services(sm), P.O. Box 64873, St. Paul, MN 55164-0873.

IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
Please detach here

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.

1. The election of William R. Stensrud [ ] Vote FOR [ ] Vote WITHHELD
as a Class III director for a three-year the nominee from the nominee
term expiring at the 2005 annual meeting
of stockholders and until his successor
has been duly elected and qualified.

2. The amendment to reduce the minimum vote [ ] For [ ] Against [ ] Abstain
required to approve amendments to our
certificate of incorporation other than
amendments of articles V, VI and VII
thereof, to a majority of the outstanding
stock entitled to vote thereon.

In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the annual meeting or any adjournments or
postponements thereof, including, if submitted to a vote of the stockholders, a
motion to adjourn or postpone the special meeting to another time or place for
the purpose of soliciting additional proxies.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [ ] Indicate changes below: Date:
-----------------

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

Signature(s) in Box
Please sign exactly as your name
appears on this proxy card. When
shares are held jointly, both
must sign. When signing as
attorney-in-fact, executor,
administrator, personal
representative, trustee,
guardian or similar capacity,
please give full title as such.
If a corporation, please sign in
full corporate name by President
or other authorized officer. If
a partnership, please sign in
partnership name by authorized
person. Where applicable,
indicate your official position
or representative capacity.