##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 10-K

|           |  |                                                                                              
|---------- |  | ---------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                              
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.    
|          
|           |  | For the fiscal year ended December 31,
    2003                                              
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|          
|           |  | For the transition period
    from           to                                              

Commission file number 000-30993



---

PROXIM CORPORATION

(Exact name of registrant as specified in its
charter)


|                         |  |                                         
|------------------------ |  | ----------------------------------------
|Delaware                 |  | 52-2198231                              
|(State of Incorporation) |  | (I.R.S. Employer
    Identification No.)

935 Stewart Drive

Sunnyvale, California 94085


(408) 731-2700


(Address, including zip code, and telephone
number, including area code, of


registrants principal executive
offices)




---

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

None


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

Class A Common Stock, par value
$.01 per share


Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in
the definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes þ          No o

Based on the closing sale price of the
registrants Class A Common Stock on the Nasdaq
National Market System on June 27, 2003, the last business
day of the registrants most recently completed second
fiscal quarter, the aggregate market value of voting and
non-voting Class A Common Stock held by non-affiliates of
the registrant was $166,887,440.

The number of shares outstanding of the
registrants Class A common stock as of March 5,
2004, was approximately 123,341,837.



---






---










TABLE OF CONTENTS

|              |  |                                                                                                        |     |      |     | 
|------------- |  | ------------------------------------------------------------------------------------------------------ | --- | ---- | --- | 
|              |  |                                                                                                        |     | Page
|              |  |                                                                                                        |     |     
|PART I       
|ITEM 1.       |  | BUSINESS                                                                                               |     |      | 2   | 
|ITEM 2.       |  | PROPERTIES                                                                                             |     |      | 18  | 
|ITEM 3.       |  | LEGAL PROCEEDINGS                                                                                      |     |      | 19  | 
|ITEM 4.       |  | SUBMISSION OF MATTERS TO A
    VOTE OF SECURITY HOLDERS                                                |     |      | 20  | 
|             
|PART II      
|ITEM 5.       |  | MARKET FOR REGISTRANTS
    COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                              |     |      | 22  | 
|ITEM 6.       |  | SELECTED FINANCIAL DATA                                                                                |     |      | 25  | 
|ITEM 7.       |  | MANAGEMENTS DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS              |     |      | 26  | 
|ITEM 7A.      |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                                         |     |      | 68  | 
|ITEM 8.       |  | FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA                                                        |     |      | 69  | 
|ITEM 9.       |  | CHANGES IN AND DISAGREEMENTS
    WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE               |     |      | 116 | 
|ITEM 9A.      |  | CONTROLS AND PROCEDURES                                                                                |     |      | 116 | 
|             
|PART III     
|ITEM 10.      |  | DIRECTORS AND EXECUTIVE
    OFFICERS OF THE REGISTRANT                                                 |     |      | 116 | 
|ITEM 11.      |  | EXECUTIVE COMPENSATION                                                                                 |     |      | 119 | 
|ITEM 12.      |  | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERS |     |      | 128 | 
|ITEM 13.      |  | CERTAIN RELATIONSHIPS AND
    RELATED TRANSACTIONS                                                     |     |      | 130 | 
|ITEM 14.      |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES                                                             |     |      | 132 | 
|             
|PART IV      
|ITEM 15.      |  | EXHIBITS, FINANCIAL
    STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                                   |     |      | 133 | 
|SIGNATURES    |  |                                                                                                        | 135 |     
|EXHIBIT 3.2  
|EXHIBIT 4.13 
|EXHIBIT 10.27
|EXHIBIT 10.39
|EXHIBIT 10.54
|EXHIBIT 10.55
|EXHIBIT 10.64
|EXHIBIT 21   
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



1



---



##### Table of Contents






PART I






|        |         
|------- | --------
|ITEM 1. | Business

This Annual Report contains forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
relate to the financial condition, results of operations,
accounting judgments, cash flows, liquidity, litigation,
financing plans and needs, business strategies and prospects,
operating efficiencies or synergies, budgets, interest costs,
capital and other expenditures, competitive position, growth
opportunities for existing products, benefits from new
technology, plans and objectives of management and other
matters. Statements in this document that are not historical
facts are identified as forward-looking statements
for the purpose of the safe harbor provided by Section 21E
of the Securities Exchange Act of 1934 and Section 27A of
the Securities Act of 1933. These forward-looking statements,
wherever they occur in this report, are estimates reflecting the
best judgment of the senior management of Proxim. These
forward-looking statements involve a number of risks and
uncertainties that could cause actual results to differ
materially from those suggested by the forward-looking
statements. Forward-looking statements should, therefore, be
considered in light of various important factors, including
those set forth in this report under Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations, under the caption Risk
Factors and elsewhere in this report.

When we use the words anticipate,
estimate, project, intend,
expect, plan, believe,
should, likely and similar expressions,
we are making forward-looking statements. These forward-looking
statements are found at various places throughout this report
and the other documents we incorporate by reference in this
report. We caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date they
were made. We do not undertake any obligation to publicly
release any revisions to these forward-looking statements to
reflect events or circumstances after the date of this report or
to reflect the occurrence of unanticipated events. All
subsequent forward-looking statements attributable to Proxim or
any person acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to
in this section.

Overview

We are a leader in wireless networking equipment
for Wi-Fi and broadband wireless networks. We provide wireless
solutions for the mobile enterprise, security and surveillance,
last mile access, voice and data backhaul, public hot spots, and
metropolitan area networks. We serve these markets by selling
our systems to service providers, businesses and other
enterprises, directly through our sales force and indirectly
through distributors, value-added resellers, products
integrators and original equipment manufacturers.

Proxim Corporation is incorporated in Delaware
and is the company created by the March 26, 2002 merger of
Proxim, Inc. and Western Multiplex Corporation. Western
Multiplex was founded in 1979 in Sunnyvale, California as a
vendor of radio components and related services. In 1992,
Western Multiplex changed its strategy, becoming a designer and
manufacturer of broadband wireless systems and launched our Lynx
broadband wireless products. These point-to-point systems are
primarily used by wireless operators to connect their base
stations to other base stations and to existing wire line
networks. In 1999, Western Multiplex introduced its Tsunami
point-to-point broadband wireless systems, which primarily
enable service providers, businesses and other enterprises to
expand or establish private networks by bridging Internet
traffic among multiple facilities. Based on Western
Multiplexs core technologies and the technology acquired
through its purchase of WirelessHome Corporation in March 2001,
Western Multiplex developed point-to-multipoint systems that
enable service providers, businesses and other enterprises to
connect multiple facilities within a geographic area to a
central hub. Western Multiplex began shipping its first
generation of these products at the end of the fourth quarter of
2001. In March 2002, Western Multiplex merged with
Proxim, Inc. which designed, manufactured and marketed high
performance WLAN and building-to-building network products based
on RF technology. The combined company changed the Western
Multiplex name to Proxim Corporation. In April 2002, we acquired
nBand Communications Inc., a start-up developer of next
generation advanced application specific integrated circuits, or
ASICs technology. On August 5, 2002, we acquired the 802.11
WLAN systems business of Agere Systems, including its ORiNOCO
product line.

2



---



##### Table of Contents



In accordance with accounting principles
generally accepted in the United States of America, the results
of operations for the periods presented include the results of
the merged or acquired businesses beginning on the respective
dates of completion of the business combinations.

Market Overview

The Wi-Fi market is composed of three segments:
enterprise, consumer and public hot spots. Wi-Fi products allow
enterprises and consumers to establish high-speed wireless
networks within office buildings, across a corporate campus, in
homes or in public areas. These networks consist of access
points or bridges that serve as the link between the wire line
network and wireless users, and network interface cards for
access devices. Wi-Fi networks are currently based on three main
standards: 802.11a which operates in the 5 gigahertz band and
offers speeds of up to 54 Megabits per second, 802.11b which
operates in the unlicensed 2.4 gigahertz band and offers up to
11 Megabits per second, and 802.11g which operates in the 2.4
gigahertz band and delivers data rates of up to 54 Megabits per
second.

Proxims Wi-Fi access points and network
interface cards address both the enterprise and service provider
public hot spot market segments and support all three
802.11 networking standards. Both the enterprise and public
hot spot markets are experiencing significant growth and
intensifying competition, as mobile professionals increasingly
require wireless access to corporate information. Enterprise
customers for Proxims Wi-Fi products span the education,
retail, finance, health care, manufacturing, transportation
industries as well as government.

The broadband wireless market is comprised of
broadband radio frequency (RF) equipment that delivers high
speed, high capacity voice and data communications over a
wireless medium. The market is divided into two
segments  license-exempt and licensed. In each of
these segments, products include point-to-point radios for voice
and data backhaul or to connect two buildings, and
point-to-multipoint radios which are used to connect multiple
buildings in an enterprise campus or community as well as for
public safety and last mile access applications.

Broadband wireless has quickly established itself
as a strong network access alternative and as a complement to
leased lines, cable and DSL for the delivery of data, voice,
video and multimedia applications to both business and
residential customers. The recent adoption of the IEEE 802.16
broadband wireless standards, ease of deployment, relatively
low-cost, and the ability to reach areas that do not have
broadband infrastructure are increasing the popularity of
broadband wireless.

Proxim offers license-exempt broadband wireless
products including both point-to-point and point-to-multipoint
radios in the 5.8 and 2.4 gigahertz bands. These products are
sold to both enterprises and service provider customers.

The Proxim Solution

We believe that our broadband wireless systems
address the growing need for bandwidth where digital phone lines
or fiber optic cable are either too expensive to deploy in a
timely fashion or are unavailable. In addition, our systems
extend the reach of wired service provider and enterprise
networks by providing extended range coverage using our
standards-based wireless wide area network or WWAN and wireless
local area network or WLAN infrastructure systems. Our products
are used in a variety of applications in different markets,
including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Voice and Data
    Backhaul.Our systems enable cellular
    and personal communication service providers to connect their
    base stations to other base stations and to existing wire line
    networks.                                                                                                                                                                                                            
|
| |  | The Mobile
    Enterprise.Our systems and products
    enable enterprises with multiple facilities, including those
    located in a campus environment, to connect their facilities to
    expand or establish private computer and communications
    networks, which support both voice and data. In addition, our
    WLAN products extend the reach of wired enterprise networks to
    enable seamless mobility.

3



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Last Mile Access and Public
    Access.Our systems and products
    connect end-users with a service providers network
    backbone and central office, providing high-speed, last mile
    Internet access supporting voice, data and video.                                                                                                                                                                                                                                                                                                                                                
|
| |  | Public Hotspots.Our
    WLAN products provide fully-featured wireless access products
    for the emerging public access or hot spot market. In addition,
    our WWAN products provide cost-effective, broadband access
    between the hot spots and the service providers existing network
    infrastructure.                                                                                                                                                                                                                                                                             
|
| |  | Security and
    Surveillance.Our WWAN systems enable
    cost effective deployment of extensive surveillance networks,
    leveraging the benefits of industry standard Internet Protocol
    or IP networking products, including new generations of IP
    digital surveillance cameras. Our systems can also be used to
    rapidly and cost-effectively extend the coverage of traditional,
    proprietary coax closed-circuit television or CCTV security
    systems. Our WWAN products can be solar powered, enabling
    greater reach for private and public surveillance networks.
|
| |  | Metropolitan Area
    Networks.Proxims WWAN systems
    enable communities, government entities and private enterprises
    to rapidly and cost-effectively establish wide-area networks
    across municipalities, towns or cities, connecting their
    dispersed facilities to support voice, data and video networks.                                                                                                                                                                                                                                                                    

The key benefits of our solutions include:

Rapid deployment.Service providers, businesses and other enterprises can rapidly
and cost-effectively deploy our systems to establish new, or
expand existing, network infrastructures. Competing technologies
such as digital phone lines and fiber optic cables generally
take longer and are more costly to deploy than our broadband
wireless access systems. In addition, our license-exempt systems
do not require frequency coordination and regulatory approval.
As a result, service providers, businesses and other enterprises
can avoid many of the time consuming processes typically
required in installing licensed wireless technologies.

Telecommunications grade availability of
service.We have developed error
correction algorithms, fault tolerant systems and comprehensive
network management software designed to enable our Lynx and
Tsunami point-to-point fixed wireless systems to match or exceed
fiber network availability standards. These wireless systems are
designed to provide 99.999% availability, or less than five
minutes of down time per year. As a result, our systems enable
service providers, businesses and other enterprises to provide
end-users with telecommunications grade availability which is
equal to or better than that offered by most alternative
broadband access solutions.

High-speed and long distance
connections.We have used our
engineering expertise and proprietary radio frequency and
digital signal processing technologies to design systems that
offer an attractive combination of high-speed transmission rates
and long-range coverage. During the past ten years, we have
introduced what we believe are some of the fastest and
longest-range wireless networking systems available, including
our Tsunami 480, which we believe is currently the
industrys fastest microwave wireless license-exempt system.

Cost-effective
solutions.Because our technologies
enable our WWAN systems to transmit over longer distances and
WLAN access points offer greater sustained throughput than
competing product designs, service providers, and enterprises
often require fewer units to cover a specified area. As a
result, they are able to reduce both their initial and
incremental capital expenditures for network deployments.

Fully integrated end-to-end
solution.We offer a broad range of
systems that enable service providers, businesses and other
enterprises to create complete broadband and local wireless
networks that connect end-users to network backbones, such as
fiber optic networks, and to existing wired enterprise networks.
Our point-to-point systems are primarily used within the
backhaul segments of networks and also provide last mile access
to large businesses. Our point-to-multipoint systems provide
building to building connectivity for enterprise campus
environments, as well as enable service providers to provide
last mile access to campus, residential and small business
users. Our systems use similar radio frequency technology,
digital signal processing and network management software. We
believe this design commonality offers service providers,

4



---



##### Table of Contents



businesses and other enterprises higher
end-to-end performance, lower equipment costs and lower training
and maintenance costs.


Our broadband wireless access systems have
various disadvantages and limitations. For example, the
broadband wireless access industry is technology intensive and
requires us to continually develop new products or product
enhancements in order for us to remain competitive. In addition,
in contrast to cellular wireless access solutions, our WWAN
systems require line-of-sight installation, which often requires
the network service provider or enterprise network owner to
obtain roof rights from third parties. Our systems may also
experience problems due to radio signal interference, which may
occur if multiple wireless systems are operating on the same
radio frequencies and in the same geographic areas as our
systems. As an increasing number of unlicensed products are
deployed over time, whether Proxim systems or systems from our
competitors, the possibility of interference between systems
that operate in the same frequency increases, and in some cases
there may not be sufficient frequency available in a given
geographic location to allow further expansion of a
customers network. Furthermore, standardization has made
the WLAN market very competitive. Our products have shorter
lifecycles and require constant, costly investments in
innovative research and development to retain or create new
competitive advantages.

Strategy

Our objective is to be a leading global provider
of broadband wireless access and networking systems. Our
strategy to accomplish this objective is to:

Capitalize on our technology expertise to
rapidly introduce new products.Over
the past ten years, we have developed or acquired several core
technologies that form the basis of our current product lines
and that we intend to use in our future product development. Our
dedicated team of engineers has multi-disciplinary technical
capabilities, including radio frequency technology, digital
signal processing and system software development. We believe
integrating these capabilities is highly complex, and we intend
to continue to take advantage of our technology expertise to
introduce product enhancements and new products in a rapid and
cost effective manner.

Utilize existing customer and partner
relationships to expand into new market
segments.In 2003, we sold our systems
to approximately 614 customers in 96 countries. Some of our main
customers and partners include AT&T Wireless Group, Avaya,
Cingular Wireless, Dell Computer, Fujitsu, Hewlett-Packard,
Motorola, Telefonica, Telmex, Verizon Wireless, China Mobile,
China Unicom, and T-Mobile, USA. We intend to build upon our
relationships with current customers and partners as they
continue to expand their networks and enter new market segments,
such as enterprise mobility, public access, campus connectivity,
security and surveillance and other private networks and last
mile access.

Increase our presence in international
markets.While our products are
currently sold and approved for use in more than 50 countries,
we intend to increase our presence in these countries and
further expand into new international markets where broadband
wire line access is currently too expensive or unavailable. In
particular, as various governmental authorities make
license-exempt spectrum available, we believe our license-exempt
systems will be well positioned for rapid deployment in these
international markets. We intend to continue to expand our
presence worldwide by expanding our international channels and
marketing efforts, obtaining regulatory approvals for deploying
our systems in new international markets, increasing our total
product offerings in both existing and new international markets
and establishing strategic alliances and partnerships.

Aggressively market through distributors,
value-added resellers and systems
integrators.We have established
relationships with key distributors, value-added resellers and
systems integrators such as Anixter, Comstor, Digital China,
Hutton Communication, Inc., Ingram Micro, Somera
Communications Inc., Tech Data, Tessco Technologies Incorporated
and Westcon Inc. to market and sell our systems. To accelerate
our growth, we intend to build upon our existing relationships
and establish new relationships with distributors, value-added
resellers and systems integrators that we believe have strong
relationships with potential customers for our Lynx, Tsunami and
ORiNOCO products. Our marketing group develops materials

5



---



##### Table of Contents



and programs such as training courses to assist
our distributors, value-added resellers and systems integrators
in penetrating these markets.


Products

We classify our products into two product lines:
WWAN and WLAN product lines. The WWAN product line includes
point-to-point Lynx, Tsunami products and point-to-multipoint
Tsunami products. The WLAN product line includes ORiNOCO 802.11
access point and client card products. We design our products
and systems generally to use common features, components and
software.

Our products operate at different transmission
speeds, radio frequencies, with different ranges and support
different standard interfaces. The table below summarizes the
features of our current products:

|                             |  |                           |  |                                       |  |                 |  |                               
|---------------------------- |  | ------------------------- |  | ------------------------------------- |  | --------------- |  | ------------------------------
|                             |  | Transmission Speeds       |  |                                       |  |                 |  |                               
|                             |  | (Kilobits per second      |  |                                       |  |                 |  |                               
|                             |  | (Kbps)) (Megabits per     |  | Radio Frequency                       |  |                 |  |                               
|Product Name                 |  | second (Mbps))            |  | (Gigahertz (GHz))                     |  | Range           |  | Standard Interface            
|                             |  |                           |  |                                       |  |                 |  |                               
|WWAN Products                |  |                           |  |                                       |  |                 |  |                               
|Point-to-Point Systems       |  |                           |  |                                       |  |                 |  |                               
|LYNX                         |  | 56 Kbps to 155 Mbps       |  | 2.4 GHz and 5.8 GHz (License- exempt) |  | Beyond 50 miles |  | Fractional, T1, E1 DS3 and OC3
|TSUNAMI                      |  | 2 Mbps to 480 Mbps        |  | 2.4 GHz and 5.8 GHz (License- exempt) |  | Beyond 40 miles |  | T1, E1, 10/100T               
|TSUNAMI Quickbridge          |  | 11 Mbps to 60 Mbps        |  | 2.4 GHz and 5.8 GHz (License- exempt) |  | Up to 6 miles   |  | T1, E1, 10/100T               
|Point-to- Multipoint Systems |  |                           |  |                                       |  |                 |  |                               
|TSUNAMI Multipoint (MP)      |  | 20 Mbps to 60 Mbps/sector |  | 5.8 GHz (License- exempt)             |  | Up to 6 miles   |  | 10/100T                       
|TSUNAMI MP.11                |  | 11 Mbps to 54 Mbps        |  | 2.4 GHz and 5 GHz (License-exempt)    |  | Up to 16 miles  |  | 10/100T                       

|                      |  |                      |  |                                    |  |                 |  |                       
|--------------------- |  | -------------------- |  | ---------------------------------- |  | --------------- |  | ----------------------
|                      |  | Transmission Speeds  |  |                                    |  |                 |  |                       
|                      |  | (Kilobits per        |  |                                    |  |                 |  |                       
|                      |  | second(Kbps))        |  |                                    |  |                 |  |                       
|                      |  | (Megabits per second |  | Radio Frequency                    |  |                 |  |                       
|Product Name          |  | (Mbps))              |  | (Gigahertz (GHz))                  |  | Range           |  | Standard Interface    
|                      |  |                      |  |                                    |  |                 |  |                       
|WLAN Products         |  |                      |  |                                    |  |                 |  |                       
|ORiNOCO Access Points |  | 11 Mbps to 108Mbps   |  | 2.4 GHz and 5 GHz (License-exempt) |  | Up to 1700 feet |  | 802.11a, b, g, 10/100T
|ORiNOCO Client Cards  |  | 11 Mbps to 108Mbps   |  | 2.4 GHz and 5 GHz (License-exempt) |  | Up to 1700 feet |  | 802.11a, b, g, 10/100T

6



---



##### Table of Contents





| |              
| | -------------
| | WWAN Products

Each of our point-to-point systems consists of
two pieces of equipment at separate locations. Each piece of
equipment is first connected to an end-users network by a
cable and then connected by an antenna cable to an antenna,
which is usually mounted on a rooftop or tower. The two antennae
are then aimed at one another to create a wireless connection
between the two end-user locations. By using multiple systems,
end-users can connect more than two locations to form a more
extensive network. Our point-to-multipoint system consists of a
base station connected to a wire line network, which
communicates with a multitude of subscriber units that connect
remote local area computer networks to the main wire line
network.

Lynx products.Our
point-to-point Lynx products are primarily used by wireless
operators to connect their base stations to other base stations
and to existing wire line networks. These connections comprise
the backhaul segments of their networks. In addition, these
products are also used to establish campus and private networks
and to provide fiber extension and last mile access. Our Lynx
products are offered in a variety of frequencies, ranging from
2.4 GHz to 5.8 GHz, which operate in license-exempt
spectrum, with a variety of data transmission speeds, ranging
from 56 Kbps per second to 155 Mbps per second. Our
Lynx products can transmit and receive the maximum data capacity
in both directions simultaneously, a feature commonly known as
full duplex. Our products have a compact, fully integrated
design and a built-in network management system. They can be
linked together within a network and managed with simple network
management protocol, or SNMP, software. SNMP is an industry
standard set of rules that governs network management and
monitors network devices and their functions. Our Lynx products
also include a separate control and diagnostic channel, which
remotely monitors the systems status and performance
without reducing its carrying capacity.

Tsunami products.Our point-to-point Tsunami products primarily enable service
providers, businesses and other enterprises to expand or
establish private networks by bridging Internet traffic among
multiple facilities. In addition, these products are also used
to provide last mile access. Tsunami products are currently
offered in frequencies ranging from 2.4 GHz to
5.8 GHz, with a variety of data transmission speeds ranging
from 2 Mbps per second to 480 Mbps per second. Like
our Lynx products, our Tsunami products offer features including
full duplex transmission, fully integrated design and a separate
control and diagnostic channel. In addition, our higher capacity
Tsunami systems include one or more additional T1 or E1
connections without reducing the carrying capacity of the
system. The additional T1 or E1 connection is a standard
telecommunications interface that is not based on Internet
Protocol and is typically used for voice and/or video.

Point-to-Multipoint
Products.Our point-to-multipoint
systems enable service providers, businesses and other
enterprises to cost-effectively connect end-users to a central
hub. Businesses and other enterprises may also use these systems
to cost-effectively connect multiple facilities within their
private networks. Our point-to-multipoint systems are deployed
in a hub and spoke configuration consisting of a single central
hub and equipment located at each end-users premises. The
central hub wirelessly connects to the remote customer premises
equipment, prioritizing transmissions and allocating slots of
time to each end-user based on a system called time division
duplexing. We believe our time division duplexing technology
provides a more efficient use of capacity compared to most
alternative technologies to accommodate the peaks and lows of
traffic between each end-user and the central hub. Central hubs
operate in a variety of frequencies, in various geographic
configurations and are capable of supporting hundreds of units
of customer premises equipment. The hub unit can also connect to
the central office of a service provider using our
point-to-point technology. The customer premises equipment
transmits and receives data between the end-user and the central
hub at various transmission speeds and frequencies.



| |              
| | -------------
| | WLAN Products

ORiNOCO Access
Point.Our family of ORiNOCO access
points offer solutions for enterprises and public access
enabling corporate user access and creation of hot spots in
small, medium and large venues. Each of our ORiNOCO access
points is a full featured wireless bridge that extends the range
of wired Ethernet networks and enables migration from 802.11b,
2.4 GHz, WLANs to 802.11g, 2.4 GHz, WLANs or

7



---



##### Table of Contents



to 802.11a, 5 GHz, WLANs. With single and
dual radio architecture, the ORiNOCO access points provide
configuration flexibility and increased network capacity. Our
ORiNOCO access points also provide high-level security including
IEEE 802.1x, which is a part of the Windows XP operating system.
Our Wireless Distribution System feature enables wireless
inter-connectivity of multiple ORiNOCO access points, providing
for a variety of wireless infrastructure configurations without
the use of additional 10/100T cabling. Web enabled and SNMP
network management allow for simple configuration and remote
management of each ORiNOCO network. Through a strategic alliance
with Wavelink, we also offer a Graphic User Interface for remote
management of larger, more complex networks., We believe that
the high-performance Wi-Fi compliant ORiNOCO family of access
points are ideal WLAN solutions for the enterprise.


ORiNOCO Client
Cards.Our ORiNOCO client cards
deliver mobile convenience, easy installation and a
configuration utility that allows users to connect quickly and
simply. ORiNOCO client cards for notebooks and desktops work
together with all ORiNOCO infrastructure products including
access points, residential gateways, and access servers. ORiNOCO
client cards deliver multiple security levels with various
levels of encryption including up to 152-bit WEP, 802.1x
security, delivering enterprise-class security. Packaged client
adapters include the following form factors: USB, ISA and
PCI adapter for desktop computers, ORiNOCO 802.11a,b,g ComboCard
and 802.11 b ORiNOCO PC Card for notebook computers and Ethernet
and Serial external adapters.

ORiNOCO Broadband
Gateway.Our ORiNOCO Broadband Gateway
provides Wi-Fi (802.11b) WLAN for the small business or
residence. Discontinuation of this product has been announced to
our channel partners as this market segment is no longer in line
with our strategic focus.

Technology

Over the past ten years, we have developed a
number of core technologies that form the basis of our current
product offerings and which we expect to use in our future
product development. Our primary areas of technology expertise
are radio frequency technology, digital signal processing and
system software development.

While there are unique methods employed for
developing our WWAN and WLAN product lines today, there is an
increasing amount of overlap, particularly within the system
software area. We anticipate that over time and especially with
the emergence of technology such as WiMAX (802.16) that the
degree of commonality will be significantly higher.

Radio frequency
technology.Microwave technology is
the technology used to wirelessly transmit data, voice and
video. Microwave technology uses radio frequencies ranging from
1 GHz up to 20 GHz. We have the ability to internally
develop microwave circuit board designs as well as qualify,
direct and utilize external partners. We believe having both
internal and external design capabilities provides us with
higher performance, lower production costs, shorter development
cycles and the ability to customize our products so that they
can more easily be integrated with our existing products and
with the networks of our various customers and end-users.

Digital signal processing
technology.Our products use either
proprietary or third-party, standards-based digital signal
processing technologies and designs that we either develop
specifically for use in wireless systems or adapt to those same
wireless systems. Specifically, all of our ORiNOCO WLAN products
utilize third-party chipsets that embody the requirements set
forth by 802.11a,b,g and ensure that we can achieve Wi-Fi
certification. Currently, all of our Tsunami and Lynx, WWAN
products are implemented using our internally developed,
proprietary ASICs. We believe this combination of technologies
has enabled us to introduce a number of high-speed wireless
products that we may not have been able to produce otherwise. We
believe we can develop flexible, innovative products more
quickly than those competitors who do not have similar
capabilities. We are currently using our technological expertise
in digital signal processing to develop next generation,
high-speed wireless systems designed to transcend the indoor and
outdoor user domains.

System software.Our
products are networking products and follow closely the
principles set forth in the OSI 7 Layer Model which is a
guideline for the logical partition of functionality within and
between

8



---



##### Table of Contents



distributed computing machines. Careful
consideration is given to when to implement software to run on a
host processor and when to implement it in firmware running in
the DSP/ ASIC described above. There are industry practices,
trade secrets, and specific industrial knowledge that influence
our thinking and guide us to create the software architectures
that meet the specific system requirements. We strive to
leverage common software elements such the VxWorks operating
system and other third party components. We have developed
certain unique software capabilities that we believe deliver
specific market advantage such as our Wireless Outdoor Routing
Protocol (WORP). Nearly all of our systems use SNMP-based
software that enables remote monitoring and control and
facilitate the integration and compatibility of our products
with larger communications networks.


Research and Development

Our research and development efforts are focused
on improving the functionality and performance of our existing
products as well as developing new products to meet the changing
needs of our diverse base of customers and end-users. We are
currently pursuing the following research and development
initiatives:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | advancing our point-to-multipoint systems;                                                
|
| |  | adapting our products to additional frequencies
    and interfaces;                       
|
| |  | developing higher speed products;                                                         
|
| |  | increasing the performance of our digital signal
    processing technology; and           
|
| |  | designing our products for lower cost, outsourced
    manufacturing, assembly and testing.

We devote a substantial portion of our resources
to developing new products, enhancing existing products,
expanding and improving our core wireless technologies and
strengthening our technological expertise. Over the past ten
years, we have made and expect to continue to make significant
investments in research and development. We invested
approximately $24.2 million, $29.2 million and
$19.1 million in research and development activities in
2003, 2002 and 2001, respectively.

Sales and Marketing

We sell our products worldwide to service
providers and enterprise customers, directly through our sales
force and indirectly through distributors, system integrators,
value-added resellers, and original equipment manufacturers. We
focus our marketing efforts on supporting our direct sales
force, distributors, value-added resellers and systems
integrators. We also seek to stimulate market demand by
increasing brand awareness and educating potential customers
about the advantages of using our products.

Additionally, we sell directly to OEM
customers.We sell both design-in
products for integration into their wireless computing platforms
and branded products as private label models. Any significant
decline in direct sales to end-users or in sales to our
distributors or value-added resellers, or the loss of any of our
distributors, value-added resellers or OEM customers, could
materially adversely affect our revenue.

In the United States and Canada, our sales force
focuses on key strategic accounts such as service providers,
businesses and other enterprises and also develops relationships
with end-users that purchase through distributors and
value-added resellers. Outside the United States and Canada,
sales are generally made through distributors or value-added
resellers and original equipment manufacturers. Our sales force,
however, develops direct relationships with end-users either
independently, in which case the sales representative then
brings in the distributor or value-added reseller to complete
the sale, or together with the distributors or value-added
resellers. We have established relationships with large national
and international distributors, local and specialized
distributors and value-added resellers. The distributors sell
our products, and the value-added resellers not only sell our
products, but also assist their customers in network design,
installation and testing. In some cases, both distributors and
value-added resellers also assist their customers with
financing, maintenance and the purchase of ancillary equipment
necessary for installation of a wireless network.

9



---



##### Table of Contents



Historically, we have not operated with a
significant order backlog and a substantial portion of our
revenues in any quarter was derived from orders booked and
shipped in that quarter. Accordingly, a significant component of
our revenue expectations will be based almost entirely on
internal estimates of future demand and not on firm customer
orders. Planned operating expense levels are relatively fixed in
the short term and are based in large part on these estimates.

We have a globally diversified base of customers
and end-users consisting of service providers, businesses and
other enterprises. In 2003, we sold our products to
approximately 614 customers in 96 countries.

The following table summarizes each customer,
which accounted for more than 10% of the Companys total
revenue in each of the last three years:

|                            |  |              |      |      |  |      |      |   |  |  |      |  
|--------------------------- |  | ------------ | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                            |  |             
|                            |  | Year Ended  
|                            |  | December 31,
|                            |  |             
|                            |  | 2003         |      | 2002 |  | 2001
|                            |  |              |      |      |  |     
|Tech Data Corporation       |  |              | 13.9 | %    |  |      | *    |   |  |  | *    |  
|Comstor                     |  |              | *    |      |  |      | 23.0 | % |  |  | 29.4 | %
|Somera Communications, Inc. |  |              | *    |      |  |      | *    |   |  |  | 11.4 | %
|Tessco Technologies         |  |              | *    |      |  |      | *    |   |  |  | 10.5 | %



---



|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|* | Customer accounted for less than 10% of total
    revenue in the respective fiscal year.

During the years ended December 31, 2003 and
2002, international sales accounted for approximately 41% and
38%, respectively, of our total sales. Revenue from shipments by
Western Multiplex to customers outside of the United States,
principally to a limited number of distributors, represented 24%
of total revenue during the year ended December 31, 2001.
Revenue from shipments by Proxim, Inc. to customers outside
the United States, principally to a limited number of
distributors and OEM customers, represented 33% of total revenue
during the year ended December 31, 2001. Ageres sales
of its ORiNOCO products included sales to a number of
international customers, and we expect that we will continue to
sell these products to a significant percentage of international
customers. We expect that our revenue from shipments to
international customers to vary but remain significant as a
percentage of total revenue in the future.

Currently, all of our sales are denominated in
U.S. dollars. Accordingly, we are not directly exposed to
currency exchange risks other than the risk that exchange rate
fluctuations may make our products more expensive for customers
outside the United States and, as a result, could decrease
international sales. In addition, we face risks inherent in
conducting global business. These risks, which are more fully
described herein, include extended collection time for
receivables, reduced ability to enforce obligations and reduced
protection for our intellectual property.

Customer Service

We are committed to providing our customers with
high levels of service and support. We provide training,
technical assistance and customer support on the installation,
management, use and testing of our products. We also provide
warranties for our products consistent with industry practices
in the WLAN and WWAN markets, and we offer both in-warranty and
out-of-warranty repair services. Our repair center is staffed
with technicians who work directly with our quality assurance
team to identify potential problems and repair equipment. In
addition, we offer premium hardware and software support under
our ServPak program.

Manufacturing

Our manufacturing strategy is to supply high
quality products in a timely fashion to our customers, while
making efforts to maximize our gross margins. We perform
manufacturing tasks internally that cannot be effectively
outsourced, but we outsource activities which can be performed
more effectively at specialized manufacturing partners. Our ISO
9001-2000 certified manufacturing operation, based in our
Sunnyvale, California facility, consists primarily of pilot
production, product assembly and product testing for our most
complex products. For our higher-volume products, we outsource
manufacturing and procurement of

10



---



##### Table of Contents



component parts to contract manufacturers with
the expertise and ability to achieve the cost reductions and
quick response times to orders, while maintaining our quality
standards. This allows us to focus our internal resources on
developing new products. For our current Lynx and Tsunami
products as well as for the new generation of those products, we
use contract manufacturing partners in the Bay Area in
conjunction with our Sunnyvale facility. We manufacture our
ORiNOCO and Tsunami Multipoint products through contract
manufacturers in Asia.


We depend on single or limited source suppliers
for several key components used in our products. Any disruptions
in the supply of these components or assemblies could delay or
decrease our revenues. In addition, even for components with
multiple sources, there have been, and may continue to be,
shortages due to capacity constraints caused by high demand. We
do not have any long-term arrangements with our suppliers. If,
for any reason, a supplier fails to meet our quantity or quality
requirements, or stops selling components to us or to our
contract manufacturers at commercially reasonable prices, we
could experience significant production delays and cost
increases, as well as higher warranty expenses and product
reputation problems. Because the key components and assemblies
of our products are complex, difficult to manufacture and
require long lead times, we may have difficulty finding
alternative suppliers to produce our components and assemblies
on a timely basis. We have experienced shortages of some of
these components in the past, which delayed related revenue, and
we may experience shortages in the future. In addition, because
the majority of our products have a short sales cycle of between
30 and 90 days, we may have difficulty in making accurate
and reliable forecasts of product needs. As a result, we could
experience shortages in supply, which could delay or decrease
revenue because our customers may cancel their orders or choose
a competitor for their future needs.

We have limited manufacturing capability and
limited experience in large scale or foreign manufacturing.
There can be no assurance that we will be able to develop or
contract for additional manufacturing capacity on acceptable
terms on a timely basis. In addition, in order to compete
successfully, we will need to achieve significant product cost
reductions. Although we intend to achieve cost reductions
through engineering improvements, production economies, and
manufacturing at lower cost locations including outside the
United States, there can be no assurance that we will be able to
do so. In order to remain competitive, we must continue to
introduce new products and processes into our manufacturing
environment, and there can be no assurance that any such new
products will not create obsolete inventories related to older
products. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by
companies in developing industries, particularly companies in
relatively new and rapidly evolving markets. These risks include:



| |   |                                                   
| | - | --------------------------------------------------
| |  | an unpredictable customer demand environment;     
|
| |  | uncertain acceptance of new products and services;
|
| |  | competition; and                                  
|
| |  | challenges in managing growth.                    

We cannot assure you that we will succeed in
addressing these risks. If we fail to do so, our revenue and
operating results could be materially harmed.

Competition

The markets for broadband wireless access systems
and wireless local area networking are extremely competitive and
we expect that competition will intensify in the future.
Increased competition could adversely affect our business and
operating results through pricing pressures, the loss of market
share and other factors. The principal competitive factors
affecting wireless local area networking and broadband wireless
access markets include the following: data throughput; effective
RF coverage area; interference immunity; network security;
network scalability; price; integration with voice technology;
wireless networking protocol sophistication; ability to support
industry standards; roaming capability; power consumption;
product miniaturization; product reliability; ease of use;
product costs; product features and applications; product time
to market; product certifications; changes to government
regulations with respect to each country served and related to

11



---



##### Table of Contents



the use of radio spectrum; brand recognition; OEM
partnerships; marketing alliances; manufacturing capabilities
and experience; effective distribution channels; and company
reputation.


In the markets for wireless local area networks
or WLAN, we could be at a disadvantage to competitors,
particularly Symbol, Cisco Systems (including Linksys, which was
acquired by Cisco Systems), NetGear, and D-Link, which have
broader distribution channels, greater brand recognition, more
extensive patent portfolios, and more diversified product lines.
In the broadband wireless access market, we have several
competitors including without limitation, Alvarion, Ceragon
Networks, Stratex Networks, and Harris Corporation.

We also face competition from a variety of
companies that offer different technologies in the emerging
enterprise wireless networking and service provider broadband
wireless access markets. As the barriers to entry in the IEEE
802.11 wireless local area networking market continue to erode,
numerous companies have announced their intention to develop or
have introduced competing products in the enterprise wireless
networking markets, including several Asia-based companies
offering low-price IEEE 802.11a,b,g products. In addition,
wireless functionality is increasingly embedded into client
devices such as personal computers, or PCs, and personal digital
assistants, which further erodes the market for add-on wireless
network adapters. We may face future competition from companies
that offer products, which replace network adapters or offer
alternative communications solutions, such as large computer
companies or PC peripheral companies. Furthermore, we could face
competition from certain of our OEM customers, which have, or
could acquire, wireless engineering and product development
capabilities, or might elect to offer competing technologies.
While we will continue to innovate in the wireless local area
and wireless wide area networking markets, we can offer no
assurance that we will be able to compete successfully against
these competitors or that competitive pressures we face will not
adversely affect our business or operating results.

Intellectual Property

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

In addition to our registered intellectual
property, we also use proprietary technology in our business.
This technology includes internally developed proprietary error
correction algorithms, fault tolerant systems and comprehensive
network management software. A significant portion of this
technology consists of specialized knowledge and technical
expertise that has been developed over time by our employees. In
order to maintain the confidential nature of this technology, we
have chosen to protect it by generally limiting access to it,
treating portions of it as trade secrets and obtaining
confidentiality or non-disclosure agreements from persons who
are given access to it. All of our employees have signed our
standard confidentiality agreement, which prohibits them from
disclosing our confidential information, technology developments
and business practices, as well as any confidential information
entrusted to us by other parties. Similarly, all of the
consultants who have been given access to our confidential
information or proprietary technology have signed an agreement
prohibiting them from disclosing that information and technology
to others.

12



---



##### Table of Contents



Although we intend to protect our proprietary
rights vigorously, there can be no assurance that the measures
we have taken or may take to protect our proprietary rights will
be successful. We expect that litigation may continue to be
necessary to enforce our patents, trademarks or other
intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of
others, to establish the validity of any technology licenses
offered to patent infringers, to prevent the importation of
infringing products into the United States, or to defend against
claims of infringement. Litigation has resulted in and could
further continue to result, in substantial costs and diversion
of resources and, if determined adversely to us, could
materially and adversely affect our business and operating
results. Moreover, we can offer no assurance that in the future
these rights will be upheld. There can be no assurance that the
measures we have taken or may take in the future will prevent
misappropriation of our technology or that others will not
independently develop similar products, design around our
proprietary or patented technology or duplicate our products.
For more information regarding our pending patent litigation,
see Item 3, Legal Proceedings set forth herein.

The results of any litigation matter are
inherently uncertain. In the event of any adverse decision in
the described legal actions or any other related litigation with
third parties that could arise in the future with respect to
patents or other intellectual property rights relevant to our
products, we could be required to pay damages and other
expenses, to cease the manufacture, use and sale of infringing
products, to expend significant resources to develop
non-infringing technology, or to obtain licenses to the
infringing technology. We cannot make any assurance that these
matters will not materially and adversely affect our business,
financial condition, operating results or cash flows.

Government Regulation

Our products are subject to extensive
telecommunications-based regulation by the United States and
foreign laws and international treaties. We must conform our
products to a variety of regulatory requirements and protocols
established to, among other things, avoid interference among
users of radio frequencies and to permit interconnection of
equipment. Each country has different regulations and a
different regulatory process. In order for our products to be
used in some jurisdictions, regulatory approval and, in some
cases, specific country compliance testing and re-testing may be
required. The delays inherent in this regulatory approval
process may force us to reschedule, postpone or cancel the
installation of our products by our customers, which may result
in significant reductions in our sales.

In the United States, we are subject to various
Federal Communications Commission, or FCC, rules and
regulations. Current FCC regulations permit license-free
operation in certain FCC-certified bands in the radio spectrum.
Our wireless products are certified for unlicensed operation in
the 902-928 MHz, 2.4- 2.4835 GHz, 5.15-5.35 GHz
and 5.725-5.825 GHz frequency bands, and we expect they
will soon be certified for operation in the recently allocated
5.470-5.725 GHz frequency band. Operation in these
frequency bands is governed by rules set forth in Part 15
of the FCC regulations. The Part 15 rules are designed to
minimize the probability of interference to other users of the
spectrum and, thus, accord Part 15 systems unlicensed
status in the frequency band. In the event that there is harmful
interference caused by a Part 15 user, the FCC can require
the Part 15 user to curtail transmissions that create
interference. In this regard, if users of our products
experience excessive interference from primary users, market
acceptance of our products could be adversely affected, which
could materially and adversely affect our business and operating
results. The FCC, however, has established certain standards
that create an irrefutable presumption of noninterference for
Part 15 users and we believe that our products comply with
such requirements. There can be no assurance that the occurrence
of regulatory changes, including changes in the allocation of
available frequency spectrum, changes in the use of allocated
frequency spectrum, or modification to the standards
establishing an irrefutable presumption of non-interference for
unlicensed Part 15 users, would not significantly affect
our operations by rendering current products obsolete,
restricting the applications and markets served by our products
or increasing the opportunity for additional competition.

Our products are also subject to regulatory
requirements in international markets and, therefore, we must
monitor the development of radio frequency regulations in
certain countries that represent potential markets for our
products. While there can be no assurance that we will be able
to comply with regulations in any

13



---



##### Table of Contents



particular country, we will design our products
to minimize the design modifications required to meet various
2.4 GHz and 5 GHz international spread spectrum
regulations, as well as in other frequency bands we may design
our products to use. In addition, we will seek to obtain
international certifications for our product line in countries
where there are substantial markets for wireless networking
systems. Changes in, or the failure by us to comply with,
applicable domestic and international regulations could
materially adversely affect our business and operating results.
In addition, with respect to those countries that do not follow
FCC regulations, we may need to modify our products to meet
local rules and regulations.


Regulatory changes by the FCC or by regulatory
agencies outside the United States, including changes in the
availability of spectrum, could significantly affect our
operations by restricting our development efforts, rendering
current products obsolete or increasing the opportunity for
additional competition. Several changes by the FCC were approved
within the last eight years including changes in the
availability of spectrum, as well as the granting of an interim
waiver. These approved changes could create opportunities for
other wireless networking products and services. There can be no
assurance that new regulations will not be promulgated, that
could materially and adversely affect our business and operating
results. It is possible that the United States and other
jurisdictions will adopt new laws and regulations affecting the
pricing, characteristics and quality of broadband wireless
systems and products. Increased government regulations could:



| |   |                                                            
| | - | -----------------------------------------------------------
| |  | decrease the growth of the broadband wireless
    industry;
|
| |  | hinder our ability to conduct business
    internationally;
|
| |  | reduce our revenues;                                       
|
| |  | increase the costs and pricing of our products;            
|
| |  | increase our operating expenses; and                       
|
| |  | expose us to significant liabilities.                      

Any of these events or circumstances could
seriously harm our business and results of operations.

Recent Financing Activities



| |                  
| | -----------------
| | Credit Facilities

In December 2002, we entered into a secured
credit facility with Silicon Valley Bank (the
Lender), and then subsequently amended the credit
facility in March 2003. On June 13, 2003, in order to
secure additional working capital, we entered into a letter
agreement (the Letter Agreement) and an accounts
receivable financing agreement, which effectively amended and
restated the existing credit facility in its entirety. On
July 25, 2003, we amended the accounts receivable financing
agreement. On October 31, 2003, we amended the A/ R
Financing Agreement (as amended, the Amended A/ R
Financing Agreement).

Under the Amended A/ R Financing Agreement, the
Lender may agree to accept for collection through a lockbox
arrangement up to $20.0 million in accounts receivable from
us, and in return we will receive advances from the Lender at a
rate equal to 80% of accounts receivable from account debtors
who are not distributors, and 50% of accounts receivable from
account debtors who are distributors, subject to certain
borrowing restrictions on international accounts and the
discretion of the Lender. After collection of a receivable, the
Lender will refund to us the difference between the amount
collected and the amount initially advanced to us, less a
finance charge applied against the average monthly balance of
all transferred but outstanding receivables at a rate per annum
equal to the Lenders prime rate plus 1.50 percentage
points, or 5.75%, whichever is greater. In addition to a
facility fee of $100,000, we must pay each month to the Lender a
handling fee equal to 0.25% of the average monthly balance of
transferred but outstanding receivables. We must repay each
advance upon the earliest to occur of (i) the collection of
the corresponding financed receivable, (ii) the date on
which the corresponding financed receivable becomes an
ineligible receivable pursuant to the terms of the Amended A/ R
Financing Agreement, or (iii) July 31, 2004.

Obligations under the Amended A/ R Financing
Agreement are secured by a security interest on all of our
assets, including intellectual property, and are senior in lien
priority and right of payment to our obligations

14



---



##### Table of Contents



to the funds affiliated with Warburg Pincus and
Broadview Capital under the secured promissory notes issued in
July 2003 and amended in October 2003 and the senior secured
promissory notes issued in December 2003. The Amended A/ R
Financing Agreement requires the consent of the Lender in order
to incur debt, grant liens and sell assets. The events of
default under the secured credit facility include the failure to
pay amounts when due, failure to observe or perform covenants,
bankruptcy and insolvency events, defaults under certain of our
other obligations and the occurrence of a material adverse
change in our business. Under the Amended A/ R Financing
Agreement, the events of default also include any judgment,
restraining order, injunction or any material adverse
development in connection with a lawsuit filed by Symbol
Technologies before the U.S. District Court for the
District of Delaware. Please refer to Item 3, Legal
Proceedings for a further description of the litigation with
Symbol Technologies. Under the Amended A/ R Financing Agreement,
the financial covenants require us to maintain cash and cash
equivalents with the Lender and its affiliates in an amount not
less than $4.0 million. If we fail to meet this
requirement, we may still remain in compliance with the
financial covenants by maintaining a ratio of the total of cash,
cash equivalents and accounts receivable approved by the Lender
to our current liabilities of at least 5.0 to 1. We currently
maintain substantially all of our cash, cash equivalents and
investments at Silicon Valley Bank and its affiliates. In the
event of default under the Amended A/ R Financing Agreement, the
Lender has the right to offset such cash, cash equivalents and
investments against our obligations owing to the Lender.




| |               
| | --------------
| | Debt Financing

In April 2003, our management and board of
directors recognized our need to secure additional funding to
support our growth objectives and strengthen our balance sheet
position. On July 30, 2003, we entered into a securities
purchase agreement with Warburg Pincus Private Equity VIII, L.P.
(Warburg Pincus) and Broadview Capital Partners L.P.
and affiliates (Broadview Capital, and collectively
with Warburg Pincus, the Investors) pursuant to
which the Investors collectively invested $30 million in
exchange for short-term secured exchangeable promissory notes
bearing interest at 25% per annum (the Original
Notes). The Investors also agreed, subject to various
conditions, including approval of our stockholders, to make
available to us an additional $10 million.

As we announced on September 15, 2003, a
jury has rendered a verdict in the first phase of the patent
suit between Proxim and Symbol Technologies, Inc., finding
that certain of our products infringe on two Symbol patents. A
final judgment on this matter has not been entered by the court
and proceedings in the case continue. Following the jury
verdict, a special committee of members of our board of
directors not affiliated with the Investors considered the
potential impact of the jury verdict on our financial statements
and results of operations for the third quarter of 2003. The
special committee considered the possibility that the
establishment of a reserve for estimated royalties and interest
based on the jury verdict and the ongoing litigation with Symbol
Technologies would, in the absence of a settlement, result in a
material adverse change and/or an event of default under the
Original Notes, causing all outstanding indebtedness in favor of
the Investors to become immediately due and payable. In
addition, the special committee considered the possibility that
the jury verdict prevent us from accessing an additional
$10 million investment from the Investors.

On October 21, 2003, we amended and restated
our securities purchase agreement (the Amended
Agreement) with the Investors, modified the terms of the
Original Notes and issued the amended notes (the Amended
Notes), with an aggregate principal amount of
$30 million. Pursuant to the Amended Agreement, and subject
in part to approval of our stockholders, the Investors also
agreed to make available to us the additional $10 million,
issuable in exchange for senior secured exchangeable promissory
notes (the New Notes) with the same terms as, but
senior to, the Amended Notes. On December 12, 2003, our
stockholders approved the terms of the Amended Agreement,
including the Amended Notes and the New Notes. On
December 19, 2003 and at our request, the Investors
increased their investment by $10 million in accordance
with the terms of the Amended Agreement and we issued the New
Notes.

15



---



##### Table of Contents



The Amended Notes and the New Notes
(collectively, the Notes) bear interest at
25 percent per annum, subject to an increase to 30% on an
event of default or change in control. The Notes are due upon
the earliest of:



| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the occurrence of an event of default, as defined
    in the Notes (subject to the election by the holders of at least
    a majority of the aggregate principal amount outstanding, except
    in the case of an event of default relating to bankruptcy or
    insolvency or similar proceedings);
|
| |  | any date upon which a holder of a Note demands
    payment upon the occurrence of a change of control, as
    defined; and                                                                                                                                                                          
|
| |  | September 30, 2004.                                                                                                                                                                                                                                                                                 

An event of default triggered by a material
adverse change, as defined, includes (i) any adverse ruling
or judgment in our pending patent infringement litigation with
Symbol Technologies, Inc. that requires us and/or any of
our subsidiaries to render payment or post a bond equal to or
greater than $10 million (whether or not such payment has
been made or bond posted as of such date) and (ii) any
other rulings or judgments made against us and/or any of our
subsidiaries in the patent infringement litigation with Symbol
or any other litigations, the effects of which rulings or
judgments are material and adverse to us and our subsidiaries,
taken as a whole.

The terms of the July 30, 2003 securities
purchase agreement originally provided for automatic exchange of
the Original Notes, upon stockholder approval, for shares of
Series B redeemable convertible preferred stock (the
Series B preferred stock). The automatic
exchange provisions were modified by the Amended Agreement,
which provides for exchange of the Amended Notes, and the New
Notes, at the Investors sole discretion. The Series B
Preferred Stock issuable upon exchange of the Amended Notes and
the New Notes, if any, will be convertible into shares of our
Class A common stock at a conversion price of
$1.15 per share, as previously agreed. In accordance with
the Amended Agreement, the Series B Preferred Stock will
have rights to a liquidation preference that accretes at
14% per annum compounding quarterly for seven years, with
acceleration upon a change of control, as defined, or a material
asset sale, as defined. The Series B Preferred Stock, if
issued, also will be entitled to weighted average conversion
price adjustments for dilutive issuances and subscription rights
in certain equity financings. We will have the right to require
conversion of the Series B Preferred Stock after five years
if the closing price of our common stock exceeds 300% of the
conversion price for ninety consecutive trading days.

Pursuant to the terms of the Amended Agreement
and upon receipt of stockholder approval on December 12,
2003 for the transactions with the Investors, we issued to the
Investors warrants to purchase an aggregate of 18.0 million
shares of our common stock with an exercise price of $1.46, and
warrants to purchase 6.0 million shares of our common stock
with an exercise price equal to $1.53 per share
(collectively, the Warrants). In the event of
certain change of control events, including a liquidation event
approved by our stockholders or an acquisition of us by another
person or entity, the Investors have the right to require us to
purchase the Warrants, at a valuation based on a computation of
the option value of the Warrants using the Black-Scholes
calculation methodology.

Assuming the exchange of $40 million in
aggregate principal amount of the Notes, together with accrued
interest, on September 30, 2004, the shares of
Series B Preferred Stock to be issued upon exchange of the
Notes and the Warrants would be expected to represent
approximately 17.5% and 9.5%, respectively, of our outstanding
capital stock on an as-converted and as-exercised basis, based
on shares outstanding as of March 5, 2004 and excluding
outstanding employee options and warrants.

The Investors also invested $75 million in
us in August 2002 to finance our acquisition of the 802.11
wireless systems business from Agere. In exchange for this
investment, the Investors received shares of our Series A
redeemable convertible preferred stock (the Series A
preferred stock) and warrants to purchase our Class A
common stock. Assuming the issuance of the Series B
preferred stock upon exchange of the Amended Notes on
September 30, 2004, the Series A preferred stock and
the Series B preferred stock held by the Investors would be
expected to represent an aggregate of approximately 34.6% of our
outstanding capital stock on an as-converted basis, based on
shares outstanding as of March 5, 2004, and excluding
employee

16



---



##### Table of Contents



options and warrants, and as adjusted to account
for anti-dilution adjustments in connection with the issuance of
the Amended Notes. In addition, the warrants issued to the
Investors in 2002 and 2003 would be expected to represent an
aggregate of approximately 16.7% of our outstanding capital
stock on an as-exercised basis, based on shares outstanding as
of March 5, 2004, and excluding employee options and
warrants, and as adjusted to account for anti-dilution
adjustments in connection with the issuance of the Amended Notes.


Additional information regarding the Amended
Agreement, the Amended Notes, Series B preferred stock and
the Warrants is set forth in our Current Reports on
Form 8-K, including the exhibits thereto, filed with the
Securities and Exchange Commission on October 21, 2003,
December 16, 2003, and December 23, 2003.

Employees

As of December 31, 2003, we had 344
employees, including 66 in manufacturing, 120 in research and
development, 124 in sales, marketing and customer service and 34
in finance and administration. We are not a party to any
collective bargaining agreement in the United States. We are
subject to collective bargaining with 20 employees, based in the
Netherlands. We believe that relations with our employees are
good.

Executive Officers

The following information as of March 5,
2004, is provided with respect to each of our executive officers.

|                         |  |     |    |                            |  |                                                                              
|------------------------ |  | --- | -- | -------------------------- |  | -----------------------------------------------------------------------------
|Name                     |  | Age |    | Current Title and Position
|                         |  |     |    |                           
|Franco Plastina          |  |     | 41 |                            |  | President, Chief Executive Officer and Chairman
    of the Board of Directors
|David L. Thompson        |  |     | 50 |                            |  | Executive Vice President, Chief Financial Officer                            
|Kevin J. Duffy           |  |     | 41 |                            |  | Senior Vice President, Product Development                                   
|Deborah Ablahat-Cipriano |  |     | 49 |                            |  | Senior Vice President, Sales and Marketing                                   
|David E. Olson           |  |     | 54 |                            |  | Senior Vice President, Operations and Services                               
|Ihab Abu-Hakima          |  |     | 48 |                            |  | Senior Vice President, Corporate Development                                 

Franco Plastina has served as our President and
CEO since May 2003 and was elected Chairman of the Board in
December 2003. From March 2003 to April 2003, Mr. Plastina
served as Executive in Residence for Warburg Pincus. Previously,
Mr. Plastina was with Nortel Networks for 15 years and
most recently was President, Metro & Enterprise
Networks at Nortel Networks. Mr. Plastina joined Nortel
Networks in 1987 and held a number of key executive positions,
including President of Wireless and Core Networks, President of
Carrier Networks, Vice President and COO of Internet and Service
Provider Networks, Vice President of Business Development for
Carrier Packet Solutions, and Vice President of Global Mergers
and Acquisitions. Prior to joining Nortel Networks,
Mr. Plastina was with the Toronto office of
PriceWaterhouseCoopers. Mr. Plastina received a Bachelor of
Commerce degree from the University of Toronto in 1985 and a
Chartered Accountant designation in 1987 from the Canadian
Institute of Chartered Accountants.

David L. Thompson has served as our Executive
Vice President and Chief Financial Officer since August 2003.
From September 1999 to April 2003, Mr. Thompson served as
Senior Vice President and Chief Financial Officer at
Entrust, Inc. From 1979 to 1999. Mr. Thompson held
various senior finance positions at Nortel Networks Corporation,
most recently as Vice President of Finance, Enterprise
Solutions. Mr. Thompson holds a Masters in Business
Administration and an Honors Bachelor of Commerce degree, both
from the University of Windsor, Ontario, Canada.

Kevin J. Duffy has served as our Senior Vice
President of Product Development since April 2003.
Mr. Duffy was our Vice President and General Manager of
WWAN Products from April 2002 to April 2003. From February 2001,
Mr. Duffy was vice president of Home Networking at SIEMENS
Information & Communications Mobile. Prior to Siemens,
Mr. Duffy held positions with Northern Telecom and Tracor
Aerospace and was a non-commissioned officer serving as Avionics
Nav/ Com technician in the United States

17



---



##### Table of Contents



Air Force. Mr. Duffy holds a Bachelor of
Science degree in Computer Science from the University of Texas
at Austin.


Deborah Ablahat-Cipriano has served as our Senior
Vice President of Sales and Marketing since July 2003. Prior to
joining Proxim, Ms. Ablahat-Cipriano was responsible for
worldwide sales and marketing for Procket Networks. From
November 1997 to November 2000, Ms. Ablahat-Cipriano held
several senior management positions at Nortel Networks
Corporation, most recently as Vice President, Marketing. From
July 1994 to November 1997, Ms. Ablahat-Cipriano held
various sales management positions at Cisco Systems, Inc.
Ms. Ablahat-Cipriano has also held sales management
positions at Data General Corporation and AT&T.
Ms. Ablahat-Cipriano holds a BA degree from the University
of Illinois.

David E. Olson has served as our Senior Vice
President of Operations and Services since April 2003. In late
2002, Mr. Olson served as interim COO for Danger, Inc.
From January 2002 to September 2002, Mr. Olson served as
President and CEO for iGO, Inc., leading that
companys restructuring and eventual acquisition. From
November 1999 to December 2001, Mr. Olson served as Vice
President of Sales/ Operations/ Services for Sky Stream
Networks. From November 1991 to November 1999, Mr. Olson
was General Manager and Senior Vice President of Avid
Technology. Prior to that, Mr. Olson held management
positions at Sun Microsystems. Mr. Olson holds an MBA from
Harvard Business School and a BA and MA from the University of
Minnesota.

Ihab Abu-Hakima has served as Senior Vice
President of Corporate Development since July 2003. He was our
Senior Vice President of International Sales and Operations from
January 2002 and has served in various senior management
positions since joining us in July 2000. Prior to joining us,
Mr. Abu-Hakima served as vice president and general
manager, for Silicon Graphics Computer Systems, Inc. (SGI).
Prior to SGI, Mr. Abu-Hakima held various management
positions at Hewlett Packard. Prior to Hewlett Packard, he held
various project management positions at the Bechtel Corporation
in the US and overseas. Mr. Abu-Hakima holds an M.B.A.
degree from McGill University and a B.Eng. Electrical
Engineering degree, with honors, from McGill University.

Available Information

Proxim makes available free of charge on the
Proxim website the Companys annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after Proxim
files such material with, or furnishes it to, the Securities and
Exchange Commission. The address of the Proxim website is
www.proxim.com.






|        |           
|------- | ----------
|Item 2. | Properties

Our corporate headquarters, primary research and
development and manufacturing operations, are located in
approximately 139,000 square feet in Sunnyvale, California
under leases that expire on August 31, 2009. We also lease
a design center in India, occupying approximately
10,000 square feet of office space and sales offices in
China, Hong Kong, South Korea, Japan, Taiwan, Malaysia, Taiwan,
Netherlands, France, Brazil, and Mexico. Management considers
the above facilities suitable and adequate to meet our current
requirements.

In addition, we closed certain facilities that we
were leasing and consequently recorded restructuring charges for
future lease commitments, net of estimated future sublease
receipts and exit costs related to the closure of these
facilities. Please refer to Results of Operations
and Liquidity and Capital Resources, under
Part I, Item 7, Managements, Discussion and
Analysis of Financial Condition and Results of Operations, for
further description of the restructuring charges and our
operating lease commitments, respectively. In those facilities
that we have closed, we maintain approximately
64,000 square feet of office space in Sunnyvale, California
under a lease and sublease that expires August 31, 2009,
approximately 41,000 square feet of office space in Duluth,
Georgia under a lease that expires September 30, 2009,
approximately 39,000 square feet of office space in
Mountain View, California under a lease and sublease that
expires March 31, 2006, approximately 16,000 square
feet in Austin, Texas under a lease and sublease that expires on
March 31, 2005, approximately 11,000 square feet of
warehouse space in Santa Clara, California

18



---



##### Table of Contents



under a lease that expires on October 31,
2005, approximately 11,000 square foot facility in Long
Beach, California under lease expires in July 2005,
approximately 8,000 square feet of office space in
Wakefield, Massachusetts under a lease that expires on
May 30, 2004, approximately 7,000 square feet of
office space in Herndon, Virginia under a lease and sublease
that expires on December 31, 2006, and approximately
4,000 square feet of office space in Petaluma, California
under a lease and sublease that expires on July 31, 2005.







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Proxim, Inc.s involvement in patent
litigation has resulted in, and could in the future continue to
result in, substantial costs and diversion of management
resources of our company. In addition, this litigation, if
determined adversely to us, could result in the payment of
substantial damages and/or royalties or prohibitions against
utilization of essential technologies, and could materially and
adversely affect our business, financial condition and operating
results and cash flows.

On December 4, 2001, Symbol filed suit in
the U.S. District Court for the District of Delaware
alleging that Proxim, Inc. infringed four Symbol patents
related to systems for packet data transmission. Symbol sought
an award for unspecified damages and a permanent injunction
against Proxim, Inc. based on alleged patent infringement
counterclaims. On December 18, 2001, Proxim, Inc.
filed an answer and counterclaims seeking declaratory judgments
for non-infringement, invalidity and unenforceability of the
four asserted Symbol patents, injunctive and monetary relief for
Symbols infringement of a Proxim, Inc. patent,
monetary relief for Symbols false patent marking, and
injunctive and monetary relief for Symbols unfair
competition under the Lanham Act, common law unfair competition
and tortious interference.

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringes two of Symbols patents and assessed a 6% royalty
on our sales of these products from January 1, 1995.
Accordingly, we recorded an accrual for estimated past royalties
payable of $22.9 million and $2.9 million for interest
during the third quarter of 2003. We have not been enjoined from
continued sales of these products, and royalty payments, if any,
on these sales have not been determined by the court. In
November 2003, the court conducted a bench trial on our
remaining equitable defenses not addressed by the jury and
proceedings in the case continue. We will continue to evaluate
and review our estimate of the royalties and interest payable
from time to time for any indications that could require us to
change our assumptions relating to the amount already recorded.
In addition, we did not incur any immediate financial obligation
to Symbol as a result of this verdict, pending completion of
related proceedings.

On March 17, 2003, we announced a settlement
with Intersil Corporation to resolve all pending patent-related
litigation between the two companies. Under the terms of the
agreement, Proxim, Inc. and Intersil have agreed to dismiss
all claims against each other, including lawsuits before the
International Trade Commission and Delaware and Massachusetts
Federal Courts. As part of the confidential settlement
agreement, the two companies entered into a patent cross license
agreement for their respective patent portfolios and Intersil
agreed to make a one-time payment of $6.0 million to us.
The two companies have also entered into a product supply
agreement defining the terms under which we will be able to
purchase 802.11 products that utilize Intersils chipsets.
During the first quarter of 2003, we recorded $6 million as
licensing revenue and $3 million of legal expense as final
settlement of outstanding legal fees and expenses related to the
terminated patent litigation.

On March 10, 2003, we were served with a
complaint filed on January 15, 2003, by Top Global
Technology Limited (Top Global), a distributor for
Agere Systems Singapore. Our demurrer to Top Globals
complaint was sustained in May 2003. Top Global then filed and
served an amended complaint on May 30, 2003. Top
Globals lawsuit was filed against Agere
Systems, Inc., Agere Systems Singapore, and Agere Systems
Asia Pacific (collectively, Agere) and in the
Superior Court for the State of California, County of
Santa Clara. Top Global claims that it is entitled to
return for a credit $1.2 million of products that it
purchased from Agere Systems Singapore in June 2002 as a result
of our decision to discontinue a product line that we purchased
from Agere in August 2002. The amended complaint asks the court
to determine whether Agere or we are responsible for accepting
the product return and issuing a $1.2 million credit and
also

19



---



##### Table of Contents



alleges breach of contract. We answered the
amended complaint and asserted several defenses to Top
Globals claims. In January 2004, the parties mediated this
dispute but were unable to reach a settlement. In March 2004,
the Court dismissed the contract claims against Agere but at the
same time granted Top Globals motion for leave to amend
its complaint to allege a fraud claim against Agere. Discovery
continues and a trial setting conference is scheduled for
May 4, 2004.


On February 10, 2004, we received a copy of
a complaint filed on February 2, 2004 in Tokyo District
Court by Active Technology Corporation, a Japanese-based
distributor of our products. The complaint alleges, among other
things, that we sold to Active certain defective products, which
Active in turn subsequently sold to its customers. Active seeks
damages of 559.2 million Japanese yen, which includes the
purchase price of the allegedly defective products and
replacement costs allegedly incurred by Active. Active seeks to
offset the claim of 559.2 million Japanese yen against
outstanding accounts payable by Active of 175.3 million
Japanese yen to us, resulting in a net claim against Proxim
Corporation of 383.9 million Japanese yen. Translated into
U.S. dollars on March 5, 2004, Actives net claim
is approximately $3.4 million. This case is in its earliest
stages, as discovery has not yet commenced and a trial date has
not been established. We intend to defend ourselves vigorously
against this lawsuit.

We are party to disputes, including legal
actions, with a number of suppliers and vendors. These disputes
relate primarily to excess materials and order cancellation
claims that resulted from the declines in demand for our
products during 2001 and 2002 and the commensurate reductions in
manufacturing volumes. We have recorded reserves related to
these disputes to the extent that management believes
appropriate and intend to defend ourselves vigorously against
these claims.

The results of any litigation matters are
inherently uncertain. In the event of any adverse decision in
the described legal actions or disputes, or any other related
litigation with third parties that could arise in the future, we
could be required to pay damages and other expenses, and, in the
case of litigation related to patents or other intellectual
property rights, to cease the manufacture, use and sale of
infringing products, to expend significant resources to develop
non-infringing technology, or to obtain licenses to the
infringing technology. We cannot make any assurance that these
matters will not materially and adversely affect our business,
financial condition, operating results or cash flows.

In particular, if the proceedings before the
court in our litigation with Symbol are not decided in our
favor, we would likely be required to make significant payments
to Symbol, including payments for royalties related to past
sales of products found to infringe and additional royalties in
connection with future sales of these products, or we would be
required to post a bond in order to appeal the courts
decision. Any adverse ruling or judgment in this litigation that
requires us to render payment or post a bond equal to or greater
than $10 million, and any other ruling or judgment in this
or any other litigation that is material and adverse to us,
triggers an event of default under the Notes issued to Warburg
Pincus and affiliates of Broadview Capital. Upon such
occurrence, the Investors would have the ability to require us
to repay the Notes. In addition, entry of any judgment,
restraining order, injunction or any material adverse
development in the litigation with Symbol would result in an
event of default under the secured credit facility with Silicon
Valley Bank. Upon such occurrence, Silicon Valley Bank would
have the ability to require us to repay any outstanding amounts
under the credit facility and to prohibit us from borrowing any
additional amounts.

If we were required to make payments to Symbol,
post a bond to the court, and/or repay the Notes and amounts, if
any, owed to Silicon Valley Bank, either due to an event of
default or otherwise, we would be required to obtain immediate
alternative sources of financing. If we were not able to obtain
an alternative source of financing, we would most likely have
insufficient cash to pay these obligations, be unable to meet
our ongoing operating obligations as they come due in the
ordinary course of business, and may have to seek protection
under applicable bankruptcy laws.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

During 2003, Warburg Pincus and Broadview Capital
invested an aggregate of $40 million in us in exchange for
secured promissory notes, exchangeable for shares of our
Series B preferred stock, and warrants to purchase our
common stock. Please refer to Part I, Item 1,
Business  Recent Financing Activities

20



---



##### Table of Contents



for a detailed description of our recent
transactions with Warburg Pincus and Broadview Capital
(collectively, the Investors), the terms of the
secured exchangeable promissory notes (the Notes)
and our amended and restated securities purchase agreement with
the Investors (the Amended Agreement).


Pursuant to the Amended Agreement, we agreed to
hold a special meeting of our stockholders to approve the
conversion of then-outstanding Notes and the issuance of
warrants to purchase shares of our common stock. At a special
meeting of stockholders held on December 12, 2003, our
stockholders approved our ability to issue to the Investors
(i) shares of our Series B preferred stock upon
exercise of each Investors right to exchange
then-outstanding promissory notes with an aggregate principal
amount of $30 million, plus accrued but unpaid interest, as
well as upon each Investors exercise of the right to
exchange any additional promissory notes issued to the Investors
with an aggregate principal amount of $10 million, plus
accrued but unpaid interest; and (ii) warrants to purchase
an aggregate of 24 million shares of our common stock.

Of the total outstanding shares of common stock,
including shares of Series A preferred stock on an
as-converted basis, of the company present in person or by proxy
and entitled to vote on the matter, 86,314,413 shares were
voted in favor of the proposal. A total of 1,684,732 shares
of common stock were voted against the proposal,
164,765 shares of common stock of the company abstained and
there were no broker non-votes.

21



---



##### Table of Contents






PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters



|    |                   
|--- | ------------------
|(a) | Market Information

The following table shows the high and low sales
prices of the Companys common stock for the fiscal years
ended December 31, 2002 and 2003 as reported on the Nasdaq
National Market:

|                                |  |      |      |     |  |   |      | 
|------------------------------- |  | ---- | ---- | --- |  | - | ---- | 
|                                |  | High |      | Low
|                                |  |      |      |    
|First Quarter (ended 3/29/02)   |  | $    | 5.97 |     |  | $ | 1.82 | 
|Second Quarter (ended 6/28/02)  |  | $    | 3.70 |     |  | $ | 2.90 | 
|Third Quarter (ended 9/27/02)   |  | $    | 3.21 |     |  | $ | 1.70 | 
|Fourth Quarter (ended 12/31/02) |  | $    | 1.89 |     |  | $ | 0.40 | 
|First Quarter (ended 3/28/03)   |  | $    | 1.35 |     |  | $ | 0.45 | 
|Second Quarter (ended 6/27/03)  |  | $    | 2.49 |     |  | $ | 0.47 | 
|Third Quarter (ended 9/26/03)   |  | $    | 2.47 |     |  | $ | 0.95 | 
|Fourth Quarter (ended 12/31/03) |  | $    | 2.04 |     |  | $ | 1.25 | 

The closing price of the Companys common
stock on the Nasdaq National Market on March 12, 2004 was
$2.28.



|    |        
|--- | -------
|(b) | Holders

Proxim Corporation common stock is quoted on the
Nasdaq National Market under the symbol PROX. The Company had
326 stockholders of record as of March 5, 2004.



|    |          
|--- | ---------
|(c) | Dividends

The Company presently intends to retain its
future earnings, if any, to fund the development and growth of
its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. From August 2005 through
August 2007, shares of the Companys Series A
Preferred Stock will be entitled to dividends equal to 8% of
their liquidation preference per year, payable, at the
Companys election, in cash or shares of the Companys
Common Stock valued at the then-market price. From
September 30, 2004 through September 30, 2011, shares
of the Companys Series B Preferred Stock (if
exchanged) will be entitled to dividends equal to 14% of their
liquidation preference per year, payable, at the Companys
election, in cash or shares of the Companys Common Stock
valued at the then-market price.



|    |                        
|--- | -----------------------
|(d) | Equity Plan Information

Equity Compensation Plan Information

The following table summarizes information as of
December 31, 2003 with respect to the shares of the
Companys common stock that may be issued under the
Companys existing equity compensation plans. The table
does not include information with respect to shares subject to
outstanding options assumed by Proxim in connection with
acquisitions of the companies, which originally granted those
options. Footnote (5) to the table sets forth the total
number of shares of the Companys common stock issuable
upon the exercise of those

22



---



##### Table of Contents



assumed options as of December 31, 2003, and
the weighted average exercise price of those options. No future
grants of options may be made under such plans.


Equity Compensation Plans

|                                                               |       |                            |            |                        |  |                                |      |      |  |  |            |            | 
|-------------------------------------------------------------- | ----- | -------------------------- | ---------- | ---------------------- |  | ------------------------------ | ---- | ---- |  |  | ---------- | ---------- | 
|                                                               |       |                            |            |                        |  | Number of Securities Remaining
|                                                               |       | Number of Securities to be |            | Weighted-Average       |  | Available for Future Issuance 
|                                                               |       | Issued upon Exercise of    |            | Exercise Price of      |  | under Equity Compensation     
|                                                               |       | Outstanding Options,       |            | Outstanding Options,   |  | Plans (Excluding Securities   
|Plan Category                                                  |       | Warrants and Rights(1)     |            | Warrants and Rights(2) |  | Reflected in Column(a))       
|                                                               |       |                            |            |                        |  |                               
|                                                               |       | (a)                        |            | (b)                    |  | (c)                           
|Equity compensation plans approved by security
    holders     |       |                            | 11,980,739 | (3)                    |  | $                              | 4.75 |      |  |  | 12,484,787 | (4)       
|Equity compensation plans not approved by
    security holders |       |                            | 10,642,872 | (5)                    |  | $                              | 1.60 |      |  |  | 4,357,128  | (6)       
|                                                               | Total |                            |            | 22,623,611             |  |                                | $    | 3.27 |  |  |            | 16,841,915 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This column does not reflect shares underlying
    options assumed by Proxim in acquisitions where the plans
    governing the options will not be used for future awards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(2) | This column does not reflect the price of shares
    underlying the assumed options referred to in footnote
    (1) of this table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | Includes options to purchase shares outstanding
    under the Proxim Corporation 1994 Director Option Plan, the
    Proxim Corporation 1995 Long-Term Incentive Plan, the Proxim
    Corporation 1999 Stock Incentive Plan and the Proxim Corporation
    2000 Stock Option Plan for Non-Employee Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | Includes shares available for future issuance
    pursuant to future option grants under the Proxim Corporation
    1994 Director Option Plan, the Proxim Corporation 1995 Long-Term
    Incentive Plan, the Proxim Corporation 1999 Stock Incentive Plan
    and the Proxim Corporation 2000 Stock Option Plan for
    Non-Employee Directors, and also includes shares available for
    future purchase at 85% of fair market value under the Proxim
    Corporation 2001 Employee Stock Purchase Plan. This column does
    not include shares underlying the assumed options referred to in
    footnote (1) of this table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(5) | Includes options to purchase shares outstanding
    under the Proxim Corporation 2002 Stock Option Merger Plan, the
    2002 Nonstatutory Stock Option Acquisition Plan and the Frank
    Plastina Standalone Stock Option Agreement. The Proxim
    Corporation 2002 Stock Option Merger Plan and 2002 Nonstatutory
    Stock Option Acquisition Plan plans were adopted in connection
    with the Merger and the ORiNOCO Acquisition and have not been
    approved by our stockholders. This does not include options, as
    of December 31, 2002, to purchase a total of 5,629,467
    shares, at a weighted average exercise price of $4.51, which
    have been assumed by Proxim in connection with acquisitions of
    the companies, which originally granted those options. Such
    options were issued under the following plans, which have not
    been approved by our stockholders: the Proxim, Inc. 1986
    Stock Option Plan, the Proxim, Inc. 1999 Nonstatutory Stock
    Option Plan, the WirelessHome Corporation 1998 Stock Option
    Plan, the Ubiquity Communication, Inc. 1997 Stock Option
    Plan and the Ubiquity Communication, Inc. 1998 Stock Plan.
    No future grants of options may be made under such plans.
|   
|(6) | Includes shares available for future issuance
    pursuant to option grants under the Proxim Corporation 2002
    Nonstatutory Stock Option Merger Plan and the 2002 Nonstatutory
    Stock Option Acquisition Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Material Features of Plans Not Approved by
Stockholders

The Proxim Corporation 2002 Nonstatutory Stock
Option Merger Plan (the Merger Plan) was implemented
by our Board of Directors in April 2002 in connection with the
merger of Western Multiplex Corporation and Proxim, Inc. and is
a non-stockholder approved plan. Options may be granted under
the Merger Plan to employees, including officers and
consultants, of the Company or any parent or subsidiary of

23



---



##### Table of Contents



the Company. Options may not be granted under the
Merger Plan to our directors. The Board of Directors has
authorized and reserved 7,000,000 shares of our common
stock for issuance under the Merger Plan. All grants will have
an exercise price per share equal to the fair market value per
share of our common stock on the date of grant. Each option will
vest in installments over the optionees period of service
with the Company. The options will vest on an accelerated basis
in the event the Company is acquired and those options are not
assumed or replaced by the acquiring entity. All options are
nonstatutory options under applicable Federal tax laws. As of
December 31, 2003, 631,389 shares remained available
for future option grants, and 6,368,611 shares were subject
to issuance pursuant to the exercise of outstanding options.


The Proxim Corporation 2002 Nonstatutory Stock
Option Acquisition Plan (the Acquisition Plan) was
implemented by our Board of Directors in August 2002 in
connection with the ORiNOCO Acquisition and is a non-stockholder
approved plan. Options may be granted under the Acquisition Plan
to employees, including officers and consultants, of the Company
or any parent or subsidiary of the Company. Options may not be
granted under the Acquisition Plan to our directors. The Board
of Directors has authorized and reserved 5,000,000 shares
of our common stock for issuance under the Acquisition Plan. All
grants will have an exercise price per share equal to the fair
market value per share of our common stock on the date of grant.
Each option will vest in installments over the optionees
period of service with the Company. The options will vest on an
accelerated basis in the event the Company is acquired and those
options are not assumed or replaced by the acquiring entity. All
options are nonstatutory options under applicable Federal tax
laws. As of December 31, 2003, 3,725,739 shares
remained available for future option grants, and
1,274,261 shares were subject to issuance pursuant to the
exercise of outstanding options.

Proxim Corporation 2003 Stand-Alone Stock
Option Agreement for Franco Plastina

The Proxim Corporation 2003 Stand-Alone Stock
Option Agreement for Franco Plastina (the Stand-Alone
Agreement) was entered into by Proxim Corporation and
Mr. Plastina on May 2, 2003 in connection with
Mr. Plastinas appointment as President and Chief
Executive Officer of Proxim Corporation. Under the Stand-Alone
Agreement, Mr. Plastina was granted a nonstatutory stock
option on May 2, 2003 to purchase 3,000,000 shares of
the companys common stock at an exercise price of
$0.68 per share, which was the fair market value per share
on the date of the grant. One-third of the shares subject to the
option vest on the one-year anniversary of the date of grant,
and one-twelfth of the shares subject to the option vest each
three-month period thereafter, with the option fully vesting
three years from the date of grant. The option may be exercised
for ninety days after Mr. Plastina ceases to be a service
provider to the Company, but in the event of his death or
disability, the option may be exercised for one year after he
ceases to be a service provider. In no event, however, may the
option be exercised later than its expiration date, which is
May 2, 2013. In the event of a merger of Proxim Corporation
with or into another corporation or the sale of substantially
all of the assets of Proxim Corporation and the option is not
assumed or substituted by the successor corporation or a parent
or subsidiary of the successor corporation, then the option
shall fully vest and become exercisable.

Recent Sales of Unregistered
Securities

During 2003, Warburg Pincus Private
Equity VIII, L.P. and Broadview Capital Partners L.P. and
affiliates invested an aggregate of $40 million in us in
exchange for secured promissory notes, exchangeable for shares
of our Series B preferred stock, and warrants to purchase
an aggregate of 24 million shares of our common stock.
Please refer to Part I, Item 1,
Business  Recent Financing Activities for
a detailed description of our recent transactions with these
Investors, the terms of the Notes and warrants, including terms
of conversion and exercise thereof, and our Amended Agreement
with the Investors.

Proceeds from this $40 million investment
are being used for general corporate purposes, including payment
of existing liabilities, research and development, the
development or acquisition of new products and technologies,
equipment acquisitions, general working capital and operating
expenses. There were no underwriters employed in connection with
the security issuance to the Investors. The issuance was made
pursuant to Section 4(2) of the Securities Act of 1933, as
amended.

24



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

You should read the selected consolidated
financial data set forth below in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Proxim
Corporations consolidated financial statements and the
related notes included elsewhere in this Annual Report on
Form 10-K. The consolidated statements of operations data
for the years ended December 31, 2003, 2002 and 2001 and
the consolidated balance sheet data as of December 31, 2003
and 2002 are derived from, and are qualified by reference to,
the audited consolidated financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. The
statement of operations data for the years ended
December 31, 2000 and 1999 and the balance sheet data as of
December 31, 2001, 2000 and 1999 are derived from audited
financial statements not appearing elsewhere in this Annual
Report on Form 10-K. Historical results are not necessarily
indicative of results that may be expected for any future period.

|                                                              |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |       |        | 
|------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------- | ------- | ------ | -------- | ---- | ------- | ------- | -------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------ | - | ------ | ----- | ------ | 
|                                                              |                                                          |                                  
|                                                              |                                                          | Year Ended December 31,          
|                                                              |                                                          |                                  
|                                                              |                                                          | 2003                              |         | 2002   |          | 2001 |         | 2000    |          | 1999
|                                                              |                                                          |                                   |         |        |          |      |         |         |          |     
|                                                              |                                                          |                                  
|                                                              |                                                          | (In thousands, except share data)
|Statement of operations data:                                 |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      
|Total revenue, net                                            |                                                          | $                                 | 148,466 |        |          | $    | 144,660 |         |          | $    | 105,730 |        |         | $ | 105,508 |        |        | $ | 44,750 |      
|Cost of revenue                                               |                                                          |                                   | 88,471  |        |          |      | 83,685  |         |          |      | 55,887  |        |         |   | 50,466  |        |        |   | 22,470 |      
|Royalty charges                                               |                                                          |                                   | 23,869  |        |          |      |        |         |          |      |        |        |         |   |        |        |        |   |       |      
|Restructuring provision for excess and obsolete
    inventory |                                                          |                                   | 22,549  |        |          |      | 12,659  |         |          |      |        |        |         |   |        |        |        |   |       |      
|                                                              |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      
|                                                              |                                                          | Gross profit                      |         |        | 13,577   |      |         |         | 48,316   |      |         |        | 49,843  |   |         |        | 55,042 |   |        |       | 22,280 | 
|                                                              |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      
|Operating expenses:                                           |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      
|                                                              | Research and development                                 |                                   |         | 24,241 |          |      |         | 29,159  |          |      |         | 19,114 |         |   |         | 12,379 |        |   |        | 5,925 |       
|                                                              | Selling, general and administrative                      |                                   |         | 49,431 |          |      |         | 49,491  |          |      |         | 38,603 |         |   |         | 22,531 |        |   |        | 8,192 |       
|                                                              | Legal expense for certain litigation                     |                                   |         | 6,800  |          |      |         |        |          |      |         |       |         |   |         |       |        |   |        |      |       
|                                                              | Amortization of goodwill and other intangible
    assets |                                   |         | 21,593 |          |      |         | 12,467  |          |      |         | 5,440  |         |   |         | 2,382  |        |   |        | 737   |       
|                                                              | Amortization of deferred stock compensation              |                                   |         |       |          |      |         | 855     |          |      |         | 5,196  |         |   |         | 4,161  |        |   |        |      |       
|                                                              | Recapitalization costs                                   |                                   |         |       |          |      |         |        |          |      |         |       |         |   |         |       |        |   |        | 3,050 |       
|                                                              | Impairment of goodwill and intangible assets             |                                   |         |       |          |      |         | 129,108 |          |      |         | 4,331  |         |   |         |       |        |   |        |      |       
|                                                              | Impairment of loan to officer                            |                                   |         |       |          |      |         | 4,500   |          |      |         |       |         |   |         |       |        |   |        |      |       
|                                                              | Bad debt expense                                         |                                   |         | 2,305  |          |      |         |        |          |      |         |       |         |   |         |       |        |   |        |      |       
|                                                              | Restructuring charges                                    |                                   |         | 7,279  |          |      |         | 43,177  |          |      |         | 1,816  |         |   |         |       |        |   |        |      |       
|                                                              | In-process research and development                      |                                   |         |       |          |      |         | 16,100  |          |      |         | 6,400  |         |   |         |       |        |   |        |      |       
|                                                              | Merger costs                                             |                                   |         |       |          |      |         |        |          |      |         | 30     |         |   |         | 185    |        |   |        |      |       
|                                                              |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      
|                                                              |                                                          | Total operating expenses          |         |        | 111,649  |      |         |         | 284,857  |      |         |        | 80,930  |   |         |        | 41,638 |   |        |       | 17,904 | 
|                                                              |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      
|                                                              |                                                          | Income (loss) from operations     |         |        | (98,072  | )    |         |         | (236,541 | )    |         |        | (31,087 | ) |         |        | 13,404 |   |        |       | 4,376  | 
|Interest income (expense), net                                |                                                          |                                   | (7,168  | )      |          |      | (85     | )       |          |      | 1,393   |        |         |   | 85      |        |        |   | (368   | )    
|Loss on early extinguishment of debt                          |                                                          |                                   | (22,200 | )      |          |      |        |         |          |      |        |        |         |   | (394    | )      |        |   |       |      
|                                                              |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      
|                                                              |                                                          | Income (loss) before income taxes |         |        | (127,440 | )    |         |         | (236,626 | )    |         |        | (29,694 | ) |         |        | 13,489 |   |        |       | 4,008  | 
|Income tax provision (benefit)                                |                                                          |                                   |        |        |          |      | 3,224   |         |          |      | (4,096  | )      |         |   | 6,800   |        |        |   | 2,831  |      
|                                                              |                                                          |                                   |         |        |          |      |         |         |          |      |         |        |         |   |         |        |        |   |        |      

25



---



##### Table of Contents



|                                                                 |  |                                   |          |      |  |      |          |      |  |      |         |   |  |   |        |  |  |   |        | 
|---------------------------------------------------------------- |  | --------------------------------- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------ |  |  | - | ------ | 
|                                                                 |  |                                  
|                                                                 |  | Year Ended December 31,          
|                                                                 |  |                                  
|                                                                 |  | 2003                              |          | 2002 |  | 2001 |          | 2000 |  | 1999
|                                                                 |  |                                   |          |      |  |      |          |      |  |     
|                                                                 |  |                                  
|                                                                 |  | (In thousands, except share data)
|Net income (loss)                                                |  |                                   | (127,440 | )    |  |      | (239,850 | )    |  |      | (25,598 | ) |  |   | 6,295  |  |  |   | 1,177  | 
|Deemed Series A Preferred Stock dividend                         |  |                                   |         |      |  |      | (2,740   | )    |  |      |        |   |  |   |       |  |  |   |       | 
|Accretion of Series A Preferred Stock
    redemption obligations |  |                                   | (6,303   | )    |  |      | (1,890   | )    |  |      |        |   |  |   |       |  |  |   |       | 
|                                                                 |  |                                   |          |      |  |      |          |      |  |      |         |   |  |   |        |  |  |   |        | 
|Net income (loss) attributable to common
    stockholders        |  | $                                 | (133,743 | )    |  | $    | (244,480 | )    |  | $    | (25,598 | ) |  | $ | 6,295  |  |  | $ | 1,177  | 
|                                                                 |  |                                   |          |      |  |      |          |      |  |      |         |   |  |   |        |  |  |   |        | 
|Basic earnings (loss) per share                                  |  | $                                 | (1.10    | )    |  | $    | (2.33    | )    |  | $    | (0.44   | ) |  | $ | 0.13   |  |  | $ | 0.02   | 
|                                                                 |  |                                   |          |      |  |      |          |      |  |      |         |   |  |   |        |  |  |   |        | 
|Diluted earnings (loss) per share                                |  | $                                 | (1.10    | )    |  | $    | (2.33    | )    |  | $    | (0.44   | ) |  | $ | 0.12   |  |  | $ | 0.02   | 
|                                                                 |  |                                   |          |      |  |      |          |      |  |      |         |   |  |   |        |  |  |   |        | 
|Shares used to compute basic earnings (loss) per
    share       |  |                                   | 121,662  |      |  |      | 105,119  |      |  |      | 57,559  |   |  |   | 47,045 |  |  |   | 73,000 | 
|                                                                 |  |                                   |          |      |  |      |          |      |  |      |         |   |  |   |        |  |  |   |        | 
|Shares used to compute diluted earnings (loss)
    per share     |  |                                   | 121,662  |      |  |      | 105,119  |      |  |      | 57,559  |   |  |   | 52,081 |  |  |   | 73,000 | 
|                                                                 |  |                                   |          |      |  |      |          |      |  |      |         |   |  |   |        |  |  |   |        | 

|                                                 |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 
|------------------------------------------------ |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------ | 
|                                                 |  |             
|                                                 |  | December 31,
|                                                 |  |             
|                                                 |  | 2003         |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                 |  |              |         |      |  |      |         |      |  |     
|Balance Sheet Data:                              |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 
|Cash and short-term investments                  |  | $            | 19,756  |      |  | $    | 17,048  |      |  | $    | 23,290  |  |  | $ | 51,727  |  |  | $ | 1,913  | 
|Working capital (deficit)                        |  |              | (35,164 | )    |  |      | 53,975  |      |  |      | 65,083  |  |  |   | 84,686  |  |  |   | 4,481  | 
|Total assets                                     |  |              | 120,108 |      |  |      | 177,423 |      |  |      | 134,398 |  |  |   | 140,877 |  |  |   | 43,322 | 
|Accrued royalties and interest                   |  |              | 26,906  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       | 
|Convertible promissory note                      |  |              | 34,735  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       | 
|Restructuring accruals and long term debt        |  |              | 8,761   |      |  |      | 26,680  |      |  |      |        |  |  |   | 28      |  |  |   | 19,153 | 
|Common stock warrants                            |  |              | 21,800  |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       | 
|Mandatory redeemable convertible preferred stock |  |              | 73,580  |      |  |      | 64,412  |      |  |      |        |  |  |   |        |  |  |   |       | 
|Total stockholders equity (deficit)             |  | $            | (79,088 | )    |  | $    | 51,267  |      |  | $    | 118,252 |  |  | $ | 122,024 |  |  | $ | 11,006 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read
together with our financial statements and the related notes
contained elsewhere in this Annual Report on
Form 10-K.

Overview

The following is a summary of the discussion
of our financial condition and results of operations and is
qualified in its entirety by the fuller discussion contained in
this Item 7. This summary should be read in conjunction
with Part I, Item 1, Business and is
qualified in its entirety by the risk factors set forth in this
Item 7 as described below under Risk
Factors.

Proxim Corporation was formed in March 2002 as a
result of the merger between Western Multiplex Corporation and
Proxim, Inc. In August 2002, we acquired Agere Systems
802.11 wireless local area networking (WLAN) equipment
business, including its market-leading ORiNOCO 802.11b
product line. In accordance with accounting principles generally
accepted in the United States of America, the results of
operations for the periods presented include the results of the
merged or acquired businesses beginning on the respective dates
of completion of the business combinations. Prior to March 2002,
we operated as Western Multiplex Corporation, a designer and
manufacturer of broadband wireless systems.

26



---



##### Table of Contents



Proxim Corporation is a leader in wireless
networking equipment for Wi-Fi and broadband wireless networks.
We provide wireless solutions for the mobile enterprise,
security and surveillance, last mile access, voice and data
backhaul, public hot spots, and metropolitan area networks. We
serve these markets by selling our systems to service providers,
businesses and other enterprises, directly through our sales
force and indirectly through distributors, value-added
resellers, products integrators and original equipment
manufacturers.

We generate revenue primarily from the sale of
our Lynx and Tsunami systems for our WWAN product line, and the
sale of 802.11 standards based products, acquired in the
Proxim, Inc. acquisition, and 802.11 products acquired
from Agere, for our WLAN product line. We introduced the Tsunami
products during the fourth quarter of 1999. While our Tsunami
products and Lynx products have similar pricing for comparable
models, our Lynx product line contributes the largest part of
our revenue. We began selling our Tsunami point-to-multipoint
systems in 2001. We also generate a small percentage of our
revenue from the sale of services and parts and rentals of our
systems. We sell worldwide to service providers, businesses and
other enterprises directly through our sales force and
indirectly through distributors, value-added resellers and
system integrators. Shipments to certain distributors are made
under terms allowing certain rights of return, protection
against subsequent price declines on our products held by our
distributors and co-op marketing programs.



| |              
| | -------------
| | Restructuring

We started 2003 with $16.5 million in cash
and cash equivalents, down $14.5 million from
$31.1 million at the beginning of 2002. The effects of an
ongoing operating loss and restructuring charges, left us with
cash and cash equivalents of $4.5 million at the end of the
second quarter of 2003. To address the lack of sufficient
working capital and the ongoing negative cash flow, we focused
on raising additional financing and restructuring the operations
of the business.

Financing.In a
two-part transaction, we raised an additional $40 million
in 2003. As discussed in Part I, Item 1,
Businessin greater detail, Warburg Pincus
Private Equity VIII, L.P. and Broadview Capital Partners
L.P. and affiliates signed a securities purchase agreement in
July, 2003, later amended in October, 2003, pursuant to which we
received $30 million in exchange for issuing demand notes
bearing interest at 25% per annum and exchangeable for
shares of Series B preferred stock. In December 2003, after
stockholder approval of our transactions with the investors, as
described in Part 1, Item 4, Submission of
Matters to a Vote of Security Holders, we exercised our
right to draw an additional $10 million from the investors
in exchange for additional notes, senior to but otherwise having
the same terms as the October notes.

Operational Changes.In May 2003, we hired a new President and Chief Executive
Officer, Frank Plastina. Shortly thereafter, we commenced a
consolidation of our wireless WAN and wireless LAN divisions and
their underlying separate sales, engineering and operating
departments with the goal of improving efficiency, reducing
headcount and lowering operating costs.



| |                     
| | --------------------
| | Product Developments

Proxim, Inc. and Western Multiplex merged
with the vision of forming a company that has the ability to
provide wireless connectivity in any configuration regardless of
whether the radios were providing access indoors or outdoors,
and regardless of whether or not they were performing a bridging
or routing function. This seamless WWAN/WLAN capability is the
backbone of our convergence strategy today. We subsequently
acquired the ORiNOCO business from Agere Systems to enhance our
position in the Enterprise Wireless LAN space.

The resulting company had eight research and
development centers and a multitude of product platforms and
product variants. In order to realize the benefits of this
strategy of converging WLAN/WWAN, in early 2003, we focused on
streamlining the product development and manufacturing
operations. In this respect, we consolidated all product
development activity in two locations; Sunnyvale, California and
Bangalore, India. Manufacturing operations were
consolidated in Sunnyvale, California and the number of contract
manufacturers was substantially reduced.

27



---



##### Table of Contents



During the remainder of 2003, we completed the
rationalization of the combined portfolio of Western Multiplex,
ORiNOCO and Proxim. Central to that effort was the elimination
of redundancy between the original ORiNOCO and Proxim product
lines. Former Proxim products such as Harmony, Skyline, and
Symphony were discontinued, although much of the underlying
technology and networking principles were carried forward and
embodied in our new advanced products including the ORiNOCO
Wireless Switching System. In parallel, we developed new
platforms on which to standardize the product development
efforts. These platforms will allow us to release enhanced
versions of our currently existing product portfolio in 2004 and
are providing improved product costs, industry leading
functionality, and, in some cases, pioneering new market
categories that we believe will enable Proxim to expand our
market presence. Our new platforms include the:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | GX broadband point to point platform on which we
    will re-launch all of our Lynx and Tsunami wireless bridge
    products; and                                                                                       
|
| |  | A WiFi platform on which our new ORiNOCO
    enterprise class access point products and Tsunami MP.11 point
    to multipoint products for wireless internet service providers
    and campus networking are based upon.

We have also recently announced the development
of the ORiNOCO Wireless Switching Solution. This product is the
cornerstone of a strategic relationship with Motorola and Avaya
where the three parties are working to create a converged
WiFi/Cellular solution.

We intend to continue to further the WWAN/WLAN
converged strategy. Augmenting this basic wireless connectivity
strategy we intend to continue to support standards based,
interoperable solutions wherever possible and practical. Today,
that means producing WiFi compliant solutions for the indoors
and in the future that will mean developing WiMAX compliant
solutions for the outdoors. We intend to closely watch
developments related to available spectrum, unlicensed or
licensed, and develop products in those bands that are demanded
by our customers and provide us with the most promising returns
on R&D investment.



| |                      
| | ---------------------
| | Financial Performance



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our total revenue, net for 2003 was
    $148.5 million, a 2.6% increase over our total revenue, net
    for 2002, reflecting the first full year of contribution from
    our acquisition of the ORiNOCO product line of Agere Systems in
    the third quarter of 2002 and of Proxim in the first quarter of
    2002, a one-time patent license fee of $6.0 million
    resulting from our patent litigation settlement with Intersil,
    partially offset by a decrease in the WWAN product revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In our two key geographies, North America and
    International, revenue comprised of 59% and 41%, respectively,
    of total revenue in 2003 and 62% and 38%, respectively, of total
    revenue, net in 2002. Year over year, North American revenue
    decreased by 2.1%, and International revenue increased by 10.4%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Net loss attributable to common stockholders in
    2003 was $133.7 million versus $244.5 million in 2002.
    Net loss in 2003 was largely driven by restructuring charges for
    excess and obsolete inventory of $22.5 million, estimated
    potential royalties and interest charges of $26.9 million
    accrued for related to the litigation with Symbol Technologies,
    restructuring charges of $7.3 million, and associated costs
    of raising $40 million and issuing convertible notes to our
    investors. The loss incurred in 2002 was largely driven by an
    impairment of goodwill and intangible assets of
    $129.1 million recorded due to a significant decline in
    forecasted revenue, restructuring charge for excess and obsolete
    inventory of $12.7 million, restructuring charges of
    $43.2 million, and purchased in-process research and
    development of $16.1 million related to products acquired
    in acquisitions.
|
| |  | Gross profit decreased by $34.7 million or
    71.9% from $48.3 million in 2003 and $1.5 million or
    3.1% in 2002. Gross profit or gross margin for the year ended
    December 31, 2003 included royalty charges of
    $23.9 million or 16.1% of total revenue and restructuring
    provision for excess and obsolete inventory of
    $22.5 million or 15.2% of total revenue. Gross profit or
    gross margin for the year ended December 31, 2002 included
    restructuring provision for excess and obsolete inventory of
    $12.7 million or 8.7% of total revenue.                                                                                                                                                                                                                                                                                                                                                                                          

28



---



##### Table of Contents



Excluding royalty charges and the restructuring
provision for excess and obsolete inventory, gross profit or
gross margin declined by $1.0 million or 1.8% from
$61.0 million or 42.2% in 2002 to $60.0 million or
40.4% in 2003, primarily attributable to the increase in WLAN
product sales in 2003, as WLAN products generally carry lower
gross margins than WWAN product sales.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Days sales outstanding, or DSOs, year over year
    improved from 77 days in 2002 to 36 days in 2003,
    contributing in large part to the decrease in accounts
    receivable from $30.5 million at December 31, 2002 to
    $14.0 million at December 31, 2003. Managements
    focus on improved collections primarily in the second half of
    2003 resulted in DSO improvements. Quarterly DSOs in 2003 were
    77, 71, 45 and 33 days in the first, second, third and
    fourth quarters, respectively.                                                            
|
| |  | Inventory decreased from $36.8 million in
    2002 to $19.9 million in 2003. Days of inventory improved
    from 156 days to 77 days from the fourth quarter of
    2002 to the fourth quarter of 2003, primarily attributable to
    our efforts to improve supply chain management and forecasting.                                                                                                                                                                                                                                                                         
|
| |  | Combined research and development and selling,
    general and administrative expenses (Operating
    Costs) improved from $78.7 million in 2002 to
    $73.7 million, primarily attributable to our restructuring
    activities and cost reduction efforts. These operational
    activities have shown tangible financial results throughout the
    year as Operating Costs have declined each quarter. Operating
    Costs were $20.0 million, $18.7 million,
    $18.1 million, and $16.9 million for the first,
    second, third, and fourth quarters, respectively.

Critical Accounting Policies, Judgments and
Estimates

Our discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates,
including those related to customer programs and incentives,
product returns, bad debts, inventories, equity investments,
goodwill, intangible assets, income taxes, financing operations,
warranty obligations, excess component order cancellation costs,
restructuring, long-term service contracts, pensions and other
post-retirement benefits, and contingencies and litigation. We
base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.

We believe the following critical accounting
policies affect our more significant judgments and estimates
used in the preparation of our financial statements.



| |                    
| | -------------------
| | Revenue Recognition

Product revenue is generally recognized upon
shipment when persuasive evidence of an arrangement exists, the
price is fixed or determinable, and collectibility is reasonably
assured. A provision for estimated future sales return and
warranty costs is recorded at the time revenue is recognized.
Proxim has no obligation to provide any modification or
customization upgrades, enhancements or other post-sale customer
support. Proxim grants certain distributors limited rights of
return and price protection on unsold products. Product revenue
on shipments to distributors, which have rights of return and
price protection, is deferred until shipment to end customers by
the distributors.

Effective June 29, 2002, we began to
recognize sales of our WWAN products to distributors with rights
of return upon shipment by the distributors to the end user
customer. Prior to June 29, 2002, we recognized revenue for
sales of WWAN products to distributors with rights of return
upon shipment to the distributor and provided reserves for the
estimated amount of product returns at the time the revenue was
recognized. The combination of the changes resulting from the
then proposed acquisition of the Agere Systems 802.11 WLAN

29



---



##### Table of Contents



business and the adoption of one uniform method
was consistent with our plans to sell bundled and integrated
WLAN and WWAN products. This change in accounting methodology
was treated as a change in estimate, and was made on a
prospective basis starting in the third quarter of 2002.
Deferred gross profit on these distributors sales at
December 31, 2003 was $3.9 million. In addition to the
deferral of product revenue identified below, we reported
accounts receivable net of deferred revenue and carried the
value of the related products as consigned inventory. As of
December 31, 2003, accounts receivable was reduced by
$16.5 million to $14.0 million and we recorded
inventory consigned to customers of $6.7 million which
increased total inventory to $19.9 million.


Revenue from services, such as pre-installation
diagnostic testing and product repair services, is recognized
over the period for which the services are performed, which is
typically less than one month. Revenue from enhanced service
contracts is recognized over the contract period, which ranges
from one to three years.



| |                                                           
| | ----------------------------------------------------------
| | Allowance for Doubtful Accounts, Returns
    and Discounts

We record estimated reductions to revenue for
sales return, customer programs and incentive offerings
including special pricing agreements, price protection and
promotions. If market conditions were to decline, we may take
actions to increase customer incentive offerings, possibly
resulting in an incremental reduction of revenue at the time the
incentive is offered.

We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition
of our customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be
required.



| |                   
| | ------------------
| | Warranty Provision

We provide for the estimated cost of product
warranties at the time revenue is recognized. While we engage in
extensive product quality programs and processes, including
actively monitoring and evaluating the quality of our component
suppliers, our warranty obligation is affected by product
failure rates and material usage and service delivery costs
incurred in correcting a product failure. Should actual product
failure rates, material usage or service delivery costs differ
from our estimates, revisions to the estimated warranty
liability would be required.



| |                         
| | ------------------------
| | Valuation of Inventories

We write down our inventory for estimated excess
and obsolete or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value
based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than
those projected by management, additional inventory write-downs,
including adverse purchase order commitments to our vendors, may
be required.



| |                        
| | -----------------------
| | Valuation of Investment

We hold an investment in a company having
operations and technology within our strategic focus. We record
an investment impairment charge when we believe an investment
has experienced a decline in value that is other than temporary.
Future adverse changes in market conditions or poor operating
results of underlying investments could result in losses or an
inability to recover the carrying value of the investments that
may not be reflected in an investments current carrying
value, thereby possibly requiring an impairment charge in the
future.



| |                                     
| | ------------------------------------
| | Valuation of Deferred Tax
    Assets

We record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not
to be realized. While we have considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event we
were to determine that we

30



---



##### Table of Contents



would be able to realize our deferred tax assets
in the future in excess of our recorded amount, an adjustment to
the deferred tax asset would increase income in the period such
determination was made. Likewise, should we determine that we
would not be able to realize all or part of our net deferred tax
asset in the future, an adjustment to the deferred tax asset
would be charged to income in the period such determination was
made.




| |                                                                         
| | ------------------------------------------------------------------------
| | Restructuring Costs and Impairment of
    Goodwill and Intangible Assets

In response to changes in industry and market
conditions, we may be required to strategically realign our
resources and consider restructuring, disposing of, or
otherwise, exiting businesses. Any decision to limit investment
in or to dispose of or otherwise exit businesses may result in
the recording of special charges, such as inventory and
technology related write-offs and workforce reduction costs,
charges relating to consolidation of excess facilities, or
claims from third parties who were resellers or users of
discontinued products. Estimates relating to the liabilities for
excess facilities are affected by changes in real estate market
conditions. Estimates with respect to the useful life or
ultimate recoverability of our carrying basis of assets,
including purchased intangible assets, could change as a result
of such assessments and decisions. Additionally, we are required
to perform goodwill impairment tests on an annual basis and
between annual tests in certain circumstances. There can be no
assurance that future goodwill impairment tests will not result
in a charge to earnings.



| |                                             
| | --------------------------------------------
| | Patent Litigation and Infringement
    Costs

We have been involved in litigation in the normal
course of business. The results of any litigation matter are
inherently uncertain. In the event of any adverse decision in
litigation with third parties that was pending as of
December 31, 2003 and those that could arise in the future
with respect to patents, other intellectual property rights
relevant to our products and defective products, we could be
required to pay damages and other expenses, to cease the
manufacture, use and sale of infringing products, to expand
significant resources to develop non-infringing technology, or
to obtain licenses to the infringing technology. These charges
may occur in any particular quarter resulting in variability in
our operating results.

31



---



##### Table of Contents



Results of Operations

The following table provides statements of
operations data as a percentage of revenue for the periods
presented:

|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |      |       |   
|------------------------------------------------------------- | -------------------------------------------------------- | -------------------------------------------- | ----- | ---- | ----- | ---- | ----- | ---- | ------ | -- | ----- | ---- | ----- | --
|                                                              |                                                          |                                             
|                                                              |                                                          | Year Ended December 31,                     
|                                                              |                                                          |                                             
|                                                              |                                                          | 2003                                         |       | 2002 |       | 2001
|                                                              |                                                          |                                              |       |      |       |     
|Total revenue, net                                            |                                                          |                                              | 100.0 | %    |       |      | 100.0 | %    |        |    | 100.0 | %   
|Cost of revenue                                               |                                                          |                                              | 59.6  |      |       |      | 57.9  |      |        |    | 52.9  |     
|Royalty charges                                               |                                                          |                                              | 16.1  |      |       |      |      |      |        |    |      |     
|Restructuring provision for excess and obsolete
    inventory |                                                          |                                              | 15.2  |      |       |      | 8.7   |      |        |    |      |     
|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |     
|                                                              |                                                          | Gross margin                                 |       |      | 9.1   |      |       |      | 33.4   |    |       |      | 47.1  |   
|Operating expenses:                                           |                                                          |                                              |       |      |       |      |       |      |        |    |       |     
|                                                              | Research and development                                 |                                              |       | 16.3 |       |      |       | 20.2 |        |    |       | 18.1 |      
|                                                              | Selling, general and administrative                      |                                              |       | 33.3 |       |      |       | 34.2 |        |    |       | 36.5 |      
|                                                              | Legal expense for certain litigation                     |                                              |       | 4.6  |       |      |       |     |        |    |       |     |      
|                                                              | Amortization of goodwill and other intangible
    assets |                                              |       | 14.5 |       |      |       | 8.6  |        |    |       | 5.1  |      
|                                                              | Amortization of deferred stock compensation              |                                              |       |     |       |      |       | 0.6  |        |    |       | 4.9  |      
|                                                              | Impairment of goodwill and intangible assets             |                                              |       |     |       |      |       | 89.3 |        |    |       | 4.1  |      
|                                                              | Impairment of loan to officer                            |                                              |       |     |       |      |       | 3.1  |        |    |       |     |      
|                                                              | Bad debt expense                                         |                                              |       | 1.6  |       |      |       |     |        |    |       |     |      
|                                                              | Restructuring charges (benefit)                          |                                              |       | 4.9  |       |      |       | 29.8 |        |    |       | 1.7  |      
|                                                              | In-process research and development                      |                                              |       |     |       |      |       | 11.1 |        |    |       | 6.1  |      
|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |     
|                                                              |                                                          | Total operating expenses                     |       |      | 75.2  |      |       |      | 196.9  |    |       |      | 76.5  |   
|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |     
|                                                              |                                                          | Loss from operations                         |       |      | (66.1 | )    |       |      | (163.5 | )  |       |      | (29.4 | ) 
|Interest and other expense, net                               |                                                          |                                              | (4.8  | )    |       |      | (0.1  | )    |        |    | 1.3   |     
|Loss on early extinguishment of debt                          |                                                          |                                              | (15.0 | )    |       |      |      |      |        |    |      |     
|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |     
|                                                              |                                                          | Loss before income taxes                     |       |      | (85.9 | )    |       |      | (163.6 | )  |       |      | (28.1 | ) 
|Income tax provision                                          |                                                          |                                              |      |      |       |      | 2.2   |      |        |    | (3.9  | )   
|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |     
|                                                              |                                                          | Net loss                                     |       |      | (85.9 | )    |       |      | (165.8 | )  |       |      | (24.2 | ) 
|Deemed Series A preferred stock dividend                      |                                                          |                                              |      |      |       |      | (1.9  | )    |        |    |      |     
|Accretion of Series A preferred stock
    obligations         |                                                          |                                              | (4.2  | )    |       |      | (1.3  | )    |        |    |      |     
|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |     
|                                                              |                                                          | Net loss attributable to common stockholders |       |      | (90.1 | )%   |       |      | (169.0 | )% |       |      | (24.2 | )%
|                                                              |                                                          |                                              |       |      |       |      |       |      |        |    |       |     



| |                                                         
| | --------------------------------------------------------
| | Comparison of Years Ended December 31,
    2002 and 2003

Total revenue, net.

Effective June 29, 2002, we began to
recognize sales of our WWAN products to distributors with rights
of return upon shipment by the distributors to the end user
customer. Prior to June 29, 2002, we recognized revenue for
sales of WWAN products to distributors with rights of return
upon shipment to the distributor and provided reserves for the
estimated amount of product returns. The combination of the
changes resulting from the acquisition of the Agere Systems
802.11 WLAN business and the adoption of one uniform method
is consistent with our plans to sell bundled and integrated WLAN
and WWAN products. This change in accounting methodology was
treated as a change in estimate, and was made on a prospective
basis starting in the third quarter of 2002. Revenue from
services, such as pre-installation diagnostic testing and
product repair services, is recognized over the period for which
the services are performed, which is typically less than one
month. Revenue from product rentals is recognized over the
period of the rental.

32



---



##### Table of Contents



Revenue consists of product revenues, reduced by
estimated sales returns and allowances for price protection.
Provisions for estimated sales returns and allowances, which are
based on historical trends, contractual terms and other
available information, are recorded at the time revenue is
recognized.

We classify our products into two product lines:
Wireless Wide Area Network, or WWAN, product line, and; Wireless
Local Area Network, or WLAN, product line. The WWAN product line
includes point-to-point Lynx and Tsunami products and
point-to-multipoint Tsunami products. The WLAN product line
includes 802.11a and ORiNOCO products. Prior to the
March 26, 2002 merger with Proxim, Inc., we did not
have a WLAN product line. Historical WLAN revenue prior to
March 26, 2002 of the former Proxim, Inc. and prior to
August 5, 2002 for the ORiNOCO products acquired from Agere
are not reported in the table below. Revenue information by
product line is as follows (in thousands):

|                     |               |                         |        |         |  |   |        |         | 
|-------------------- | ------------- | ----------------------- | ------ | ------- |  | - | ------ | ------- | 
|                     |               |                        
|                     |               | Year Ended December 31,
|                     |               |                        
|Product Line         |               | 2003                    |        | 2002   
|                     |               |                         |        |        
|WWAN product revenue |               | $                       | 74,658 |         |  | $ | 83,799 |        
|WLAN product revenue |               |                         | 67,808 |         |  |   | 60,861 |        
|WLAN license revenue |               |                         | 6,000  |         |  |   |       |        
|                     |               |                         |        |         |  |   |        |        
|                     | Total revenue |                         | $      | 148,466 |  |   | $      | 144,660 | 
|                     |               |                         |        |         |  |   |        |        

One distributor, Tech Data Corporation, accounted
for 13.9% of total revenue during the year ended
December 31, 2003. Another distributor, Comstor, accounted
for 23.0% of total revenue during the year ended
December 31, 2002.

Total revenue increased 2.6% from
$144.7 million in 2002 to $148.5 million in 2003.
Total revenue included product revenue and a one-time patent
license fee of $6.0 million recorded in the first quarter
of 2003, resulting from the patent litigation settlement with
Intersil, as described in Note 20 to the consolidated
financial statements. In addition to the license revenue of
$6.0 million in 2003, total revenue increased primarily due
to the increase in WLAN product revenue attributable in part to
the acquisition of the ORiNOCO product line of Agere Systems on
August 5, 2002, resulting in the contribution of that
product line revenue for the full year in 2003 compared to five
months in 2002, and in part to the overall growth in Wi-Fi
spending in 2003. The increase in WLAN product revenue was
partially offset by a decrease in WWAN product revenue primarily
attributable to the continued weakness in telecom spending in
2003.

Cost of revenue.Cost of revenue consists primarily of outsourced manufacturing
costs, component costs, labor and overhead costs, costs of
acquiring finished parts from original equipment manufacturers
and original design manufacturers, customer service and warranty
costs. We currently outsource the majority of our manufacturing
and supply chain management to a limited number of independent
contract manufacturers, who obtain components for our products
from suppliers. Accordingly, a significant portion of our cost
of revenue consists of payments to these contract manufacturers
and component suppliers. The remainder of our cost of revenue is
related to our in-house manufacturing operations, which consist
primarily of quality control, final assembly, testing and
product integration. We expect to realize lower per unit product
costs as we continue to outsource more of our in-house
manufacturing as well as have our products produced at lower
cost off-shore locations. However, we cannot assure you when or
if cost reductions will occur. The failure to achieve these cost
reductions could materially adversely affect our gross margins
and operating results.

Cost of revenue increased 5.7% from
$83.7 million in 2002 to $88.5 million in 2003. As a
percentage of revenue, cost of revenue increased from 57.8% in
2002 to 59.6% in 2003. The increase in cost of revenue as a
percentage of revenue was primarily attributable to the increase
in WLAN product sales in 2003, as WLAN products generally carry
lower gross margins as a percentage of revenue than WWAN
products.

Royalty Charges.On
September 15, 2003, we announced that a jury had rendered a
verdict in the first phase of the patent infringement suit with
Symbol. On Symbols claims of patent infringement, the jury
found that certain of our products infringe two of Symbols
patents and assessed a 6% royalty on the revenue of relevant
products. While the actual amount of past royalties due has not
been finally determined, we recorded an accrual for estimated
potential royalty charges of $22.9 million and
$2.9 million for interest during the third

33



---



##### Table of Contents



quarter of 2003 and an accrual for estimated
potential royalty charges of $1.0 million and $87,000 for
interest during the fourth quarter of 2003. See Note 20 to
the consolidated financial statements for further description of
the Symbol litigation.


Restructuring Provision for Excess and
Obsolete Inventory.During the year
ended December 31, 2003, we recorded a $22.5 million
provision for excess and obsolete inventory as part of our
restructuring activities. To mitigate the component supply
constraints that have existed in the past, we had built
inventory levels for certain components with long lead times and
entered into longer-term commitments for certain components. The
excess inventory charges were due to the following factors:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | A sudden and significant decrease in demand for
    certain Lynx and Tsunami license-exempt point-to-point, 802.11a
    and Harmony products;
|
| |  | Notification from customers that they would not
    be ordering as much as they had previously indicated;                                    
|
| |  | Continued decline in the demand for fixed
    wireless solutions due to the worldwide slowdown in the telecom
    industry;                  
|
| |  | Continued increase in competition for wireless
    networking products, particularly related to home networking and
    enterprise LANs; and 
|
| |  | Managements strategy to discontinue
    products, and in certain cases replace those products with newer
    or redesigned products.        

Due to these factors, inventory levels exceeded
our requirements based on current 12-month sales forecasts. The
additional excess and obsolete inventory charge was calculated
based on the inventory levels in excess of the estimated
12-month demand for each specific product family. We do not
currently anticipate that the excess inventory subject to this
reserve will be used at a later date based on our current
12-month demand forecast. We use a 12-month demand forecast
because the wireless communications industry is characterized by
rapid technological changes such that if we have not sold a
product after a 12-month period it is unlikely that the product
will be sold. The following is a summary of the movements in the
reserve for excess and obsolete inventory during the year ended
December 31, 2003 (in thousands):

|                                                         |  |   |         |  
|-------------------------------------------------------- |  | - | ------- | -
|Balance as of December 31, 2002                          |  | $ | 32,845  |  
|Additional reserve for excess and obsolete
    inventory |  |   | 22,549  |  
|Inventory scrapped                                       |  |   | (50,322 | )
|                                                         |  |   |         |  
|Balance as of December 31, 2003                          |  | $ | 5,072   |  
|                                                         |  |   |         |  

Research and
development.Research and development
expenses consist primarily of salaries and related personnel
expenses, prototype development expenses, consultant fees and
allocated overhead related to the design, development, testing
and enhancement of our products and underlying technologies. We
expense all research and development expenses as incurred.

Research and development expenses decreased 16.9%
from $29.2 million in 2002 to $24.2 million in 2003.
As a percentage of revenue, research and development expense
decreased from 20.2% in 2002 to 16.3% in 2003. The decrease in
research and development expense in total dollars and as a
percentage of revenue was primarily due to the reduction in
workforce implemented in the second quarter of 2003, resulting
in decreased personnel and related expenses in the final three
quarters of 2003 compared to those expenses in the same period
of 2002. These expense reductions were partially offset by
increased personnel costs in the first quarter of 2003 compared
to those expenses in the first quarter of 2002, due to employees
added as a result of both the Proxim, Inc. merger and the
acquisition of the 802.11 WLAN systems business of Agere.

Selling, general and
administrative.Selling, general and
administrative expenses consist primarily of salaries,
commissions, product marketing, sales support functions,
advertising, trade show and other promotional expenses and
allocated overhead. Selling, general and administrative expenses
remained relatively unchanged from 2002 to 2003. Selling,
general and administrative expenses increased from the first
half of 2002 to the first half of 2003 primarily due to
increases in sales and marketing personnel expenses, due to

34



---



##### Table of Contents



employees added as a result of both the
Proxim, Inc. merger and the acquisition of the 802.11 WLAN
systems business of Agere. Comparative increases in expenses in
the first half of 2003 were offset by decreased expenses in the
second half of 2003 compared to those in the second half of
2002, primarily due to the workforce reduction implemented in
the second quarter of 2003.


Legal expense for certain
litigation.During the year ended
December 31, 2003, we incurred litigation expense of
$6.8 million primarily in connection with our litigation
with Symbol Technologies. Please refer to Item 3, Legal
Proceedings for a description of this litigation.

Amortization of goodwill and other intangible
assets.Amortization of goodwill and
other intangible assets increased from $12.5 million in
2002 to $21.6 million in 2003. Amortization of goodwill and
other intangible assets increased primarily due to the
intangible assets acquired from both the merger with
Proxim, Inc. on March 26, 2002 and the acquisition of
the 802.11 WLAN systems business of Agere on August 5, 2002.

Amortization of deferred stock
compensation.For the year ended
December 31, 2002, we recorded amortization of deferred
stock compensation of $855,000 in connection with deferred stock
compensation previously recorded for the sale of stock and
issuance of options at prices deemed to be below fair market
value. As of December 31, 2002, deferred stock compensation
was fully amortized.

Impairment of goodwill and intangible
assets.In December 2002, due to the
significant decline in forecasted revenue and the cash flows
therefrom, we made a complete assessment of the carrying value
of all goodwill and other intangibles assets in accordance with
SFAS No. 142. First, we determined the fair value of
our equity to be less than the carrying value of goodwill. As
such, an impairment charge was applicable in accordance with
SFAS No. 142 as of December 31, 2002. Then we
quantified the goodwill impairment as the amount by which the
carrying amount of the asset exceeded the estimated fair value
of the asset. The carrying value of goodwill totaling
$138.8 million as of December 31, 2002 exceeded the
estimated fair value of $9.7 million and, accordingly, we
took a charge for the impairment of goodwill of
$129.1 million. In December 2003, we performed our annual
impairment test of goodwill and determined that no further
impairment charge was required.

Impairment of loan to
officer.Prior to 2002,
Proxim, Inc. had guaranteed up to $5 million of
obligations of a former officer of the Company, with respect to
a margin loan with an investment bank. We assumed the guaranty
in the merger with Proxim, Inc. and on October 15,
2002, the investment bank called our guaranty of
$5 million. We continue to seek repayment from the former
officer under a Reimbursement and Security Agreement. In this
regard, in January 2003, the former officer made a cash payment
of $0.5 million to us with the proceeds of a second
mortgage on his home. We assessed the recoverability of the
remaining balance of the loan with respect to the former
officers current financial position and recorded an
impairment charge of $4.5 million in the fourth quarter of
2002. This impairment charge does not constitute forgiveness of
the former officers indebtedness to us. Future payments by
the former officer under the Reimbursement and Security
Agreement will be recorded as income in the period cash is
received.

Bad debt expense.During the year ended December 31, 2003, we recorded
$2.3 million of bad debt expense in connection with a
customers accounts receivable deemed to be uncollectible.
These uncollectible accounts relate to products we had
previously sold to the customer and that were subsequently
discontinued.

Restructuring charges (benefit) for severance
and excess facilities.During the year
ended December 31, 2003, we recorded restructuring charges
of $7.3 million, consisting of $24.8 million of cash
provisions and $3.3 million of non-cash provisions for
abandoned property and equipment, partially offset by a
$20.8 million net reversal of restructuring accruals. The
$24.8 million of cash provisions consisted of
$12.7 million of operating lease commitments, less
estimated future sublease receipts, and exit costs of certain
closed facilities, $9.1 million of severance payments for
111 employees, $0.6 million of consulting fees, and
$2.4 million of project commitments. The $20.8 million
net reversal of restructuring accruals represented the reversal
of $27.8 million of previously recorded lease obligation
restructuring reserves, partially offset by the write-down of
fair value of an asset held for sale of $6.9 million. We
reversed a total of $27.8 million of restructuring
reserves, of which $26.8 million related to buying and
selling a leased property in Sunnyvale, California during

35



---



##### Table of Contents



the fourth quarter of 2003. We reversed an
additional $1.0 million of previously recorded
restructuring reserves related to another building lease in
Sunnyvale as a result of a reduction of the lease commitments
agreed to with the lessor.


The following table summarizes the restructuring
activities during the years ended December 31, 2002 and
2003 (in thousands):

|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------- |  | --------- | ------ | ---------- |  | ---------- | ------- | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                               |  |           |        |            |  | Asset Held |         |       |  |      
|                                               |  | Severance |        | Facilities |  | for Sale   |         | Other |  | Total
|                                               |  |           |        |            |  |            |         |       |  |      
|Balance as of December 31, 2001                |  | $         | 198    |            |  | $          | 52      |       |  | $     |       |   |  | $ | 180    |   |  | $ | 430     |  
|Reclassifications among categories             |  |           |       |            |  |            | 180     |       |  |       |       |   |  |   | (180   | ) |  |   |        |  
|Balance acquired with
    Proxim, Inc.         |  |           |       |            |  |            | 1,066   |       |  |       |       |   |  |   |       |   |  |   | 1,066   |  
|Provision charged to operations                |  |           | 7,395  |            |  |            | 33,080  |       |  |       |       |   |  |   | 2,702  |   |  |   | 43,177  |  
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (2,405 | ) |  |   | (2,405  | )
|Cash payments                                  |  |           | (7,593 | )          |  |            | (3,928  | )     |  |       |       |   |  |   | (297   | ) |  |   | (11,818 | )
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2002                |  |           |       |            |  |            | 30,450  |       |  |       |       |   |  |   |       |   |  |   | 30,450  |  
|Provision charged to operations                |  |           | 9,071  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 32,643  |  
|Reversal of previously recorded provision      |  |           |       |            |  |            | (27,764 | )     |  |       |       |   |  |   |       |   |  |   | (27,764 | )
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                                  |  |           | (5,451 | )          |  |            | (3,845  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (19,262 | )
|Proceeds from sale of asset held for sale, net |  |           |       |            |  |            |        |       |  |       | 3,041  |   |  |   |       |   |  |   | 3,041   |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                |  | $         | 3,620  |            |  | $          | 11,584  |       |  | $     |       |   |  | $ | 600    |   |  | $ | 15,804  |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  

The restructuring reserves are presented on the
balance sheet as follows (in thousands):

|                        |           |              |        |       |  |   |        |        | 
|----------------------- | --------- | ------------ | ------ | ----- |  | - | ------ | ------ | 
|                        |           |             
|                        |           | December 31,
|                        |           |             
|                        |           | 2003         |        | 2002 
|                        |           |              |        |      
|Restructuring accruals: |           |              |        |       |  |   |        |       
|                        | Current   |              | $      | 7,144 |  |   | $      | 3,871  | 
|                        | Long-term |              |        | 8,660 |  |   |        | 26,579 | 
|                        |           |              |        |       |  |   |        |       
|Total                   |           | $            | 15,804 |       |  | $ | 30,450 |       
|                        |           |              |        |       |  |   |        |       

Purchased in-process research and
development.Purchased in-process
research and development or IPR&D consists primarily of
acquired technology that has not reached technological
feasibility and had no alternative future use as of the date of
acquisition. See Note 6 to the consolidated financial
statements for additional information regarding the IPR&D
projects.

The $16.1 million expensed to purchased
in-process research and development in 2002 related to next
generation Enterprise Access Points, Radio Backbone Systems,
Broadband Gateways and Network Management products acquired in
the acquisition of Ageres 802.11 WLAN systems business,
technology for next generation ASICs acquired in the nBand
acquisition and 802.11a and HomeRF 2.0 wireless networking
products acquired related to the Proxim, Inc. merger.

No purchased in-process research and development
charge was recorded in the year ended December 31, 2003.

Interest income (expense),
net.Interest income (expense), net
increased from expense of $85,000 in 2002 to expense of
$7.3 million in 2003. The increase in interest expense is
mainly attributable to interest charges recorded in connection
with the estimated, potential royalty charges in connection with
our patent infringement litigation with Symbol, the promissory
notes issued in July and December 2003, and the deferred
financing costs, together with a decrease in interest income as
a result of lower applicable return rates.

36



---



##### Table of Contents



Loss on early extinguishment of
debt.As fully described in
Note 1 to the consolidated financial statements, upon
stockholders approval in December 2003, the convertible
promissory notes of $30 million were modified as they now
include (1) warrants to purchase 24 million shares of
common stock; and (2) a right to convert to Series B
preferred stock at the option of the investors. We determined
under Emerging Issues Task Force 96-19, Debtors
Accounting for a Modification or Exchange of Debt
Instruments, that the modification was made with
substantially different terms and a debt extinguishment is
resulted. Accordingly, the December note instrument was recorded
at fair value and that amount was used to determine the debt
extinguishment loss to be recognized and the effective rate of
the new instrument. The warrants were also recorded at fair
value (See Note 17 to the consolidated financial statements
for details). A loss of debt extinguishment of
$22.2 million was recorded in the fourth quarter of 2003.

Income tax provision
(benefit).The income tax provision
for 2002 was primarily due to establishing a full valuation
allowance to offset deferred tax assets brought forward from
December 31, 2001. We were able to carry back certain
losses to prior years, and claim income tax refunds totaling
$10.4 million, of which $9.6 million has been received
through September 26, 2003. The realization of the
remaining deferred tax assets will be dependent on us generating
taxable income in the future. As a result of the operating
losses incurred in recent periods, we have determined that it is
more likely than not that these deferred tax assets will not be
realized. Accordingly, we have established a full valuation
allowance of approximately $11.3 million, of which
$1.3 million was recorded in additional paid in capital as
the related asset was related to the recapitalization in 1999.

Deemed Series A preferred stock
dividend.In August 2002, in
connection with the acquisition of the 802.11 WLAN systems
business of Agere Systems, Inc., Warburg Pincus Private
Equity VIII, L.P., Broadview Capital Partners L.P. and
affiliated entities agreed to collectively invest
$75 million in us. These investors received
1,640,000 shares of Series A Mandatorily Redeemable
Convertible Preferred Stock (Series A Preferred
Stock) in the amount of approximately $41 million,
with a conversion price of approximately $3.06 per share. Please
refer to Note 16 to the consolidated financial statements
for a further description of the Series A Preferred Stock.
At the time of the conversion in August 2002, a deemed preferred
stock dividend representing the beneficial conversion feature of
the Series A Preferred Stock of $2.7 million was also
recorded to increase the loss attributable to holders of our
common stock.

Accretion of Series A preferred stock
redemption obligations.The accretion
of Series A preferred stock represents the quarterly
adjustments to the carrying value of the Series A preferred
stock, on an effective-interest basis, so that the carrying
value will equal the redemption amount at the earliest
redemption date. The accretion was recorded to increase the net
loss attributable to common stockholders. The accretion
increased from $1.9 million to $6.3 million from the
year ended December 31, 2002 to 2003, primarily because the
amount represents four months of accretion in 2002 starting in
August 2002 and a full year of accretion in 2003.

Comparison of
Years Ended December 31, 2001 and 2002

Revenue, net.Revenue information by product line is as follows (in thousands):

|             |               |                         |        |         |  |   |         |         | 
|------------ | ------------- | ----------------------- | ------ | ------- |  | - | ------- | ------- | 
|             |               |                        
|             |               | Year Ended December 31,
|             |               |                        
|Product Line |               | 2002                    |        | 2001   
|             |               |                         |        |        
|WWAN         |               | $                       | 83,799 |         |  | $ | 105,730 |        
|WLAN         |               |                         | 60,861 |         |  |   |        |        
|             |               |                         |        |         |  |   |         |        
|             | Total revenue |                         | $      | 144,660 |  |   | $       | 105,730 | 
|             |               |                         |        |         |  |   |         |        

Three distributors Comstor, Somera
Communications, Inc. and Tessco Technologies accounted for
29.4%, 11.4% and 10.5%, respectively, of total revenue for the
year ended December 31, 2001. One distributor Comstor
accounted for 23.0% of total revenue for the year ended
December 31, 2002.

Revenue increased 36.9% from $105.7 million
in 2001 to $144.7 million in 2002. Revenue increased
primarily due to the contribution of sales of WLAN products
totaling $60.9 million acquired in both the

37



---



##### Table of Contents



merger with Proxim, Inc. on March 26,
2002 and the acquisition of the 802.11 systems business from
Agere on August 5, 2002. This increase was partially offset
by a decrease in WWAN product sales. The decrease in WWAN
product sales was attributable, in part, to the adoption of a
uniform sell-through revenue recognition methodology for
products that are sold through distribution channels with rights
of return. This accounting methodology change was implemented on
a prospective basis effective June 29, 2002, and resulted
in the deferral of $14.7 million of revenue from WWAN
products shipped to distributors as of December 31, 2002,
that were not sold through to end customers.


Cost of revenue.Cost of revenue increased 49.7% from $55.9 million in 2001
to $83.7 million in 2002. As a percentage of revenue, cost
of revenue increased from 52.9% in 2001 to 57.8% in 2002. The
increase in cost of revenue was primarily attributable to
increased revenue. The increase in cost of revenue as a
percentage of revenue was primarily attributable to the
contribution of sales from WLAN products acquired in both the
merger with Proxim, Inc. and the acquisition of the 802.11
WLAN systems business from Agere Systems. WLAN products
generally carry lower gross margins as a percentage of revenue
than WWAN products.

Restructuring provision for excess and
obsolete inventory.We recorded a
provision for excess and obsolete inventory, including purchase
commitments, totaling $12.7 million during 2002 as part of
our restructuring charge, of which $7.7 million related to
excess and obsolete inventory and $5.0 million related to
purchase commitments. To mitigate the component supply
constraints that have existed in the past, we built inventory
levels for certain components with long lead times and entered
into longer-term commitments for certain components. The excess
inventory charges were due to the following factors:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A sudden and significant decrease in demand for
    certain Lynx and Tsunami license-exempt point-to-point products;                                                                          
|
| |  | Notification from customers that they would not
    be ordering as much as they had previously indicated;                                                                                     
|
| |  | Managements strategy to discontinue the
    Lynx and Tsunami point-to-point licensed products in order to
    concentrate on the license-exempt products; and                                
|
| |  | Managements strategy to discontinue certain
    Lynx and Tsunami license-exempt products in order to concentrate
    on selling next generation Lynx and Tsunami license-exempt
    products.

Due to these factors, inventory levels exceeded
our requirements based on current 12-month sales forecasts. The
additional excess and obsolete inventory charge was calculated
based on the inventory levels in excess of the estimated
12-month demand for each specific product family. We do not
currently anticipate that the excess inventory subject to this
reserve will be used at a later date based on our current
12-month demand forecast. We use a 12-month demand forecast
because the wireless communications industry is characterized by
rapid technological changes such that if we have not sold a
product after a 12-month period it is unlikely that the product
will be sold. The following is a summary of the movements in the
reserve for excess and obsolete inventory during 2002:

|                                                         |  |   |         |  
|-------------------------------------------------------- |  | - | ------- | -
|Balance as of December 31, 2001                          |  | $ | 3,021   |  
|Additional reserve for excess and obsolete
    inventory |  |   | 7,686   |  
|Balance acquired with
    Proxim, Inc.                   |  |   | 45,114  |  
|Inventory scrapped                                       |  |   | (22,976 | )
|                                                         |  |   |         |  
|Balance as of December 31, 2002                          |  | $ | 32,845  |  
|                                                         |  |   |         |  

Research and
development.Research and development
expenses increased 52.6% from $19.1 million in 2001 to
$29.2 million in 2002. The increase in research and
development expense was primarily attributable to the cost of
increased personnel, including employees added as a result of
both the Proxim, Inc. merger and the acquisition of the
802.11 WLAN systems business of Agere, prototype spending for
the development of new products and enhancements to existing
products. As a percentage of revenue, research and development
expenses increased from 18.1% in 2001 to 20.2% in 2002 primarily
due to increased personnel expenses.

38



---



##### Table of Contents



Selling, general and
administrative.Selling, general and
administrative expenses increased 28.2% from $38.6 million
in 2001 to $49.5 million in 2002. The increase in selling,
general and administrative expense was primarily attributable to
increases in sales and marketing personnel expenses, including
employees added as a result of both the Proxim, Inc. merger
and the acquisition of the 802.11 WLAN systems business of
Agere, advertising, tradeshow, and public relations expenses. As
a percentage of revenue, selling, general and administrative
expenses decreased from 36.5% in 2001 to 34.2% in 2002. The
percentage decrease was primarily due to increased revenue and
efforts to control costs, including the reductions of headcount
and discretionary spending.

Amortization of goodwill and other intangible
assets.Amortization of goodwill and
other intangible assets increased from $5.4 million in 2001
to $12.5 million in 2002. Amortization of goodwill and
other intangible assets increased primarily due to the increased
intangible assets from both the merger with Proxim, Inc. on
March 26, 2002 and the acquisition of the 802.11 WLAN
systems business of Agere offset by the cessation of
amortization of goodwill arose from acquisitions completed prior
to June 30, 2001 subsequent to the adoption of
SFAS No. 142 beginning on January 1, 2002.

Amortization of deferred stock
compensation.Amortization of deferred
stock compensation decreased from $5.2 million in 2001 to
$0.9 million in 2002. Amortization of deferred stock
compensation decreased primarily due to the issuance of stock
options at fair value since the completion of our initial public
offering in 2000.

Impairment of goodwill and intangible
assets.In December 2002, due to the
recent significant decline in forecasted revenue and the cash
flows therefrom, we made a complete assessment of the carrying
value of all goodwill and other intangibles assets in accordance
with SFAS No. 142. First, we determined the fair value
of its equity to be less than the carrying value of goodwill. As
such, an impairment charge was applicable in accordance with
SFAS No. 142 as of December 31, 2002. Then we
quantified the goodwill impairment as the amount by which the
carrying amount of the asset exceeded the estimated fair value
of the asset. The carrying value of goodwill totaling
$138.8 million as of December 31, 2002 exceeded the
estimated fair value of $9.7 million and, accordingly, we
took a charge for the impairment of goodwill of
$129.1 million.

Impairment of loan to
officer.Prior to 2002,
Proxim, Inc. had guaranteed up to $5 million of
obligations of an officer of the Company, with respect to a
margin loan with an investment bank. We assumed the guaranty in
the merger with Proxim, Inc. and on October 15, 2002,
the investment bank called our guaranty of $5 million. We
continue to seek repayment from the officer under a
Reimbursement and Security Agreement. In this regard, in January
2003, the officer made a cash payment of $0.5 million to us
with the proceeds of a second mortgage on his home. We assessed
the recoverability of the remaining balance of the loan with
respect to the officers current financial position and
recorded an impairment charge of $4.5 million in the fourth
quarter of 2002. This impairment charge does not constitute
forgiveness of the officers indebtedness to us. Future
payments by the officer under the Reimbursement and Security
Agreement will be recorded as income in the period cash is
received.

Restructuring
charges.During 2002, we recorded
$43.2 million of restructuring charges, including
$35.4 million, $3.6 million, $2.3 million and
$1.9 million in the first, second, third and fourth
quarters of 2002, respectively, related to closure of certain
facilities, discontinued product lines and severance pay. The
charges included $40.8 million of cash provisions, which
included severance of $7.4 million for 194 employees,
$33.1 million related to excess facilities and for future
lease commitments and exit costs related to the closure of four
facilities, $0.3 related to consulting fees. The charge also
included $2.4 million of non-cash provisions related to
fixed assets that will no longer be used at the facilities.
During 2001, we recorded $1.8 million of restructuring
charges related to the closure of our former Ubiquity operations
and employee severance. The charges included $1.6 million
of cash provisions, which included severance of
$1.4 million for 26 employees and $0.2 million for
future lease commitments and exit costs related to the Petaluma
office facility. The charge also included $0.2 million of
non-cash provisions primarily related to fixed assets and other
assets that will no longer be used at the facility.

39



---



##### Table of Contents



The following table summarizes the restructuring
activity in 2001 and 2002 (in thousands):

|                                       |  |            |        |            |  |       |        |       |  |   |        |   |  |   |         |  
|-------------------------------------- |  | ---------- | ------ | ---------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                       |  | Severances |        | Facilities |  | Other |        | Total
|                                       |  |            |        |            |  |       |        |      
|Balance as of December 31, 2000        |  | $          |       |            |  | $     |       |       |  | $ |       |   |  | $ |        |  
|Provision charged to operations        |  |            | 1,382  |            |  |       | 208    |       |  |   | 226    |   |  |   | 1,816   |  
|Charges utilized                       |  |            | (1,184 | )          |  |       | (156   | )     |  |   | (46    | ) |  |   | (1,386  | )
|                                       |  |            |        |            |  |       |        |       |  |   |        |   |  |   |         |  
|Balance as of December 31, 2001        |  |            | 198    |            |  |       | 52     |       |  |   | 180    |   |  |   | 430     |  
|Reclassifications among categories     |  |            |       |            |  |       | 180    |       |  |   | (180   | ) |  |   |        |  
|Balance acquired with
    Proxim, Inc. |  |            |       |            |  |       | 1,066  |       |  |   |       |   |  |   | 1,066   |  
|Provision charged to operations        |  |            | 7,395  |            |  |       | 33,080 |       |  |   | 2,702  |   |  |   | 43,177  |  
|Charges utilized                       |  |            | (7,593 | )          |  |       | (3,928 | )     |  |   | (2,702 | ) |  |   | (14,223 | )
|                                       |  |            |        |            |  |       |        |       |  |   |        |   |  |   |         |  
|Balance as of December 31, 2002        |  | $          |       |            |  | $     | 30,450 |       |  | $ |       |   |  | $ | 30,450  |  
|                                       |  |            |        |            |  |       |        |       |  |   |        |   |  |   |         |  

In-process research and
development.Purchased in-process
research and development (IPR&D) consist
primarily of acquired technology that has not reached
technological feasibility and had no alternative future use as
of the date of acquisition. See Note 6 to the consolidated
financial statements for additional information regarding the
IPR&D projects.

The $16.1 million expensed to purchased
in-process research and development in 2002 related to next
generation Enterprise Access Points, Radio Backbone Systems,
Broadband Gateways and Network Management products acquired in
the acquisition of Ageres 802.11 WLAN systems business,
technology for next generation ASICs acquired in the nBand
acquisition and 802.11a and HomeRF 2.0 wireless networking
products acquired related to the Proxim, Inc. merger.

The $6.4 million expensed to purchased
in-process research and development in 2001 related to the
WirelessHome acquisition for point-to-multipoint technology.

Merger costs.In the
fourth quarter of 2000, we incurred $3.2 million of merger
costs in connection with the aborted acquisition of Adaptive
Broadband Corporation. Adaptive Broadband Corporation reimbursed
us $3.0 million of those costs. The additional
$0.2 million in 2000 was recorded in operating expenses.
The additional $30,000 in the first quarter of 2001 represented
additional merger costs recorded in operating expenses.

Interest income (expense),
net.Interest income (expense), net
decreased from income of $1.3 million in 2001 to expense of
$85,000 in 2002. The increase in interest expense is mainly
attributable to interest on the convertible promissory notes
issued in August 2002 and decreased interest income due to lower
applicable return rates on cash balances.

Income tax provision
(benefit).The income tax provision
for 2002 was primarily the result of establishing a full
valuation allowance in the first quarter of 2002 to offset
deferred tax assets brought forward from December 31, 2001.
In assessing our ability to realize deferred income tax assets,
we considered whether it is more likely than not that some or
all of the deferred tax assets will be realized. As a result of
the losses incurred, there is significant uncertainty, as to the
realizability of the deferred tax assets. Accordingly, the
Company recorded a valuation allowance of approximately
$11.3 million against our deferred tax assets in the year
ended December 31, 2002. Our income tax provision was
($4.1) million for the year ended December 31, 2001 as
compared to an income tax provision of $3.2 million for the
year ended December 31, 2002. Our effective tax rates were
(13.8%) for the year ended December 31, 2001 and (1.3%) for
the year ended December 31, 2002. The effective rates in
2001 and 2002 were higher than federal statutory rate of 35%
plus the state tax rate of 6%, net of federal benefits,
primarily due to the increase in valuation allowance, expenses
related to charges for goodwill impairment, amortization of
goodwill and intangible assets, purchased in-process research
and development and equity investments that were not deductible
for income tax purposes.

40



---



##### Table of Contents



Liquidity and Capital Resources

Cash and cash equivalents increased from
$16.5 million at December 31, 2002 to
$19.8 million at December 31, 2003. Cash and cash
equivalents decreased from $16.6 million at
December 31, 2001 to $16.5 million at
December 31, 2002.

Net cash used in operating activities was
$29.8 million for the year ended December 31, 2003,
primarily attributable to the net loss after the effect of
non-cash charges, an increase in inventory and a decrease in
accounts payable, partially offset by a decrease in accounts
receivable, a decrease in restricted cash and other assets, an
increase in other accrued liabilities, and an increase in
accrued royalties and interest. Net cash used in operating
activities was $27.5 million for the year ended
December 31, 2002, primarily due to the net loss after the
effect of non-cash charges, an increase in inventory and other
assets and a decrease in accrued liabilities, partially offset
by a decrease in accounts receivable and an increase in accounts
payable. Net cash used in operating activities was
$12.0 million for the year ended December 31, 2001,
primarily due to the net loss after the effect of non-cash
charges, an increase in accounts receivable and inventory and a
decrease in account payable and accrued liabilities, partially
offset by an increase in other assets.

Net cash used in investing activities was
$8.8 million for the year ended December 31, 2003,
attributable to $2.9 million in capital spending and
$10.0 million to purchase a building in Sunnyvale, offset
by $500,000 of proceeds from the repayment of a loan to a former
officer of the Company, $583,0000 in proceeds from the sale of
short-term investments, and $3.0 million in proceeds from
the sale of the acquired building in Sunnyvale. Net cash used in
investing activities was $48.0 million for the year ended
December 31, 2002, due to $51.5 million in cash used
in the merger with Proxim, Inc., the acquisition of the
802.11 WLAN systems business of Agere and the nBand acquisition
and by $3.6 million in capital spending, partially offset
by $7.0 million in net proceeds from the sale of investment
securities. Net cash used in investing activities was
$2.6 million for the year ended December 31, 2001 due
to capital spending of $4.8 million and $12.7 million
of spending associated with the acquisition of WirelessHome,
partially offset by the net proceeds from the sale of investment
securities of $14.9 million.

Net cash provided by financing activities was
$41.8 million for the year ended December 31, 2003
attributable to $1.6 million of borrowings on capital lease
obligations, $187,000 in proceeds from repayment of notes
receivable from stockholders, $40 million in proceeds from
the issuance of convertible promissory notes, and $808,0000 from
the issuance of common stock as a result of the exercise of
employee stock options and employee stock purchase plan
purchases. Net cash provided by financing activities was
$75.4 million for the year ended December 31, 2002 due
to proceeds from the issuance of Series A preferred stock,
convertible promissory notes and the issuance of common stock as
a result of the exercise of employee stock options and employee
stock purchase plan purchases partially offset by purchases of
treasury stock related to employee stock forward sale
agreements. Net cash provided by financing activities was
$29,000 for the year ended December 31, 2001 due to
issuance of common stock as a result of the exercise of employee
stock options and the employee stock purchase plan purchases
offset by repayment of long-term debt and by purchases of
treasury stock.

41



---



##### Table of Contents





| |                        
| | -----------------------
| | Contractual Commitments

We occupy our facilities under several
non-cancelable operating lease agreements expiring at various
dates through September 2009, and require payment of property
taxes, insurance, maintenance and utilities. Future payments
under contractual obligations as of December 31, 2003, were
as follows (in thousands):

|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |            |       |  |  |   |         |  |  |   |       |  |  |   |       | 
|-------------------------------------- |  | ---------------------- | ------- | ------------------------ |  | ---- | ------ | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ------- |  |  | - | ----- |  |  | - | ----- | 
|                                       |  |                       
|                                       |  | Payments Due by Period
|                                       |  |                       
|                                       |  |                        |         |                         
|                                       |  |                        |         | Year Ending December 31,
|                                       |  | Total Amounts          |         |                         
|                                       |  | Committed              |         | 2004                     |  | 2005 |        | 2006 |  | 2007 |       | 2008 |  | Thereafter
|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |           
|Severance pay                          |  | $                      | 3,620   |                          |  | $    | 3,620  |      |  | $    |      |      |  | $          |      |  |  | $ |        |  |  | $ |      |  |  | $ |      | 
|Repayment of convertible notes         |  |                        | 50,753  |                          |  |      | 50,753 |      |  |      |      |      |  |            |      |  |  |   |        |  |  |   |      |  |  |   |      | 
|Operating leases                       |  |                        | 39,545  |                          |  |      | 7,854  |      |  |      | 7,741 |      |  |            | 6,708 |  |  |   | 6,372   |  |  |   | 6,436 |  |  |   | 4,434 | 
|Capital leases                         |  |                        | 2,190   |                          |  |      | 1,257  |      |  |      | 901   |      |  |            | 32    |  |  |   |        |  |  |   |      |  |  |   |      | 
|Project commitments                    |  |                        | 1,284   |                          |  |      | 1,284  |      |  |      |      |      |  |            |      |  |  |   |        |  |  |   |      |  |  |   |      | 
|Redemption of Series A Preferred Stock |  |                        | 106,899 |                          |  |      |       |      |  |      |      |      |  |            |      |  |  |   | 106,899 |  |  |   |      |  |  |   |      | 
|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |            |       |  |  |   |         |  |  |   |       |  |  |   |       | 
|                                       |  | $                      | 204,291 |                          |  | $    | 64,768 |      |  | $    | 8,642 |      |  | $          | 6,740 |  |  | $ | 113,271 |  |  | $ | 6,436 |  |  | $ | 4,434 | 
|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |            |       |  |  |   |         |  |  |   |       |  |  |   |       | 

We are required to repay the convertible
promissory notes in September 2004 if they have not been
exchanged for Series B Preferred Stock.

We are required to redeem all outstanding shares
of Series A Preferred Stock for cash in August 2007 if not
previously converted into Common Stock.

For the years ended December 31, 2003 and
2002, we recorded restructuring charges of $18.1 million
related to the committed future lease payments for closed
facilities, net of estimated future sublease receipts and
reversal of previously recorded provision, which are included in
the operating leases caption above. As of December 31,
2003, we had unconditional purchase order commitments of
$1.3 million, which were included as other accrued
liabilities.



| |                  
| | -----------------
| | Credit Facilities

In December 2002, we entered into a secured
credit facility with Silicon Valley Bank (the
Lender), and then subsequently amended the credit
facility in March 2003. On June 13, 2003, in order to
secure additional working capital, we entered into a letter
agreement (the Letter Agreement) and an accounts
receivable financing agreement which effectively amended and
restated the existing credit facility in its entirety. On
July 25, 2003, we amended the accounts receivable financing
agreement. On October 31, 2003, we amended the A/R
Financing Agreement (as amended, the Amended A/R Financing
Agreement).

Under the Amended A/R Financing Agreement, the
Lender may agree to accept for collection through a lockbox
arrangement up to $20.0 million in accounts receivable from
us, and in return we will receive advances from the Lender at a
rate equal to 80% of accounts receivable from account debtors
who are not distributors, and 50% of accounts receivable from
account debtors who are distributors, subject to certain
borrowing restrictions on international accounts and the
discretion of the Lender. After collection of a receivable, the
Lender will refund to us the difference between the amount
collected and the amount initially advanced to us, less a
finance charge applied against the average monthly balance of
all transferred but outstanding receivables at a rate per annum
equal to the Lenders prime rate plus 1.50 percentage
points, or 5.75%, whichever is greater. In addition to a
facility fee of $100,000, we must pay each month to the Lender a
handling fee equal to 0.25% of the average monthly balance of
transferred but outstanding receivables. We must repay each
advance upon the earliest to occur of (i) the collection of
the corresponding financed receivable, (ii) the date on
which the corresponding financed receivable becomes an
ineligible receivable pursuant to the terms of the Amended A/R
Financing Agreement, or (iii) July 31, 2004.

42



---



##### Table of Contents



Obligations under the amended A/R Financing
Agreement are secured by a security interest on all of our
assets, including intellectual property, and are senior in lien
priority and right of payment to our obligations to the funds
affiliated with Warburg Pincus and Broadview Capital under the
secured promissory notes issued in July 2003 and amended in
October 2003 and the senior secured promissory notes issued in
December 2003. The amended A/R Financing Agreement requires the
consent of the Lender in order to incur debt, grant liens and
sell assets. The events of default under the secured credit
facility include the failure to pay amounts when due, failure to
observe or perform covenants, bankruptcy and insolvency events,
defaults under certain of our other obligations and the
occurrence of a material adverse change in our business. Under
the Amended A/R Financing Agreement, the events of default
also include any judgment, restraining order, injunction or any
material adverse development in connection with a lawsuit filed
by Symbol Technologies before the U.S. District Court for
the District of Delaware. Please refer to Item 3, Legal
Proceedings for a further description of the litigation with
Symbol Technologies. Under the Amended A/R Financing Agreement,
the financial covenants require us to maintain cash and cash
equivalents with the Lender and its affiliates in an amount not
less than $4.0 million. If we fail to meet this
requirement, we may still remain in compliance with the
financial covenants by maintaining a ratio of the total of cash,
cash equivalents and accounts receivable approved by the Lender
to our current liabilities of at least 5.0 to 1. We currently
maintain substantially all of our cash, cash equivalents and
investments at Silicon Valley Bank and its affiliates. In the
event of default under the Amended A/R Financing Agreement, the
Lender has the right to offset such cash, cash equivalents and
investments against our obligations owing to the Lender.



| |                        
| | -----------------------
| | Restructuring of Leases

We had been seeking to renegotiate a material
lease on a building in Sunnyvale, California that was in excess
of the requirements of the business for the foreseeable future.
This building was vacated in July 2002, and the net expected
lease costs were included in the restructuring charge recorded
in the second quarter of 2002, totaling approximately
$29.0 million through the expiration of the lease in 2010,
net of expected sublease proceeds. The rent rates of this lease
were substantially greater than the current local market lease
rates, and this unused space represented a negative cash flow of
approximately $800,000 per quarter. We were not able to
sublease the building since it was vacated in July 2002. Since
November 2002, we ceased making direct lease payments, and the
building owner utilized our cash security deposit to cover the
monthly payments and other lease charges. On July 21, 2003,
we entered into a letter agreement (as subsequently amended and
restated by that certain Purchase Agreement dated
September 11, 2003) to buy the leased property and
terminate the lease on or before September 12, 2003. On
September 12, 2003, we paid approximately
$10.0 million to consummate the transaction. Transaction
costs included cash consideration of $6.0 million to the
building owner, $3.2 million to pay off the mortgage
obligation secured by the leased property, $577,000 for
prepayment premium, and a total of approximately $200,000 for
closing costs and operating costs incurred by the building owner
between the date of the letter agreement and the closing. As a
result of consummating the transaction, we reversed
$26.8 million of previously recorded lease obligation
restructuring reserves that are no longer required. We also
reversed an additional $1.0 million of previously recorded
restructuring reserves related to another building lease in
Sunnyvale as a result of a reduction of the lease commitments
agreed to with the lessor.

Subsequent to the purchase, we placed the
property on the market for sale. On October 22, 2003, we
entered into an agreement to sell the property for
$3.5 million. As of September 26, 2003, the property
was recorded as an asset held for sale of $3.0 million,
representing its estimated net realizable value. On
December 30, 2003, we consummated the sale and received
$3.0 million cash proceeds, net of broker commissions,
property repairs and closing costs.



| |                                   
| | ----------------------------------
| | Other Restructuring
    Activities

We have taken steps to reduce our expenses from
operations by decreasing research and development and general
and administrative expenses in order to begin generating cash
flow from operations. These steps were taken in October 2002,
and we recorded approximately $1.9 million of restructuring
charges related primarily to severance payments in the fourth
quarter of 2002 and $8.1 million in the second and third
quarters of 2003.

43



---



##### Table of Contents



As a result of the reduced demand for our
products during the first quarter of 2003 and the limited
business visibility, we have taken further actions to reduce our
operating expenses during the second and third quarters of 2003,
to decrease our quarterly revenue breakeven point. During the
second quarter of 2003, we recorded a $22.5 million charge
for excess and obsolete inventory for discontinued products and
a $12.5 million restructuring charge for consolidation of
excess facilities including fixed asset write-offs, workforce
reductions and contract termination costs. During the third
quarter of 2003, we recorded a $14.6 million restructuring
charge associated with additional workforce reductions,
restructuring our domestic sales organization to focus on WLAN
and WWAN sales and consolidation of excess facilities, offset by
a net benefit of $19.8 million resulting from the reversal
of previously recorded restructuring reserves, net of various
costs associated with buying a leased property in Sunnyvale and
terminating the lease. Additionally, we plan to reduce
consignment inventories held by distributors by implementing
various sales promotions within the sales channel.

Restructuring charges for the year ended
December 31, 2003 were $7.3 million resulting from
$28.1 million of recorded restructuring charges, offset by
a net benefit of $20.8 million recorded as a result of
buying a leased property in Sunnyvale, California, terminating
the lease, and subsequently selling the property and a
$1.0 million reversal of previously recorded restructuring
reserves related to another building lease in Sunnyvale as a
result of finalizing the lease commitments with the lessor (see
Note 1 and Note 19). The net benefit of
$20.8 million consisted of a reversal of previously
recorded lease obligation restructuring reserve of
$26.8 million and net realizable value of the building of
$3.0 million, offset by total transaction costs of
$10.0 million to purchase the building. We reversed an
additional $1.0 million of previously recorded
restructuring reserves related to another building in Sunnyvale
as a result of a reduction of the lease commitments agreed to
with the lessor.



| |               
| | --------------
| | Debt Financing

In April 2003, our management and board of
directors recognized our need to secure additional funding to
support our growth objectives and strengthen our balance sheet
position. During 2003, Warburg Pincus Private Equity VIII, L.P.
and Broadview Capital Partners L.P. and affiliates invested an
aggregate of $40 million in us in exchange for secured
promissory notes, exchangeable for shares of our Series B
preferred stock, and warrants to purchase an aggregate of
24 million shares of our common stock. Please refer to
Part I, Item 1, Business  Recent
Financing Activities for a detailed description of our
recent transactions with these Investors, the terms of the Notes
and warrants, including terms of conversion and exercise
thereof, and our Amended Agreement with the Investors.

In the event of default or change of control
occurs or these Investors decide not to exchange the Amended
Notes for Series B Preferred Stock, we may be required to
repay the Amended Notes upon the earlier of demand by these
investors or the September 30, 2004 maturity date. If we
were required to repay the Amended Notes, we would be required
to obtain immediate alternative sources of financing. If we were
not able to obtain an alternative source of financing, we would
most likely have insufficient cash to repay the Amended Notes,
be unable to meet our ongoing operating obligations as they come
due in the ordinary course of business, and may have to seek
protection under applicable bankruptcy laws.



| |                                        
| | ---------------------------------------
| | Litigation with Symbol
    Technologies

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringe two of Symbols patents and assessed a 6% royalty.
While the actual amount of past royalties due has not been
finally determined, we recorded an accrual for estimated
potential royalty charges of $22.9 million and
$2.9 million for interest during the third quarter of 2003
and an accrual for estimated potential royalty charges of
$1.0 million and $87,000 for interest during the fourth
quarter of 2003. We have not been enjoined from continued sales
of these products. We will continue to evaluate and review its
estimate of the royalties and interest payable from time to time
for any indications that could require us to change our
assumptions relating to the amount already recorded. On
November 24, 2003, the District Court conducted a

44



---



##### Table of Contents



one-day bench trial on our equitable defenses of
laches and estoppel not addressed by the jury. The District
Court has not reached a decision on the equitable defenses.


If the proceedings before the court in the
litigation with Symbol are not decided in our favor, we would
likely be required to make significant payments to Symbol,
including payments for royalties related to past sales of
products found to infringe and additional royalties in
connection with future sales of these products, or we would be
required to post a bond in order to appeal the courts
decision. Any adverse ruling or judgment in this litigation that
requires us to render payment or post a bond equal to or greater
than $10 million, and any other ruling or judgment in this
or any other litigation that is material and adverse to us,
triggers an event of default under the Notes. Upon such
occurrence, the Investors would have the ability to require us
to repay the Notes. In addition, any judgment, restraining
order, injunction or any material adverse development in this
litigation triggers an event of default under the Silicon Valley
Bank credit facility. Upon such occurrence, Silicon Valley Bank
would have the ability to require us to repay any outstanding
amounts under the credit facility and to prohibit us from
borrowing any additional amounts.

Depending upon the final ruling of the litigation
with Symbol, we may be required to pay royalty charges and
interest at the time specified by the court. Our current
estimate of approximately $26.9 million for royalties and
interest is not included in the above disclosure of future
payments under contractual obligations.



| |                                    
| | -----------------------------------
| | Additional Sources of
    Financing

We have incurred substantial losses and negative
cash flows from operations during the years ended
December 31, 2003, 2002 and 2001, and have an accumulated
deficit of $397.8 million as of December 31, 2003. If
we were required to make payments to Symbol, post a bond to the
court, and/or repay the Notes and amounts, if any, owed to
Silicon Valley Bank, either due to an event of default or
otherwise, we would be required to obtain immediate alternative
sources of financing. If we were not able to obtain an
alternative source of financing, we would most likely have
insufficient cash to pay these obligations, be unable to meet
our ongoing operating obligations as they come due in the
ordinary course of business, and seek protection under
applicable bankruptcy laws. These matters raise substantial
doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments
that might result from this uncertainty.

There can be no assurance that additional capital
beyond the amounts currently forecasted by us will not be
required nor that any such required additional capital will be
available on reasonable terms, if at all, at such time or times
as required by us. We may need to raise additional funds to meet
our obligations, strengthen our financial position, meet our
working capital requirements, or take advantage of market
opportunities. Our ability to raise funds may be adversely
affected by a number of factors relating to us, such as the
terms of the Notes and our other agreements with the Investors,
as well as factors beyond our control, including market
uncertainty and conditions in the capital markets. There can be
no assurance that any financing will be available on terms
acceptable to us, if at all, and any need to raise additional
capital through the issuance of equity or convertible debt
securities may result in additional, and perhaps significant
dilution.

Quarterly Results of Operations

The following table presents our operating
results for each of the four quarters in the years ending
December 31, 2003 and 2002. The information for each of
these quarters is unaudited and has been prepared on the same
basis as our audited financial statements appearing elsewhere in
this Annual Report on Form 10-K. In the opinion of
management, all necessary adjustments, consisting only of normal
recurring adjustments, have been included to present fairly the
unaudited quarterly results when read in conjunction with our
audited financial statements and related notes. We have
experienced and expect to continue to

45



---



##### Table of Contents



experience fluctuations in operating results from
quarter to quarter. Historical operating results are not
necessarily indicative of the results that may be expected for
any future period.


|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |         |          |  
|------------------------------------------------------------------------------ | -------------------------------------------------------- | ------------------------------------- | ------- | ------- | ------ | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------- | - | -------- | ------- | -------- | -
|                                                                               |                                                          | Q1 2003                               |         | Q2 2003 |        | Q3 2003 |         | Q4 2003 |         | Q1 2002 |         | Q2 2002 |         | Q3 2002 |         | Q4 2002
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |        
|                                                                               |                                                          |                                      
|                                                                               |                                                          | (Unaudited)                          
|                                                                               |                                                          |                                      
|                                                                               |                                                          | (In thousands, except per share data)
|Revenue, net                                                                   |                                                          | $                                     | 40,029  |         |        | $       | 34,805  |         |         | $       | 35,058  |         |         | $       | 38,574  |         |         | $ | 25,414  |        |         | $ | 45,177  |        |        | $ | 24,118  |        |         | $ | 49,951   |        
|Cost of revenue                                                                |                                                          |                                       | 20,928  |         |        |         | 21,701  |         |         |         | 22,041  |         |         |         | 23,801  |         |         |   | 14,662  |        |         |   | 25,977  |        |        |   | 14,091  |        |         |   | 28,955   |        
|Royalty charges                                                                |                                                          |                                       |        |         |        |         |        |         |         |         | 22,869  |         |         |         | 1,000   |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|Restructuring provision for excess and obsolete
    inventory(a)               |                                                          |                                       |        |         |        |         | 22,549  |         |         |         |        |         |         |         |        |         |         |   | 12,659  |        |         |   |        |        |        |   |        |        |         |   |         |        
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|                                                                               |                                                          | Gross profit (loss)                   |         |         | 19,101 |         |         |         | (9,445  | )       |         |         | (9,852  | )       |         |         | 13,773  |   |         |        | (1,907  | ) |         |        | 19,200 |   |         |        | 10,027  |   |          |         | 20,996   |  
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|Operating expenses:                                                            |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|                                                                               | Research and development                                 |                                       |         | 7,883   |        |         |         | 6,234   |         |         |         | 4,915   |         |         |         | 5,209   |         |   |         | 4,549  |         |   |         | 7,295  |        |   |         | 8,699  |         |   |          | 8,616   |         
|                                                                               | Selling, general and administrative                      |                                       |         | 12,095  |        |         |         | 12,446  |         |         |         | 13,179  |         |         |         | 11,711  |         |   |         | 8,750  |         |   |         | 11,647 |        |   |         | 15,220 |         |   |          | 13,874  |         
|                                                                               | Legal expense for certain litigation                     |                                       |         | 3,000   |        |         |         | 1,000   |         |         |         | 1,700   |         |         |         | 1,100   |         |   |         |       |         |   |         |       |        |   |         |       |         |   |          |        |         
|                                                                               | Amortization of goodwill and other intangible
    assets |                                       |         | 5,500   |        |         |         | 5,365   |         |         |         | 5,364   |         |         |         | 5,364   |         |   |         | 144    |         |   |         | 2,209  |        |   |         | 4,606  |         |   |          | 5,508   |         
|                                                                               | Amortization of deferred stock compensation              |                                       |         |        |        |         |         |        |         |         |         |        |         |         |         |        |         |   |         | 245    |         |   |         | 180    |        |   |         | 316    |         |   |          | 114     |         
|                                                                               | Impairment of goodwill and intangible assets(b)          |                                       |         |        |        |         |         |        |         |         |         |        |         |         |         |        |         |   |         |       |         |   |         |       |        |   |         |       |         |   |          | 129,108 |         
|                                                                               | Impairment of loan to officer                            |                                       |         |        |        |         |         |        |         |         |         |        |         |         |         |        |         |   |         |       |         |   |         |       |        |   |         |       |         |   |          | 4,500   |         
|                                                                               | Bad debt                                                 |                                       |         |        |        |         |         |        |         |         |         | 2,305   |         |         |         |        |         |   |         |       |         |   |         |       |        |   |         |       |         |   |          |        |         
|                                                                               | Restructuring charges (benefit)(c)                       |                                       |         |        |        |         |         | 12,492  |         |         |         | (5,194  | )       |         |         | (19     | )       |   |         | 35,378 |         |   |         | 3,582  |        |   |         | 2,335  |         |   |          | 1,882   |         
|                                                                               | In-process research and development                      |                                       |         |        |        |         |         |        |         |         |         |        |         |         |         |        |         |   |         | 4,536  |         |   |         | 1,200  |        |   |         | 10,364 |         |   |          |        |         
|                                                                               | Merger costs                                             |                                       |         |        |        |         |         |        |         |         |         |        |         |         |         |        |         |   |         |       |         |   |         |       |        |   |         |       |         |   |          |        |         
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|                                                                               |                                                          | Total operating expenses              |         |         | 28,478 |         |         |         | 37,537  |         |         |         | 22,269  |         |         |         | 23,365  |   |         |        | 53,602  |   |         |        | 26,113 |   |         |        | 41,540  |   |          |         | 163,602  |  
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|                                                                               |                                                          | Loss from operations                  |         |         | (9,377 | )       |         |         | (46,982 | )       |         |         | (32,121 | )       |         |         | (9,592  | ) |         |        | (55,509 | ) |         |        | (6,913 | ) |         |        | (31,513 | ) |          |         | (142,606 | )
|Interest income (expense), net                                                 |                                                          |                                       | 99      |         |        |         | (192    | )       |         |         | (4,434  | )       |         |         | (2,641  | )       |         |   | 131     |        |         |   | 240     |        |        |   | (355    | )      |         |   | (101     | )      
|Loss on early extinguishment of debt(d)                                        |                                                          |                                       |        |         |        |         |        |         |         |         |        |         |         |         | (22,200 | )       |         |   |        |        |         |   |        |        |        |   |        |        |         |   |         |        
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|                                                                               |                                                          | Loss before income taxes              |         |         | (9,278 | )       |         |         | (47,174 | )       |         |         | (36,555 | )       |         |         | (34,433 | ) |         |        | (55,378 | ) |         |        | (6,673 | ) |         |        | (31,868 | ) |          |         | (142,707 | )
|Income tax provision (benefit)                                                 |                                                          |                                       |        |         |        |         |        |         |         |         |        |         |         |         |        |         |         |   | 3,224   |        |         |   |        |        |        |   |        |        |         |   |         |        
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|                                                                               |                                                          | Net loss                              |         |         | (9,278 | )       |         |         | (47,174 | )       |         |         | (36,555 | )       |         |         | (34,433 | ) |         |        | (58,602 | ) |         |        | (6,673 | ) |         |        | (31,868 | ) |          |         | (142,707 | )
|Deemed Series A Preferred Stock dividend                                       |                                                          |                                       |        |         |        |         |        |         |         |         |        |         |         |         |        |         |         |   |        |        |         |   |        |        |        |   | (2,740  | )      |         |   |         |        
|Accretion of Series A Preferred Stock
    redemption Obligations               |                                                          |                                       | (1,525  | )       |        |         | (1,560  | )       |         |         | (1,596  | )       |         |         | (1,622  | )       |         |   |        |        |         |   |        |        |        |   | (476    | )      |         |   | (1,414   | )      
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|Net loss attributable to common
    stockholders  basic and diluted           |                                                          | $                                     | (10,803 | )       |        | $       | (48,734 | )       |         | $       | (38,151 | )       |         | $       | (36,055 | )       |         | $ | (58,602 | )      |         | $ | (6,673  | )      |        | $ | (35,084 | )      |         | $ | (144,121 | )      
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|Net loss per share attributable to common
    stockholders  basic and diluted |                                                          | $                                     | (0.09   | )       |        | $       | (0.40   | )       |         | $       | (0.31   | )       |         | $       | (0.29   | )       |         | $ | (0.96   | )      |         | $ | (0.06   | )      |        | $ | (0.29   | )      |         | $ | (1.20    | )      
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        
|Shares used to compute net loss per
    share  basic and diluted              |                                                          |                                       | 120,274 |         |        |         | 121,714 |         |         |         | 121,985 |         |         |         | 122,674 |         |         |   | 61,275  |        |         |   | 119,215 |        |        |   | 119,557 |        |         |   | 120,134  |        
|                                                                               |                                                          |                                       |         |         |        |         |         |         |         |         |         |         |         |         |         |         |         |   |         |        |         |   |         |        |        |   |         |        |         |   |          |        






|    |                                                                           
|--- | --------------------------------------------------------------------------
|(a) | Refer to Note 10 to the consolidated
    financial statements for details.
|   
|(b) | Refer to Note 5 to the consolidated
    financial statements for details. 
|   
|(c) | Refer to Note 11 to the consolidated
    financial statements for details.
|   
|(d) | Refer to Note 12 to the consolidated
    financial statements for details.

46



---



##### Table of Contents



Our quarterly revenue and loss from operations
results have varied and are likely to continue to fluctuate
significantly from quarter to quarter.

Our quarterly results may fluctuate for many
reasons, including the following:



| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the effectiveness of our distribution channels
    and the success in maintaining our current distribution channels
    and developing new distribution channels;                                      
|
| |  | our ability to effectively manage the development
    of new business segments and markets;                                                                                                            
|
| |  | seasonal factors that may affect capital spending
    by customers;                                                                                                                                    
|
| |  | the sell-through rate of our ORiNOCO products
    (acquired in our acquisition of Ageres 802.11 WLAN systems
    business) through consumer retail channels;                                          
|
| |  | market adoption of radio frequency, or RF,
    standards-based products (such as those compliant with the IEEE
    802.11b, IEEE 802.11a, IEEE 802.11g, IEEE 802.1b
    or IEEE 802.20 specifications);
|
| |  | our ability to develop, introduce, ship and
    support new products and product enhancements and to manage
    product transitions;                                                                   
|
| |  | the sell-through rate of our WLAN and WWAN
    products through commercial distribution channels;                                                                                                      
|
| |  | market demand for our point-to-point Lynx and
    Tsunami systems;                                                                                                                                     
|
| |  | market demand for our Tsunami point-to-multipoint
    systems;                                                                                                                                         
|
| |  | our ability to effectively manage product
    transitions to newer product platform designs;                                                                                                           
|
| |  | the mix of products sold because our products
    generate different gross margins;                                                                                                                    
|
| |  | a decrease in the average selling prices of our
    products;                                                                                                                                          
|
| |  | our ability to upgrade and develop our systems
    and infrastructure;                                                                                                                                 
|
| |  | difficulties in expanding and conducting
    international operations; and                                                                                                                             
|
| |  | general economic conditions and economic
    conditions specific to the wireless communications industry.                                                                                              

We have experienced disruptions in our operations
from some of the factors listed above and may experience them
again. In addition, we are dependent on decisions by service
providers, businesses and other enterprises to build wireless
networks. These decisions are in turn dependent upon the success
and expected demand for the services offered by those service
providers, businesses and other enterprises.

Our operating expenses are largely based on
anticipated revenue trends, and a high percentage of our
expenses are and will continue to be fixed in the short term. As
a result, any delay in generating or recognizing revenue could
cause significant variations in our operating results from
quarter to quarter and could result in substantial operating
losses.

Due to the above factors, we believe that
quarter-to-quarter comparisons of our operating results are not
a good indication of our future performance. It is likely that
in some future quarters, our operating results may be below the
expectations of public market analysts and investors. In this
event, the price of our common stock may fall.

Seasonality

Historically, our product revenues have been
higher in the last two quarters of the fiscal year. In addition,
our product revenues have historically been significantly higher
in the last month of each quarter. This shift may primarily be
attributed to the budgetary constraints of the customers in our
industry and weather conditions that make an outdoor
installation more difficult during the winter.

47



---



##### Table of Contents



RISK FACTORS

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

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

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

We may need additional capital in the future
and may not be able to secure adequate funds on terms acceptable
to us or to our Investors.

We have incurred substantial losses and negative
cash flows from operations during the years ended
December 31, 2003, 2002 and 2001, and have an accumulated
deficit of $397.8 million as of December 31, 2003.

During 2003, Warburg Pincus and Broadview Capital
invested $40 million in us in exchange for secured
promissory notes, exchangeable for shares of our Series B
preferred stock, and warrants to purchase our common stock.
Please refer to Part I, Item 1,
Business  Recent Financing Activities for
a detailed description of our recent transactions with Warburg
Pincus and Broadview Capital Partners (the
Investors), the terms of the secured exchangeable
promissory notes (the Notes), and our amended and
restated securities purchase agreement with the Investors (the
Amended Agreement).

If the Investors decide not to exchange the Notes
for our Series B preferred stock, we are required to repay
the Notes upon the earlier of the September 30, 2004
maturity date or upon demand by the Investors in connection with
an event of default or a change of control of Proxim. In
particular, if the proceedings before the court in our
litigation with Symbol are not decided in our favor, we would
likely be required to make significant payments to Symbol,
including payments for royalties related to past sales of
products found to infringe and additional royalties in
connection with future sales of these products, or we would be
required to post a bond in order to appeal the courts
decision. Any additional adverse ruling or judgment in this
litigation that requires us to render payment or post a bond
equal to or greater than $10 million, and any other ruling
or judgment in this or any other litigation that is material and
adverse to us, triggers an event of default under the Notes.
Upon such occurrence, the Investors would have the ability to
require us to repay the Amended Notes. In addition, entry of any
judgment, restraining order, injunction or any material adverse
development in the litigation with Symbol would result in an
event of default under our secured credit facility with Silicon
Valley Bank, and Silicon Valley Bank could require us to repay
any outstanding amounts owed under the credit facility and
prohibit us from borrowing any additional amounts.

If we were required to make payments to Symbol,
post a bond to the court, and/or repay the Notes and amounts, if
any, owed to Silicon Valley Bank, either due to an event of
default or otherwise, we would be required to obtain immediate
alternative sources of financing. If we were not able to obtain
an alternative source of financing, we would most likely have
insufficient cash to pay these obligations, be unable to meet
our ongoing operating obligations as they come due in the
ordinary course of business, and may have to seek protection
under applicable bankruptcy laws.

In addition, we may need to raise additional
funds to meet our obligations, strengthen our financial
position, meet our working capital requirements, or take
advantage of market opportunities. Our ability to raise funds
may be adversely affected by a number of factors relating to us,
such as the terms of the Notes and our other agreements with the
Investors, as well as factors beyond our control, including
market uncertainty and conditions in the capital markets. There
can be no assurance that any financing will be available on
terms acceptable to us, if at all, and any need to raise
additional capital through the issuance of equity or convertible
debt securities may result in additional, and perhaps
significant dilution.

48



---



##### Table of Contents



We are not profitable and may not be
profitable in the future.

For the year ended December 31, 2003 we had
a $133.7 million net loss attributable to holders of our
common stock. We cannot assure you that our revenue will
increase or continue at current levels or growth rates or that
we will achieve profitability or generate cash from operations
in future periods. In view of the rapidly evolving nature of our
business and the limited histories of Western Multiplex,
Proxim, Inc. and the Agere 802.11 wireless systems business
we acquired, period-to-period comparisons of operating results
are not necessarily meaningful and you should not rely on them
as indicating what our future performance will be.

We expect that we will continue to incur
significant sales, marketing, product development and
administrative expenses. As a result, we will need to generate
increased revenue to achieve profitability and we cannot assure
you that we will achieve profitability in the future. Any
failure to significantly increase our revenue or control costs
as we implement our product and distribution strategies would
harm our ability to achieve profitability and the operating
results and financial condition of the business.

Our gross profit may decline in the
future.

Our gross profit is affected by both the average
selling prices of our systems and our cost of revenue.
Historically, decreases in our average selling prices have
generally been offset by reductions in our per unit product
cost. We cannot assure you, however, that we will achieve any
reductions in per unit product cost in the future or that any
reductions will offset a reduction in our average selling
prices. Gross profit will be affected by a variety of factors,
including manufacturing efficiencies, the degree to which our
manufacturing is outsourced, the location of manufacturing, cost
reduced product designs, future manufacturing licenses of our
products, product mix, competitive pricing pressures, the degree
of customization of individual products required by OEM
customers and component and assembly costs.

The terms of the Notes issued to the Investors
may adversely affect our business, financial condition and
results of operations.

We have issued Notes with an aggregate principal
amount of $40 million to Warburg Pincus and Broadview
Capital. These notes are accruing interest at an annual rate of
25%. Please refer to Part I, Item 1,
Business  Recent Financing Activities for
a detailed description of these recent transactions and the
terms of the Notes and our Amended Agreement with these
Investors. The terms of the Notes and the Amended Agreement may
impair our ability to secure additional financing from other
sources. While the Notes are outstanding, we may not generally,
without the prior written consent of the Investors holding a
majority of the principal amount of the Notes:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | incur certain liabilities or indebtedness for
    money borrowed, subject to certain limited exceptions;                   
|
| |  | grant or permit any liens, pledges or
    encumbrances on any of our assets, subject to limited exceptions;                
|
| |  | sell any material part of our assets, other than
    in limited circumstances or in the ordinary course of
    business; or
|
| |  | pay or declare any dividend or distribution.                                                                               

49



---



##### Table of Contents



We have a limited operating history with some
of our current product lines, which makes your evaluation of our
business difficult and will affect many aspects of our
business.

Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by
companies in developing industries, particularly companies in
relatively new and rapidly evolving markets. These risks include:



| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | an evolving and unpredictable business model;                          
|
| |  | uncertain acceptance of our new ORiNOCO, Lynx and
    Tsunami products;
|
| |  | competition; and                                                       
|
| |  | challenges in managing growth.                                         

We cannot assure you that we will succeed in
addressing these risks. If we fail to do so, our revenue and
operating results could be materially harmed.

We may experience fluctuations in operating
results and may not be able to adjust spending in time to
compensate for any unexpected revenue shortfall which may cause
operating results to fall below expectations of securities
analysts and investors.

Our operating results may fluctuate significantly
in the future as a result of a variety of factors, many of which
will be outside our control. We may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in
relation to planned expenditures could materially harm our
operating results and financial condition, and may cause our
operating results to fall below the expectations of securities
analysts and investors. If this happens, the trading price of
our common stock could decline significantly.

Factors that may harm operating results include:



| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the effectiveness of our distribution channels
    and the success in maintaining our current distribution channels;                                                                                                          
|
| |  | the effectiveness of developing new distribution
    channels;                                                                                                                                                                
|
| |  | our ability to effectively manage the development
    of new business segments and markets;                                                                                                                                   
|
| |  | seasonal factors that may affect capital spending
    by customers;                                                                                                                                                           
|
| |  | our ability to successfully manage the
    integration of operations;                                                                                                                                                         
|
| |  | market adoption of radio frequency, or RF,
    standards-based products (such as those compliant with the IEEE
    802.11b, IEEE 802.11a, IEEE 802.11g, IEEE 802.16
    or IEEE. 802.20 specifications);                      
|
| |  | our ability to develop, introduce, ship and
    support new products and product enhancements;                                                                                                                                
|
| |  | the sell-through rate of our WLAN and WWAN
    products through commercial distribution channels;                                                                                                                             
|
| |  | market demand for our point-to-point Lynx and
    Tsunami systems;                                                                                                                                                            
|
| |  | market demand for our point-to-multipoint Tsunami
    systems;                                                                                                                                                                
|
| |  | our ability to effectively manage product
    transitions from one generation of product platforms to newer
    product platform designs, including inventories on hand, product
    certifications, and customer transitions;
|
| |  | the mix of products sold because our products
    generate different gross margins;                                                                                                                                           
|
| |  | a decrease in the average selling prices of our
    products;                                                                                                                                                                 
|
| |  | our ability to upgrade and develop our systems
    and infrastructure;                                                                                                                                                        

50



---



##### Table of Contents





| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | difficulties in expanding and conducting
    international operations; and                               
|
| |  | general economic conditions and economic
    conditions specific to the wireless communications industry.

Historically, we do not operate with a
significant order backlog and a substantial portion of our
revenues in any quarter are derived from orders booked and
shipped in that quarter. Accordingly, a significant component of
our revenue expectations will be based almost entirely on
internal estimates of future demand and not on firm customer
orders. Planned operating expense levels are relatively fixed in
the short term and are based in large part on these estimates.
If orders and revenue do not meet expectations, our operating
results could be materially adversely affected. In this regard,
we did not achieve our revenue targets in the first and second
quarters of 2003.

Our operating results have been, and could
further be, adversely affected as a result of purchase
accounting treatment and the impact of amortization and
impairment of intangible assets relating to the merger and the
Agere asset purchase.

In accordance with generally accepted accounting
principles, we accounted for our merger with Proxim, Inc.
using the purchase method of accounting. Under the purchase
method of accounting, we have recorded the market value of our
Common Stock issued in connection with the merger, the fair
value of the options to purchase Proxim, Inc. and the Agere
asset purchase, the Common Stock that became options to purchase
Proxim Corporation Common Stock and the amount of direct
transaction costs as the cost of combining with
Proxim, Inc. and the Agere asset purchase. We have
allocated the cost of the individual assets acquired and
liabilities assumed, including various identifiable intangible
assets (such as acquired technology and acquired trademarks and
trade names) and in-process research and development, based on
their respective fair values at the date of the completion of
the merger. Intangible assets are required to be amortized
prospectively over their estimated useful lives. The purchase
price was allocated to deferred compensation, based on the
portion of the intrinsic value of the unvested Proxim, Inc.
options we have assumed to the extent that service is required
after completion of the merger in order to vest. Any excess of
the purchase price over those fair market values will be
accounted for as goodwill. We are not required to amortize
goodwill against income but goodwill and other non-amortizable
intangible assets will be subject to periodic reviews for
impairment.

In this regard, due to the decline in forecasted
revenue in future periods, we took a charge of
$129.1 million related to the impairment of goodwill in
accordance with SFAS No. 142 in the fourth quarter of
2002. The impairment charged was measured as the amount that the
carrying amount exceeded its estimated fair value. If we are
required to recognize additional impairment charges, the charge
will negatively impact reported earnings in the period of the
charge.

Shares eligible for future sale, including
shares owned by our principal stockholders, may cause the market
price of our common stock to drop significantly, even if our
business is doing well.

The potential for sales of substantial amounts of
our common stock into the public market may adversely affect the
market price of our common stock. Our Investors hold outstanding
shares of Series A preferred stock convertible into an
aggregate of 41,448,137 shares of common stock as of
March 5, 2004. Including additional accretion at an annual
rate of 8% through August 5, 2005, the Series A
preferred stock will be convertible into an aggregate of
46,314,752 shares of common stock. The Investors also hold
Notes exchangeable for shares of our Series B preferred
stock, which is then convertible into our common stock. Assuming
exchange of the Notes on their maturity date of
September 30, 2004, the Investors will receive
Series B preferred stock immediately convertible into
44,414,830 shares of our common stock. Including additional
accretion at an annual rate of 14% through the seventh
anniversary of the date of issuance of the Series B
preferred stock, the Series B preferred stock will be
convertible into 116,330,766 shares of our common stock. In
addition, the Investors currently hold warrants to purchase an
aggregate of 18,301,612 shares of our common stock at an
exercise price of $2.05 per share, 18,000,000 shares
of common

51



---



##### Table of Contents



stock at an exercise price of $1.46 per
share and 6,000,000 shares of our common stock at an
exercise price of $1.53 per share.


Assuming conversion of the notes, the
Series B Preferred Stock issuable upon conversion of the
notes, the Series A Preferred Stock, and the warrants held
by the Series A and Series B Preferred Stock
investors, would be expected to represent approximately 51.3% of
our outstanding capital stock on an as-converted and
as-exercised basis, based on shares outstanding as of
March 5, 2004, and excluding outstanding employee options
and warrants to purchase approximately 33,619,407 shares of
common stock.

We have agreed to file a registration statement
on Form S-1, or, if available, Form S-3, with the
Securities and Exchange Commission (the SEC) within
30 days following the filing of this annual report on
Form 10-K with the SEC. Upon the effectiveness of such
registration statement, the investors will have the right to
resell any shares of common stock issuable upon conversion of
the Series A preferred stock and Series B preferred
stock and upon exercise of all of the warrants.

In addition to these securities, as of
December 31, 2003, options and warrants to acquire
67,160,733 shares of our common stock were outstanding.
Also, as of December 31, 2003, approximately an additional
15,768,514 shares of our common stock were reserved for issuance
to our employees under existing and/or assumed stock option
plans.

Competition within the wireless networking
industry is intense and is expected to increase significantly.
Our failure to compete successfully could materially harm our
prospects and financial results.

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

We could be at a disadvantage when compared to
our competitors, particularly Symbol, Cisco Systems/ Linksys,
NetGear and D-Link, that have broader distribution channels,
greater brand recognition, more extensive patent portfolios and,
in particular, more diversified product lines. In the broadband
wireless access market, we have several competitors, including
without limitation, Alvarion, Ceragon Networks, Stratex
Networks, and Harris Corporation.

We face competition from numerous companies that
have developed competing products in both the commercial
wireless and home networking markets, including several
Asia-based companies offering low-price IEEE 802.11a/b/g
products. We are also facing future competition from companies
that offer products which replace network adapters or offer
alternative communications solutions (such as the integrated
wireless functionality on the Intel Centrino computer chip), or
from large computer companies, PC peripheral companies, as well
as other large networking equipment companies that integrate
network adapters into their products. Furthermore, we could face
competition from certain of our OEM customers, which have, or
could acquire, wireless engineering and product development
capabilities, or might elect to offer competing technologies. We
can offer no assurance that we will be able to compete
successfully against these competitors or those competitive
pressures we face will not adversely affect our business or
operating results.

Many of our present and potential competitors
have substantially greater financial, marketing, technical and
other resources with which to pursue engineering, manufacturing,
marketing, and distribution of their products. These competitors
may succeed in establishing technology standards or strategic
alliances in the WLAN and building-to-building markets, obtain
more rapid market acceptance for their products, or

52



---



##### Table of Contents



otherwise gain a competitive advantage. We can
offer no assurance that we will succeed in developing products
or technologies that are more effective than those developed by
our competitors. Furthermore, we compete with companies that
have high volume manufacturing and extensive marketing and
distribution capabilities, areas in which we have only limited
experience. We can offer no assurance that we will be able to
compete successfully against existing and new competitors as
wireless markets evolve and the level of competition increases.


Wireless networking markets are subject to
rapid technological change and to compete, we must continually
introduce new products that achieve broad market
acceptance.

We have expended substantial resources in
developing products that are designed to conform to the
IEEE 802.11 standards. There can be no assurance, however,
that the IEEE 802.11 compliant products will have an ongoing
meaningful commercial impact. Already, even within the 802.11
standard, there have been significant technological changes. The
IEEE approved the 2.4 Ghz WLAN standard designated 802.11b. In
2000, the IEEE approved the 5 Ghz WLAN standard designated
802.11a. In 2003, the IEEE approved a new 2.4 Ghz WLAN standard
designated 802.11g. IEEE is in the process of establishing
additional 802.11 standards, including 802.11e related to
quality of service for voice and video transmission, 802.11i
related to enhanced security, and 802.11h related to dynamic
frequency selection and transmission power control.
Furthermore, IEEE has recently committed to developing new
wireless WAN standards under two separate initiatives, 802.16
(WiMAX) and 802.20, standards which when finalized will produce
transmission distances measured in kilometers.

While we have products based on the 802.11a,
802.11b and 802.11g standards, future standards developments may
make these technologies obsolete and require significant
additional investment by the company. As an example, in August
2000, the FCC adopted a rule change to Part 15. Based on
the rule change, we made significant investments in developing
higher-speed frequency hopping technology that allowed for wider
band hopping channels and increased the data rate from
1.6 Mbps to up to 10 Mbps based on the HomeRF 2.0
standard. However, widespread adoption of products based on the
IEEE 802.11 standard have lead us to discontinue these products.
There can be no assurance that a similar future change in
industry standards and market acceptance will not require us to
abandon our current product lines and invest significantly in
research and development of future standards based products.

Given the emerging nature of the WLAN market,
there can be no assurance that the products and technology, or
our other products or technology, will not be rendered obsolete
by alternative or competing technologies, including cellular.
Currently, cellular companies are developing 3rd generation
technologies designed to transmit data at up to 2 mbps. In
particular, Verizon has already announced an initiative based on
this technology known as EV-DO. Cellular technology today has an
inherent advantage of being more ubiquitous than WLAN hotspot
technology. There can be no assurance that the companies current
product offerings will be competitive with cellular or other
WLAN technologies in the future.

In addition, when we announce new products or
product enhancements that have the potential to replace or
shorten the life cycle of our existing products, customers may
defer purchasing our existing products. These actions could
materially adversely affect our operating results by
unexpectedly decreasing sales, increasing our inventory levels
of older products and exposing us to greater risk of product
obsolescence. As the market for our wireless networking products
is evolving, we believe our ability to compete successfully in
this market is dependent upon the continued compatibility and
interoperability of our products with products and architectures
offered by other vendors. To remain competitive, we need to
introduce products in a timely manner that incorporate or are
compatible with these new technologies as they emerge. If we are
unable to enter a particular market in a timely manner with
internally developed products, we may license technology from
other businesses or acquire other businesses as an alternative
to internal research and development.

53



---



##### Table of Contents



Our revenue may decline and our ability to
achieve profitability may be threatened if the demand for
wireless services in general and broadband wireless access
systems in particular does not continue to grow.

Our success is dependent on the continued trend
toward wireless telecommunications and data communications
services. If the rate of growth slows and service providers
reduce their capital investments in wireless infrastructure or
fail to expand into new geographic markets, our revenue may
decline. Unlike some competitors such as Cisco Systems
(including Linksys), NetGear and 3Com, our principal product
offerings rely on wireless technologies. Accordingly, we would
experience a greater impact from a decline in the demand for
wireless services than some of our most important competitors.
In addition, wireless access solutions are unproven in the
marketplace and some of the wireless technologies, such as our
Tsunami point-to-multipoint technology and 802.11 technologies
in which we have invested substantial capital, were only
commercially introduced in the last few years. In addition, we
are also investing in the development of products that comply
with the emerging 802.16 wireless access standard. If wireless
access technology turns out to be unsuitable for widespread
commercial deployment, it is unlikely we could generate enough
sales to achieve and sustain profitability. We have listed below
the factors that we believe are key to the success or failure of
broadband wireless access technology:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | its reliability and security and the perception
    by end users of its reliability and security;                                            
|
| |  | its capacity to handle growing demands for faster
    transmission of increasing amounts of data, voice and video;                           
|
| |  | the availability of sufficient frequencies for
    network service providers to deploy products at commercially
    reasonable rates;        
|
| |  | its cost-effectiveness and performance compared
    to other forms of broadband access, whose prices and performance
    continue to improve;
|
| |  | its suitability for a sufficient number of
    geographic regions; and                                                                       
|
| |  | the availability of sufficient site locations for
    network service providers to install products at commercially
    reasonable rates.    

We have experienced the effects of many of the
factors listed above in interactions with customers selecting
wireless versus wire line technology. For example, because of
the frequency with which individuals using cellular phones
experience fading or a loss of signal, customers often hold the
perception that all broadband wireless technologies will have
the same reliability constraints even though the wireless
technology we use does not have the same problems as cellular
phones. In some geographic areas, because of adverse weather
conditions that affect wireless transmissions, but not wire line
technologies, we are not able to sell products as successfully
as competitors with wire line technology. In addition, future
legislation, legal decisions and regulation relating to the
wireless telecommunications industry may slow or delay the
deployment of wireless networks.

We may also lose customers to different types of
wireless technologies. Many of our products operate in the
unlicensed frequency bands, in compliance with various
governmental regulations. In addition, many of the emerging
wireless standards utilize these unlicensed frequency bands. The
proliferation and market acceptance of unlicensed wireless
products increases the probability of interference among
unlicensed devices. Increasing interference can adversely affect
the operation of our unlicensed products, resulting in customers
selecting alternative products that do not operate in these
unlicensed frequency bands. For example, we have only a limited
offering of products that operate in licensed radio spectrums.
Some customers, however, may want to operate in licensed radio
spectrums because they sometimes offer less interference than
license free radio spectrums or have other advantages.

We depend on international sales and our
ability to sustain or expand international sales is subject to
many risks, which could adversely affect our operating
results.

During the years ended December 31, 2003 and
2002, international sales accounted for approximately 41% and
38% of our total sales, respectively. We expect that our revenue
from shipments to international

54



---



##### Table of Contents



customers will vary as a percentage of total
revenue. There are certain risks inherent in doing business in
international markets, including the following:




| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | uncertainty of product acceptance by customers in
    foreign countries;                                        
|
| |  | difficulty in assessing the ability to collect on
    orders to be shipped in an uncertain economic environment;
|
| |  | difficulty in collecting accounts receivable;                                                                   
|
| |  | export license and documentation requirements;                                                                  
|
| |  | unforeseen changes in regulatory requirements;                                                                  
|
| |  | difficulties in staffing and managing
    multinational operations;                                             
|
| |  | governmental restrictions on the repatriation of
    funds into the United States;                              
|
| |  | foreign currency fluctuations;                                                                                  
|
| |  | longer payment cycles for international
    distributors;                                                       
|
| |  | tariffs, duties taxes and other trade barriers;                                                                 
|
| |  | difficulties in finding foreign licensees or
    joint venture partners; and                                    
|
| |  | potential political and economic instability.                                                                   

There is a risk that such factors will harm our
ability to continue to successfully operate internationally and
our efforts to expand international operations. In this regard,
our revenue levels have been affected, in part, by reduced
ability to ship our products to international customers in cases
where collectibility, based on a number of factors, could not be
reasonably assured.

While we may extend limited credit terms,
fluctuations in currency exchange rates could cause our products
to become relatively more expensive to customers in a particular
country, leading to a reduction in sales or profitability in
that country. There can be no assurance that foreign markets
will continue to develop or that we will receive additional
orders to supply our products to foreign customers. Our business
and operating results could be materially adversely affected if
foreign markets do not continue to develop or if we do not
receive additional orders to supply our products for use by
foreign customers.

To successfully expand international sales, we
will need to recruit additional international sales and support
personnel and expand our relationships with international
distributors and value-added resellers. This expansion will
require significant management attention and financial
resources. We may incur these additional costs and add these
management burdens without successfully expanding sales. This
failure would harm our operating results.

Uncertainties and heightened security
associated with the aftermath of war in Iraq and the ongoing war
on terrorism may continue to adversely affect domestic and
international demand for our products, result in a further
deterioration of global economic conditions, and increase
shipment times and costs for our products.

The economic uncertainty resulting from
hostilities in Iraq may continue to negatively impact consumer
and business confidence. In recent periods, general economic
conditions in the U.S. caused and may continue to cause
U.S. businesses to slow spending on products and to delay
sales cycles. Similarly, global economic conditions could cause
foreign businesses to slow or halt spending on our products. We
manufacture a substantial portion of our products outside the
U.S., and we may experience delays in the delivery of our
products or increased shipping costs as a result of increased
security measures. This economic uncertainty may make it more
difficult to continue to implement our business strategy and
could adversely impact future operating results.

55



---



##### Table of Contents



Our business will depend on rapidly evolving
telecommunications and Internet industries.

Our future success is dependent upon the
continued growth of the data communications and wireless
industries, particularly with regard to Internet usage. The
global data communications and Internet industries are evolving
rapidly and it is difficult to predict potential growth rates or
future trends in technology development. We cannot assure you
that the deregulation, privatization and economic globalization
of the worldwide telecommunications market that has resulted in
increased competition and escalating demand for new technologies
and services will continue in a manner favorable to us or our
business strategies. In addition, there can be no assurance that
the growth in demand for wireless and Internet services, and the
resulting need for high speed or enhanced data communications
products and wireless systems, will continue at its current rate
or at all.

We may be dependent on and receive a
significant percentage of our revenue from a limited number of
OEM customers.

A limited number of OEM customers may contribute
a significant percentage of our revenue. We expect that sales to
a limited number of OEM customers will continue to account for a
significant portion of our revenue for the foreseeable future.
Sales of many of our wireless networking products depend upon
decisions of prospective OEM customers to develop and market
wireless solutions that incorporated our wireless technology.
OEM customers orders are affected by a variety of factors,
including the following:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | new product introductions;                                       
|
| |  | end user demand for OEM customers products;                     
|
| |  | joint development efforts;                                       
|
| |  | OEM customers product life cycles;                              
|
| |  | inventory levels;                                                
|
| |  | market and OEM customers adoption of new
    wireless standards;
|
| |  | manufacturing strategies;                                        
|
| |  | lengthy design-in cycles;                                        
|
| |  | pricing;                                                         
|
| |  | regulatory changes;                                              
|
| |  | contract awards; and                                             
|
| |  | competitive situations.                                          

The loss of one or more of, or a significant
reduction in orders from, our major OEM customers could
materially and adversely affect our operating results or stock
price. In addition, there can be no assurance that we will
become a qualified supplier for new OEM customers or that we
will remain a qualified supplier for existing OEM customers.

Our WWAN business derives a substantial
portion of its revenue from a limited number of distributors.
Therefore, a decrease or loss in business from any of them may
cause a significant delay or decline in our revenue and could
harm our reputation.

Our WWAN business has historically generated a
significant amount of revenue from a limited number of
distributors. The loss of business from any of these
distributors or the delay of significant orders from any of
them, even if only temporary, could significantly reduce our
revenue, delay recognition of revenue, harm our reputation or
reduce our ability to accurately predict cash flow. One
distributor accounted for approximately 14% and 23% of our total
revenue in 2003 and the year ended 2002, respectively. We do not
have long-term contracts with any of these distributors. While
we expect to have a more diversified and expansive end customer
base, the future success of our business will depend
significantly on the timing and size of future

56



---



##### Table of Contents



purchase orders, if any, from a limited number of
distributors. In addition, as we continue the development of our
distribution channels, we may consolidate demand through fewer,
larger distributors in order to effectively manage a growing
base of VARs, resellers and sub-distributors.


We depend on limited suppliers for key
components that are difficult to manufacture, and because we may
not have long-term arrangements with these suppliers, we could
experience disruptions in supply that could decrease or delay
the recognition of revenues.

We depend on single or limited source suppliers
for several key components used in our products.
Proxim, Inc. and Agere depended on single sources for our
proprietary application specific integrated circuits, or ASICs,
and assembled circuit boards. Any disruptions in the supply of
these components or assemblies could delay or decrease our
revenues. In addition, even for components with multiple
sources, there have been, and may continue to be, shortages due
to capacity constraints caused by high demand. We do not have
any long-term arrangements with our suppliers and could be at a
disadvantage compared to other companies, particularly larger
companies, that have contractual rights or preferred purchasing
arrangements. If, for any reason, a supplier fails to meet our
quantity or quality requirements, or stops selling components to
us or our contract manufacturers at commercially reasonable
prices, we could experience significant production delays and
cost increases, as well as higher warranty expenses and product
reputation problems. Because the key components and assemblies
of our products are complex, difficult to manufacture and
require long lead times, we may have difficulty finding
alternative suppliers to produce our components and assemblies
on a timely basis. We have experienced shortages of some of
these components in the past, which delayed related revenue, and
we may experience shortages in the future. In addition, because
the majority of our products have a short sales cycle of between
30 and 90 days, we may have difficulty in making accurate
and reliable forecasts of product needs. As a result, we could
experience shortages in supply, which could delay or decrease
revenue because our customers may cancel their orders or choose
a competitor for their future needs.

We have limited manufacturing capabilities and
we will need to increasingly depend on contract manufacturers
for our manufacturing requirements.

We have limited manufacturing capability and
limited experience in large scale or foreign manufacturing.
There can be no assurance that we will be able to develop or
contract for additional manufacturing capacity on acceptable
terms on a timely basis. In addition, in order to compete
successfully, we will need to achieve significant product cost
reductions. Although we intend to achieve cost reductions
through engineering improvements, production economies, and
manufacturing at lower cost locations including outside the
United States, there can be no assurance that we will be able to
do so. In order to remain competitive, we must continue to
introduce new products and processes into our manufacturing
environment, and there can be no assurance that any such new
products will not create obsolete inventories related to older
products. For example, as part of our restructuring charge in
the second quarter of 2003, we increased our provision for
excess and obsolete inventory by $22.5 million, primarily
related to legacy WWAN products. As a part of our restructuring
charge in the first quarter of 2002, we increased our provision
for obsolete and excess inventory, including purchase
commitments, totaling $12.7 million, of which
$7.7 million related to excess inventory and
$5.0 million related to purchase commitments, primarily
related to legacy WLAN products. These provisions related to a
decrease in demand for certain products as well as our strategy
to discontinue certain products in order to concentrate on
selling next generation products.

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

Changes in our manufacturing operations to
incorporate new products and processes, or to manufacture at
lower cost locations outside the United States, could cause
disruptions, which, in turn, could adversely affect customer
relationships, cause a loss of market opportunities and
negatively affect our business and

57



---



##### Table of Contents



operating results. In addition, our reliance on a
limited number of manufacturers involves a number of risks,
including the risk that these manufacturers may terminate their
relationship with us, may choose not to devote adequate capacity
to produce our products or may delay production of our products.
If any of these risks are realized, we could experience an
interruption in supply, which could have an adverse impact on
the timing and amount our revenues. There can be no assurance
that we will be able to effectively transition these products,
which, in turn, could adversely affect customer relationships,
cause a loss of market opportunities and negatively affect our
business and operating results.


Our reliance on contract manufacturers could
subject us to additional costs or delays in product shipments as
demand for our products increases or decreases. Some contract
manufacturers have decreased their operations in response to an
overall contraction in demand for wireless networking products.
There can be no assurance that we will effectively manage our
contract manufacturers or that these manufacturers will meet our
future requirements for timely delivery of products of
sufficient quality and quantity. The inability of our contract
manufacturers to provide us with adequate supplies or the loss
of a contract manufacturer would result in costs to acquire
additional manufacturing capacity and delays in shipments of our
products, materially adversely affecting our business and
operating results. In addition, cancellations in orders as a
result of decreases in demand for products may subject us to
claims for damages. In this regard, we are party to disputes,
including legal actions, with a number of suppliers and vendors.
These disputes relate primarily to excess materials and order
cancellation claims that resulted from declines in demand for
our products during 2001 and 2002 and the commensurate
reductions in manufacturing volumes.

We may be unable to achieve the manufacturing
cost reductions and improvements required in order to achieve or
maintain profitability.

In general, the average selling prices of our
products decline over time. If we do not reduce production costs
and other expenses, we may not be able to offset this continuing
decline and achieve or maintain profitability. We must also
develop and introduce on a timely basis new products and
features that can be sold at higher average selling prices or
produced at lower costs.

Failure to decrease the cost of our products
or to effectively develop new systems would cause our revenue to
decline or to increase more slowly.

We expect that average selling prices of our
products will continue to decrease because one of our strategies
is to increase the percentage of domestic and international
sales being made through distributors and value-added resellers,
and to OEM customers, which involve lower prices than our direct
sales. This risk from declining average selling prices may also
intensify because we expect that market conditions, particularly
falling prices for competing broadband solutions, will force us
to reduce prices over time. Under some circumstances, we may be
forced to reduce prices even if it causes us to decrease gross
profit or to take a loss on our products. We may also be unable
to reduce sufficiently the cost of our products to enable us to
compete with other broadband access technologies with lower
product costs. In order to remain competitive, we will need to
design our products so that they can be manufactured with
low-cost, automated manufacturing, assembly and testing
techniques. We cannot assure you that we will be successful in
designing our products to allow contract manufacturers to use
lower-cost, automated techniques. In addition, any redesign may
fail to result in sufficient cost reductions to allow us to
significantly reduce the price of our products or prevent our
gross profit from declining as prices decline.

Because many of our current and planned
products are or will be highly complex, they may contain defects
or errors that are detectable only after deployment in complex
networks and which, if detected, could harm our reputation,
result in costs to us in excess of our estimates, adversely
affect our operating results, result in a decrease in revenue or
result in difficulty collecting accounts receivable.

Many of our complex products can only be fully
tested when deployed in commercial networks. As a result, end
users may discover defects or errors or experience breakdowns in
their networks after the products

58



---



##### Table of Contents



have been deployed. The occurrence of any defects
or errors in these products, including defects or errors in
components supplied by our contract manufacturers, could result
in:




| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | failure to achieve market acceptance and loss of
    market share;             
|
| |  | cancellation of orders;                                                        
|
| |  | difficulty in collecting accounts receivable;                                  
|
| |  | increased service and warranty costs;                                          
|
| |  | diversion of resources, legal actions by
    customers and end users; and      
|
| |  | increased insurance costs and other losses to our
    business or to end users.

If we experience warranty failure that indicate
either manufacturing or design deficiencies, we may be required
to recall units in the field and or stop producing and shipping
such products until the deficiency is identified and corrected.
In the event of such warranty failures, our business could be
adversely affected resulting in reduced revenue, increased costs
and decreased customer satisfaction. Because customers often
delay deployment of a full system until the products have been
tested by them and any defects have been corrected, we expect
these revisions to cause delays in orders by our customers for
our systems. Because our strategy is to introduce more complex
products in the future, this risk will intensify over time. End
users have discovered errors in our products in the past and may
discover errors in our products in the future. If the costs of
remediating problems experienced by our customers exceeds our
warranty reserves, these costs may adversely affect our
operating results.

To compete effectively, we will need to
establish and expand new distribution channels for our
point-to-point and point-to-multipoint products and
802.11 WLAN products.

We sell our products through domestic and
international distributors. In general, distributors,
value-added resellers and retailers offer products of several
different companies, including products that may compete with
our products. Accordingly, they may give higher priority to
products of other suppliers, thus reducing our efforts to sell
our products. In addition they often focus on specific markets
and we will need to add new distributors and value-added
resellers as we expand our sales to new markets. Agreements with
distributors and retailers are generally terminable at their
option. Any reduction in sales efforts or termination of a
relationship may materially and adversely affect our business
and operating results. Use of distributors and retailers also
entails the risk that they will build up inventories in
anticipation of substantial growth in sales. If such growth does
not occur as anticipated, they may substantially decrease the
amount of products ordered in subsequent quarters. Such
fluctuations could contribute to significant variations in our
future operating results.

Broadband wireless access solutions have some
disadvantages and limitations as compared to other alternative
broadband access solutions that may prevent widespread adoption,
which could hurt our prospects.

Broadband wireless access solutions, including
point-to-point and point-to-multipoint systems, compete with
other high-speed access solutions such as digital subscriber
lines, cable modem technology, fiber optic cable and other
high-speed wire line and satellite technologies. If the market
for our Lynx and Tsunami point-to-point and Tsunami
point-to-multipoint solutions fails to develop or develops more
slowly than we expect due to this competition, our sales
opportunities will be harmed. Many of these alternative
technologies can take advantage of existing installed
infrastructure and are generally perceived to be reliable and
secure. As a result, they have already achieved significantly
greater market acceptance and penetration than point-to-point
and point-to-multipoint broadband wireless access technologies.
Moreover, current point-to-point and point-to-multipoint
broadband wireless access technologies have inherent technical
limitations that may inhibit their widespread adoption in many
areas, including the need for line-of-sight installation and, in
the case of operating frequencies above 11 GHz, reduced
communication distance in bad weather.

59



---



##### Table of Contents



We expect point-to-point and point-to-multipoint
broadband wireless access technologies to face increasing
competitive pressures from both current and future alternative
technologies. In light of these factors, many service providers
may be reluctant to invest heavily in broadband wireless access
solutions.

Broadband wireless access products require a
direct line-of-sight, which may limit the ability of service
providers to deploy them in a cost-effective manner and could
harm our sales.

Because of line-of-sight limitations, service
providers often install broadband wireless access equipment on
the rooftops of buildings and on other tall structures. Before
undertaking these installations, service providers must
generally secure roof rights from the owners of each building or
other structure on which the equipment is to be installed. The
inability to easily and cost-effectively obtain roof rights may
deter customers from choosing to install broadband wireless
access equipment, which could have an adverse effect on our
sales.

Inability to attract and retain key personnel
could hinder our ability to operate.

Our success depends to a large extent on the
continued services of Mr. Frank Plastina, our President and
Chief Executive Officer, Mr. David L. Thompson, our
Executive Vice President and Chief Financial Officer, and other
members of our senior management team. The loss of the services
of any of these management members could harm our business
because of the crucial role each of them is expected to play in
our operations and strategic development. In order to be
successful, we must also retain and motivate key employees,
including those in managerial, technical, marketing and sales
positions. In particular, our product generation efforts depend
on hiring and retaining qualified engineers. Experienced
management and technical, sales, marketing and support personnel
in the wireless networking industry are in high demand and
competition for their talents is intense. This is particularly
the case in Silicon Valley, where our headquarters and a
majority of our operations are located.

We may have difficulties with our acquisitions
and investments, which could adversely affect our growth and
financial condition.

From time to time, we may consider new business
opportunities and ventures, including acquisitions, in a broad
range of areas. Any decision to pursue a significant business
expansion or new business opportunity would be accompanied by
risks, including, among others:



| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | requiring to invest a substantial amount of
    capital, which could materially harm our financial condition and
    ability to implement our existing business strategy;
|
| |  | requiring to issue additional equity interests,
    which would be dilutive to our stockholders;                                                                         
|
| |  | placing additional and substantial burdens on our
    management personnel and financial and operational systems;                                                        
|
| |  | the difficulty of assimilating the operations,
    technology and personnel of the acquired companies;                                                                   
|
| |  | the potential disruption of our ongoing business;                                                                                                                        
|
| |  | the possible inability to retain key technical
    and managerial personnel;                                                                                             
|
| |  | potential additional expenses associated with
    amortization of purchased intangible assets or the impairment of
    goodwill;                                         
|
| |  | additional expenses associated with the
    activities and expansion of the acquired businesses; and                                                                     
|
| |  | the possible impairment of relationships with
    existing employees, customers, suppliers and investors.                                                                

In addition, we cannot assure you that we will be
successful in overcoming these risks or any other problems
encountered in connection with any acquisitions or other
investments that we may make in the future.

60



---



##### Table of Contents



Several of our stockholders beneficially own a
significant percentage of our common stock, which will allow
them to significantly influence matters requiring shareholder
approval and could discourage potential acquisitions of our
company.

Warburg Pincus and entities affiliated with
Broadview Capital Partners hold outstanding shares of
Series A preferred stock convertible into an aggregate of
41,448,137 shares of common stock as of March 5, 2004.
Including additional accretion at an annual rate of 8% through
August 5, 2005, the Series A preferred stock will be
convertible into an aggregate of 46,314,752 shares of common
stock. The Investors also hold Notes exchangeable for shares of
our Series B preferred stock, which is then convertible
into our common stock. Assuming exchange of the Notes on their
maturity date of September 30, 2004, the Investors will
receive Series B preferred stock immediately convertible
into 44,414,830 shares of our common stock. Including additional
accretion at an annual rate of 14% through the seventh
anniversary of the date of issuance of the Series B
preferred stock, the Series B preferred stock will be
convertible into 116,330,766 shares of our common stock. In
addition, the Investors currently hold warrants to purchase an
aggregate of 18,301,612 shares of our common stock at an
exercise price of $2.05 per share, 18,000,000 shares
of our common stock at an exercise price of $1.46 per share
and 6,000,000 shares of our common stock at an exercise
price of $1.53 per share.

Assuming conversion of the notes, the
Series B Preferred Stock issuable upon conversion of the
notes, the Series A Preferred Stock, and the warrants held
by the Series A and Series B Preferred Stock
investors, would be expected to represent approximately 51.3% of
our outstanding capital stock on an as-converted and
as-exercised basis, based on shares outstanding as of
March 5, 2004, and excluding outstanding employee options
and warrants to purchase approximately 33,619,407 shares of
common stock.

The Investors are able to exert significant
influence over actions requiring the approval of our
stockholders, including many types of change of control
transactions and any amendments to our certificate of
incorporation. The interests of these stockholders may be
different than those of other stockholders of our company. In
addition, the significant ownership percentage of these
stockholders could have the effect of delaying or preventing a
change of control of our company or otherwise discouraging a
potential acquiror from obtaining control of our company.

As holders of our Series A preferred
stock the Investors have rights that are senior to those of our
common stock. Upon exchange of the Notes for Series B
preferred stock the Investors will have additional rights that
are senior to those of our common stock.

Holders of our Series A preferred stock are
entitled to receive certain benefits not available to holders of
our common stock. In particular:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | from August 2005 through August 2007, shares of
    Series A preferred stock will be entitled to dividends
    equal to 8% of their liquidation preference per year, payable,
    at our election, in cash or shares of our common stock valued at
    the then-market price;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | each share of Series A preferred stock will
    have an initial liquidation preference of $25.00 and the
    liquidation preference will bear interest at 8%, compounded
    semi-annually, for three years. The liquidation preference is
    subject to adjustments in the event we undertake a business
    combination or other extraordinary transaction, or we are
    liquidated or dissolved;                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | in August 2007, we will be required to redeem all
    outstanding shares of Series A preferred stock, if any, for
    cash equal to their liquidation preference plus accrued and
    unpaid dividends;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | in the event of a change of control of our
    company, we will have the right to convert the Series A
    preferred stock into common stock if upon such conversion the
    holders of Series A preferred stock would receive liquid
    securities or cash with a fair market value equal to or greater
    than 110% of the liquidation preference then in effect. If the
    consideration is less than 110% of the liquidation preference,
    we may either modify the conversion price so that the
    consideration will equal 110% of the liquidation preference then
    in effect or repurchase the Series A preferred stock for
    cash at 101% of the liquidation preference then in effect. In
    addition, in the event of a change of control that occurs prior
    to

61



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | August 2005, the liquidation preference will
    increase as necessary to provide for three years of accretion;                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | holders of Series A preferred stock have
    rights to acquire additional shares of our capital stock or
    rights to purchase property in the event of certain grants,
    issuance or sales;                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | the conversion price of the Series A
    preferred stock, which initially was approximately
    $3.06 per share, and was reduced to approximately $2.24 in
    connection with the issuance of the Notes, is subject to
    additional customary weighted average anti-dilution adjustments
    and other customary adjustments; and                                                                                                                                                                                                                                                          
|
| |  | the approval of holders of a majority of the
    Series A preferred stock is separately required to approve
    changes to our certificate of incorporation or bylaws that
    adversely affect these holders rights, any offer, sale or
    issuance of our equity or equity-linked securities ranking
    senior to or equally with the Series A preferred stock, and
    any repurchase or redemption of our equity securities (other
    than from an employee, director or consultant following
    termination), or the declaration or payment of any dividend on
    our common stock.

Warburg Pincus and Broadview Capital will have
the right to exchange the Notes for shares of Series B
preferred stock. Upon exchange of the Notes, holders of our
Series B preferred stock will be entitled to receive
certain benefits not available to holders of our common stock.
In particular:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | each share of Series B preferred stock will
    have an initial liquidation preference of $100.00 and the
    liquidation preference will bear interest at an annual rate of
    14%, compounded quarterly, for seven years from the date of
    issuance. The liquidation preference is subject to adjustments
    in the event we undertake a business combination or other
    extraordinary transaction, or we are liquidated or dissolved;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | on the seventh anniversary of the issuance of the
    Series B preferred stock, we will be required to redeem all
    outstanding shares of Series B preferred stock, if any, for
    cash equal to their liquidation preference plus accrued and
    unpaid dividends;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | in the event of a change of control of our
    company, the holders of the Series B preferred stock will
    have the right to convert the Series B preferred stock into
    common stock if upon such conversion the holders of
    Series B preferred stock would receive liquid securities or
    cash with a fair market value equal to or greater than 110% of
    the liquidation preference then in effect. If the consideration
    is less than 110% of the liquidation preference, we may either
    modify the conversion price so that the consideration will equal
    110% of the liquidation preference then in effect or offer to
    repurchase the Series B preferred stock for cash at 101% of
    the liquidation preference then in effect. In addition, in the
    event of a change of control that occurs prior to the seventh
    anniversary of the issuance of the Series B preferred
    stock, the liquidation preference will increase as necessary to
    provide for seven years of accretion;
|
| |  | holders of Series B preferred stock will
    have rights to acquire additional shares of our capital stock or
    rights to purchase property in the event of certain grants,
    issuance or sales;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | the conversion price of the Series B
    preferred stock, which initially shall be approximately
    $1.15 per share, will be subject to customary weighted
    average anti-dilution adjustments and other customary
    adjustments; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | the approval of holders of a majority of the
    Series B preferred stock is separately required to approve
    changes to our certificate of incorporation or bylaws that
    adversely affect these holders rights, any offer, sale or
    issuance of our equity or equity-linked securities ranking
    senior to or equally with the Series B preferred stock, any
    repurchase or redemption of our equity securities (other than
    from an employee, director or consultant following termination),
    or the declaration or payment of any dividend on our common
    stock.                                                                                                                                                                                                                                                                                                                                                                                                                                    

Warburg Pincus has agreed until July 22,
2007 to limit its voting rights to no more than 45% of our
issued and outstanding voting stock. In addition, for so long as
each of the Investors owns at least 25% of the aggregate
principal amount of the Notes issued to each of them or 25% of
the shares of Series B preferred

62



---



##### Table of Contents



stock issued to them (including as owned and
outstanding such shares of common stock issuable upon conversion
of the shares of Series B preferred stock and upon exercise
of the warrants), and Warburg Pincus owns at least 25% of the
shares of Series A referred stock (including as owned and
outstanding such shares of common stock issuable upon conversion
of the shares of Series A preferred stock and exercise of
the existing warrants), the Investors will have the right to
hold three out of a possible nine seats on our Board of
Directors and Warburg Pincus shall have the right to have one
observer attend meetings of the Board of Directors.


We are obligated to register the common stock
issuable upon conversion of the Series A preferred stock
and Series B preferred stock and upon exercise of all
warrants held by the Investors on a resale registration
statement with the Securities and Exchange Commission.

Possible third-party claims of infringement of
proprietary rights against us could have a material adverse
effect on our business, results of operation and financial
condition.

The communications industry is characterized by a
relatively high level of litigation based on allegations of
infringement of proprietary rights. There can be no assurance
that third parties will not assert infringement claims against
us, that any such assertion of infringement will not result in
litigation or that we would prevail in such litigation.
Furthermore, any such claims, with or without merit, could
result in substantial cost to our business and diversion of our
personnel, require us to develop new technology or enter into
royalty or licensing arrangements. Such royalty or licensing
agreements, if required, may not be available on terms
acceptable to us, or at all. In the event of a successful claim
of infringement or misappropriation against us, and our failure
or inability to develop non-infringing technology or to license
the infringed, misappropriated or similar technology at a
reasonable cost, our business, results of operations and
financial condition would be materially adversely affected. In
addition, we may be obligated to indemnify our customers against
claimed infringement of patents, trademarks, copyrights and
other proprietary rights of third parties. Any requirement to
indemnify our customers could have a material adverse effect on
our business, results of operations and financial condition.

Should the outcome of our patent or other
litigation be unfavorable, we may be required to pay damages and
other expenses, or we could be enjoined from selling certain
products, which could materially and adversely affect our
business, financial condition and operating results.

Proxim, Inc.s involvement in patent
litigation has resulted in, and could in the future continue to
result in, substantial costs and diversion of management
resources of the Company. In addition, this litigation, if
determined adversely to us, could result in the payment of
substantial damages and/or royalties or prohibitions against
utilization of essential technologies, and could materially and
adversely affect our business, financial condition and operating
results.

On December 4, 2001, Symbol filed suit in
the U.S. District Court for the District of Delaware
alleging that Proxim, Inc. infringed four Symbol patents
related to systems for packet data transmission. Symbol sought
an award for unspecified damages and a permanent injunction
against Proxim, Inc. based on alleged patent infringement
counterclaims. On December 18, 2001, Proxim, Inc.
filed an answer and counterclaims seeking declaratory judgments
for non-infringement, invalidity and unenforceability of the
four asserted Symbol patents, injunctive and monetary relief for
Symbols infringement of a Proxim, Inc. patent,
monetary relief for Symbols false patent marking, and
injunctive and monetary relief for Symbols unfair
competition under the Lanham Act, common law unfair competition
and tortious interference.

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringe two of Symbols patents and assessed a 6% royalty
on our sales of these products from January 1, 1995.
Accordingly, we recorded an accrual for estimated royalties
payable of $22.9 million and $2.9 million for interest
during the third quarter of 2003. We have not been enjoined from
continued sales of these products, and royalty payments, if any,
on these sales have not been determined by the court. In
November 2003, the court conducted a bench trial on our
remaining equitable defenses not addressed by the jury and
proceedings in the case continue We will continue to evaluate
and review our estimate of the royalties

63



---



##### Table of Contents



and interest payable from time to time for any
indications that could require us to change our assumptions
relating to the amount already recorded. In addition, we do not
incur any immediate financial obligation to Symbol as a result
of this verdict, pending completion of related proceedings.


On March 17, 2003, we announced a settlement
with Intersil Corporation to resolve all pending patent-related
litigation between the two companies. Under the terms of the
agreement, Proxim, Inc. and Intersil have agreed to dismiss
all claims against each other, including lawsuits before the
International Trade Commission and Delaware and Massachusetts
Federal Courts. As part of the confidential settlement
agreement, the two companies entered into a patent cross license
agreement for their respective patent portfolios and Intersil
agreed to make a one-time payment of $6.0 million to us.
The two companies have also entered into a product supply
agreement defining the terms under which we will be able to
purchase 802.11 products that utilize Intersils chipsets.
During the first quarter of 2003, we recorded $6 million as
licensing revenue and $3 million of legal expense as final
settlement of outstanding legal fees and expenses related to the
terminated patent litigation.

On or about March 10, 2003, we were served
with a complaint filed on January 15, 2003, by Top Global
Technology Limited (Top Global), a distributor for
Agere Systems Singapore. Our demurrer to Top Globals
complaint was sustained in May 2003. Top Global then filed and
served an amended complaint on May 30, 2003. Top
Globals lawsuit was filed against Agere
Systems, Inc., Agere Systems Singapore, and Agere Systems
Asia Pacific (collectively, Agere) and us in the
Superior Court for the State of California, County of
Santa Clara. Top Global claims that it is entitled to
return for a credit $1.2 million of products that it
purchased from Agere Systems Singapore in June 2002 as a result
of our decision to discontinue a product line that we purchased
from Agere in August 2002. The amended complaint asks the court
to determine whether Agere or we are responsible for accepting
the product return and issuing a $1.2 million credit and
also alleges breach of contract. We answered the amended
complaint and asserted several defenses to Top Globals
claims. In January 2004, the parties mediated this dispute but
were unable to reach a settlement. In March 2004, the Court
dismissed the contract claims against Agere but at the same time
granted Top Globals motion for leave to amend its
complaint to allege a fraud claim against Agere. Discovery
continues and a trial setting conference is scheduled for
May 4, 2004.

On February 10, 2004, we received a copy of
a complaint filed on February 2, 2004 in Tokyo District
Court by Active Technology Corporation, a Japanese-based
distributor of our products. The complaint alleges, among other
things, that we sold to Active certain defective products, which
Active in turn subsequently sold to its customers. Active seeks
damages of 559.2 million Japanese yen, which includes the
purchase price of the allegedly defective products and
replacement costs allegedly incurred by Active. Active seeks to
offset the claim of 559.2 million Japanese yen against
outstanding accounts payable by Active of 175.3 million
Japanese yen to us, resulting in a net claim against Proxim
Corporation of 383.9 million Japanese yen. Translated into
U.S. dollars on March 5, 2004, Actives net claim
is approximately $3.4 million. This case is in its earliest
stages, as discovery has not yet commenced and a trial date has
not been established.

We are party to disputes, including legal
actions, with a number of suppliers and vendors. These disputes
relate primarily to excess materials and order cancellation
claims that resulted from the declines in demand for our
products during 2001 and 2002 and the commensurate reductions in
manufacturing volumes. We have recorded reserves related to
these disputes to the extent that management believes are
appropriate. The Company intends to vigorously defend itself in
these matters.

The results of any litigation matters are
inherently uncertain. In the event of any adverse decision in
the described legal actions or disputes, or any other related
litigation with third parties that could arise in the future, we
could be required to pay damages and other expenses, and, in the
case of litigation related to patents or other intellectual
property rights, to cease the manufacture, use and sale of
infringing products, to expend significant resources to develop
non-infringing technology, or to obtain licenses to the
infringing technology. We cannot make any assurance that these
matters will not materially and adversely affect our business,
financial condition or operating results.

In particular, if the proceedings before the
court in our litigation with Symbol are not decided in our
favor, we would likely be required to make significant payments
to Symbol, including payments for royalties

64



---



##### Table of Contents



related to past sales of products found to
infringe and additional royalties in connection with future
sales of these products, or we would be required to post a bond
in order to appeal the courts decision. Any adverse ruling
or judgment in this litigation that requires us to render
payment or post a bond equal to or greater than
$10 million, and any other ruling or judgment in this or
any other litigation that is material and adverse to us,
triggers an event of default under the Notes issued to Warburg
Pincus and affiliates of Broadview Capital. Upon such
occurrence, the Investors would have the ability to require us
to repay the Notes. In addition, entry of any judgment,
restraining order, injunction or any material adverse
development in the litigation with Symbol would result in an
event of default under our secured credit facility with Silicon
Valley Bank. Upon such occurrence, Silicon Valley Bank would
have the ability to require us to repay any outstanding amounts
under the credit facility and to prohibit us from borrowing any
additional amounts.


If we were required to make payments to Symbol,
post a bond to the court, and/or repay the Notes and amounts, if
any, owed to Silicon Valley Bank, either due to an event of
default or otherwise, we would be required to obtain immediate
alternative sources of financing. If we were not able to obtain
an alternative source of financing, we would most likely have
insufficient cash to pay these obligations, be unable to meet
our ongoing operating obligations as they come due in the
ordinary course of business, and may have to seek protection
under applicable bankruptcy laws.

The implementation of a new management
information system may disrupt our business.

As a result of the merger between Proxim and
Western Multiplex, and the acquisition of Agere Systems
802.11 WLAN systems business during 2002, we identified a
requirement to consolidate and integrate our management
information systems. During the second quarter of 2003, we
implemented a new enterprise resource planning and financial
accounting and planning system and began to integrate this new
system with our customer relationship management system and our
product management system, and to create electronic interfaces
to certain supply chain partners information systems and
certain customers information systems. Implementation of
the new management information system, including the integration
with other systems is a very complex process that requires
significant financial resources and personnel time, as well as
unifying operating policies and procedures to ensure that the
total system operates efficiently and effectively. Errors in the
implementation could result in additional costs and cause
disruptions to our business, which could adversely affect our
ability to accurately report our financial results on a timely
basis and could have a material adverse effect on our business,
financial condition and operating results.

Compliance with governmental regulations in
multiple jurisdictions where we sell our products is difficult
and costly.

In the United States, we are subject to various
Federal Communications Commission, or FCC, rules and
regulations. Current FCC regulations permit license-free
operation in certain FCC-certified bands in the radio spectrum.
Our wireless products are certified for unlicensed operation in
the 902 - 928 MHz, 2.4 - 2.4835 GHz,
5.15 - 5.35 GHz and 5.725 - 5.825 GHz
frequency bands, and we expect soon to have certified products
in the newly opened 5.470 - 5.725 GHz band. Operation
in these frequency bands is governed by rules set forth in
Part 15 of the FCC regulations. The Part 15 rules are
designed to minimize the probability of interference to other
users of the spectrum and, thus, accord Part 15 systems
unlicensed status in the frequency band. In the event that there
is interference caused by a Part 15 user, the FCC can
require the Part 15 user to curtail transmissions that
create interference. In this regard, if users of our products
experience excessive interference from primary users, market
acceptance of our products could be adversely affected, which
could materially and adversely affect our business and operating
results. The FCC, however, has established certain standards
that create an irrefutable presumption of noninterference for
Part 15 users and we believe that our products comply with
such requirements. There can be no assurance that the occurrence
of regulatory changes, including changes in the availability of
spectrum, changes in the allowed use spectrum, or modification
to the standards establishing an irrefutable presumption for
unlicensed Part 15 users, would not significantly affect
our operations by rendering current products obsolete,
restricting the applications and markets served by our products
or increasing the opportunity for additional competition.

65



---



##### Table of Contents



Our products are also subject to regulatory
requirements in international markets and, therefore, we must
monitor the development of frequency regulations in certain
countries that represent potential markets for our products.
While there can be no assurance that we will be able to comply
with regulations in any particular country, we will design our
products to minimize the design modifications required to meet
various 2.4 GHz and 5 GHz international spread
spectrum regulations. In addition, we will seek to obtain
international certifications for our product line in countries
where there are substantial markets for wireless networking
systems. Changes in, or the failure by us to comply with,
applicable domestic and international regulations could
materially adversely affect our business and operating results.
In addition, with respect to those countries that do not follow
FCC regulations, we may need to modify our products to meet
local rules and regulations.

Regulatory changes by the FCC or by regulatory
agencies outside the United States, including changes in the
availability of spectrum, could significantly affect our
operations by restricting our development efforts, rendering
current products obsolete or increasing the opportunity for
additional competition. Several changes by the FCC were approved
within the last eight years including changes in the allocation
and use of available frequency spectrum, as well as the granting
of an interim waiver. These approved changes could create
opportunities for other wireless networking products and
services. There can be no assurance that new regulations will
not be promulgated, that could materially and adversely affect
our business and operating results. It is possible that the
United States and other jurisdictions will adopt new laws and
regulations affecting the pricing, characteristics and quality
of broadband wireless systems and products. Increased government
regulations could:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | decrease the growth of the broadband wireless
    industry;                      
|
| |  | hinder our ability to conduct business both
    domestically and internationally;
|
| |  | reduce our revenues;                                                             
|
| |  | increase the costs and pricing of our products;                                  
|
| |  | increase our operating expenses; and                                             
|
| |  | expose us to significant liabilities.                                            

Any of these events or circumstances could
seriously harm our business and results of operations.

Our operating results have been, and could
further be, adversely affected as a result of purchase
accounting treatment and the impact of amortization and
impairment of intangible assets relating to the merger and the
Agere asset purchase.

In accordance with generally accepted accounting
principles, we accounted for our merger with Proxim, Inc.
using the purchase method of accounting. Under the purchase
method of accounting, we have recorded the market value of our
Common Stock issued in connection with the merger, the fair
value of the options to purchase Proxim, Inc. Common Stock
that became options to purchase Proxim Corporation Common Stock
and the amount of direct transaction costs as the cost of
combining with Proxim, Inc. We have allocated the cost of
the individual assets acquired and liabilities assumed,
including various identifiable intangible assets (such as
acquired technology and acquired trademarks and trade names) and
in-process research and development, based on their respective
fair values at the date of the completion of the merger.
Intangible assets are required to be amortized prospectively
over their estimated useful lives. The purchase price was
allocated to deferred compensation, based on the portion of the
intrinsic value of the unvested Proxim, Inc. options we
have assumed to the extent that service is required after
completion of the merger in order to vest. Any excess of the
purchase price over those fair market values will be accounted
for as goodwill. We are not required to amortize goodwill
against income but goodwill and other non-amortizable intangible
assets will be subject to periodic reviews for impairment.

In this regard, due to the decline in forecasted
revenue in future periods, we took a charge of
$129.1 million related to the impairment of goodwill in
accordance with SFAS No. 142 in the fourth quarter of
2002. The impairment charged was measured as the amount that the
carrying amount exceeded its

66



---



##### Table of Contents



estimated fair value. If we are required to
recognize additional impairment charges, the charge will
negatively impact reported earnings in the period of the charge.


The price of our common stock may be subject
to wide fluctuation, and you may lose all or part of your
investment in our common stock.

The trading prices of our common stock have been
subject to wide fluctuations, and such trend is likely to
continue with respect to the trading price of our common stock.
The trading price of our common stock may fluctuate in response
to a number of events and factors, including:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | quarterly variations in revenues and operating
    results;                               
|
| |  | announcements of innovations and new products;                                            
|
| |  | strategic developments or business combinations
    by us or our competitors;             
|
| |  | changes in our expected operating expense levels;                                         
|
| |  | changes in financial estimates and
    recommendations of financial and industry analysts;
|
| |  | the operating and securities price performance of
    comparable companies; and           
|
| |  | news reports relating to trends in the wireless
    communications industry.              

In addition, the stock market in general, and the
market prices for wireless-related companies in particular, have
experienced extreme volatility that often has been unrelated to
the operating performance of these companies. These broad market
and industry fluctuations may influence the trading price of our
common stock. These trading price fluctuations may make it more
difficult to use our common stock as currency to make
acquisitions that might otherwise be advantageous, or to use
stock options as a means to attract and retain employees.
Accordingly, you may lose all or part of your investment in our
common stock.

Provisions of our certificate of
incorporation, bylaws and Delaware law could deter takeover
attempts.

Some provisions in our certificate of
incorporation and bylaws could delay, prevent or make more
difficult a merger, tender offer, proxy contest or change of
control of our company despite the possibility that such
transactions may be viewed to be in the best interest of our
stockholders since such transactions could result in a higher
stock price than the then-market price of our common stock.
Among other things, our certificate of incorporation and bylaws:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize our board of directors to issue
    preferred stock with the terms of each series to be fixed by the
    board of directors;              
|
| |  | divide our board of directors into three classes
    so that only approximately one-third of the total number of
    directors is elected each year;
|
| |  | permit directors to be removed only for
    cause; and                                                                                              
|
| |  | specify advance notice requirements for
    stockholder proposals and director nominations.                                                         

In addition, with some exceptions, the Delaware
General Corporation Law will restrict or delay mergers and other
business combinations between us and any stockholder that
acquires 15% or more of our voting stock.

We are incurring additional costs and devoting
more management resources to comply with increasing regulation
of corporate governance and disclosure.

We are spending an increased amount of management
time and external resources to analyze and comply with changing
laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002,
new SEC regulations and Nasdaq Stock Market rules and listing
requirements. Devoting the necessary resources to comply with
evolving corporate governance and public

67



---



##### Table of Contents



disclosure standards may result in increased
general and administrative expenses and a diversion of
management time and attention to these compliance activities.







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

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

Interest Rate Sensitivity

We maintain a short-term investment portfolio
consisting mainly of corporate bonds purchased with an average
maturity of less than one year. These available-for-sale
securities are subject to interest rate risk and will decline in
value if market interest rates increase. If market interest
rates were to increase immediately and uniformly by
10 percent from levels at December 31, 2003, the fair
value of the portfolio would decline by an immaterial amount. We
generally have the ability to hold our fixed income investments
until maturity and therefore do not expect our operating results
or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates on our
securities portfolio.

Exchange Rate Risk

We currently have operations in the United States
and several countries in South America, Europe and Asia. The
functional currency of all our operations is the
U.S. dollar. Though some expenses are incurred in local
currencies by our overseas operations, substantially all of our
transactions are made in U.S. dollars, hence, we have
minimal exposure to foreign currency rate fluctuations relating
to our transactions.

While we expect our international revenues to
continue to be denominated predominately in U.S. dollars,
an increasing portion of our international revenues may be
denominated in foreign currencies in the future. As a result,
our operating results may become subject to significant
fluctuations based upon changes in exchange rates of certain
currencies in relation to the U.S. dollar. We will analyze
our exposure to currency fluctuations and may engage in
financial hedging techniques in the future to attempt to
minimize the effect of these potential fluctuations; however,
exchange rate fluctuations may adversely affect our financial
results in the future.

Investment Risk

We are exposed to market risk as it relates to
changes in the fair value of our investments. We invested in
equity investments in a public company for business and
strategic purposes and we have classified these securities as
available-for-sale. We have also invested in an equity
instrument in a private company, which completed its IPO in
January 2004. This equity investment, in a technology company,
is subject to significant fluctuations in fair value due to the
volatility of the stock market and the industries in which these
companies participate. As of February 27, 2004, we had
unrealized gain of $2.2 million which was recorded as a
separate component of stockholders equity. Our objective
in managing our exposure to stock market fluctuations is to
minimize the impact of stock market declines to our earnings and
cash flows. There are, however, a number of factors beyond our
control.

Continued market volatility, as well as mergers
and acquisitions, have the potential to have a material impact
on our results of operations in future periods.

68



---



##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                    |  |      |    | 
|--------------------------------------------------- |  | ---- | -- | 
|                                                    |  | Page
|                                                    |  |     
|Report of Independent Auditors                      |  |      | 70 | 
|Report of Independent Public Accountants            |  |      | 71 | 
|Consolidated Balance Sheets                         |  |      | 72 | 
|Consolidated Statements of Operations               |  |      | 73 | 
|Consolidated Statements of Stockholders
    Equity |  |      | 74 | 
|Consolidated Statements of Cash Flows               |  |      | 76 | 
|Notes to Consolidated Financial Statements          |  |      | 78 | 

69



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of
Proxim Corporation

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of stockholders equity (deficit) and of
cash flows present fairly, in all material respects, the
financial position of Proxim Corporation and its subsidiaries at
December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the two years in the
periods ended December 31, 2003 and 2002 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

The consolidated financial statements of Proxim
Corporation as of December 31, 2001 and for the year ended
December 31, 2001, were audited by other independent
accountants who have ceased operation. Those independent
accountants expressed an unqualified opinion on those financial
statements in their report dated January 28, 2002.

As discussed above, the consolidated financial
statements of Proxim Corporation for the year ended
December 31, 2001, were audited by other independent
accountants who have ceased operations. As described in
Note 5, these consolidated financial statements have been
revised to include the transitional disclosures required by
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, which was
adopted by the Company as of January 1, 2002. We audited
the transitional disclosures described in Note 5. In our
opinion, the transitional disclosures of 2001 in Note 5 are
appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2001 consolidated financial
statements of the Company other than with respect to such
disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 consolidated financial
statements taken as a whole.

The accompanying consolidated financial
statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred
substantial losses and negative cash flows from operations, and
had an accumulated deficit of $397.8 million as of
December 31, 2003. In addition, the Company may be required
to repay $40.0 million of exchangeable promissory notes
(the Notes) in the event its note holders do not exchange for
mandatorily redeemable convertible preferred stock. Such
repayment would be required on the earlier of September 30,
2004, the maturity date of the Notes or upon event of default or
change in control. In addition, the Company may be required to
settle the accrued royalty charges of $26.9 million in
connection with the litigation with Symbol Technologies Inc.
when the final ruling is made. These matters raise substantial
doubt about the Companys ability to continue as a going
concern. Managements plans are also described in
Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California

March 11, 2004


70



---



##### Table of Contents



Predecessor Auditor (Arthur Andersen LLP)
Opinion

The following report is a copy of a report
previously issued by Arthur Andersen LLP and has not been
reissued by Arthur Andersen LLP. As discussed in the Summary of
Significant Accounting Policies note, in 2002, the Company
adopted the provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). As discussed in the
Summary of Significant Accounting Policies note, the corporation
has presented the transitional disclosures for 2001 and 2000
required by SFAS No. 142. The Arthur Andersen LLP
report does not extend to these changes to the 2001 and 2000
consolidated financial statements. The adjustments to the 2001
and 2000 consolidated financial statements were reported on by
PricewaterhouseCoopers LLP as stated in their report appearing
herein.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Western Multiplex Corporation:

We have audited the accompanying consolidated
balance sheets of Western Multiplex Corporation (a Delaware
corporation, formerly known as Glenayre Western Multiplex) and
subsidiaries as of December 31, 2000 and 2001, and the
related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2001. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Western Multiplex Corporation and subsidiaries as of
December 31, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of
America.

Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole.
The schedule listed under Item 14(a) is presented for the
purposes of complying with the Securities and Exchange
Commissions rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

San Jose, California 
 January 28, 2002

71



---



##### Table of Contents



PROXIM CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |          |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------ | ------- | ------- | ------ | -------- | ------- | ------- | 
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         | December 31,                |                                                                                                                  | December 31,
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         | 2003                        |                                                                                                                  | 2002        
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |             
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                            
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         | (In thousands, except share
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         | and per share data)        
|ASSETS                                                                                                                                                                                                                                      
|Current assets:                                                                                                                                                                                                                              |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             | Cash and cash equivalents                                                                                                                                                               |                             | $                                                                                                                | 19,756       |         |         | $      | 16,535   |        
|                                                                                                                                                                                                                                             | Short-term investments                                                                                                                                                                  |                             |                                                                                                                  |             |         |         |        | 513      |        
|                                                                                                                                                                                                                                             | Accounts receivable, net                                                                                                                                                                |                             |                                                                                                                  | 13,961       |         |         |        | 30,535   |        
|                                                                                                                                                                                                                                             | Inventory, net                                                                                                                                                                          |                             |                                                                                                                  | 19,939       |         |         |        | 36,799   |        
|                                                                                                                                                                                                                                             | Other current assets                                                                                                                                                                    |                             |                                                                                                                  | 5,301        |         |         |        | 4,657    |        
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             | Total current assets                                                                                             |              |         | 58,957  |        |          |         | 89,039  | 
|Property and equipment, net                                                                                                                                                                                                                  |                                                                                                                                                                                         |                             | 7,522                                                                                                            |              |         |         | 10,110 |         
|Goodwill                                                                                                                                                                                                                                     |                                                                                                                                                                                         |                             | 9,726                                                                                                            |              |         |         | 9,726  |         
|Intangible assets, net                                                                                                                                                                                                                       |                                                                                                                                                                                         |                             | 40,333                                                                                                           |              |         |         | 61,926 |         
|Restricted cash                                                                                                                                                                                                                              |                                                                                                                                                                                         |                             | 1,254                                                                                                            |              |         |         | 2,489  |         
|Other assets                                                                                                                                                                                                                                 |                                                                                                                                                                                         |                             | 2,316                                                                                                            |              |         |         | 4,133  |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         | Total assets                |                                                                                                                  | $            | 120,108 |         |        | $        | 177,423 |        
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                            
|LIABILITIES, MANDATORILY REDEEMABLE
    CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFICIT)                                                                                                                                  
|Current liabilities:                                                                                                                                                                                                                         |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             | Accounts payable                                                                                                                                                                        |                             | $                                                                                                                | 10,500       |         |         | $      | 18,147   |        
|                                                                                                                                                                                                                                             | Capital lease obligations, current                                                                                                                                                      |                             |                                                                                                                  | 1,176        |         |         |        |         |        
|                                                                                                                                                                                                                                             | Accrued royalties and interest                                                                                                                                                          |                             |                                                                                                                  | 26,906       |         |         |        |         |        
|                                                                                                                                                                                                                                             | Other accrued liabilities                                                                                                                                                               |                             |                                                                                                                  | 20,804       |         |         |        | 16,917   |        
|                                                                                                                                                                                                                                             | Convertible promissory note                                                                                                                                                             |                             |                                                                                                                  | 34,735       |         |         |        |         |        
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         | Total current liabilities   |                                                                                                                  |              | 94,121  |         |        |          | 35,064  |        
|Capital lease obligations, long-term                                                                                                                                                                                                         |                                                                                                                                                                                         |                             | 934                                                                                                              |              |         |         |       |         
|Long-term debt                                                                                                                                                                                                                               |                                                                                                                                                                                         |                             | 101                                                                                                              |              |         |         | 101    |         
|Restructuring accruals, long-term                                                                                                                                                                                                            |                                                                                                                                                                                         |                             | 8,660                                                                                                            |              |         |         | 26,579 |         
|Common stock warrants                                                                                                                                                                                                                        |                                                                                                                                                                                         |                             | 21,800                                                                                                           |              |         |         |       |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         | Total liabilities           |                                                                                                                  |              | 125,616 |         |        |          | 61,744  |        
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|Commitments and contingencies (Notes 18 and
    20)                                                                                                                                                                                          |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|Mandatorily redeemable convertible preferred
    stock: authorized 25,000,000 shares; Series A, par
    value $.01; 3,000,000 shares issued and outstanding at
    December 31, 2003 and 2002, respectively (Liquidation
    value: $81,120) |                                                                                                                                                                                         |                             | 73,580                                                                                                           |              |         |         | 64,412 |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|Stockholders equity (deficit):                                                                                                                                                                                                              |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             | Common stock, Class A, par value $.01;
    authorized 390,000,000 shares: 165,037,194 and
    162,328,944 shares issued and outstanding at
    December 31, 2003 and 2002, respectively |                             |                                                                                                                  | 1,650        |         |         |        | 1,623    |        
|                                                                                                                                                                                                                                             | Common stock, Class B, par value $.01;
    authorized 10,000,000 shares: no shares issued and
    outstanding at December 31, 2003 and 2002                                             |                             |                                                                                                                  |             |         |         |        |         |        
|                                                                                                                                                                                                                                             | Treasury stock, at cost; 42,185,534 shares
    at December 31, 2003 and 2002                                                                                                            |                             |                                                                                                                  | (21,585      | )       |         |        | (21,585  | )      
|                                                                                                                                                                                                                                             | Additional paid-in capital                                                                                                                                                              |                             |                                                                                                                  | 339,311      |         |         |        | 335,830  |        
|                                                                                                                                                                                                                                             | Notes receivable from stockholders                                                                                                                                                      |                             |                                                                                                                  | (711         | )       |         |        | (898     | )      
|                                                                                                                                                                                                                                             | Accumulated deficit                                                                                                                                                                     |                             |                                                                                                                  | (397,753     | )       |         |        | (264,010 | )      
|                                                                                                                                                                                                                                             | Accumulated other comprehensive income                                                                                                                                                  |                             |                                                                                                                  |             |         |         |        | 307      |        
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             | Total stockholders equity (deficit)                                                                             |              |         | (79,088 | )      |          |         | 51,267  | 
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             | Total liabilities, mandatorily redeemable
    convertible preferred stock and stockholders equity
    (deficit) |              | $       | 120,108 |        |          | $       | 177,423 | 
|                                                                                                                                                                                                                                             |                                                                                                                                                                                         |                             |                                                                                                                  |              |         |         |        |         

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

72



---



##### Table of Contents



PROXIM CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |        |         | 
|--------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------- | ----------- | ------ | ------- | ---- | ----------- | ------- | ------- | - | ---------- | ------ | ------- | 
|                                                                                                                      |                                                          |                                                
|                                                                                                                      |                                                          | Year Ended December 31,                        
|                                                                                                                      |                                                          |                                                
|                                                                                                                      |                                                          | 2003                                            |             | 2002   |         | 2001
|                                                                                                                      |                                                          |                                                 |             |        |         |     
|                                                                                                                      |                                                          |                                                
|                                                                                                                      |                                                          | (In thousands, except share and per share data)
|Product revenue, net                                                                                                  |                                                          | $                                               | 142,466     |        |         | $    | 144,660     |         |         | $ | 105,730    |       
|License revenue                                                                                                       |                                                          |                                                 | 6,000       |        |         |      |            |         |         |   |           |       
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|                                                                                                                      |                                                          | Total revenue, net                              |             |        | 148,466 |      |             |         | 144,660 |   |            |        | 105,730 | 
|Cost of revenue                                                                                                       |                                                          |                                                 | 88,471      |        |         |      | 83,685      |         |         |   | 55,887     |       
|Royalty charges                                                                                                       |                                                          |                                                 | 23,869      |        |         |      |            |         |         |   |           |       
|Restructuring provision for excess and obsolete
    inventory                                                         |                                                          |                                                 | 22,549      |        |         |      | 12,659      |         |         |   |           |       
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|                                                                                                                      |                                                          | Gross profit                                    |             |        | 13,577  |      |             |         | 48,316  |   |            |        | 49,843  | 
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Operating expenses:                                                                                                   |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|                                                                                                                      | Research and development                                 |                                                 |             | 24,241 |         |      |             | 29,159  |         |   |            | 19,114 |        
|                                                                                                                      | Selling, general and administrative                      |                                                 |             | 49,431 |         |      |             | 49,491  |         |   |            | 38,603 |        
|                                                                                                                      | Legal expense for certain litigation                     |                                                 |             | 6,800  |         |      |             |        |         |   |            |       |        
|                                                                                                                      | Amortization of goodwill and other intangible
    assets |                                                 |             | 21,593 |         |      |             | 12,467  |         |   |            | 5,440  |        
|                                                                                                                      | Amortization of deferred stock compensation(*)           |                                                 |             |       |         |      |             | 855     |         |   |            | 5,196  |        
|                                                                                                                      | Impairment of goodwill and intangible assets             |                                                 |             |       |         |      |             | 129,108 |         |   |            | 4,331  |        
|                                                                                                                      | Impairment of loan to officer                            |                                                 |             |       |         |      |             | 4,500   |         |   |            |       |        
|                                                                                                                      | Bad debt expense                                         |                                                 |             | 2,305  |         |      |             |        |         |   |            |       |        
|                                                                                                                      | Restructuring charges                                    |                                                 |             | 7,279  |         |      |             | 43,177  |         |   |            | 1,816  |        
|                                                                                                                      | In-process research and development                      |                                                 |             |       |         |      |             | 16,100  |         |   |            | 6,400  |        
|                                                                                                                      | Merger costs                                             |                                                 |             |       |         |      |             |        |         |   |            | 30     |        
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|                                                                                                                      |                                                          | Total operating expenses                        |             |        | 111,649 |      |             |         | 284,857 |   |            |        | 80,930  | 
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Loss from operations                                                                                                  |                                                          |                                                 | (98,072     | )      |         |      | (236,541    | )       |         |   | (31,087    | )     
|Interest income (expense), net                                                                                        |                                                          |                                                 | (7,168      | )      |         |      | (85         | )       |         |   | 1,393      |       
|Loss on early extinguishment of debt                                                                                  |                                                          |                                                 | (22,200     | )      |         |      |            |         |         |   |           |       
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Loss before income taxes                                                                                              |                                                          |                                                 | (127,440    | )      |         |      | (236,626    | )       |         |   | (29,694    | )     
|Income tax provision (benefit)                                                                                        |                                                          |                                                 |            |        |         |      | 3,224       |         |         |   | (4,096     | )     
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Net loss before extraordinary item                                                                                    |                                                          |                                                 | (105,240    | )      |         |      | (239,850    | )       |         |   | (25,598    | )     
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Net loss                                                                                                              |                                                          |                                                 | (127,440    | )      |         |      | (239,850    | )       |         |   | (25,598    | )     
|Deemed Series A preferred stock dividend                                                                              |                                                          |                                                 |            |        |         |      | (2,740      | )       |         |   |           |       
|Accretion of Series A preferred stock
    obligations                                                                 |                                                          |                                                 | (6,303      | )      |         |      | (1,890      | )       |         |   |           |       
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Net loss attributable to common
    stockholders  basic and diluted                                                  |                                                          | $                                               | (133,743    | )      |         | $    | (244,480    | )       |         | $ | (25,598    | )     
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Net loss per share attributable to common
    stockholders  basic and diluted                                        |                                                          | $                                               | (1.10       | )      |         | $    | (2.33       | )       |         | $ | (0.44      | )     
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|Shares used to compute net loss per
    share  basic and diluted                                                     |                                                          |                                                 | 121,661,885 |        |         |      | 105,119,404 |         |         |   | 57,559,434 |       
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|(*) Amortization of deferred stock
    compensation was relating to the associated expense categories
    as follows: |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|                                                                                                                      | Cost of revenue                                          |                                                 | $           |       |         |      | $           | 4       |         |   | $          | 23     |        
|                                                                                                                      | Research and development                                 |                                                 |             |       |         |      |             | 697     |         |   |            | 4,237  |        
|                                                                                                                      | Selling, general and administrative                      |                                                 |             |       |         |      |             | 154     |         |   |            | 936    |        
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       
|                                                                                                                      |                                                          | $                                               |            |        |         | $    | 855         |         |         | $ | 5,196      |       
|                                                                                                                      |                                                          |                                                 |             |        |         |      |             |         |         |   |            |       

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

73



---



##### Table of Contents



PROXIM CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                            |  |                                               |             |                |  |            |       |          |  |            |             |              |  |              |         |   |  |   |         |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ----------- | -------------- |  | ---------- | ----- | -------- |  | ---------- | ----------- | ------------ |  | ------------ | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                            |  |                                               |             |                |  |            |       |          |  |           
|                                                                                            |  | Common Stock                                  |             | Treasury Stock |  |            |       |          |  | Notes     
|                                                                                            |  |                                               |             |                |  | Additional |       | Deferred |  | Receivable
|                                                                                            |  | Class A                                       |             |                |  | Class A    |       |          |  | Paid-in    |             | Stock        |  | from        
|                                                                                            |  | Shares                                        |             | Amount         |  | Shares     |       | Amount   |  | Capital    |             | Compensation |  | Stockholders
|                                                                                            |  |                                               |             |                |  |            |       |          |  |            |             |              |  |             
|                                                                                            |  |                                              
|                                                                                            |  | (Dollars in thousands, except per share data)
|Balance sheet as of December 31, 2000                                                       |  |                                               | 97,569,419  |                |  | $          | 975   |          |  |            | (42,000,000 | )            |  | $            | (21,000 | ) |  | $ | 141,341 |   |  | $ | (4,310 | ) |  | $ | (1,062 | )
|Net loss                                                                                    |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |       |   |  |   |       |  
|Issuance of Class A common stock pursuant to
    Employee Stock Purchase Plan               |  |                                               | 130,266     |                |  |            | 1     |          |  |            |            |              |  |              |        |   |  |   | 1,284   |   |  |   |       |   |  |   |       |  
|Issuance of Class A common stock in
    connection with the WirelessHome acquisition        |  |                                               | 1,649,324   |                |  |            | 16    |          |  |            |            |              |  |              |        |   |  |   | 12,089  |   |  |   |       |   |  |   |       |  
|Stock options and warrants assumed in connection
    with the WirelessHome acquisition      |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 665     |   |  |   | (323   | ) |  |   |       |  
|Common stock redemption related to WirelessHome
    acquisition                             |  |                                               |            |                |  |            |      |          |  |            | (107,396    | )            |  |              | (400    | ) |  |   |        |   |  |   |       |   |  |   |       |  
|Stock price protection contingent consideration
    related to the WirelessHome acquisition |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 2,519   |   |  |   |       |   |  |   |       |  
|Deferred stock compensation related to
    WirelessHome acquisition                         |  |                                               | 558,950     |                |  |            | 6     |          |  |            |            |              |  |              |        |   |  |   | 2,198   |   |  |   | (2,204 | ) |  |   |       |  
|Compensation expense in connection with
    employees stock forward sale agreements        |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 191     |   |  |   | (191   | ) |  |   |       |  
|Exercise of stock options                                                                   |  |                                               | 1,328,782   |                |  |            | 14    |          |  |            |            |              |  |              |        |   |  |   | 726     |   |  |   |       |   |  |   |       |  
|Other deferred stock compensation                                                           |  |                                               | 88,760      |                |  |            | 1     |          |  |            |            |              |  |              |        |   |  |   | 363     |   |  |   | (532   | ) |  |   |       |  
|Reversal of deferred compensation in connection
    with termination employees              |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | (1,750  | ) |  |   | 1,750  |   |  |   |       |  
|Amortization of deferred stock compensation                                                 |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   | 5,196  |   |  |   |       |  
|Unrealized gain on investments                                                              |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |       |   |  |   |       |  
|Total comprehensive loss                                                                    |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |       |   |  |   |       |  
|Note receivables from stockholders                                                          |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |       |   |  |   | 144    |  
|                                                                                            |  |                                               |             |                |  |            |       |          |  |            |             |              |  |              |         |   |  |   |         |   |  |   |        |   |  |   |        |  
|Balance as of December 31, 2001                                                             |  |                                               | 101,325,501 |                |  |            | 1,013 |          |  |            | (42,107,396 | )            |  |              | (21,400 | ) |  |   | 159,626 |   |  |   | (614   | ) |  |   | (918   | )
|Net loss                                                                                    |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |       |   |  |   |       |  
|Issuance of Class A common stock pursuant to
    Employee Stock Purchase Plan               |  |                                               | 247,556     |                |  |            | 2     |          |  |            |            |              |  |              |        |   |  |   | 575     |   |  |   |       |   |  |   |       |  
|Issuance of Class A common stock in
    connection with Proxim, Inc. acquisition            |  |                                               | 59,506,503  |                |  |            | 595   |          |  |            |            |              |  |              |        |   |  |   | 132,700 |   |  |   |       |   |  |   |       |  
|Stock options and warrants assumed in connection
    with Proxim, Inc. acquisition          |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 25,294  |   |  |   |       |   |  |   |       |  
|Issuance of Class A common stock in
    connection with nBand Communications acquisition    |  |                                               | 180,144     |                |  |            | 2     |          |  |            |            |              |  |              |        |   |  |   | 448     |   |  |   |       |   |  |   |       |  
|Issuance of Series A preferred stock warrants                                               |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 13,993  |   |  |   |       |   |  |   |       |  
|Deemed Series A Preferred Stock dividend                                                    |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 2,740   |   |  |   |       |   |  |   |       |  
|Accretion of Series A Preferred Stock
    redemption obligations                            |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | (1,046  | ) |  |   |       |   |  |   |       |  
|Common Stock repurchase related to stock forward
    sale agreements                        |  |                                               |            |                |  |            |      |          |  |            | (78,138     | )            |  |              | (185    | ) |  |   | (433    | ) |  |   |       |   |  |   |       |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                            |  |                                               |          |               |  |       |    |               |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------- |  | --------------------------------------------- | -------- | ------------- |  | ----- | -- | ------------- |  | - | -------- | - |  | - | -------- | -
|                                                                                            |  | Retained                                      |          |               |  |       |    |              
|                                                                                            |  | Earnings                                      |          | Other         |  |       |    |              
|                                                                                            |  | (Accumulated                                  |          | Comprehensive |  |       |    | Comprehensive
|                                                                                            |  | Deficit)                                      |          | Income (Loss) |  | Total |    | Income (Loss)
|                                                                                            |  |                                               |          |               |  |       |    |              
|                                                                                            |  |                                              
|                                                                                            |  | (Dollars in thousands, except per share data)
|Balance sheet as of December 31, 2000                                                       |  | $                                             | 6,068    |               |  | $     | 12 |               |  | $ | 122,024  |   |  |   |          |  
|Net loss                                                                                    |  |                                               | (25,598  | )             |  |       |   |               |  |   | (25,598  | ) |  | $ | (25,598  | )
|Issuance of Class A common stock pursuant to
    Employee Stock Purchase Plan               |  |                                               |         |               |  |       |   |               |  |   | 1,285    |   |  |   |          |  
|Issuance of Class A common stock in
    connection with the WirelessHome acquisition        |  |                                               |         |               |  |       |   |               |  |   | 12,105   |   |  |   |          |  
|Stock options and warrants assumed in connection
    with the WirelessHome acquisition      |  |                                               |         |               |  |       |   |               |  |   | 342      |   |  |   |          |  
|Common stock redemption related to WirelessHome
    acquisition                             |  |                                               |         |               |  |       |   |               |  |   | (400     | ) |  |   |          |  
|Stock price protection contingent consideration
    related to the WirelessHome acquisition |  |                                               |         |               |  |       |   |               |  |   | 2,519    |   |  |   |          |  
|Deferred stock compensation related to
    WirelessHome acquisition                         |  |                                               |         |               |  |       |   |               |  |   |         |   |  |   |          |  
|Compensation expense in connection with
    employees stock forward sale agreements        |  |                                               |         |               |  |       |   |               |  |   |         |   |  |   |          |  
|Exercise of stock options                                                                   |  |                                               |         |               |  |       |   |               |  |   | 740      |   |  |   |          |  
|Other deferred stock compensation                                                           |  |                                               |         |               |  |       |   |               |  |   | (168     | ) |  |   |          |  
|Reversal of deferred compensation in connection
    with termination employees              |  |                                               |         |               |  |       |   |               |  |   |         |   |  |   |          |  
|Amortization of deferred stock compensation                                                 |  |                                               |         |               |  |       |   |               |  |   | 5,196    |   |  |   |          |  
|Unrealized gain on investments                                                              |  |                                               |         |               |  |       | 63 |               |  |   | 63       |   |  |   | 63       |  
|                                                                                            |  |                                               |          |               |  |       |    |               |  |   |          |   |  |   |          |  
|Total comprehensive loss                                                                    |  |                                               |         |               |  |       |   |               |  |   |         |   |  | $ | (25,535  | )
|                                                                                            |  |                                               |          |               |  |       |    |               |  |   |          |   |  |   |          |  
|Note receivables from stockholders                                                          |  |                                               |         |               |  |       |   |               |  |   | 144      |   |  |   |          |  
|                                                                                            |  |                                               |          |               |  |       |    |               |  |   |          |   |  |   |          |  
|Balance as of December 31, 2001                                                             |  |                                               | (19,530  | )             |  |       | 75 |               |  |   | 118,252  |   |  |   |          |  
|Net loss                                                                                    |  |                                               | (239,850 | )             |  |       |   |               |  |   | (239,850 | ) |  | $ | (239,850 | )
|Issuance of Class A common stock pursuant to
    Employee Stock Purchase Plan               |  |                                               |         |               |  |       |   |               |  |   | 577      |   |  |   |          |  
|Issuance of Class A common stock in
    connection with Proxim, Inc. acquisition            |  |                                               |         |               |  |       |   |               |  |   | 133,295  |   |  |   |          |  
|Stock options and warrants assumed in connection
    with Proxim, Inc. acquisition          |  |                                               |         |               |  |       |   |               |  |   | 25,294   |   |  |   |          |  
|Issuance of Class A common stock in
    connection with nBand Communications acquisition    |  |                                               |         |               |  |       |   |               |  |   | 450      |   |  |   |          |  
|Issuance of Series A preferred stock warrants                                               |  |                                               |         |               |  |       |   |               |  |   | 13,993   |   |  |   |          |  
|Deemed Series A Preferred Stock dividend                                                    |  |                                               | (2,740   | )             |  |       |   |               |  |   |         |   |  |   |          |  
|Accretion of Series A Preferred Stock
    redemption obligations                            |  |                                               | (1,890   | )             |  |       |   |               |  |   | (2,936   | ) |  |   |          |  
|Common Stock repurchase related to stock forward
    sale agreements                        |  |                                               |         |               |  |       |   |               |  |   | (618     | ) |  |   |          |  

74



---



##### Table of Contents



PROXIM CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY  (Continued)

|                                                                                                                         |  |                                               |             |                |  |            |       |          |  |            |             |              |  |              |         |   |  |   |         |   |  |   |      |   |  |   |      |  
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------- | ----------- | -------------- |  | ---------- | ----- | -------- |  | ---------- | ----------- | ------------ |  | ------------ | ------- | - |  | - | ------- | - |  | - | ---- | - |  | - | ---- | -
|                                                                                                                         |  |                                               |             |                |  |            |       |          |  |           
|                                                                                                                         |  | Common Stock                                  |             | Treasury Stock |  |            |       |          |  | Notes     
|                                                                                                                         |  |                                               |             |                |  | Additional |       | Deferred |  | Receivable
|                                                                                                                         |  | Class A                                       |             |                |  | Class A    |       |          |  | Paid-in    |             | Stock        |  | from        
|                                                                                                                         |  | Shares                                        |             | Amount         |  | Shares     |       | Amount   |  | Capital    |             | Compensation |  | Stockholders
|                                                                                                                         |  |                                               |             |                |  |            |       |          |  |            |             |              |  |             
|                                                                                                                         |  |                                              
|                                                                                                                         |  | (Dollars in thousands, except per share data)
|Compensation expense in connection with
    employees stock forward sale agreements                                     |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 241     |   |  |   | (241 | ) |  |   |     |  
|Issuance of Class A Common Stock in
    connection with achievement of Card Access milestones                            |  |                                               | 302,328     |                |  |            | 3     |          |  |            |            |              |  |              |        |   |  |   | (3      | ) |  |   |     |   |  |   |     |  
|Issuance of Class A Common Stock in
    connection with achievement of WirelessHome milestones                           |  |                                               | 83,330      |                |  |            | 1     |          |  |            |            |              |  |              |        |   |  |   | 36      |   |  |   |     |   |  |   |     |  
|Exercise of stock options                                                                                                |  |                                               | 683,582     |                |  |            | 7     |          |  |            |            |              |  |              |        |   |  |   | 384     |   |  |   |     |   |  |   |     |  
|Amortization of deferred stock compensation                                                                              |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   | 855  |   |  |   |     |  
|Unrealized gain on investments                                                                                           |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |     |   |  |   |      |  
|Total comprehensive loss                                                                                                 |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |     |   |  |   |     |  
|Repayment of notes receivable from stockholders                                                                          |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |     |   |  |   | 20   |  
|Reversal of deferred tax asset recognized upon
    recapitalization and related tax election                             |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 1,275   |   |  |   |     |   |  |   |     |  
|                                                                                                                         |  |                                               |             |                |  |            |       |          |  |            |             |              |  |              |         |   |  |   |         |   |  |   |      |   |  |   |      |  
|Balance as of December 31, 2002                                                                                          |  |                                               | 162,328,944 |                |  |            | 1,623 |          |  |            | (42,185,534 | )            |  |              | (21,585 | ) |  |   | 335,830 |   |  |   |     |   |  |   | (898 | )
|Net loss                                                                                                                 |  |                                               |             |                |  |            |       |          |  |            |             |              |  |              |         |   |  |   |         |   |  |   |      |   |  |   |      |  
|Issuance of Class A common stock pursuant to
    Employee Stock Purchase Plan                                            |  |                                               | 283,382     |                |  |            | 3     |          |  |            |            |              |  |              |        |   |  |   | 200     |   |  |   |     |   |  |   |     |  
|Issuance of Class A common stock in
    connection with WirelessHome stock price protection contingent
    consideration |  |                                               | 1,246,178   |                |  |            | 12    |          |  |            |            |              |  |              |        |   |  |   | (12     | ) |  |   |     |   |  |   |     |  
|Accretion of Series A Preferred Stock
    redemption obligations                                                         |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | (2,865  | ) |  |   |     |   |  |   |     |  
|Beneficial conversion feature of convertible notes                                                                       |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   | 5,565   |   |  |   |     |   |  |   |     |  
|Exercise of stock options                                                                                                |  |                                               | 1,178,690   |                |  |            | 12    |          |  |            |            |              |  |              |        |   |  |   | 593     |   |  |   |     |   |  |   |     |  
|Unrealized gain on investments                                                                                           |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |     |   |  |   |     |  
|Total comprehensive loss                                                                                                 |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |     |   |  |   |     |  
|Repayment of notes receivable from stockholders                                                                          |  |                                               |            |                |  |            |      |          |  |            |            |              |  |              |        |   |  |   |        |   |  |   |     |   |  |   | 187  |  
|                                                                                                                         |  |                                               |             |                |  |            |       |          |  |            |             |              |  |              |         |   |  |   |         |   |  |   |      |   |  |   |      |  
|Balance as of December 31, 2003                                                                                          |  |                                               | 165,037,194 |                |  | $          | 1,650 |          |  |            | (42,185,534 | )            |  | $            | (21,585 | ) |  | $ | 339,311 |   |  | $ |     |   |  | $ | (711 | )
|                                                                                                                         |  |                                               |             |                |  |            |       |          |  |            |             |              |  |              |         |   |  |   |         |   |  |   |      |   |  |   |      |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------- | -------- | ------------- |  | ----- | ---- | ------------- |  | - | -------- | - |  | - | -------- | -
|                                                                                                                         |  | Retained                                      |          |               |  |       |      |              
|                                                                                                                         |  | Earnings                                      |          | Other         |  |       |      |              
|                                                                                                                         |  | (Accumulated                                  |          | Comprehensive |  |       |      | Comprehensive
|                                                                                                                         |  | Deficit)                                      |          | Income (Loss) |  | Total |      | Income (Loss)
|                                                                                                                         |  |                                               |          |               |  |       |      |              
|                                                                                                                         |  |                                              
|                                                                                                                         |  | (Dollars in thousands, except per share data)
|Compensation expense in connection with
    employees stock forward sale agreements                                     |  |                                               |         |               |  |       |     |               |  |   |         |   |  |   |          |  
|Issuance of Class A Common Stock in
    connection with achievement of Card Access milestones                            |  |                                               |         |               |  |       |     |               |  |   |         |   |  |   |          |  
|Issuance of Class A Common Stock in
    connection with achievement of WirelessHome milestones                           |  |                                               |         |               |  |       |     |               |  |   | 37       |   |  |   |          |  
|Exercise of stock options                                                                                                |  |                                               |         |               |  |       |     |               |  |   | 391      |   |  |   |          |  
|Amortization of deferred stock compensation                                                                              |  |                                               |         |               |  |       |     |               |  |   | 855      |   |  |   |          |  
|Unrealized gain on investments                                                                                           |  |                                               |         |               |  |       | 232  |               |  |   | 232      |   |  |   | 232      |  
|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  
|Total comprehensive loss                                                                                                 |  |                                               |         |               |  |       |     |               |  |   |         |   |  | $ | (239,618 | )
|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  
|Repayment of notes receivable from stockholders                                                                          |  |                                               |         |               |  |       |     |               |  |   | 20       |   |  |   |          |  
|Reversal of deferred tax asset recognized upon
    recapitalizatio and related tax election                              |  |                                               |         |               |  |       |     |               |  |   | 1,275    |   |  |   |          |  
|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  
|Balance as of December 31, 2002                                                                                          |  |                                               | (264,010 | )             |  |       | 307  |               |  |   | 51,267   |   |  |   |          |  
|Net loss                                                                                                                 |  |                                               | (127,440 | )             |  |       |      |               |  |   | (127,440 | ) |  | $ | (127,440 | )
|Issuance of Class A common stock pursuant to
    Employee Stock Purchase Plan                                            |  |                                               |         |               |  |       |     |               |  |   | 203      |   |  |   |          |  
|Issuance of Class A common stock in
    connection with WirelessHome stock price protection contingent
    consideration |  |                                               |         |               |  |       |     |               |  |   |         |   |  |   |          |  
|Accretion of Series A Preferred Stock
    redemption obligations                                                         |  |                                               | (6,303   | )             |  |       |     |               |  |   | (9,168   | ) |  |   |          |  
|Beneficial conversion feature of convertible notes                                                                       |  |                                               |         |               |  |       |     |               |  |   | 5,565    |   |  |   |          |  
|Exercise of stock options                                                                                                |  |                                               |         |               |  |       |     |               |  |   | 605      |   |  |   |          |  
|Unrealized gain on investments                                                                                           |  |                                               |         |               |  |       | (307 | )             |  |   | (307     | ) |  |   | (307     | )
|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  
|Total comprehensive loss                                                                                                 |  |                                               |         |               |  |       |     |               |  |   |         |   |  | $ | (127,747 | )
|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  
|Repayment of notes receivable from stockholders                                                                          |  |                                               |         |               |  |       |     |               |  |   | 187      |   |  |   |          |  
|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  
|Balance as of December 31, 2003                                                                                          |  | $                                             | (397,753 | )             |  | $     |     |               |  | $ | (79,088  | ) |  |   |          |  
|                                                                                                                         |  |                                               |          |               |  |       |      |               |  |   |          |   |  |   |          |  

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

75



---



##### Table of Contents



PROXIM CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                      |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |         |        |         |  
|------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------- | -------- | ------ | ------- | - | -------- | ------- | ------- | - | ------- | ------ | ------- | -
|                                      |                                                                                 |                                                              
|                                      |                                                                                 | Year Ended December 31, 2002                                 
|                                      |                                                                                 |                                                              
|                                      |                                                                                 | 2003                                                          |                                       | 2002     |        | 2001   
|                                      |                                                                                 |                                                               |                                       |          |        |        
|                                      |                                                                                 |                                                              
|                                      |                                                                                 | (In thousands)                                               
|Cash flows from operating activities: |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |        
|                                      | Net loss                                                                        |                                                               | $                                     | (127,440 | )      |         | $ | (239,850 | )       |         | $ | (25,598 | )     
|                                      | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                               |                                       |          |        |         |   |          |         |         |   |         |       
|                                      | Deferred tax assets                                                             |                                                               |                                       |         |        |         |   | 12,624   |         |         |   | (6,211  | )     
|                                      | Depreciation and amortization                                                   |                                                               |                                       | 24,646   |        |         |   | 17,215   |         |         |   | 12,692  |       
|                                      | Impairment of goodwill and other intangible assets                              |                                                               |                                       |         |        |         |   | 129,108  |         |         |   | 4,331   |       
|                                      | Impairment of loan to officer                                                   |                                                               |                                       |         |        |         |   | 4,500    |         |         |   |        |       
|                                      | In-process research and development                                             |                                                               |                                       |         |        |         |   | 16,100   |         |         |   |        |       
|                                      | Restructuring provision for excess and obsolete
    inventory                   |                                                               |                                       | 22,549   |        |         |   | 12,659   |         |         |   | 6,400   |       
|                                      | Provision for bad debts, sales returns and price
    protection                 |                                                               |                                       | 10,590   |        |         |   |         |         |         |   | 7,331   |       
|                                      | Bad debt expense                                                                |                                                               |                                       | 2,305    |        |         |   |         |         |         |   |        |       
|                                      | Restructuring charges (benefit)                                                 |                                                               |                                       | (2,687   | )      |         |   | 43,177   |         |         |   | 1,816   |       
|                                      | Gain on disposal of short-term investments                                      |                                                               |                                       | (377     | )      |         |   |         |         |         |   |        |       
|                                      | Loss on early extinguishment of debt                                            |                                                               |                                       | 22,200   |        |         |   |         |         |         |   |        |       
|                                      | Amortization of debt discount on convertible notes                              |                                                               |                                       | 300      |        |         |   | 469      |         |         |   |        |       
|                                      | Revaluation of common stock warrants                                            |                                                               |                                       | (400     | )      |         |   |         |         |         |   |        |       
|                                      | Changes in assets and liabilities, net of effect
    of business combinations:  |                                                               |                                       |          |        |         |   |          |         |         |   |         |       
|                                      |                                                                                 | Accounts receivable, net                                      |                                       |          | 3,679  |         |   |          | 5,775   |         |   |         | (435   | )      
|                                      |                                                                                 | Inventory, net                                                |                                       |          | (5,689 | )       |   |          | (11,188 | )       |   |         | (8,957 | )      
|                                      |                                                                                 | Restricted cash and other assets, current and
    non-current |                                       |          | 1,908  |         |   |          | (5,156  | )       |   |         | 2,433  |        
|                                      |                                                                                 | Accounts payable and other accrued liabilities                |                                       |          | (8,283 | )       |   |          | (12,890 | )       |   |         | (5,748 | )      
|                                      |                                                                                 | Accrued royalties and interest                                |                                       |          | 26,906 |         |   |          |        |         |   |         |       |        
|                                      |                                                                                 | Payable to parent company                                     |                                       |          |       |         |   |          |        |         |   |         | (35    | )      
|                                      |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |        
|                                      |                                                                                 |                                                               | Net cash used in operating activities |          |        | (29,793 | ) |          |         | (27,457 | ) |         |        | (11,981 | )
|                                      |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |        
|Cash flows from investing activities: |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |        
|                                      | Purchase of property and equipment                                              |                                                               |                                       | (2,912   | )      |         |   | (3,556   | )       |         |   | (4,812  | )     
|                                      | Purchase of an asset held for sale                                              |                                                               |                                       | (9,966   | )      |         |   |         |         |         |   |        |       
|                                      | Proceeds from repayment of loan to officer                                      |                                                               |                                       | 500      |        |         |   |         |         |         |   | (10,771 | )     
|                                      | Purchase of investment securities                                               |                                                               |                                       |         |        |         |   |         |         |         |   | 25,659  |       
|                                      | Proceeds from sale of short-term investments, net                               |                                                               |                                       | 583      |        |         |   | 7,043    |         |         |   |        |       
|                                      | Proceeds from sale of asset held for sale, net                                  |                                                               |                                       | 3,041    |        |         |   |          |         |         |   |        |       
|                                      | Net cash used in acquisitions                                                   |                                                               |                                       |         |        |         |   | (51,454  | )       |         |   | (12,666 | )     
|                                      |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |        
|                                      | Net cash used in investing activities                                           |                                                               |                                       | (8,754   | )      |         |   | (47,967  | )       |         |   | (2,590  | )     
|                                      |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |        
|Cash flows from financing activities: |                                                                                 |                                                               |                                       |          |        |         |   |          |         |         |   |        
|                                      | Repayment of long-term debt                                                     |                                                               |                                       |         |        |         |   |         |         |         |   | (1,703  | )     
|                                      | Borrowings on capital lease obligations                                         |                                                               |                                       | 1,605    |        |         |   |         |         |         |   |        |       
|                                      | Principal payments on capital lease obligations                                 |                                                               |                                       | (832     | )      |         |   |         |         |         |   |        |       

76



---



##### Table of Contents



|                                                         |                                                                                                              |                                           |        |        |        |      |        |         |        |   |         |        |       | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------- | ------ | - | ------- | ------ | ----- | 
|                                                         |                                                                                                              |                                          
|                                                         |                                                                                                              | Year Ended December 31, 2002             
|                                                         |                                                                                                              |                                          
|                                                         |                                                                                                              | 2003                                      |        | 2002   |        | 2001
|                                                         |                                                                                                              |                                           |        |        |        |     
|                                                         |                                                                                                              |                                          
|                                                         |                                                                                                              | (In thousands)                           
|                                                         | Proceeds from repayments of notes receivable from
    stockholders                                           |                                           |        | 187    |        |      |        | 20      |        |   |         | 144    |      
|                                                         | Proceeds from issuance of Series A preferred
    stock                                                       |                                           |        |       |        |      |        | 41,000  |        |   |         |       |      
|                                                         | Proceeds from issuance of convertible promissory
    notes                                                   |                                           |        | 40,000 |        |      |        | 34,000  |        |   |         |       |      
|                                                         | Issuance of common stock, net                                                                                |                                           |        | 808    |        |      |        | 1,005   |        |   |         | 1,988  |      
|                                                         | Purchase of treasury stock                                                                                   |                                           |        |       |        |      |        | (618    | )      |   |         | (400   | )    
|                                                         |                                                                                                              |                                           |        |        |        |      |        |         |        |   |         |       
|                                                         |                                                                                                              | Net cash provided by financing activities |        |        | 41,768 |      |        |         | 75,407 |   |         |        | 29    | 
|                                                         |                                                                                                              |                                           |        |        |        |      |        |         |        |   |         |       
|Net increase (decrease) in cash and cash
    equivalents |                                                                                                              |                                           | 3,221  |        |        |      | (17    | )       |        |   | (14,542 | )     
|Cash and cash equivalents at beginning of year           |                                                                                                              |                                           | 16,535 |        |        |      | 16,552 |         |        |   | 31,094  |       
|                                                         |                                                                                                              |                                           |        |        |        |      |        |         |        |   |         |       
|Cash and cash equivalents at end of year                 |                                                                                                              | $                                         | 19,756 |        |        | $    | 16,535 |         |        | $ | 16,552  |       
|                                                         |                                                                                                              |                                           |        |        |        |      |        |         |        |   |         |       
|Supplemental disclosures:                                |                                                                                                              |                                           |        |        |        |      |        |         |        |   |         |       
|                                                         | Cash paid (received) during the year for:                                                                    |                                           |        |        |        |      |        |         |        |   |         |        |      
|                                                         |                                                                                                              | Income taxes                              |        | $      | (1,836 | )    |        | $       | (7,935 | ) |         | $      | 2,038 | 
|                                                         |                                                                                                              | Interest on capital lease obligations     |        | $      | 74     |      |        | $       |       |   |         | $      |      | 
|Non-cash transactions:                                   |                                                                                                              |                                           |        |        |        |      |        |         |        |   |         |       
|                                                         | Inception of capital leases                                                                                  |                                           | $      | 1,337  |        |      | $      |        |        |   | $       |       |      
|                                                         | Issuance of common stock and stock options
    assumed in connection with business combinations              |                                           | $      |       |        |      | $      | 159,039 |        |   | $       | 12,061 |      
|                                                         | Issuance of common stock in connection with
    WirelessHome stock price protection contingent consideration |                                           | $      | 12     |        |      | $      |        |        |   | $       |       |      
|                                                         | Accretion of Series A Preferred Stock
    redemption obligations                                             |                                           | $      | 9,168  |        |      | $      | 2,936   |        |   | $       |       |      
|                                                         | Warrants issued in connection with Series A
    preferred stock                                              |                                           | $      |       |        |      | $      | 13,993  |        |   | $       |       |      
|                                                         | Deemed preferred stock dividend                                                                              |                                           | $      |       |        |      | $      | 2,740   |        |   | $       |       |      
|                                                         | Conversion of promissory notes into Series A
    preferred stock                                             |                                           | $      |       |        |      | $      | 34,000  |        |   | $       |       |      
|                                                         | Accrued interest on convertible notes payable                                                                |                                           | $      |       |        |      | $      | 469     |        |   | $       |       |      
|                                                         | Beneficial conversion feature of convertible notes                                                           |                                           | $      | 5,565  |        |      | $      |        |        |   | $       |       |      

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

77



---



##### Table of Contents



PROXIM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  The Company

Proxim Corporation (the Company) is
the company created by the merger of Proxim, Inc. and
Western Multiplex Corporation, or Western Multiplex. On
March 26, 2002, Western Multiplex merged with
Proxim, Inc. located in Sunnyvale, California which
designs, manufactures and markets high performance wireless
local area networking, or WLAN, and building-to-building network
products based on radio frequency, or RF, technology and changed
its name to Proxim Corporation. On August 5, 2002, the
Company completed the acquisition of the 802.11 WLAN systems
business of Agere Systems, Inc., or Agere, including its
ORiNOCO product line. In accordance with accounting principles
generally accepted in the United States of America, the results
of operations for the periods presented include the results of
the merged or acquired businesses beginning from the respective
dates of completion of the business combinations.

Western Multiplex was founded in 1979 in
Sunnyvale, California, as a vendor of radio components and
related services. In 1992, Western Multiplex became a designer
and manufacturer of broadband wireless systems and launched its
Lynx broadband wireless systems. These point-to-point systems
are primarily used by wireless operators to connect their base
stations to other base stations and to existing wire line
networks. In 1999, Western Multiplex introduced its Tsunami
point-to-point broadband wireless systems, which primarily
enable service providers, businesses and other enterprises to
expand or establish private networks by bridging data and voice
network traffic among multiple facilities. Based on Western
Multiplexs core technologies and the technology acquired
through its purchase of WirelessHome Corporation, or
WirelessHome, in March 2001, Western Multiplex developed Tsunami
point-to-multipoint systems designed to enable service
providers, businesses and other enterprises to connect multiple
facilities within a geographic area to a central hub. Western
Multiplex began shipping its first generation of these products
at the end of the fourth quarter of 2001.



| |                                     
| | ------------------------------------
| | Liquidity and Significant
    Events

Amended Exchangeable Promissory
Notes.On July 22, 2003, the
Company announced that Warburg Pincus Private Equity VIII,
L.P. and Broadview Capital Partners L.P. and affiliates
(collectively, the Investors) had agreed to
collectively invest $30 million, and potentially up to
$40 million, in the Company. On July 30, 2003, these
Investors collectively invested $30 million, and the
Company issued short-term secured exchangeable promissory notes
bearing interest at 25% per annum pursuant to that certain
securities purchase agreement dated July 22, 2003. On
October 21, 2003, the Company amended and restated its
securities purchase agreement (the Amended
Agreement) with the Investors and its $30 million
short-term secured promissory notes issued to these Investors on
July 30, 2003. The amended and restated secured
exchangeable promissory notes (the Amended Notes)
will continue to bear interest at 25% per annum, subject to
increase on an event of default or other events. The Amended
Notes are due upon the earliest of:



| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the occurrence of an event of default, as defined
    in the Amended Notes, subject to election by the holders of at
    least a majority of the aggregate principal amount outstanding,
    except in the case of an event of default relating to bankruptcy
    or insolvency or similar proceedings;
|
| |  | any date upon which a holder of an Amended Note
    demands payment upon the occurrence of a change of control, as
    defined in the Amended Agreement; and                                                                                                                                           
|
| |  | September 30, 2004.                                                                                                                                                                                                                                                                                    

An event of default triggered by a material
adverse change, as defined in the Amended Agreement, includes
(i) any additional adverse ruling or judgment in the
Companys pending patent infringement litigation with
Symbol Technologies, Inc. (Symbol) that
requires the Company and/or any of its subsidiaries to render
payment or post a bond equal to or greater than $10 million
(whether or not such payment has been made or bond posted as of
such date) and (ii) any other additional adverse rulings or
judgments made against the Company and/or any of its
subsidiaries in the patent infringement litigation with Symbol
or any other

78



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

litigations, the effects of which rulings or
judgments are material and adverse to the Company and its
subsidiaries, taken as a whole.

The terms previously providing for automatic
exchange of the secured promissory notes, upon stockholder
approval, for shares of Series B mandatorily redeemable
convertible preferred stock (Series B Preferred
Stock) were modified to provide for exchange at the
Investors sole discretion following stockholder approval.
The Series B Preferred Stock issuable upon exchange of the
Amended Notes, if any, will be convertible into shares of the
Companys Class A common stock at a conversion price
of $1.15 per share, as previously agreed. In accordance
with the Amended Agreement, the Series B Preferred Stock
will have rights to a liquidation preference that accretes at
14% per annum compounding quarterly for seven years, with
acceleration upon a change of control, as defined, or a material
asset sale, as defined. The Series B Preferred Stock, if
issued, also will be entitled to weighted average conversion
price adjustments for dilutive issuances and subscription rights
in certain equity financings. The Company will have the right to
require conversion of the Series B Preferred Stock after
five years if the closing price of the Companys common
stock exceeds 300% of the conversion price for ninety
consecutive trading days.

The Company agreed, subject to approval of its
stockholders, to issue to the Investors warrants to purchase
18 million and 6 million shares of common stock at an
exercise price of $1.46 and $1.53 per share, respectively
(collectively, the Series B Warrants). The
Investors also agreed to make available to the Company an
additional $10 million, issuable in exchange for senior
secured exchangeable promissory notes (the New
Notes), at the Companys election (the
Call Right).

At a special meeting of stockholders held on
December 12, 2003, the Companys stockholders approved
the Companys ability to issue to the Investors:
(i) shares of the Companys Series B Preferred
Stock upon exercise of each Investors right to exchange
the Amended Notes, plus accrued but unpaid interest, as well as
upon each Investors exercise of the right to exchange any
New Notes that the Company may issue to the Investors, plus
accrued but unpaid interest; and (ii) the Series B
Warrants. Following the receipt of stockholder approval, the
Company issued the Series B Warrants to the Investors on
December 12, 2003. In accordance with the terms of the
Amended Agreement, the Company exercised its Call Right and on
December 19, 2003, the Company issued the New Notes to the
Investors in exchange for an additional investment of
$10 million.

Upon the occurrence of an event of default or
change of control occurs or if the Investors decide not to
exchange the Amended Notes for Series B Preferred Stock,
the Company may be required to repay the Amended Notes upon the
earlier of demand by the Investors or the September 30,
2004 maturity date. If the Company were required to repay the
Amended Notes, the Company would be required to obtain immediate
alternative sources of financing. If the Company were not able
to obtain an alternative source of financing, the Company would
most likely have insufficient cash to repay the Amended Notes,
be unable to meet its ongoing operating obligations as they come
due in the ordinary course of business, and may have to seek
protection under applicable bankruptcy laws.

Amended Credit
Facility.The Company amended and
restated its secured financing agreements with Silicon Valley
Bank in June and July 2003 and then further amended these
agreements in October 2003. The financial covenant requiring the
Company to maintain cash and cash equivalents of an amount not
less than $8 million, as amended, was reduced to
$4 million. As amended, the events of default also include
any judgment, restraining order, injunction, any material
adverse development in connection with the Companys
litigation with Symbol, or failure of the Company to advise
Silicon Valley Bank of all material developments in this
litigation. See Note 19 for further description of the
amended credit facility.

Litigation with
Symbol.On September 15, 2003,
the Company announced that a jury had rendered a verdict in the
first phase of the patent infringement suit with Symbol. On
Symbols claims of patent infringement, the jury found that
certain of the Companys products infringe two of
Symbols patents and

79



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assessed a 6% royalty on the revenue of relevant
products. While the actual amount of past royalties due has not
been finally determined, the Company recorded an accrual for
estimated past royalties payable of $22.9 million and
$2.9 million for interest during the third quarter of 2003
and an accrual for estimated royalties payable of
$1.0 million and $87,000 for interest during the fourth
quarter of 2003. The Company has not been enjoined from
continued sales of these products. The Company will continue to
evaluate and review its estimate of the royalties and interest
payable from time to time for any indications that could require
it to change its assumptions relating to the amount already
recorded. On November 24, 2003, the District Court
conducted a one-day bench trial on the Companys equitable
defenses not addressed by the jury. The District Court has not
reached a decision on the equitable defenses.

With respect to the jury verdict in the
Companys litigation with Symbol, as described above, the
Company does not incur any immediate financial obligation to
Symbol as a result of this verdict, pending completion of
related proceedings. The Company intends to continue vigorously
defending itself in Symbols lawsuit against the Company
and to consider all available options after the conclusion of
all matters before the court.

If the proceedings before the court in the
Companys litigation with Symbol are not decided in the
Companys favor, the Company would likely be required to
make significant payments to Symbol, including payments for
royalties related to past sales of products found to infringe on
two of Symbols patents and additional royalties in
connection with future sales of these products, or the Company
would be required to post a bond in order to appeal the
courts decision. Any additional adverse ruling or judgment
in this litigation that requires the Company to render payment
or post a bond equal to or greater than $10 million, and
any other ruling or judgment in this or any other litigation
that is material and adverse to the Company, triggers an event
of default under the Amended Notes. Upon such occurrence, the
Investors would have the ability to require the Company to repay
the Amended Notes. In addition, any judgment, restraining order,
injunction or any material adverse development in this
litigation triggers an event of default under the Silicon Valley
Bank credit facility. Upon such occurrence, Silicon Valley Bank
would have the ability to require us to repay any outstanding
amounts under the credit facility and to prohibit us from
borrowing any additional amounts.

The Company has incurred substantial losses and
negative cash flows from operations during the years ended
December 31, 2003, 2002 and 2001, and had an accumulated
deficit of $397.8 million as of December 31, 2003. If
the Company were required to make payments to Symbol, post a
bond to the court, and/or repay the Amended Notes and amounts,
if any, owed to Silicon Valley Bank, either due to an event of
default or otherwise, it would be required to obtain immediate
alternative sources of financing. If the Company were not able
to obtain an alternative source of financing, it would most
likely have insufficient cash to pay these obligations, be
unable to meet its ongoing operating obligations as they come
due in the ordinary course of business, and may have to seek
protection under applicable bankruptcy laws. These matters raise
substantial doubt about the Companys ability to continue
as a going concern. The consolidated financial statements do not
include any adjustments that might result from this uncertainty.



| |                        
| | -----------------------
| | Risks and Uncertainties

The Company depends on single or limited source
suppliers for several key components used in the Companys
WLAN products. The Company depends on single sources for
proprietary application specific integrated circuits, or ASICs,
and assembled circuit boards for these products. Any disruptions
in the supply of these components or assemblies could delay or
decrease our revenues. In addition, even for components with
multiple sources, there have been, and may continue to be,
shortages due to capacity constraints caused by high demand. The
Company does not have any long-term arrangements with any
suppliers.

The Company relies on contract and subcontract
manufacturers for turnkey manufacturing and circuit board
assemblies which subjects the Company to additional risks,
including a potential inability to obtain an adequate supply of
finished assemblies and assembled circuit boards and reduced
control over the price, timely

80



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

delivery and quality of such finished assemblies
and assembled circuit boards. If the Companys Sunnyvale
facility were to become incapable of operating, even
temporarily, or were unable to operate at or near the
Companys current or full capacity for an extended period,
the Companys business and operating results could be
materially adversely affected.



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
with the instructions to Form 10-K.

The consolidated financial statements include the
accounts of Proxim Corporation and all of its subsidiaries. The
financial condition and results of operations as of and for the
years ended December 31, 2003, 2002 and 2001 include the
results of acquired subsidiaries from their respective dates of
acquisition. All significant intercompany transactions and
balances are eliminated in consolidation.



| |                
| | ---------------
| | Use of Estimate

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

Note 2  Summary of Significant
Accounting Policies



| |                                                     
| | ----------------------------------------------------
| | Cash, Cash Equivalents and Marketable
    Securities

The Company considers all highly liquid
instruments with an original maturity, or remaining maturity at
the date of purchase of three months or less when purchased to
be cash equivalents. Cash equivalents consist primarily of
market rate accounts and highly rated commercial paper that are
stated at cost, which approximate fair value. Investments with
maturities greater than three months and less than one year as
of the date of the balance sheet are classified as marketable
securities. Marketable securities consist of time deposits with
original maturities greater than three months and less than one
year and corporate debt obligations. Investments with maturities
greater than one year are classified as marketable securities,
long-term. Marketable securities are classified as
available-for-sale as of the balance sheet date in accordance
with Statement of Financial Accounting Standard, or SFAS,
No. 115, Accounting for Certain Investments in Debt
and Equity Securities, and are reported at fair value,
with unrealized gains and losses recorded as other comprehensive
income (loss) included in stockholders equity.



| |                                     
| | ------------------------------------
| | Derivative Financial
    Instruments

The Company accounts for derivative financial
instruments under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. The
Companys derivatives comprise warrants issued to investors
in connection with the issuance of financing and equity
instruments. The term of the warrants is seven years. During the
year ended December 31, 2003, the Company recorded in other
income, gains on derivatives of approximately $0.4 million.

81



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                            
| | ---------------------------
| | Other Financial Instruments

In addition to cash equivalents and marketable
securities, the Companys financial instruments include
restricted cash and long-term investments, which are carried at
cost. Restricted cash and long-term investments represent funds
held at financial institutions as collateral on an irrevocable
standby letter of credit and as a security deposit for lease
agreements.



| |                   
| | ------------------
| | Equity Investments

Equity investments, representing ownership of
less than 20% of the investee in which the Company does not have
the ability to exert significant influence, are accounted for
using the cost method. The Company reviews its investments on a
regular basis and considers factors including the operating
results, available evidence of the market value and economic
outlook of the relevant industry sector. When the Company
concludes that an other-than-temporary impairment has resulted,
the difference between the fair value and the carrying value is
written off and recorded as an impairment charge in the
statement of operations.



| |            
| | -----------
| | Inventories

Inventories are stated at the lower of cost or
market, cost being determined using the first-in, first-out
method, less provisions made for excess and obsolete inventory
based on managements estimates.



| |                       
| | ----------------------
| | Property and Equipment

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



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

The Company reviews long-lived assets and certain
identifiable intangibles assets to be held and used for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
Company evaluates any possible impairment of long-lived assets
and certain intangible assets using estimates of undiscounted
future cash flows. If an impairment loss is to be recognized, it
is measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Management evaluates
the fair value of its long-lived assets and certain intangibles
assets using primarily the estimated discounted future cash
flows method. Management uses other alternative valuation
techniques whenever the estimated discounted future cash flows
method is not appropriate.



| |                    
| | -------------------
| | Revenue Recognition

Product revenue is generally recognized upon
shipment when persuasive evidence of an arrangement exists, the
price is fixed or determinable, and collectibility is reasonably
assured. A provision for estimated future sales return and
warranty costs is recorded at the time revenue is recognized.
The Company has no obligation to provide any modification or
customization upgrades, enhancements or other post-sale customer
support. The Company grants certain distributors limited rights
of return and price protection on unsold products. Product
revenue on shipments to distributors, which have rights of
return and price protection, is deferred until shipment to end
customers by the distributors.

Effective June 29, 2002, the Company began
to recognize sales of its wireless wide area network, or WWAN,
products to distributors with rights of return upon shipment by
the distributors to the end user customer. Prior to
June 29, 2002, the Company recognized revenue for sales of
all WWAN products to distributors with rights of return upon
shipment to the distributor and provided reserves for the
estimated

82



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

amount of product returns at the time that
revenue was recognized. The combination of the changes resulting
from the acquisition of the ORiNOCO business and the adoption of
one uniform method is consistent with the Companys plans
to sell bundled and integrated WLAN and WWAN products. This
change in accounting methodology is treated as a change in
estimate, and was made on a prospective basis, starting in the
third quarter of 2002.

Revenue from services, such as pre-installation
diagnostic testing and product repair services, is recognized
over the period for which the services are performed, which is
typically less than one month. Revenue from enhanced service
contracts is recognized over the contract period, which ranges
from one to three years.



| |         
| | --------
| | Goodwill

Goodwill is the amount by which the cost of the
acquired identifiable net tangible and intangible assets
exceeded the fair values of the acquired net tangible and
intangible assets on the date of purchase. Goodwill resulting
from business acquisitions completed prior to June 30, 2001
is reported at cost, net of accumulated amortization.
Amortization was calculated on a straight-line basis over the
estimated useful lives of 5 years. Effective
January 1, 2002, The Company adopted
SFAS No. 142, Goodwill and Intangible
Assets, and no longer amortizes goodwill that arose from
these acquisitions. Goodwill resulting from business
acquisitions completed after June 30, 2001 is reported at
cost and not subject to amortization in accordance with
SFAS No. 142.

The Company tests goodwill for impairment
annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired,
applying a fair-value based test. Examples of such events or
circumstances include:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a significant adverse change in legal factors or
    in the business climate;                                                                       
|
| |  | an adverse action or assessment by a regulator;                                                                                                     
|
| |  | unanticipated competition;                                                                                                                          
|
| |  | a loss of key personnel;                                                                                                                            
|
| |  | a more-likely-than-not expectation that a
    reporting unit or a significant portion of a reporting unit will
    be sold or otherwise disposed of;
|
| |  | the testing for recoverability under of a
    significant asset group within a reporting unit; and                                                  
|
| |  | recognition of goodwill impairment loss in the
    financial statements of a subsidiary that is a component of a
    reporting unit.                

The impairment test consists of a comparison of
the fair value of the goodwill with its carrying value. If the
carrying value of the goodwill exceeds its fair value, an
impairment loss shall be recognized in an amount equal to that
excess.



| |                                          
| | -----------------------------------------
| | Acquisition-Related Intangible
    Assets

Intangible assets result from business
acquisitions accounted for under the purchase method, and
consist of developed technology, core technology, customer
relationships, tradename, patents and in-process research and
development. Intangible assets are reported at cost, net of
accumulated amortization. Identifiable intangible assets other
than in-process research and development and tradename are
amortized on a straight-line basis over their estimated useful
lives ranging from two to five years. In-process research and
development is charged to operating expense in the period the
acquisition is consummated.

83



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                           
| | --------------------------
| | Software Development Costs

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



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes using the
asset and liability method, under which the expected future tax
consequences of temporary differences between the book and tax
bases of assets and liabilities are recognized as deferred tax
assets and liabilities, and for net operating loss and tax
credit carryforwards. A valuation allowance is established when
necessary to reduce deferred tax assets where it is more likely
than not that the deferred tax assets will not be realized. The
Company does not record a deferred tax provision on unremitted
earnings of foreign subsidiaries to the extent that such
earnings are considered permanently invested.



| |                              
| | -----------------------------
| | Foreign Currency Transactions

The functional currency of the Companys
operations in all countries is the U.S. dollar. Sales and
purchase transactions are generally denominated in
U.S. dollars. Foreign currency transaction gains and losses
are included in the statement of operations and were not
material for each period presented.



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share

Basic net income (loss) per share is computed by
dividing net loss available to Common Stockholders by the
weighted average number of common shares outstanding during the
period. Diluted net income (loss) per share is calculated using
the weighted average number of outstanding shares of common
stock plus potential dilutive shares. Potential dilutive shares
consist of convertible preferred stock, stock options and
warrants, using the treasury stock method based on the average
stock price for the period. The calculation of diluted net loss
per share excludes potential dilutive shares if the effect is
antidilutive.



| |                                                                           
| | --------------------------------------------------------------------------
| | Mandatorily Redeemable Convertible
    Preferred Stock (Preferred Stock)

The carrying value of Preferred Stock is adjusted
by quarterly accretions, on the effective-interest basis, so
that the carrying amount will equal the redemption amount at the
earliest redemption date. These adjustments will be effected
through charges against additional paid-in capital and
accumulated deficit, as appropriate.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting
Principles Board Opinion, or APB No. 25, Accounting
for Stock Issued to Employees, and related
Interpretations. The Company provides additional pro forma
disclosures as required under SFAS No. 123,
Accounting for Stock-Based Compensation and
SFAS No. 148 Accounting for Stock-Bases
Compensation  Transition and Disclosure.

84



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                               
| | --------------------------------------------------------------
| | Pro Forma Fair Value Disclosure Under
    SFAS No. 123 and 148

In accordance with SFAS No. 148,
Accounting for Stock-based Compensation, Transition and
Disclosure, the Company is required to disclose the
effects on reported net loss and basic and diluted net loss per
share as if the fair value based method had been applied to all
awards.

The weighted average estimated grant date fair
value, as defined by SFAS No. 123, for stock options
granted under its stock option plans during 2003, 2002 and 2001
was $0.89, $2.02 and $6.06 per share, respectively. The
weighted average estimated grant date fair value of stock
purchase rights granted pursuant to its employee stock purchase
plan during 2003, 2002 and 2001 was $0.67, $1.85 and
$2.86 per share, respectively. The estimated grant date
fair value disclosed by the Company is calculated using the
Black-Scholes option pricing model. The Black-Scholes model, as
well as other currently accepted option valuation models, was
developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which
significantly differ from its stock option and purchase awards.
These models also require highly subjective assumptions,
including future stock price volatility and expected time until
exercise, which greatly affect the calculated grant date fair
value.

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

|                                |  |                         |            |      |  |      |            |   |  |  |            |  
|------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  |  | ---------- | -
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2003                    |            | 2002 |  | 2001
|                                |  |                         |            |      |  |     
|Risk-free interest rate         |  |                         | 2.77       | %    |  |      | 3.10       | % |  |  | 4.00       | %
|Average expected life of option |  |                         | 2.7  years |      |  |      | 2.5  years |   |  |  | 4.0  years |  
|Dividend yield                  |  |                         | 0          | %    |  |      | 0          | % |  |  | 0          | %
|Volatility of common stock      |  |                         | 1.39       |      |  |      | 1.66       |   |  |  | 1.43       |  

Had the Company recorded compensation based on
the estimated grant date fair value, as defined by
SFAS No. 123, for awards granted under its stock
option plans and stock purchase plan, the net income (loss) and
net income (loss) per share would have been changed to the pro
forma amounts below for the years ended December 31, 2003,
2002 and 2001 (in thousands, except per share data):

|                                                             |                                                                               |                          |          |          |   |      |          |          |   |   |         |         |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------- | ------------------------ | -------- | -------- | - | ---- | -------- | -------- | - | - | ------- | ------- | -
|                                                             |                                                                               |                         
|                                                             |                                                                               | Years Ended December 31,
|                                                             |                                                                               |                         
|                                                             |                                                                               | 2003                     |          | 2002     |   | 2001
|                                                             |                                                                               |                          |          |          |   |     
|Net loss attributable to common stockholders as
    reported |                                                                               | $                        | (133,743 | )        |   | $    | (244,480 | )        |   | $ | (25,598 | )      
|                                                             | Add: Stock-based compensation expense included in
    reported net loss       |                          |          |         |   |      |          | 855      |   |   |         | 5,196   |  
|                                                             | Less: Stock-based compensation expense determined
    under fair value method |                          |          | (9,163   | ) |      |          | (16,211  | ) |   |         | (24,267 | )
|                                                             |                                                                               |                          |          |          |   |      |          |          |   |   |         |        
|                                                             | Pro forma net loss attributable to common
    stockholders                    |                          | $        | (142,906 | ) |      | $        | (259,836 | ) |   | $       | (44,669 | )
|                                                             |                                                                               |                          |          |          |   |      |          |          |   |   |         |        
|As reported:                                                 |                                                                               |                          |          |          |   |      |          |          |   |   |         |        
|                                                             | Basic and diluted net loss attributable to common
    stockholders per share  |                          | $        | (1.10    | ) |      | $        | (2.33    | ) |   | $       | (0.44   | )
|                                                             |                                                                               |                          |          |          |   |      |          |          |   |   |         |        
|Pro forma:                                                   |                                                                               |                          |          |          |   |      |          |          |   |   |         |        
|                                                             | Basic and diluted net loss attributable to common
    stockholders per share  |                          | $        | (1.17    | ) |      | $        | (2.47    | ) |   | $       | (0.78   | )
|                                                             |                                                                               |                          |          |          |   |      |          |          |   |   |         |        

The pro forma effect on net loss and net loss per
share for 2003, 2002 and 2001 is not representative of the pro
forma effect on net income (loss) in future years because it
does not take into consideration pro forma compensation expense
related to grants made prior to 1996.

85



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

SFAS No. 130, Reporting
Comprehensive Income requires that companies report
comprehensive income (loss) and its components. Comprehensive
income (loss) is defined to include all changes in equity during
a period except those resulting from investments by owners and
distributions to owners. The Company has the following two items
that comprise comprehensive income (loss): (1) net income
(loss); and (2) unrealized gain (loss) on investments.



| |                  
| | -----------------
| | Segment Reporting

SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information,
requires that companies report separately in the financial
statements certain financial and descriptive information about
operating segments profit or loss, certain specific
revenue and expense items and segment assets. Additionally,
companies are required to report information about revenue and
assets by geographic areas and about major customers. The
Companys products are grouped into two segments: wireless
wide area network, or WWAN, and wireless local area network, or
WLAN.

Note 3  Recent Accounting
Pronouncements

In July 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity. The principal difference
between SFAS No. 146 and EITF Issue No. 94-3
relates to SFAS No. 146s timing for recognition of a
liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue No. 94-3 a
liability for an exit cost as generally defined in EITF Issue
No. 94-3 was recognized at the date of an entitys
commitment to an exit plan. SFAS No. 146 is effective
for exit or disposal activities that are initiated after
December 31, 2002. The Company adopted
SFAS No. 146 beginning on January 1, 2003.
SFAS No. 146 is applied prospectively upon adoption.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an Interpretation of ARB
No. 51. FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have
the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. FIN 46 is effective immediately for all
new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or
acquired prior to February 1, 2003, the provisions of
FIN 46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Company believes
that the adoption of this Interpretation will have no material
impact on its consolidated financial statements.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity.
This Statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning
after June 15, 2003. In October 2003, the FASB decided to
defer certain provisions of SFAS No. 150 as they apply
to mandatorily redeemable noncontrolling interests. It is to be
implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the
beginning of the interim

86



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

period of adoption. Restatement is not permitted.
The adoption of this Statement is not expected to have a
material impact on the Companys consolidated financial
statements.

On December 17, 2003, the Staff of the
Securities and Exchange Commission (SEC or the
Staff) issued Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition, which supercedes SAB
No. 101, Revenue Recognition in Financial
Statements. SAB 104s primary purpose is to
rescind accounting guidance contained in SAB No. 101
related to multiple element revenue arrangements, superceded as
a result of the issuance of EITF 00-21, Accounting
for Revenue Arrangements with Multiple Deliverables.
Additionally, SAB 104 rescinds the SECs Revenue
Recognition in Financial Statements Frequently Asked Questions
and Answers(the FAQ) issued with SAB 101 that had been
codified in SEC Topic 13, Revenue Recognition. As
the primary purpose of SAB No. 104 is to rescind accounting
guidance contained in SAB No. 101 and the FAQ related to
multiple element revenue arrangements, superceded as a result of
the issuance of EITF 00-21, the adoption of this bulletin
during the year ended December 31, 2003 did not have any
material impact on the Companys consolidated financial
statements.

Note 4  Business
Combinations



| |                                                                           
| | --------------------------------------------------------------------------
| | Acquisition of the 802.11 WLAN Systems
    Business of Agere Systems, Inc.

On August 5, 2002, the Company completed its
acquisition of the 802.11 WLAN systems business of Agere,
including its ORiNOCO product line, for $65.0 million in
cash. To finance the acquisition, Warburg Pincus Private
Equity VIII, L.P., Broadview Capital Partners L.P. and
affiliated entities agreed to collectively invest
$75.0 million in the Company. These investors received
1,640,000 shares of Series A Preferred Stock
(Note 16) in the amount of $41.0 million, with a
conversion price of approximately $3.06 per share, and
warrants to purchase approximately 6.7 million shares of
Common Stock valued at $12.3 million. The value of the
warrants was recorded as a reduction of the Series A
Preferred Stock carrying value and recorded as additional
paid-in capital. During the quarter ended September 27,
2002, a deemed Preferred Stock dividend representing the
beneficial conversion feature of the Series A Preferred
Stock of $2.7 million was reflected in the determination of
the loss attributable to Common stockholders. The remaining
$34.0 million was in the form of convertible notes. Upon
the receipt of approval of the Companys stockholders at a
special meeting held on October 8, 2002, the notes issued
to these investors were converted into 1,360,000 shares of
Series A Preferred Stock and warrants to purchase
approximately 5.6 million shares of Common Stock valued at
approximately $1.6 million. The value of the warrants was
recorded as a reduction of the Series A Preferred Stock
carrying value and recorded as additional paid-in capital in the
quarter ended December 31, 2002. In total, the investors
were granted warrants to acquire 12,271,345 shares of
Common Stock for approximately $3.06 per share, valued at
approximately $14.0 million. The Series A Preferred
Stock and warrants issued to the investors represented
approximately 28% of Proxims outstanding common stock on
an as-converted and as-exercised basis including dividends as of
October 22, 2003. In addition, in connection with the
transaction, the Company entered into a patent cross-license
agreement and settled all outstanding patent-related litigation
with Agere, and entered into a three-year strategic supply
agreement, pursuant to which Agere will provide 802.11 chips,
modules and cards to the Company at specified prices. Total
consideration of $70.0 million for the acquisition
comprised of $65.0 million in cash and transaction costs of
approximately $5.0 million.

The purpose of the acquisition was to gain key
technology and establish a leadership position in the broadband
wireless access systems market.

87



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The total purchase price was allocated to the
tangible and identifiable intangible assets, goodwill acquired
and liabilities assumed on the basis of their relative fair
values as follows (in thousands):

|                                             |  |   |        |  
|-------------------------------------------- |  | - | ------ | -
|Inventory, net                               |  | $ | 557    |  
|Property and equipment                       |  |   | 163    |  
|Core technology                              |  |   | 8,521  |  
|Developed technology                         |  |   | 16,994 |  
|Customer relationships                       |  |   | 8,995  |  
|Tradename                                    |  |   | 5,909  |  
|Liabilities assumed                          |  |   | (4,589 | )
|Acquired in-process research and development |  |   | 10,364 |  
|Goodwill                                     |  |   | 23,086 |  
|                                             |  |   |        |  
|                                             |  | $ | 70,000 |  
|                                             |  |   |        |  

The liabilities assumed consisted principally of
restructuring charges related to severance pay totaling
$2.3 million for 55 employees, warranty expense and other
current liabilities.

The core and developed technology acquired
include Enterprise Access Points, Radio Backbone Systems,
Broadband Gateways and Network Management products. These
products have already achieved technological feasibility in the
marketplace. The fair value assigned to the core technology and
developed technology totaled $8.5 million and
$17.0 million respectively, and is being amortized over the
expected life of its cash flows.

As of the valuation date, it was assumed that
there was some value attributable to the ORiNOCO customer base.
In valuing the ORiNOCO customer base, the Company employed an
income approach similar to that used in valuing the technology.
The customer base includes original equipment manufacturers
(OEM) such as Avaya, Dell Computer, Fujitsu and
Hewlett-Packard. The fair value assigned to the ORiNOCO customer
base totaled $9.0 million and is being amortized over the
expected life of its cash flows.

As of the valuation date, it was assumed that
there was some value attributable to the ORiNOCO tradename. In
valuing the tradename, the Company utilized the relief from
royalty methodology, which assumes that the value of the asset
equals the amount a third party would pay to use the asset and
capitalize on the related benefits of the asset. Therefore, a
revenue stream for the asset was estimated based on the revenue
from the technology over the next five years, which represents
the developed, core and in-process revenue stream. The Company
then applied a 2.0% royalty rate to the forecasted revenue to
estimate the pre-tax income associated with the asset. The fair
value assigned to the tradename totaled $5.9 million and
because the Company will continue to use the ORiNOCO tradename
the intangible asset will not be amortized.

Purchased in-process research and development, or
IPR&D, consisted of next generation Enterprise Access
Points, Radio Backbone Systems, Broadband Gateways and Network
Management products, which had not yet reached technological
feasibility and had no alternative future use as of the date of
acquisition. As of the valuation date, the 802.11 WLAN systems
business of Agere was developing next generation Enterprise
Access Points, Radio Backbone Systems, Broadband Gateways and
Network Management products. These products are under
development and require additional hardware and software
development. The value of the IPR&D was determined by
estimating the net cash flows from potential sales of the
products resulting from completion of this project, reduced by
the portion of net cash flows from the revenue attributable to
core and developed technology. The resulting cash flows were
then discounted back to their present value using a discount
rate of 50%. The fair value assigned to the IPR&D totaled
$10.4 million and was expensed at the time of the
acquisition.

88



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Core technology, developed technology and
customer relationships are being amortized on a straight-line
basis over the following estimated periods of benefit:

|                       |  |  |          | 
|---------------------- |  |  | -------- | 
|Core technology        |  |  | 5  years | 
|Developed technology   |  |  | 2  years | 
|Customer relationships |  |  | 3  years | 



| |                                              
| | ---------------------------------------------
| | Acquisition of nBand
    Communications, Inc.

On April 18, 2002, the Company acquired
nBand Communication, Inc. (nBand), a California
corporation. nBand is a startup developer of advanced
application specific integrated circuits (ASICs) designs that
the Company intends to use in the development of next generation
ASICs. The purchase price was $1.2 million and comprised of
$550,000 in cash, 180,144 shares of Class A common
stock valued at approximately $450,000 and transaction expenses
of approximately $200,000. In the second quarter of 2002, the
Company assigned the entire purchase price of $1.2 million
to purchased in-process research and development as the acquired
technology had not reached technological feasibility.



| |                         
| | ------------------------
| | Merger with Proxim, Inc.

On March 26, 2002, the merger between
Western Multiplex Corporation and Proxim, Inc. was
completed, resulting in Proxim Corporation as the combined
company. The combined company provides broadband, or high speed,
wireless access products to service providers, businesses and
other enterprises as well as high performance WLAN products
based on RF technology. The merger was accounted for as a
purchase transaction with Proxim, Inc. as the purchased
entity. Total consideration of $172.6 million for the
merger was adjusted to $175.3 million in the third quarter
of 2002 and comprised of the following:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | 59,506,503 shares of Class A common
    stock valued at approximately $133.3 million;                                            
|
| |  | options and warrants having an assumed value of
    approximately $25.3 million; and                                             
|
| |  | transaction costs originally estimated at
    $14.0 million that were adjusted in the third quarter of
    2002 to $16.7 million.

The total purchase price was allocated to the
tangible and identifiable intangible assets, goodwill acquired
and liabilities assumed on the basis of their relative fair
values as follows (in thousands):

|                                             |  |   |         |  
|-------------------------------------------- |  | - | ------- | -
|Cash and cash equivalents                    |  | $ | 35,961  |  
|Marketable securities                        |  |   | 991     |  
|Accounts receivable, net                     |  |   | 8,914   |  
|Inventory, net                               |  |   | 12,834  |  
|Other current assets                         |  |   | 1,150   |  
|Other long-term assets                       |  |   | 2,000   |  
|Plant and equipment                          |  |   | 3,958   |  
|Core technology                              |  |   | 18,010  |  
|Developed technology                         |  |   | 12,042  |  
|Patents                                      |  |   | 3,210   |  
|Liabilities assumed                          |  |   | (8,199  | )
|Acquired in-process research and development |  |   | 4,536   |  
|Goodwill                                     |  |   | 79,847  |  
|                                             |  |   |         |  
|                                             |  | $ | 175,254 |  
|                                             |  |   |         |  

89



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The liabilities assumed consist principally of
accounts payable, accrued compensation and benefits and other
current liabilities.

The core and developed technology acquired
include 900MHz, RangeLAN, Harmony, 802.11a and Skyline products
for the enterprise/commercial markets; Symphony HomeRF,
HomeRF 2.0 and Netline products for the home/SOHO markets;
and Stratum and Stratum MP products for the building-to-building
markets. These products have already achieved technological
feasibility in the marketplace. The fair value assigned to the
core technology and developed technology totaled
$18.0 million and $12.0 million respectively, and is
being amortized over the expected life of its cash flows.

As of the valuation date, it was assumed that
there was some value attributable to patents and patent
applications of Proxim, Inc. The Company assumed that the
patents and patent applications will continue to be used but
will be phased out over time as new technology is developed. To
value the patents and patent applications, we utilized the
relief from royalty methodology. The relief from royalty
methodology assumes that the value of the asset equals the
amount a third party would pay to use the asset and capitalize
on the related benefits of the asset. Therefore, a revenue
stream for the asset is estimated, and then an estimated royalty
rate is applied to the forecasted revenue to estimate the
pre-tax income associated with the asset. The pre-tax income is
then tax-affected to estimate the after-tax net income
associated with the asset. Finally, the after tax net income is
discounted to the present value using an appropriate rate of
return that considers both the risk of the asset and the
associated cash flow estimates. The resulting cash flows were
then discounted back to their present value using a discount
rate of 25%. The fair value assigned to the patents totaled
$3.2 million and is being amortized over the expected life
of its cash flows.

Purchased IPR&D consisted of 802.11a and
HomeRF 2.0 wireless networking products under development,
which had not yet reached technological feasibility and had no
alternative future use as of the date of acquisition. As of the
valuation date, Proxim, Inc. was developing
802.11a WLAN adapters in PCI and Mini PCI form factors and
a connectorized access point as well as a HomeRF 2.0 voice
data module, voice data gateway and voice data gateway and
answer machine. The value of the IPR&D was determined by
estimating the net cash flows from potential sales of the
products resulting from completion of this project, reduced by
the portion of net cash flows from the revenue attributable to
core and developed technology. The resulting cash flows were
then discounted back to their present value using a discount
rate of 30%. The fair value assigned to the IPR&D totaled
$4.5 million and was expensed at the time of the
acquisition.

Core technology, developed technology and patents
are being amortized on a straight-line basis over the following
estimated periods of benefit:

|                     |  |  |          | 
|-------------------- |  |  | -------- | 
|Core technology      |  |  | 5  years | 
|Developed technology |  |  | 3  years | 
|Patents              |  |  | 5  years | 



| |                            
| | ---------------------------
| | Acquisition of WirelessHome

On March 22, 2001, the Company acquired
WirelessHome located in Long Beach, California in a cash and
stock transaction. WirelessHome is a development stage company
that designs and develops point-to-multipoint systems. The
acquisition was accounted for as a purchase. The Company
acquired WirelessHome for a total consideration of
$28.2 million comprised of:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | 1,649,324 shares of Class A common
    stock valued at $12.1 million;
|
| |  | $10.5 million in cash;                                               

90



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | options and warrants having an assumed value of
    $0.7 million; a stock price protection contingent
    consideration valued at $2.5 million; and
|
| |  | transaction costs of $2.4 million.                                                                                                                 

As part of the transaction the Company assumed
$2.0 million of net liabilities, which consisted of
$0.4 million of current assets, $0.9 million of other
assets and $3.3 million of current liabilities. In March
2001, the Company issued an initial consideration of
$23.0 million. As a result, the Company recorded the
initial purchase price allocation as follows: $24.7 million
to goodwill and $0.3 million to deferred compensation.

The initial purchase price, as well as the
initial allocation, were subject to adjustments upon
WirelessHome meeting certain development milestones and other
considerations as defined in the agreement to acquire
WirelessHome.

On October 7, 2001, WirelessHome met the
development milestones in accordance with the acquisition
agreement. This resulted in additional purchase consideration of
$5.2 million. We then evaluated and recorded the final
purchase price and stock compensation expense arising from the
achievement of those milestones. The total purchase price
allocation, which consisted of $28.2 million of purchase
price and $2.0 million of net liabilities assumed, was as
follows: $1.0 million to assembled workforce,
$6.4 million to IPR&D $22.5 million to goodwill,
and $0.3 million to deferred compensation. In addition, we
recorded $2.2 million of stock compensation expense as a
result of releasing and issuing 558,950 shares, which were
previously held in escrow, to individuals who were directly
involved in the completion of the development milestones.

The purchase price allocation and intangible
assets valuation were based on managements estimates of
the after-tax net cash flows and gave consideration to the
following: (i) the employment of a fair market value
premise excluding any consideration specific to the Company
which could result in estimates of investment value for the
subject assets; (ii) comprehensive due diligence concerning
all potential intangible assets including trademarks, tradename,
patents, copyrights, non-compete agreements, assembled work
force, customer relationships and sales channel; and
(iii) the value of existing technology was specifically
addressed, with a view toward ensuring that the relative
allocations to existing technology and in-process research and
development were consistent with the relative contributions of
each final product.

In making its purchase price allocation,
management considered present value calculations of income, an
analysis of project accomplishments and remaining outstanding
items and an assessment of overall contributions, as well as
project risks. The value assigned to purchased IPR&D was
determined by estimating the costs to develop the acquired
technology into commercially viable products, estimating the
resulting net cash flows from the projects, and discounting the
net cash flows to their present value. The revenue projection
used to value the IPR&D was based on estimates of relevant
market sizes and growth factors, expected trends in technology,
and the nature and expected timing of new product introductions
by the Company and its competitors. The resulting net cash flows
from such projects are based on managements estimates of
cost of revenue, operating expenses, and income taxes from such
projects.



| |                                                
| | -----------------------------------------------
| | Acquisition of Ubiquity
    Communication, Inc.

On March 24, 2000, the Company acquired
Ubiquity Communication, Inc. (Ubiquity),
located in Petaluma, California. Through the acquisition, the
Company acquired technology for use in its development of
point-to-multipoint systems. At the time of the acquisition,
Ubiquity had seven employees, including six engineers. In
connection with the acquisition, the Company issued
692,772 shares of Class A common stock to its former
owners and reserved 137,727 shares of our Class A
common stock for issuance upon the exercise of the Ubiquity
options we assumed. The value of the consideration paid for the
acquisition of Ubiquity was $6.4 million. The transaction
was accounted for using the purchase method of accounting. In
March 2001, the Ubiquity operations were closed due to the
acquisition of WirelessHome.

91



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Goodwill and other intangible assets related to
the acquisition of Ubiquity totaled $6.8 million. In March
2001, the Company recorded an impairment of the Ubiquity
goodwill and other intangible assets of $4.3 million as a
result of closing the Ubiquity operations. The amount of the
charge equals the unamortized amount of these intangible assets
as of the date of closure of the Ubiquity operations as no
future benefit is anticipated, since Ubiquity was replaced by
WirelessHome as the developer of point-to-multipoint systems.
The Ubiquity intangible asset of $229,000 was amortized on a
straight-line basis over its estimated useful life of three
years, or $76,000, per year.



| |                                    
| | -----------------------------------
| | Pro Forma Financial
    Information

The following table represents unaudited pro
forma financial information for the year ended December 31,
2002 and December 31, 2001 had Proxim Corporation (formerly
Western Multiplex Corporation), WirelessHome, Proxim, Inc.,
nBand and the 802.11 WLAN systems business of Agere been
combined as of January 1, 2001. The pro forma financial
information is presented for illustrative purposes only and is
not necessarily indicative of the combined financial position or
results of operations of future periods or the results that
actually would have resulted had Proxim Corporation,
WirelessHome, Proxim, Inc., nBand and the 802.11 WLAN
systems business of Agere been a combined company during the
specified periods. The pro forma results include the effects of
the amortization of identifiable intangible assets and goodwill
and adjustments to the income tax provision or benefits and
accretion of Preferred Stock. The pro forma combined results for
the year ended December 31, 2002 exclude the
$4.5 million, $1.2 million and $10.4 million
charges for acquired in-process technology from
Proxim, Inc., nBand and the 802.11 WLAN systems business of
Agere, respectively, because they are non-recurring amounts (in
thousands except share data):

|                                                                             |  |                         |          |      |  |   |          |  
|---------------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | - | -------- | -
|                                                                             |  |                        
|                                                                             |  | Year Ended December 31,
|                                                                             |  |                        
|                                                                             |  | 2002                    |          | 2001
|                                                                             |  |                         |          |     
|                                                                             |  |                        
|                                                                             |  | (Unaudited)            
|Revenue                                                                      |  | $                       | 206,053  |      |  | $ | 343,290  |  
|Net loss attributable to common stockholders                                 |  | $                       | (262,630 | )    |  | $ | (110,948 | )
|Basic and diluted net loss per share attributable
    to common stockholders |  | $                       | (2.21    | )    |  | $ | (1.01    | )
|                                                                             |  |                         |          |      |  |   |          |  
|Shares used to compute basic and diluted net loss
    per share              |  |                         | 119,030  |      |  |   | 110,203  |  
|                                                                             |  |                         |          |      |  |   |          |  



| |                            
| | ---------------------------
| | Supplemental Cash Flow Data

The Company paid cash of $51.5 million in
connection with its business combinations with
Proxim, Inc., nBand and the 802.11 wireless LAN systems
business of Agere in the year ended December 31, 2002,
described below (in thousands):

|                                       |  |   |          |  
|-------------------------------------- |  | - | -------- | -
|Purchase price                         |  | $ | 246,454  |  
|Common stock issued                    |  |   | (159,039 | )
|Accrued transactions costs             |  |   |         |  
|Cash paid                              |  |   | 87,415   |  
|Less: cash acquired                    |  |   | (35,961  | )
|                                       |  |   |          |  
|Net cash used in business combinations |  | $ | 51,454   |  
|                                       |  |   |          |  

Note 5  Goodwill and Other
Intangible Assets

In December 2002, due to the significant decline
in forecasted revenue and cash flows, the Company made a
complete assessment of the carrying value of all goodwill and
other intangibles assets in accordance

92



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

with SFAS No. 142. The Company first
determined the fair value of its equity to be less than the
carrying value of goodwill. As such, an impairment charge was
recognizable in accordance with SFAS No. 142 as of
December 31, 2002. The Company then quantified the goodwill
impairment as the amount by which the carrying amount of the
asset exceeded the estimated fair value of goodwill. The
carrying value of goodwill determined by the discounted cash
flow method, totaling $138.8 million as of
December 31, 2002, exceeded the estimated fair value of
$9.7 million, resulting in a charge for the impairment of
goodwill of $129.1 million, which was recorded in December
2002.

In December 2003, the Company performed its
annual impairment test of goodwill and determined that no
impairment charge was required.

The changes in the carrying amount of goodwill
for the year ended December 31, 2002 are as follows (in
thousands):

|                                  |  |   |          |  
|--------------------------------- |  | - | -------- | -
|Balance as of December 31, 2001   |  | $ | 35,901   |  
|Goodwill acquired during the year |  |   | 102,933  |  
|Impairment charge                 |  |   | (129,108 | )
|                                  |  |   |          |  
|Balance as of December 31, 2002   |  | $ | 9,726    |  
|                                  |  |   |          |  

Acquired intangible assets, net of accumulated
amortization, consist of the following (in thousands):

|                                 |                              |              |   |        |  |  |   |        | 
|-------------------------------- | ---------------------------- | ------------ | - | ------ |  |  | - | ------ | 
|                                 |                              |             
|                                 |                              | December 31,
|                                 |                              |             
|                                 |                              | 2003         |   | 2002  
|                                 |                              |              |   |       
|Acquired intangible assets, net: |                              |              |   |        |  |  |   |       
|                                 | WirelessHome and other       |              | $ |       |  |  | $ | 136    | 
|                                 | Proxim, Inc.                 |              |   | 18,810 |  |  |   | 27,068 | 
|                                 | 802.11 WLAN systems business |              |   | 21,523 |  |  |   | 34,722 | 
|                                 |                              |              |   |        |  |  |   |       
|                                 | Total intangible assets, net |              | $ | 40,333 |  |  | $ | 61,926 | 
|                                 |                              |              |   |        |  |  |   |       

Acquired intangible assets by categories as of
December 31, 2003 consist of the following (in thousands):

|                               |                        |          |   |              |  |  |   |        | 
|------------------------------ | ---------------------- | -------- | - | ------------ |  |  | - | ------ | 
|                               |                        | Gross    |   |             
|                               |                        | Carrying |   | Accumulated 
|                               |                        | Amounts  |   | Amortization
|                               |                        |          |   |             
|Amortized intangible assets:   |                        |          |   |              |  |  |   |       
|                               | Core Technology        |          | $ | 26,531       |  |  | $ | 8,718  | 
|                               | Developed Technology   |          |   | 29,036       |  |  |   | 19,063 | 
|                               | Customer Relationships |          |   | 8,995        |  |  |   | 4,247  | 
|                               | Patents                |          |   | 3,439        |  |  |   | 1,549  | 
|                               |                        |          |   |              |  |  |   |       
|                               | Total                  |          | $ | 68,001       |  |  | $ | 33,577 | 
|                               |                        |          |   |              |  |  |   |       
|Unamortized intangible assets: |                        |          |   |              |  |  |   |       
|                               | Tradename              |          | $ | 5,909        |  |  |   |        | 
|                               |                        |          |   |              |  |  |   |       

Goodwill represents the excess of cost over the
fair market value of net assets acquired. Goodwill pushed down
from the 1995 acquisition of the Company by GTI totaled
$22.0 million. Prior to January 1, 2002, this goodwill
was amortized on a straight-line basis over its estimated useful
life of 30 years, or $0.7 million per year. As a
result of the Companys adoption of SFAS No. 142,
as of January 1, 2002, the Company no longer amortizes
goodwill. Goodwill related to the acquisition of WirelessHome
totaled $24.7 million. Prior to December 31, 2001 this
goodwill was amortized on a straight-line basis over its
estimated useful life of 5 years.

93



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

This goodwill was subject to subsequent
adjustments upon WirelessHome meeting certain development
milestones and other considerations. After WirelessHome met
those development milestones, the goodwill was adjusted to
$22.5 million in the fourth quarter of 2001. Goodwill
related to the merger with Proxim, Inc. totaled
$77.2 million and was adjusted to $79.9 million in the
third quarter of 2002 as a result of additional unanticipated
transaction expenses. Goodwill related to the 802.11 WLAN
systems business of Agere totaled $23.1 million.

Assembled workforce related to the acquisition of
WirelessHome totaled $1.0 million were reclassified as
Goodwill on January 1, 2002. Patents related to the
acquisition of Ubiquity totaled $229,000, and are being
amortized on a straight-line basis over an estimated useful life
of 3 years.

Core technology, developed technology and patents
related to the merger with Proxim, Inc. totaled
$18.0 million, $12.0 million and $3.2 million
respectively, and are being amortized on a straight-line basis
over an estimated useful life of 5 years, 3 years and
5 years, respectively.

Core technology, developed technology and
customer relationships related to the acquisition of the
802.11  WLAN systems business of Agere totaled
$8.5 million, $17.0 million and $9.0 million
respectively, and are being amortized on a straight-line basis
over an estimated useful life of 5 years, 2 years and
3 years, respectively. The fair value assigned to the
tradename totaled $5.9 million and because the Company will
continue to use the ORiNOCO tradename the intangible asset will
not be amortized.

The Company expects amortization expense of
intangible assets to be $17.9 million in fiscal 2004,
$8.7 million in fiscal 2005, $5.9 million in fiscal
2006, and $1.9 million in fiscal 2007, at which time
intangible assets will be fully amortized assuming no future
impairments of those intangible assets or additions as a result
of acquisitions.

The following table presents the impact of
SFAS No. 142 on net loss as if the standard had been
in effect for the year ended December 31, 2001 (in
thousands, except per share data):

|                                                              |  |   |         |  
|------------------------------------------------------------- |  | - | ------- | -
|Net loss as reported                                          |  | $ | (25,598 | )
|Add: goodwill amortization                                    |  |   | 4,371   |  
|workforce
    amortization                                    |  |   | 383     |  
|                                                              |  |   |         |  
|Adjusted net loss                                             |  | $ | (20,844 | )
|                                                              |  |   |         |  
|Basic and diluted net loss per share as reported              |  | $ | (0.44   | )
|Add: goodwill amortization                                    |  |   | 0.08    |  
|workforce
    amortization                                    |  |   |        |  
|                                                              |  |   |         |  
|Adjusted basic and diluted net loss per share as
    reported |  | $ | (0.36   | )
|                                                              |  |   |         |  

Note 6  Purchased In-Process
Research and Development

Purchased in-process research and development
consist primarily of acquired technology that has not reached
technological feasibility.

The amount expensed to purchased in-process
research and development in the third quarter of 2002 related to
next generation Enterprise Access Points, Radio Backbone
Systems, Broadband Gateways and Network Management products
acquired in the acquisition of Ageres 802.11 WLAN systems
business. The amount expensed to purchased in-process research
and development in the second quarter of 2002 related to
technology for next generation ASICs acquired in the nBand
acquisition. The amount expensed to purchased in-process
research and development in the first quarter of 2002 related to
802.11a and HomeRF 2.0 wireless networking products acquired in
relations to the Proxim, Inc. merger. The following table
summarizes the key

94



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assumptions underlying the valuation for the
Companys purchase transactions completed during the year
ended December 31, 2002 and 2001 (in thousands):

|                             |  |      |      |                     |  |                     |       |  |  |  |      |  
|---------------------------- |  | ---- | ---- | ------------------- |  | ------------------- | ----- |  |  |  | ---- | -
|                             |  |      |      | Estimated Cost      |  | Risk-Adjusted      
|                             |  |      |      | to Complete         |  | Discount Rate for  
|                             |  |      |      | Technology at       |  | In-Process Research
|                             |  | Year |      | Time of Acquisition |  | and Development    
|                             |  |      |      |                     |  |                    
|802.11 WLAN systems business |  |      | 2002 |                     |  | $                   | 1,322 |  |  |  | 50.0 | %
|Proxim, Inc.                 |  |      | 2002 |                     |  | $                   | 2,387 |  |  |  | 30.0 | %
|WirelessHome                 |  |      | 2001 |                     |  | $                   | 1,425 |  |  |  | 35.0 | %

The discount rates reflect the risk of the
respective technology and are representative of the implied
transaction rates.

The Company does not expect to achieve a material
amount of expense reductions or synergies as a result of
integrating the acquired in-process technology. Therefore, the
valuation assumptions do not include any anticipated synergies
or cost saving associated with the transactions. The Company
expected that products incorporating the acquired technology
will be completed and begin to generate cash flows between six
to nine months after integration. Actual results have been
consistent in all material respects, with its assumptions at the
effective time of the transactions.

Development of this technology remains a
significant risk due to the remaining effort to achieve
technological feasibility, rapidly changing customer markets,
uncertain standards for new products, and significant
competitive threats. The nature of the efforts to develop the
acquired technology into commercially viable products consists
principally of developing a new operating system, developing a
new processor and interface, planning and testing activities
necessary to determine that the product can meet market
expectations, including functionality and technical
requirements. Failure to bring these products to market in a
timely manner could result in a loss of market share, or a lost
opportunity to capitalize on emerging markets, and could have a
material adverse impact on the value of assets acquired.

Note 7  Balance Sheet
Components

|                                   |                                                              |                                                                  |        |         |        |   |        |         |        |  
|---------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | -
|                                   |                                                              |                                                                 
|                                   |                                                              | December 31,                                                    
|                                   |                                                              |                                                                 
|                                   |                                                              | 2003                                                             |        | 2002   
|                                   |                                                              |                                                                  |        |        
|                                   |                                                              |                                                                 
|                                   |                                                              | (In thousands)                                                  
|Investments:                       |                                                              |                                                                  |        |         |        |   |        |        
|                                   | Time deposits                                                |                                                                  | $      | 1,254   |        |   | $      | 2,489   |       
|                                   | Equity investment in a wireless company listed in
    Canada |                                                                  |        |        |        |   |        | 513     |       
|                                   |                                                              |                                                                  |        |         |        |   |        |        
|                                   |                                                              |                                                                  | 1,254  |         |        |   | 3,002  |        
|Less: long-term restricted portion |                                                              |                                                                  | (1,254 | )       |        |   | (2,489 | )      
|                                   |                                                              |                                                                  |        |         |        |   |        |        
|                                   | Current portion                                              |                                                                  | $      |        |        |   | $      | 513     |       
|                                   |                                                              |                                                                  |        |         |        |   |        |        
|Accounts receivable, net:          |                                                              |                                                                  |        |         |        |   |        |        
|                                   | Gross accounts receivable                                    |                                                                  | $      | 34,345  |        |   | $      | 52,750  |       
|                                   | Less: Deferred revenue                                       |                                                                  |        | (10,599 | )      |   |        | (14,715 | )     
|                                   |                                                              | Allowances for bad debts, sales returns and Price
    protection |        |         | (9,785 | ) |        |         | (7,500 | )
|                                   |                                                              |                                                                  |        |         |        |   |        |        
|                                   |                                                              | $                                                                | 13,961 |         |        | $ | 30,535 |        
|                                   |                                                              |                                                                  |        |         |        |   |        |        

95



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                             |                                                 |                |        |         |   |   |        |         |  
|---------------------------- | ----------------------------------------------- | -------------- | ------ | ------- | - | - | ------ | ------- | -
|                             |                                                 |               
|                             |                                                 | December 31,  
|                             |                                                 |               
|                             |                                                 | 2003           |        | 2002   
|                             |                                                 |                |        |        
|                             |                                                 |               
|                             |                                                 | (In thousands)
|Inventory, net:              |                                                 |                |        |         |   |   |        |        
|                             | Raw materials                                   |                | $      | 6,915   |   |   | $      | 37,472  |  
|                             | Work-in-process                                 |                |        | 1,408   |   |   |        | 5,820   |  
|                             | Finished goods                                  |                |        | 10,011  |   |   |        | 17,523  |  
|                             | Consignment inventories                         |                |        | 6,677   |   |   |        | 8,829   |  
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 |                | 25,011 |         |   |   | 69,644 |        
|                             | Less: reserve for excess and obsolete inventory |                |        | (5,072  | ) |   |        | (32,845 | )
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 | $              | 19,939 |         |   | $ | 36,799 |        
|                             |                                                 |                |        |         |   |   |        |        
|Property and equipment, net: |                                                 |                |        |         |   |   |        |        
|                             | Computer and test equipment                     |                | $      | 11,427  |   |   | $      | 18,102  |  
|                             | Furniture and fixtures                          |                |        | 194     |   |   |        | 890     |  
|                             | Leased assets                                   |                |        | 2,942   |   |   |        |        |  
|                             | Leasehold improvements                          |                |        | 438     |   |   |        | 265     |  
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 |                | 15,001 |         |   |   | 19,257 |        
|                             | Less: accumulated depreciation                  |                |        | (7,479  | ) |   |        | (9,147  | )
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 | $              | 7,522  |         |   | $ | 10,110 |        
|                             |                                                 |                |        |         |   |   |        |        
|Intangible assets, net:      |                                                 |                |        |         |   |   |        |        
|                             | Core technology                                 |                | $      | 26,531  |   |   | $      | 26,531  |  
|                             | Developed technology                            |                |        | 29,036  |   |   |        | 29,036  |  
|                             | Customer relationships                          |                |        | 8,995   |   |   |        | 8,995   |  
|                             | Tradename                                       |                |        | 5,909   |   |   |        | 5,909   |  
|                             | Patents                                         |                |        | 3,439   |   |   |        | 3,439   |  
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 |                | 73,910 |         |   |   | 73,910 |        
|                             | Less: Accumulated amortization                  |                |        | (33,577 | ) |   |        | (11,984 | )
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 | $              | 40,333 |         |   | $ | 61,926 |        
|                             |                                                 |                |        |         |   |   |        |        
|Other accrued liabilities:   |                                                 |                |        |         |   |   |        |        
|                             | Restructuring accruals, current portion         |                | $      | 7,144   |   |   | $      | 3,871   |  
|                             | Accrued interest on convertible promissory note |                |        | 3,247   |   |   |        |        |  
|                             | Accrued unconditional project commitments       |                |        | 1,284   |   |   |        | 1,509   |  
|                             | Accrued compensation                            |                |        | 3,402   |   |   |        | 3,921   |  
|                             | Accrued warranty costs                          |                |        | 1,395   |   |   |        | 2,041   |  
|                             | Other accrued liabilities                       |                |        | 4,332   |   |   |        | 5,575   |  
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 | $              | 20,804 |         |   | $ | 16,917 |        
|                             |                                                 |                |        |         |   |   |        |        

96



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of the movements in
allowance for bad debt, sales returns and discounts and product
warranty costs during the year ended December 31, 2003 (in
thousands):

|                                   |  |                     |        |          |  |   |       |  
|---------------------------------- |  | ------------------- | ------ | -------- |  | - | ----- | -
|                                   |  | Allowance for Bad   |        | Product 
|                                   |  | Debt, Sales Returns |        | Warranty
|                                   |  | and Discounts       |        | Costs   
|                                   |  |                     |        |         
|Balance as of December 31, 2002    |  | $                   | 7,500  |          |  | $ | 2,041 |  
|Additional provision               |  |                     | 10,590 |          |  |   | 207   |  
|Settlements made during the period |  |                     | (8,305 | )        |  |   | (853  | )
|                                   |  |                     |        |          |  |   |       |  
|Balance as of December 31, 2003    |  | $                   | 9,785  |          |  | $ | 1,395 |  
|                                   |  |                     |        |          |  |   |       |  

Property and equipment includes $2.9 million
of computer equipment under capital leases at December 31,
2003. Accumulated amortization of assets under capital leases
totaled $215,000.

Note 8  Impairment of Loan to
Officer

The Company had guaranteed up to $5 million
of obligations of an officer of the Company, with respect to a
margin loan with an investment bank that he established prior to
2001. On October 15, 2002, the investment bank called the
Companys guaranty of $5 million. The Company
continues to seek repayment from the former officer under a
Reimbursement and Security Agreement. In this regard, in January
2003, the former officer made a cash payment of
$0.5 million to the Company. The Company assessed the
recoverability of the remaining balance of the loan with respect
to the former officers current financial position and
recorded an impairment charge of $4.5 million in the fourth
quarter of 2002. This impairment charge does not constitute
forgiveness of the former officers indebtedness to the
Company. Future payments by the former officer under the
Reimbursement and Security Agreement will be recorded as income
in the period cash is received.

Note 9  Revenue Information
and Concentration of Credit Risks

The Companys products are grouped into two
product lines: WWAN and WLAN product lines. The WWAN product
line includes point-to-point Lynx and Tsunami products and
point-to-multipoint Tsunami products. The WLAN product line
includes 802.11a and ORiNOCO products and license revenue. Prior
to the March 26, 2002 merger with Proxim, Inc., the
Company did not have a WLAN product line. Historical WLAN
revenue prior to March 26, 2002 of the former
Proxim, Inc., and prior to August 5, 2002, for the
ORiNOCO products acquired from Agere, are not reported in the
table below. Revenue information by product line is as follows
(in thousands):

|                     |               |                         |        |         |  |      |        |         |  |   |         |         | 
|-------------------- | ------------- | ----------------------- | ------ | ------- |  | ---- | ------ | ------- |  | - | ------- | ------- | 
|                     |               |                        
|                     |               | Year Ended December 31,
|                     |               |                        
|Product Line         |               | 2003                    |        | 2002    |  | 2001
|                     |               |                         |        |         |  |     
|WWAN product revenue |               | $                       | 74,658 |         |  | $    | 83,799 |         |  | $ | 105,730 |        
|WLAN product revenue |               |                         | 67,808 |         |  |      | 60,861 |         |  |   |        |        
|WLAN license revenue |               |                         | 6,000  |         |  |      |       |         |  |   |        |        
|                     |               |                         |        |         |  |      |        |         |  |   |         |        
|                     | Total revenue |                         | $      | 148,466 |  |      | $      | 144,660 |  |   | $       | 105,730 | 
|                     |               |                         |        |         |  |      |        |         |  |   |         |        

The Company sells its products worldwide through
a direct sales force, independent distributors, and value-added
resellers. It currently operates in two geographic regions:
North America and International. Revenue outside of the North
America consists primarily of export sales denominated in United
States dollars.

97



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Disaggregated financial information regarding the
Companys revenue by geographic region is as follows (in
thousands):

|                              |               |                         |        |         |  |      |        |         |  |   |        |         | 
|----------------------------- | ------------- | ----------------------- | ------ | ------- |  | ---- | ------ | ------- |  | - | ------ | ------- | 
|                              |               |                        
|                              |               | Year Ended December 31,
|                              |               |                        
|Geographical Region           |               | 2003                    |        | 2002    |  | 2001
|                              |               |                         |        |         |  |     
|North America product revenue |               | $                       | 82,023 |         |  | $    | 89,890 |         |  | $ | 80,038 |        
|North America license revenue |               |                         | 6,000  |         |  |      |       |         |  |   |       |        
|International product revenue |               |                         | 60,443 |         |  |      | 54,770 |         |  |   | 25,692 |        
|                              |               |                         |        |         |  |      |        |         |  |   |        |        
|                              | Total revenue |                         | $      | 148,466 |  |      | $      | 144,660 |  |   | $      | 105,730 | 
|                              |               |                         |        |         |  |      |        |         |  |   |        |        

The following table summarizes each customer,
which accounted for more than 10% of the Companys total
revenue each year:

|                            |  |              |      |      |  |      |      |   |  |  |      |  
|--------------------------- |  | ------------ | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                            |  |             
|                            |  | Year Ended  
|                            |  | December 31,
|                            |  |             
|                            |  | 2003         |      | 2002 |  | 2001
|                            |  |              |      |      |  |     
|Tech Data Corporation       |  |              | 13.9 | %    |  |      | *    |   |  |  | *    |  
|Comstor                     |  |              | *    |      |  |      | 23.0 | % |  |  | 29.4 | %
|Somera Communications, Inc. |  |              | *    |      |  |      | *    |   |  |  | 11.4 | %
|Tessco Technologies         |  |              | *    |      |  |      | *    |   |  |  | 10.5 | %



---



|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|* | Customer accounted for less than 10% of total
    revenue in the respective fiscal year.

As of December 31, 2003 and 2002,
approximately 57% and 40% of accounts receivable, respectively,
were concentrated with ten customers.

Note 10  Restructuring
Provision for Excess and Obsolete Inventory

During the year ended December 31, 2003, the
Company recorded a $22.5 million provision for excess and
obsolete inventory as part of the Companys restructuring
activities. To mitigate the component supply constraints that
have existed in the past, the Company had built inventory levels
for certain components with long lead times and entered into
longer-term commitments for certain components. The excess
inventory charges were due to the following factors:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | A sudden and significant decrease in demand for
    certain Lynx and Tsunami license-exempt point-to-point, 802.11a
    and Harmony products;
|
| |  | Notification from customers that they would not
    be ordering as much as they had previously indicated;                                    
|
| |  | Continued decline in the demand for fixed
    wireless solutions due to the worldwide slowdown in the telecom
    industry;                  
|
| |  | Continued increase in competition for wireless
    networking products, particularly related to home networking and
    enterprise LANs; and 
|
| |  | Managements strategy to discontinue
    products, and in certain cases replace those products with newer
    or redesigned products.        

Due to these factors, inventory levels exceeded
the Companys requirements based on current 12-month sales
forecasts. The additional excess and obsolete inventory charge
was calculated based on the inventory levels in excess of the
estimated 12-month demand for each specific product family. The
Company does not currently anticipate that the excess inventory
subject to this reserve will be used at a later date based on
our current 12-month demand forecast. The Company uses a
12-month demand forecast because the wireless

98



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

communications industry is characterized by rapid
technological changes such that if the Company has not sold a
product after a 12-month period it is unlikely that the product
will be sold. The following is a summary of the movements in the
reserve for excess and obsolete inventory during the year ended
December 31, 2003 (in thousands):

|                                                         |  |   |         |  
|-------------------------------------------------------- |  | - | ------- | -
|Balance as of December 31, 2002                          |  | $ | 32,845  |  
|Additional reserve for excess and obsolete
    inventory |  |   | 22,549  |  
|Inventory scrapped                                       |  |   | (50,322 | )
|                                                         |  |   |         |  
|Balance as of December 31, 2003                          |  | $ | 5,072   |  
|                                                         |  |   |         |  

Note 11  Restructuring Charges
(Benefit) for Severance and Excess Facilities

Prior to the Companys adoption of
SFAS No. 146 on January 1, 2003, the Company
accounted for restructuring charges under the provisions of
Emerging Issues Task Force (EITF) No. 94-3
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring) and Staff Accounting
Bulletin (SAB) No. 100 regarding the accounting
for and disclosure of certain expenses commonly reported in
connection with exit activities and business combinations.

During the year ended December 31, 2002, the
Company recorded $43.2 million of restructuring charges,
including $35.4 million, $3.6 million,
$2.3 million and $1.9 million in the first, second,
third and fourth quarters of 2002, respectively, related to
closure of certain facilities, discontinued product lines and
severance pay. The charges include $40.8 million of cash
provisions, which include severance of $7.4 million for 194
employees, $33.1 million for future lease commitments, net
of estimated future sublease receipts, and exit costs related to
the closure of four facilities and $0.3 related to consulting
fees. The charge also includes $2.4 million of non-cash
provisions related to fixed assets that will no longer be used
at the facilities. The estimated future sublease receipts are
based on current comparable rates for leases in the respective
markets. If facility rental rates continue to decrease in these
markets or if it takes longer than expected to sublease these
facilities, the actual costs for closures of facilities could
exceed the original estimate of $33.1 million.

During the year ended December 31, 2003, the
Company recorded restructuring charges of $7.3 million,
consisting of $24.8 million of cash provisions and
$3.3 million of non-cash provisions for abandoned property
and equipment, partially offset by a $20.8 million net
reversal of restructuring accruals. The $24.8 million of
cash provisions consisted of $12.7 million of operating
lease commitments, less estimated future sublease receipts, and
exit costs of certain closed facilities, $9.1 million of
severance payments for 111 employees, $0.6 million of
consulting fees, and $2.4 million of project commitments.
The $20.8 million net reversal of restructuring accruals
represented the reversal of $27.8 million of previously
recorded lease obligation restructuring reserves, partially
offset by the write-down of fair value of an asset held for sale
of $6.9 million. The Company reversed a total of
$27.8 million of restructuring reserves, of which
$26.8 million related to buying, terminating and selling
the leased property in Sunnyvale, California during the fourth
quarter of 2003. The Company reversed an additional
$1.0 million of previously recorded restructuring reserves
related to another building lease in Sunnyvale as a result of a
reduction of the lease commitments agreed to with the lessor.

99



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the restructuring
activities during the years ended December 31, 2002 and
2003 (in thousands):

|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------- |  | --------- | ------ | ---------- |  | ---------- | ------- | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                               |  |           |        |            |  | Asset Held |         |       |  |      
|                                               |  | Severance |        | Facilities |  | for Sale   |         | Other |  | Total
|                                               |  |           |        |            |  |            |         |       |  |      
|Balance as of December 31, 2001                |  | $         | 198    |            |  | $          | 52      |       |  | $     |       |   |  | $ | 180    |   |  | $ | 430     |  
|Reclassifications among categories             |  |           |       |            |  |            | 180     |       |  |       |       |   |  |   | (180   | ) |  |   |        |  
|Balance acquired with
    Proxim, Inc.         |  |           |       |            |  |            | 1,066   |       |  |       |       |   |  |   |       |   |  |   | 1,066   |  
|Provision charged to operations                |  |           | 7,395  |            |  |            | 33,080  |       |  |       |       |   |  |   | 2,702  |   |  |   | 43,177  |  
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (2,405 | ) |  |   | (2,405  | )
|Cash payments                                  |  |           | (7,593 | )          |  |            | (3,928  | )     |  |       |       |   |  |   | (297   | ) |  |   | (11,818 | )
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2002                |  |           |       |            |  |            | 30,450  |       |  |       |       |   |  |   |       |   |  |   | 30,450  |  
|Provision charged to operations                |  |           | 9,071  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 32,643  |  
|Reversal of previously recorded provision      |  |           |       |            |  |            | (27,764 | )     |  |       |       |   |  |   |       |   |  |   | (27,764 | )
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                                  |  |           | (5,451 | )          |  |            | (3,845  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (19,262 | )
|Proceeds from sale of asset held for sale, net |  |           |       |            |  |            |        |       |  |       | 3,041  |   |  |   |       |   |  |   | 3,041   |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                |  | $         | 3,620  |            |  | $          | 11,584  |       |  | $     |       |   |  | $ | 600    |   |  | $ | 15,804  |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  

The restructuring related asset and reserves were
presented on the balance sheet as follows (in thousands):

|                           |           |              |        |       |  |   |        |        | 
|-------------------------- | --------- | ------------ | ------ | ----- |  | - | ------ | ------ | 
|                           |           |             
|                           |           | December 31,
|                           |           |             
|                           |           | 2003         |        | 2002 
|                           |           |              |        |      
|Restructuring accruals     |           |              |        |       |  |   |        |       
|                           | Current   |              | $      | 7,144 |  |   | $      | 3,871  | 
|                           | Long-term |              |        | 8,660 |  |   |        | 26,579 | 
|                           |           |              |        |       |  |   |        |       
|Net restructuring accruals |           | $            | 15,804 |       |  | $ | 30,450 |       
|                           |           |              |        |       |  |   |        |       

Note 12  Loss on Early
Extinguishment of Debt

As fully described in Note 1 to the
consolidated financial statements, upon stockholders
approval in December 2003, the Notes of $30 million were
modified as they now include (1) warrants to purchase
24 million shares of common stock; and (2) a right to
convert to Series B preferred stock at the option of the
investors. The Company determined under Emerging Issues Task
Force 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments, that the
modification was made with substantially different terms and a
debt extinguishment resulted. Accordingly, the December Note
instrument was recorded at fair value and that amount was used
to determine the debt extinguishment loss to be recognized and
the effective rate of the new instrument. The warrants were also
recorded at fair value (See Note 17 to the consolidated
financial statements for details). A loss on debt extinguishment
of $22.2 million was recorded in the fourth quarter of 2003.

Note 13  Income
Taxes

The Company provides for income taxes under the
provisions of SFAS No. 109, Accounting for
Income Taxes. SFAS No. 109 requires an asset and
liability based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to
reflect the tax consequences on future years of temporary

100



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

differences of revenue and expense items for
financial statement and income tax purposes. Valuation
allowances are provided against assets that are not likely to be
realized.

The components of the provision (benefit) for
income taxes for the years ended December 31, 2003, 2002,
and 2001 are as follows:

|         |         |                          |   |      |  |      |       |       |  |   |        |        |  
|-------- | ------- | ------------------------ | - | ---- |  | ---- | ----- | ----- |  | - | ------ | ------ | -
|         |         |                         
|         |         | Years Ended December 31,
|         |         |                         
|         |         | 2003                     |   | 2002 |  | 2001
|         |         |                          |   |      |  |     
|Current  |         |                          |   |      |  |      |       |       |  |   |        |       
|         | Federal |                          | $ |     |  |      | $     |      |  |   | $      |       |  
|         | State   |                          |   |     |  |      |       |      |  |   |        | 13     |  
|         |         |                          |   |      |  |      |       |       |  |   |        |       
|         |         |                          |  |      |  |      |      |       |  |   | 13     |       
|Deferred |         |                          |   |      |  |      |       |       |  |   |        |       
|         | Federal |                          |   |     |  |      |       | 2,067 |  |   |        | (2,854 | )
|         | State   |                          |   |     |  |      |       | 1,157 |  |   |        | (1,255 | )
|         |         |                          |   |      |  |      |       |       |  |   |        |       
|         |         |                          |  |      |  |      | 3,224 |       |  |   | (4,109 | )     
|         |         | $                        |  |      |  | $    | 3,224 |       |  | $ | (4,096 | )     
|         |         |                          |   |      |  |      |       |       |  |   |        |       

The provision for income taxes differs from the
amounts, which would result by applying the applicable statutory
Federal income tax rate to income before taxes, as follows (in
thousands):

|                                                              |                           |                         |         |      |  |      |         |       |  |   |         |        |  
|------------------------------------------------------------- | ------------------------- | ----------------------- | ------- | ---- |  | ---- | ------- | ----- |  | - | ------- | ------ | -
|                                                              |                           |                        
|                                                              |                           | Year Ended December 31,
|                                                              |                           |                        
|                                                              |                           | 2003                    |         | 2002 |  | 2001
|                                                              |                           |                         |         |      |  |     
|Provision at federal statutory rate of 35%                    |                           | $                       | (44,604 | )    |  | $    | (82,819 | )     |  | $ | (10,393 | )     
|State income taxes, net of federal benefits                   |                           |                         | 110     |      |  |      | (12,069 | )     |  |   | (242    | )     
|Goodwill impairment and amortization of
    intangible assets |                           |                         |        |      |  |      | 36,860  |       |  |   | 3,148   |       
|Amortization of deferred stock compensation                   |                           |                         |        |      |  |      | 299     |       |  |   | 1,819   |       
|In-process research and development                           |                           |                         |        |      |  |      | 5,635   |       |  |   | 2,240   |       
|Change in valuation allowance                                 |                           |                         | 44,179  |      |  |      | 52,695  |       |  |   |        |       
|Research and development tax credits                          |                           |                         |        |      |  |      | (500    | )     |  |   | (850    | )     
|Other                                                         |                           |                         | 315     |      |  |      | 3,123   |       |  |   | 182     |       
|                                                              |                           |                         |         |      |  |      |         |       |  |   |         |       
|                                                              | Total provision for taxes |                         | $       |     |  |      | $       | 3,224 |  |   | $       | (4,096 | )
|                                                              |                           |                         |         |      |  |      |         |       |  |   |         |       

101



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The major components of the net deferred tax
asset are as follows (in thousands):

|                     |                                                   |                        |   |          |   |  |   |         |   | 
|-------------------- | ------------------------------------------------- | ---------------------- | - | -------- | - |  | - | ------- | - | 
|                     |                                                   |                       
|                     |                                                   | December 31,          
|                     |                                                   |                       
|                     |                                                   | 2003                   |   | 2002    
|                     |                                                   |                        |   |         
|Deferred tax assets: |                                                   |                        |   |          |   |  |   |        
|                     | Inventory reserve                                 |                        | $ | 2,066    |   |  | $ | 13,383  |  
|                     | Goodwill and other intangibles assets             |                        |   | 8,830    |   |  |   | 25,580  |  
|                     | Restructuring reserve                             |                        |   | 6,963    |   |  |   | 12,407  |  
|                     | Accrued royalties                                 |                        |   | 10,961   |   |  |   |        |  
|                     | Other reserves and accruals                       |                        |   | 9,805    |   |  |   | 9,361   |  
|                     | Net operating losses                              |                        |   | 87,131   |   |  |   | 20,846  |  
|                     | Research and development credit and other credits |                        |   | 9,023    |   |  |   | 9,023   |  
|                     |                                                   |                        |   |          |   |  |   |        
|                     | Gross deferred tax asset                          |                        |   | 134,779  |   |  |   | 90,600  |  
|                     | Valuation allowance                               |                        |   | (134,779 | ) |  |   | (90,600 | )
|                     |                                                   |                        |   |          |   |  |   |        
|                     |                                                   | Net deferred tax asset |   | $        |  |  |   | $       |  | 
|                     |                                                   |                        |   |          |   |  |   |        

As of December 31, 2003, the Companys
federal and state net operating loss carryforwards for income
tax purposes were approximately $235 million and
$70 million, respectively. If not utilized, these net
operating loss carryfowards will begin to expire at various
dates between 2006 and 2023. The Companys federal and
state research tax credit carryforwards for income tax purposes
are approximately $5.1 million and $3.8 million,
respectively. If not utilized the federal tax credit
carryforwards will begin to expire in 2012. The Company has a
valuation allowance of approximately $127 million as of
December 31, 2003 for deferred tax assets because of
uncertainty regarding their realization.

Deferred tax assets of approximately
$15.7 million as of December 31, 2003 pertain to
certain net operating loss carryforwards and credit
carryforwards resulting from the exercise of employee stock
options. When recognized, the tax benefit of these loss and
credit carryforwards are accounted for as a credit to additional
paid-in capital rather than a reduction to the income tax
provision.

The Internal Revenue Code of 1986, as amended,
contains provisions that may limit the net operating loss and
credit carryforwards available for use in any given period upon
the occurrence of certain events, including a significant change
in ownership interests.

Note 14  Loss Per Share
Attributable to Common Stockholders

Basic and diluted net loss per share attributable
to common stockholders are presented in conformity with
SFAS No. 128, Earnings Per Share. The
following is a reconciliation of the numerators and denominators
of the basic and diluted net loss per share computations for the
years ended December 31, 2003, 2002 and 2001 (in thousands
except share data):

|                                             |             |                         |          |         |  |      |          |         |  |   |         |        | 
|-------------------------------------------- | ----------- | ----------------------- | -------- | ------- |  | ---- | -------- | ------- |  | - | ------- | ------ | 
|                                             |             |                        
|                                             |             | Year Ended December 31,
|                                             |             |                        
|                                             |             | 2003                    |          | 2002    |  | 2001
|                                             |             |                         |          |         |  |     
|Net loss attributable to common stockholders |             | $                       | (133,743 | )       |  | $    | (244,480 | )       |  | $ | (25,598 | )     
|Weighted average common shares               |             |                         |          |         |  |      |          |         |  |   |         |       
|                                             | Outstanding |                         |          | 121,662 |  |      |          | 105,119 |  |   |         | 57,559 | 
|                                             |             |                         |          |         |  |      |          |         |  |   |         |       
|Net loss per share  basic and diluted       |             | $                       | (1.10    | )       |  | $    | (2.33    | )       |  | $ | (0.44   | )     
|                                             |             |                         |          |         |  |      |          |         |  |   |         |       

For the years ended December 31, 2003, 2002
and 2001, basic net loss per share under SFAS No. 128
was computed using the weighted average number of shares
outstanding during the period. Diluted net loss per

102



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

share was determined in the same manner as basic
earnings per share except that the number of shares was
increased assuming dilutive stock options and warrants using the
treasury stock method. For the years ended December 31,
2003, 2002 and 2001, the incremental shares from the assumed
exercise of stock options and warrants were not included in
computing diluted per share amounts as the effect would be
antidilutive. For the years ended December 31, 2003, 2002
and 2001 options to purchase 28,238,078, 30,367,748 and
10,258,659 shares of common stock were excluded from the
diluted net loss per share calculations. For the years ended
December 31, 2003 and 2002 warrants to purchase 38,922,655
and 13,842,655 shares of common stock were excluded from
the diluted net loss per share calculations.

Note 15  Convertible
Notes

As of December 31, 2003, the Company had
outstanding Convertible Notes of $40 million. Convertible
Notes of $10 million, which were issued on
December 19, 2003, rank senior to the Convertible Notes of
$30 million originally issued on July 30, 2003. The
Company may be required to repay the Notes, plus accrued and
unpaid interest, in the event its note holders do not exchange
for mandatorily redeemable Convertible Series B preferred
stock (Series B preferred stock). Such
repayment would be required on September 30, 2004, the
maturity date of the Notes, or upon an event of default or
change in control, whichever is earlier.

The holders of Convertible Notes have various
rights and preferences as follows:



| |                                                
| | -----------------------------------------------
| | Conversion Right and Liquidation
    Preference

At the option of the note holders, the Notes can
be exchanged for shares of the Companys Series B
preferred stock with an aggregate initial liquidation preference
equal to the principal amount of the exchanged indebtedness,
plus accrued but unpaid interest, at the conversion price of
$100 per share.



| |           
| | ----------
| | Put Rights

In the event of change in control, 150% of the
accrued value of the Convertible Notes, with a cap of
$10 million on the accrued interest portion of the Notes,
will be immediately due and payable.



| |         
| | --------
| | Interest

The Convertible Notes bear interest at
25% per annum. After the maturity date, the interest rate
will increase to 30% per annum.

The Company reserved 540,000 shares of
Series B preferred stock for the conversion of the Notes as
of December 31, 2003.

Note 16  Mandatorily
Redeemable Convertible Preferred Stock

As of December 31, 2003, Mandatorily
Redeemable Convertible Preferred Stock, Series A
(Series A Preferred Stock), consisted of the
following:

|         |  |            |           |             |  |             |           |                 |  |   |            |  |  |  |            | 
|-------- |  | ---------- | --------- | ----------- |  | ----------- | --------- | --------------- |  | - | ---------- |  |  |  | ---------- | 
|         |  |            |           |             |  |             |           | Total Number of
|         |  |            |           |             |  |             |           | Shares of      
|         |  |            |           |             |  |             |           | Common Stock   
|         |  |            |           | Issued and  |  | Liquidation |           | Issuable Upon  
|         |  | Authorized |           | Outstanding |  | Preference  |           | Conversion     
|         |  |            |           |             |  |             |           |                
|Series A |  |            | 3,000,000 |             |  |             | 3,000,000 |                 |  | $ | 81,120,000 |  |  |  | 39,590,044 | 
|         |  |            |           |             |  |             |           |                 |  |   |            |  |  |  |            | 

In August 2002, in connection with the
acquisition of the 802.11 WLAN systems business of Agere
Systems, Inc., Warburg Pincus Private Equity VIII,
L.P., Broadview Capital Partners L.P. and affiliated entities
agreed to collectively invest $75 million in the Company.
These investors received 1,640,000 shares of

103



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Series A Preferred Stock in the amount of
approximately $41 million, with a conversion price of
approximately $3.06 per share, and warrants to purchase
approximately 6.7 million shares of our Common Stock valued
at $12.3 million. The value of the warrants was recorded as
a reduction of the Series A Preferred Stock carrying value
and recorded as additional paid-in capital. A deemed preferred
stock dividend representing the beneficial conversion feature of
the Series A Preferred Stock of $2.7 million was also
recorded to increase the loss attributable to holders of the
Companys Common Stock.

Upon receipt of approval of the Companys
stockholders at a special meeting held on October 8, 2002,
the notes issued to these investors (Note 3) were
converted into 1,360,000 shares of Series A Preferred
Stock and the Company granted to these investors additional
warrants to purchase approximately 5.6 million shares of
our common stock value at $1.7 million. In total, the
investors were granted warrants to acquire
12,271,345 shares of Common Stock for approximately
$3.06 per share value at $14.0 million. The
Series A Preferred Stock and warrants issued to the
investors represent approximately 20% of the Companys
outstanding Common Stock on an as-converted and as-exercised
basis as of December 31, 2003.

In summary, the issuance of Series A
Preferred Stock, convertible notes and related warrants and the
subsequent conversion, accretion and interest accrual were
recorded through December 31, 2003 as follows (in
thousands):

|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------- |  | ----------- | ------- | --------- |  | ---------- | ------- | ----------- |  | - | ------ | - |  | - | ------- | -
|                                                                     |  |             |         |           |  | Additional |         |            
|                                                                     |  | Convertible |         | Preferred |  | Paid-In    |         | Accumulated
|                                                                     |  | Notes       |         | Stock     |  | Capital    |         | Deficit    
|                                                                     |  |             |         |           |  |            |         |            
|Issuance of Series A Preferred Stock                                 |  | $           |        |           |  | $          | 41,000  |             |  | $ |       |   |  | $ |        |  
|Issuance of convertible notes                                        |  |             | 34,000  |           |  |            |        |             |  |   |       |   |  |   |        |  
|Issuance of warrants                                                 |  |             |        |           |  |            | (13,993 | )           |  |   | 13,993 |   |  |   |        |  
|Conversion of convertible notes                                      |  |             | (34,000 | )         |  |            | 34,000  |             |  |   |       |   |  |   |        |  
|Deemed Preferred Stock dividend                                      |  |             |        |           |  |            |        |             |  |   | 2,740  |   |  |   | (2,740  | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 2,936   |             |  |   | (1,046 | ) |  |   | (1,890  | )
|Accrued interest on convertible notes payable in
    Preferred Stock |  |             |        |           |  |            | 469     |             |  |   |       |   |  |   |        |  
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2002                                      |  |             |        |           |  |            | 64,412  |             |  |   | 15,687 |   |  |   | (4,630  | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 9,168   |             |  |   | (2,865 | ) |  |   | (6,303  | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                                      |  | $           |        |           |  | $          | 73,580  |             |  | $ | 12,822 |   |  | $ | (10,933 | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  

The holders of Series A Preferred Stock have
various rights and preferences as follows:

Voting.For so long
as Warburg Pincus owns at least 25% of its shares of
Series A Preferred Stock or the Common Stock issuable on
conversion of its Series A Preferred Stock and exercise of
its warrants, Warburg Pincus will have the right to nominate for
election one member of the Companys board of directors,
who will sit on all major board committees for so long as such
committee membership does not conflict with any applicable law
or regulation or any listing requirements of the Nasdaq National
Market.

The approval of holders of a majority of the
Series A Preferred Stock is separately required to approve
changes to the Companys certificate of incorporation or
bylaws that adversely affect these holders rights, any
offer, sale or issuance of the Companys equity or
equity-linked securities ranking senior to or equally with the
Series A Preferred Stock, and any repurchase or redemption
of the Companys equity securities (other than from an
employee, director or consultant following termination), or the
declaration or payment of any dividend on the Companys
Common Stock.

104



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Redemption.In
August 2007, the Company will be required to redeem all
outstanding shares of Series A Preferred Stock, if any, for
cash equal to their liquidation preference, which bears interest
at 8% per annum, compounded semi-annually, for three years,
plus accrued and unpaid dividends.

Dividends.From
August 2005 through August 2007, shares of Series A
Preferred Stock will be entitled to cumulative dividends equal
to 8% of their liquidation preference per year, payable, at the
Companys election, in cash or shares of the Companys
Common Stock valued at the then-market price;

Liquidation.Each
share of Series A Preferred Stock will have an initial
liquidation preference of $25.00 and the liquidation preference
will bear interest at 8% per annum, compounded
semi-annually, for three years. The liquidation preference is
subject to adjustments in the event the Company undertakes a
business combination or other extraordinary transaction, or the
Company are liquidated or dissolved.

Conversion.In the
event of a change of control of the Company, the Company will
have the right to convert the Series A Preferred Stock into
Common Stock if upon such conversion the holders of
Series A Preferred Stock would receive liquid securities or
cash with a fair market value equal to or greater than 110% of
the liquidation preference then in effect. If the consideration
is less than 110% of the liquidation preference, the Company may
either repurchase modify the conversion price so that the
consideration will equal 110% of the liquidation preference then
in effect or change the Series A Preferred Stock for cash
at 101% of the liquidation preference then in effect. In
addition, in the event of a of control that occurs prior to
August 2005, the liquidation preference will increase as
necessary to provide for three years of accretion.

Holders of Series A Preferred Stock have
rights to acquire additional shares of the Companys
capital stock or rights to purchase property in the event of
certain grants, issuance or sales.

The conversion price of the Series A
Preferred Stock, which initially was approximately
$3.06 per share, is subject to customary weighted average
anti-dilution adjustments and other customary adjustments.

Note 17  Stockholders
Equity (Deficit)



| |             
| | ------------
| | Common Stock

The Companys authorized common stock
consists of Class A and Class B common stock. Holders
of Class A common stock are entitled to one vote per share.
Holders of Class B common stock are entitled to ten votes
per share. Each share of Class B common stock is
convertible into one share of Class A common stock at the
election of the stockholder or, prior to the Companys
initial public offering, upon such event.

In conjunction with the recapitalization
transaction in 1999 the Company repurchased
42,000,000 shares of Class B common stock for
$21.0 million from Glenayre Technologies Inc. and held
these shares as treasury stock.

Simultaneously with the closing of the
Companys initial public offering, all of the
Companys then outstanding 38,000,000 shares of
Class B common stock and 42,000,000 shares of
Class B treasury stock were automatically converted into
38,000,000 shares of Class A common stock and
42,000,000 shares of Class A treasury stock,
respectively.

On March 26, 2002 the Company acquired
Proxim, Inc. for 59,506,503 shares of Class A
Common Stock.

As of December 31, 2003, the Company had
165,037,194 shares of Class A Common Stock issued and
outstanding and 42,185,534 shares of Class A treasury
stock.

105



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |         
| | --------
| | Warrants

|                                                                                 |  |              |            |                |  |                 |  |  |            |  
|-------------------------------------------------------------------------------- |  | ------------ | ---------- | -------------- |  | --------------- |  |  | ---------- | -
|                                                                                 |  |              |            |                |  | Total Number   
|                                                                                 |  |              |            |                |  | of Shares      
|                                                                                 |  | Warrants for |            |                |  | Issuable Upon  
|                                                                                 |  | Class A      |            | Exercise Price |  | Exercise of    
|                                                                                 |  | Common Stock |            | per Share      |  | Warrants       
|                                                                                 |  |              |            |                |  |                
|Balance at December 31, 2001                                                     |  |              | 29,162     |                |  | $ 9.61  $14.01 |  |  | 29,162     |  
|Issuance of warrants in connection with merger
    with Proxim, Inc.             |  |              | 2,228,881  |                |  | $ 6.85  $13.23 |  |  | 2,228,881  |  
|Issuance of warrants in connection with financing
    arrangements               |  |              | 12,271,345 |                |  | $3.06           |  |  | 12,271,345 |  
|Warrants expired                                                                 |  |              | (686,733   | )              |  | $11.91  $13.23 |  |  | (686,733   | )
|                                                                                 |  |              |            |                |  |                 |  |  |            |  
|Balance at December 31, 2002                                                     |  |              | 13,842,655 |                |  |                |  |  | 13,842,655 |  
|Issuance of warrants in connection with licensing
    and distribution agreement |  |              | 1,080,000  |                |  | $2.34           |  |  | 1,080,000  |  
|Issuance of warrants in connection with financing
    arrangements               |  |              | 18,000,000 |                |  | $1.46           |  |  | 18,000,000 |  
|Issuance of warrants in connection with the
    financing arrangement            |  |              | 6,000,000  |                |  | $1.53           |  |  | 6,000,000  |  
|                                                                                 |  |              |            |                |  |                 |  |  |            |  
|Balance at December 31, 2003                                                     |  |              | 38,922,655 |                |  |                |  |  | 38,922,655 |  
|                                                                                 |  |              |            |                |  |                 |  |  |            |  

In connection with a new operating lease entered
into in September 2000, the Company issued 25,000 warrants to
the lessor in November 2000. Each new warrant is convertible
into one share of Class A common stock of the Company at an
exercise price of $14.01 per share. These warrants are
exercisable during the period beginning on January 1, 2001
and ending on December 1, 2005. The Company has estimated
the fair value of the warrants using the Black-Scholes option
valuation model and has determined the compensation expense
throughout the life of the lease to be immaterial.

In connection with the acquisition of
WirelessHome Corporation, the Company assumed a warrant to
purchase 4,162 shares of the Companys Class A
common stock at an exercise price of $9.61 per share. These
warrants will expire on December 16, 2009.

In connection with the acquisition of
Proxim, Inc., the Company assumed warrants to purchase
362,803, 323,930 and 1,542,148 shares of the Companys
Class A common stock at an exercise price of $11.91 and
$13.23 and $6.85 per share, respectively. These warrants
expire on April 28, 2002, June 2, 2002 and
November 27, 2005. As of December 31, 2002 1,542,148
warrants were outstanding.

In connection with the acquisition of the 802.11
WLAN systems business of Agere Systems, Inc., the Company
issued 12,271,345 warrants to Warburg Pincus Private
Equity VIII, L.P., Broadview Capital Partners L.P. and
affiliated entities. Each new warrant is convertible into one
share of Class A common stock of the Company at an exercise
price of approximately $3.06 per share. The Company has
estimated the fair value of the warrants using the Black-Scholes
option valuation model totaling $14.0 million. The warrants
will expire on August 5, 2007.

In connection with a three-year licensing and
distribution agreement entered into with Motorola, Inc. on
September 8, 2003, the Company issued to Motorola a fully
vested warrant to purchase 1,080,000 shares of the
Companys common stock at an exercise price of
$2.34 per share. This warrant will expire on
September 8, 2008. The Company has estimated the fair value
of the warrant using the Black-Scholes option valuation model at
$2.1 million. The fair value of the warrant will be
amortized on a straight-line basis over the three-

106



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

year term of the commercial arrangement with
Motorola with periodic charges against revenue effective
beginning in the quarter ending April 1, 2004.

The following assumptions were applied when
estimating the fair value of the warrants issued in the year
ended December 31, 2002 and 2003 using the Black-Scholes
option pricing model:

|                           |  |              |         |              |  |  |         |  
|-------------------------- |  | ------------ | ------- | ------------ |  |  | ------- | -
|                           |  | Year Ended   |         | Year Ended  
|                           |  | December 31, |         | December 31,
|                           |  | 2003         |         | 2002        
|                           |  |              |         |             
|Risk-free interest rate    |  |              | 2.34    | %            |  |  | 3.21    | %
|Expected life of option    |  |              | 5 years |              |  |  | 5 years |  
|Dividend yield             |  |              | 0       | %            |  |  | 0       | %
|Volatility of common stock |  |              | 118     | %            |  |  | 114     | %

In connection with additional investments made by
Warburg Pincus Private Equity VIII, L.P., Broadview Capital
Partners L.P. and affiliated entities during the year ended
December 31, 2003, the Company issued to these investors
warrants to purchase 18 million and 6 million shares
of the Companys common stock at an exercise price of
$1.46 per share and $1.53 per share, respectively (see
Note 1 and 15). These warrants were valued by the Company
with the assistance of an independent valuation consulting firm
at $22.2 million at December 12, 2003 and
$21.8 million at December 31, 2003. The fair value of
the warrants are recorded as long-term liability, as the warrant
holders are entitled to require the Company to purchase the
warrants for cash upon the occurrence of a change in control
event. The fair value of the warrants will be subject to
revaluation adjustments at the end of each reporting period,
until they are exercised or expired, whichever is earlier. The
resulting gain or loss will be recorded as other income or
expense in the corresponding reporting period. These warrants
will expire on December 15, 2010.



| |                            
| | ---------------------------
| | Deferred Stock Compensation

In connection with the grant of certain stock
options and sales of certain stock to employees and directors
during fiscal 2000, the Company recorded deferred stock
compensation within stockholders equity of
$8.5 million, representing the difference between the
estimated fair value of the common stock and the option exercise
price of these options at the date of grant or the stock sale
price at the date of sale. Such amount is presented as a
reduction of stockholders equity. The portion of deferred
stock compensation associated with the stock options was
amortized over the vesting period of the applicable options
using an accelerated method of amortization. Under the
accelerated method, each vested tranche of options is accounted
for as a separate option grant awarded for past services.
Accordingly, the compensation expense is recognized over the
period during which the services will be provided; however, the
method results in a front-loading of the compensation expense.
For the portion of deferred stock compensation associated with
stock sales, the Company records the expense over the period the
shares are vested using the accelerated method. For the year
ended December 31, 2002 the Company recorded amortization
of deferred compensation, net of cancellations, of $855,000.

As part of the WirelessHome acquisition, the
Company assumed certain vested and unvested options that when
exercised would result in approximately 14,400 and
113,000 shares of common stock outstanding, respectively.
These options have an average exercise price of $3.01 per
share of the Companys common stock. The unvested options
resulted in additional deferred compensation of
$0.3 million recorded as of the date of acquisition, which
is amortized over the remaining vesting period using the
accelerated method.

During the year ended December 31, 2001, the
Company reversed approximately $1.8 million of deferred
stock compensation previously recorded due to cancellations of
unexercised stock options.

During the year ended December 31, 2003, as
a result of WirelessHome meeting the development milestones, the
Company released and issued 558,950 shares to individuals
who were directly involved in the

107



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

completion of the development milestones and
accordingly recorded $2.2 million of stock compensation
expense. As of December 31, 2003, all deferred stock
compensation was amortized.



| |                                             
| | --------------------------------------------
| | Employees Stock Forward Sale
    Agreements

On December 20, 2001 the Company entered
into stock forward sale agreements with certain employees. Under
these agreements the Company bought back 78,138 shares at
$7.91 in March 2002. The Company recorded the difference between
the stock price on December 20, 2001, $5.45 and the
guaranteed price per share of $7.91 as stock compensation
expense for a total of $192,000 in the fourth quarter of 2001.
The Company recorded the difference between the stock price on
March 25, 2002, $2.37 and the stock price on
December 20, 2001, $5.45 as stock compensation expense for
a total of $241,000 in 2002.



| |                   
| | ------------------
| | Stock Option Plans

Employee Stock Purchase
Plan.In June 2000, the Company
adopted the Western Multiplex Corporation Employee Stock
Purchase Plan (ESPP), which is intended to qualify
as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986. An annual increase in shares
reserved will occur on the first day of each of the
Companys fiscal years beginning in 2001, 2002, 2003, 2004
and 2005 as defined in the ESPP. As of December 31, 2003,
1.75 million shares of Class A common stock was
reserved for issuance under the ESPP.

In August 2000, subsequent to the completion of
the Companys initial public offering, the Company began to
administer the plan by enrolling participants in the plan and
processing payroll deductions. The first day of the offering
period was August 1, 2000. The following table summarizes
the Companys issuances of shares to employees
participating in the ESPP:

|                 |  |        |         |           |  |                |       |  |  |   |           | 
|---------------- |  | ------ | ------- | --------- |  | -------------- | ----- |  |  | - | --------- | 
|                 |  |        |         | Price Per |  | Total         
|Date             |  | Shares |         | Share     |  | Purchase Price
|                 |  |        |         |           |  |               
|January 31, 2001 |  |        | 123,025 |           |  | $              | 10.20 |  |  | $ | 1,254,855 | 
|July 31, 2001    |  |        | 7,241   |           |  | $              | 4.80  |  |  | $ | 34,757    | 
|January 31, 2002 |  |        | 56,511  |           |  | $              | 2.52  |  |  | $ | 142,408   | 
|July 31, 2002    |  |        | 191,045 |           |  | $              | 2.18  |  |  | $ | 416,478   | 
|January 31, 2003 |  |        | 183,964 |           |  | $              | 0.71  |  |  | $ | 131,350   | 
|July 31, 2003    |  |        | 99,418  |           |  | $              | 0.72  |  |  | $ | 71,830    | 

1999 Stock Incentive
Plan.In November 1999, the Company
adopted the Western Multiplex Corporation 1999 Stock Incentive
Plan (the 1999 Plan) for key employees, officers,
directors, and consultants. The Company has reserved for
issuance 13.5 million shares of Class A common stock
under the 1999 Plan. The types of awards that may be made under
the 1999 Plan are incentive stock options, non-qualified
options, stock appreciation rights, and other stock-based awards.

The exercise price for stock options may not be
less than 100% of the fair market value of the Companys
Class A common stock on the date of the grant (110% for any
option granted to any stockholder who owns more than 10% of the
total combined voting power of all classes of stock of the
Company or its parent or subsidiary corporation), as determined
by the Compensation Committee. An option may not vest at less
than 20% per year over five years, and will vest on the
specific schedule established by the Compensation Committee.

Ubiquity Communication
Plans.In connection with the
acquisition of Ubiquity Communication, Inc. on
March 24, 2000, the Company assumed the obligations under
Ubiquity Communications equity incentive plans
(Ubiquity Plans). As a result, all options granted
under the Ubiquity Plans became options to purchase shares of
the Companys common stock. As of March 24, 2000, the
Company assumed 137,727

108



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

options that had been granted under these plans.
As of March 29, 2002, the Company had no options
outstanding under the Ubiquity Plans.

Platinum IP Stock Incentive
Plan.In connection with the
acquisition of WirelessHome on March 22, 2001, the Company
assumed obligations under WirelessHomes Platinum IP Stock
Incentive Plan (WirelessHome Plan). As a result, all
options granted under the WirelessHome Plan became options to
purchase shares of the Companys common stock. As of
March 22, 2001, the Company assumed certain vested and
unvested options that when exercised would result in
approximately 14,400 and 113,000 shares of common stock
outstanding. As a result of WirelessHome meeting the development
milestones, in the fourth quarter of 2001 the Company issued
75,380 options, which were previously held in escrow to
employees who were directly involved in the completion of the
development milestones.

Proxim, Inc. Stock Incentive
Plans.In connection with the
acquisition of Proxim, Inc. on March 26, 2002, the
Company assumed obligations under Proxim, Inc. Stock
Incentive Plan (Proxim Plan). As a result, all
options granted under the Proxim Plan became options to purchase
shares of the Companys common stock. As of March 26,
2002, the Company assumed certain vested and unvested options
that when exercised would result in approximately 8,679,657 and
7,294,702 shares of common stock outstanding.

2002 Nonstatutory Merger Stock Option
Plan.In March 2002, the Company
established the 2002 Nonstatutory Merger Stock Option Plan, or
the 2002 Plan, and reserved 7.0 million shares of
Class A Common Stock for issuance to employees and officers
upon exercise of awards granted thereunder. The 2002 Plan
provides for the grant of awards in the form of stock options,
restricted stock, performance shares, restricted stock units,
and stock unit awards to employees and officers at prices not
less than 100% of the fair market value of our Common Stock on
the date of grant. The options terminate ten years after the
date of grant. Unless otherwise provided for by the Board of
Directors, the options are exercisable only upon vesting.
Options generally vest ratably over a 36-month period.

2002 Acquisition Stock Option
Plan.In August 2002, the Company
established the 2002 Acquisition Stock Option Plan, or the 2002
Acquisition Plan, and reserved 5.0 million shares of
Class A Common Stock for issuance to employees and officers
upon exercise of awards granted thereunder. The 2002 Acquisition
Plan provides for the grant of awards in the form of stock
options, restricted stock, performance shares, restricted stock
units, and stock unit awards to employees and officers at prices
not less than 100% of the fair market value of our Common Stock
on the date of grant. The options terminate ten years after the
date of grant. Unless otherwise provided for by the Board of
Directors, the options are exercisable only upon vesting.
Options generally vest ratably over a 36-month period.

2000 Stock Option Plan for Non-Employee
Directors.In June 2000, the Company
adopted the 2000 Stock Option Plan for Non-Employee Directors.
The Company has reserved for issuance a maximum of
1,500,000 shares of common stock pursuant to the grant of
non-qualified stock options to newly elected members of the
board of directors who are not employees of our Company.

The exercise price of any option granted under
this plan is the per share fair market value of the
Companys common stock on the date the option is granted
except with respect to the initial grants made as of
June 8, 2000 for which the exercise price is $8.50. An
individual who becomes a director will receive an initial grant
of an option to purchase 50,000 shares of the
Companys common stock, which option will be immediately
vested upon grant as to one-third of the shares subject to the
option. The option will then become vested as to one-third of
the shares on each of the first and second anniversaries of the
date of the initial grant, so long as the director continues to
serve on the Companys board of directors on each vesting
date. In addition, so long as a director continues to serve on
the Companys board of directors, the director will receive
an additional option to purchase 25,000 shares, the terms
of which will be the same as those described above, on the date
of each annual meeting of the Companys stockholders.

109



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes stock options
activity under all the Plans:

|                             |            |           |            |                     |   |          |            |            |   |   |      |      | 
|---------------------------- | ---------- | --------- | ---------- | ------------------- | - | -------- | ---------- | ---------- | - | - | ---- | ---- | 
|                             |            |           |            |                    
|                             |            |           |            | Options Outstanding
|                             |            |           |            |                    
|                             |            |           |            |                     |   | Weighted
|                             |            |           |            |                     |   | Average 
|                             |            | Options   |            | Number of           |   | Exercise
|                             |            | Available |            | Shares              |   | Price   
|                             |            |           |            |                     |   |         
|Balance at December 31, 2000 |            |           | 4,687,999  |                     |   |          | 7,433,728  |            |   | $ | 4.53 |     
|                             | Authorized |           |            | 3,185,998           |   |          |            |           |   |   |      |     | 
|                             | Granted    |           |            | (5,832,825          | ) |          |            | 5,832,825  |   |   |      | 6.55 | 
|                             | Exercised  |           |            |                    |   |          |            | (1,328,772 | ) |   |      | 0.56 | 
|                             | Cancelled  |           |            | 1,679,122           |   |          |            | (1,679,122 | ) |   |      | 5.92 | 
|                             |            |           |            |                     |   |          |            |            |   |   |      |     
|Balance at December 31, 2001 |            |           | 3,720,294  |                     |   |          | 10,258,659 |            |   |   | 5.91 |     
|                             | Authorized |           |            | 38,744,226          |   |          |            |           |   |   |      |     | 
|                             | Granted    |           |            | (26,788,631         | ) |          |            | 26,788,631 |   |   |      | 4.46 | 
|                             | Exercised  |           |            |                    |   |          |            | (683,582   | ) |   |      | 0.57 | 
|                             | Cancelled  |           |            | 5,994,446           |   |          |            | (5,995,960 | ) |   |      | 6.22 | 
|                             |            |           |            |                     |   |          |            |            |   |   |      |     
|Balance at December 31, 2002 |            |           | 21,670,335 |                     |   |          | 30,367,748 |            |   |   | 4.63 |     
|                             | Authorized |           |            |                    |   |          |            |           |   |   |      |      | 
|                             | Granted    |           |            | (8,809,236          | ) |          |            | 8,809,236  |   |   |      | 1.20 | 
|                             | Exercised  |           |            |                    |   |          |            | (1,178,690 | ) |   |      | 0.51 | 
|                             | Cancelled  |           |            | 9,727,548           |   |          |            | (9,760,216 | ) |   |      | 5.26 | 
|                             |            |           |            |                     |   |          |            |            |   |   |      |     
|Balance at December 31, 2003 |            |           | 22,588,647 |                     |   |          | 28,238,078 |            |   | $ | 3.51 |     
|                             |            |           |            |                     |   |          |            |            |   |   |      |     

As part of the merger with Proxim, Inc., the
Company assumed certain vested and unvested options that when
converted would result in approximately 8.7 million and
7.3 million shares of common stock outstanding. These
options have a weighted average exercise price of $5.75 per
share. Additionally, approximately 10.8 million shares were
available under Proxim, Inc. plans.

The following table summarizes options
outstanding and options exercisable at December 31, 2003
under all the Plans:

|                |  |                     |            |                     |  |          |     |           |  |          |       |  |  |  |            |  |  |   |       | 
|--------------- |  | ------------------- | ---------- | ------------------- |  | -------- | --- | --------- |  | -------- | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                |  |                     |            |                    
|                |  | Options Outstanding |            | Options Exercisable
|                |  |                     |            |                    
|                |  |                     |            | Weighted            |  | Weighted |     |           |  | Weighted
|                |  |                     |            | Average             |  | Average  |     |           |  | Average 
|Range of        |  | Number of           |            | Contractual Life    |  | Exercise |     | Number of |  | Exercise
|Exercise Prices |  | Shares              |            | (In Years)          |  | Price    |     | Shares    |  | Price   
|                |  |                     |            |                     |  |          |     |           |  |         
|$  .50  $ 1.42 |  |                     | 6,266,904  |                     |  |          | 8.9 |           |  | $        | 0.86  |  |  |  | 1,185,514  |  |  | $ | 0.78  | 
|$ 1.44  $ 2.60 |  |                     | 9,993,039  |                     |  |          | 8.8 |           |  | $        | 2.26  |  |  |  | 4,810,540  |  |  | $ | 2.54  | 
|$ 2.75  $ 3.56 |  |                     | 6,720,503  |                     |  |          | 7.0 |           |  | $        | 3.41  |  |  |  | 6,113,681  |  |  | $ | 3.40  | 
|$ 3.70  $10.0  |  |                     | 3,899,206  |                     |  |          | 6.7 |           |  | $        | 7.22  |  |  |  | 3,668,119  |  |  | $ | 7.37  | 
|$10.20  $29.11 |  |                     | 1,358,426  |                     |  |          | 6.6 |           |  | $        | 14.85 |  |  |  | 1,341,096  |  |  | $ | 14.90 | 
|                |  |                     |            |                     |  |          |     |           |  |          |       |  |  |  |            |  |  |   |       | 
|$  .50  $29.11 |  |                     | 28,238,078 |                     |  |          | 8.0 |           |  | $        | 3.51  |  |  |  | 17,118,950 |  |  | $ | 4.73  | 
|                |  |                     |            |                     |  |          |     |           |  |          |       |  |  |  |            |  |  |   |       | 

Note 18  Commitments and
Contingencies

The Company occupies its facilities under several
non-cancelable operating lease agreements expiring at various
dates through September 2009, and requiring payment of property
taxes, insurance, maintenance and

110



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

utilities. Future minimum lease payments under
non-cancelable operating leases at December 31, 2003 were
as follows (in thousands):

|                             |  |   |        | 
|---------------------------- |  | - | ------ | 
|Year ending December 31:     |  |   |        | 
|2004                         |  | $ | 7,854  | 
|2005                         |  |   | 7,741  | 
|2006                         |  |   | 6,708  | 
|2007                         |  |   | 6,372  | 
|2008                         |  |   | 6,436  | 
|Thereafter                   |  |   | 4,434  | 
|                             |  |   |        | 
|Total minimum lease payments |  | $ | 39,545 | 
|                             |  |   |        | 

Total rental expenses related to these operating
leases were $5.2 million, $9.2 million and
$3.7 million for 2003, 2002 and 2001, respectively.

During the years ended December 31, 2003 and
2002, the Company recorded restructuring charges totaling
$18.1 million, representing committed future lease payments
for closed facilities, net of estimated future sublease receipts
and reversal of previously recorded provisions (see
Note 10).

Note 19  Credit
Facilities

In December 2002, the Company entered into a
secured credit facility with Silicon Valley Bank (the
Lender), and then subsequently amended the credit
facility in March 2003. On June 13, 2003, in order to
secure additional working capital, the Company entered into a
letter agreement (the Letter Agreement) and an
accounts receivable financing agreement which effectively
amended and restated the existing credit facility in its
entirety. On July 25, 2003, the Company amended the
accounts receivable financing agreement. On October 31,
2003, the Company amended the A/R Financing Agreement (as
amended, the Amended A/R Financing Agreement).

Under the Amended A/R Financing Agreement, the
Lender may agree to accept for collection through a lockbox
arrangement up to $20.0 million in accounts receivable from
the Company, and in return the Company will receive advances
from the Lender at a rate equal to 80% of accounts receivable
from account debtors who are not distributors, and 50% of
accounts receivable from account debtors who are distributors,
subject to certain borrowing restrictions on international
accounts and the discretion of the Lender. After collection of a
receivable, the Lender will refund to the Company the difference
between the amount collected and the amount initially advanced
to the Company, less a finance charge applied against the
average monthly balance of all transferred but outstanding
receivables at a rate per annum equal to the Lenders prime
rate plus 1.50 percentage points, or 5.75%, whichever is
greater. In addition to a facility fee of $100,000, the Company
must pay each month to the Lender a handling fee equal to 0.25%
of the average monthly balance of transferred but outstanding
receivables. The Company must repay each advance upon the
earliest to occur of (i) the collection of the
corresponding financed receivable, (ii) the date on which
the corresponding financed receivable becomes an ineligible
receivable pursuant to the terms of the Amended A/R Financing
Agreement, or (iii) July 31, 2004. No borrowings were
outstanding under the Amended A/R Financing Agreement as of
December 31, 2003.

Obligations under the amended A/R Financing
Agreement are secured by a security interest on all of the
assets of the Company, including intellectual property, and are
senior in lien priority and right of payment to the
Companys obligations to the funds affiliated with Warburg
Pincus and Broadview Capital under the secured promissory notes
issued in July 2003 and amended in October 2003. The amended A/R
Financing Agreement requires the consent of the Lender in order
to incur debt, grant liens and sell assets. The events of

111



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

default under the secured credit facility include
the failure to pay amounts when due, failure to observe or
perform covenants, bankruptcy and insolvency events, defaults
under certain of the Companys other obligations and the
occurrence of a material adverse change in the Companys
business. Under the Amended A/R Financing Agreement, the
events of default also include any judgment, restraining order,
injunction or any material adverse development in connection
with the Companys litigation with Symbol Technologies
before the U.S. District Court for the District of Delaware
(see Note 19). Under the Amended A/R Financing
Agreement, the financial covenants require the Company to
maintain cash and cash equivalents with the Lender and its
affiliates in an amount not less than $4.0 million. If the
Company fails to meet this requirement, the Company may still
remain in compliance with the financial covenants by maintaining
a ratio of the total of cash, cash equivalents and accounts
receivable approved by the Lender to the Companys current
liabilities of at least 5.0 to 1. The Company currently
maintains substantially all of its cash, cash equivalents and
investments at Silicon Valley Bank and its affiliates. In the
event of default under the Amended A/R Financing Agreement, the
Lender has the right to offset such cash, cash equivalents and
investments against the Companys obligations owing to the
Lender.

In the first quarter of 2003, the Company entered
into an equipment and software lease agreement. Under the
agreement, the Company may either lease or finance certain
equipment, software and related services through a direct
leasing or sales and leaseback arrangement with the lessor for
up to $3.0 million. The lease term covers a period of
30 months, and the annual implicit interest rate on the
lease is approximately 4%. During the second quarter of 2003,
the Company installed and placed into service certain equipment,
software and related services through both a direct leasing and
sales leaseback arrangement and through a direct leasing
arrangement during the third and fourth quarters of 2003. As the
present value of total future minimum lease payments was greater
than 90% of the fair value of the leased assets, the Company
accounted for both the direct leasing and sales and leaseback
transactions as capital lease transactions. Net book value of
the leased assets capitalized in connection with this agreement
as of December 31, 2003 was $2.1 million. Future
minimum lease payments under noncancellable capital leases at
December 31, 2003 were as follows (in thousands):

|                                               |  |   |       | 
|---------------------------------------------- |  | - | ----- | 
|Year ending December 31:                       |  |   |       | 
|2004                                           |  |   | 1,257 | 
|2005                                           |  |   | 901   | 
|2006                                           |  |   | 32    | 
|                                               |  |   |       | 
|Total minimum lease payments                   |  |   | 2,190 | 
|Less: amounts representing interest            |  |   | 80    | 
|                                               |  |   |       | 
|Present value of future minimum lease payments |  |   | 2,110 | 
|Less: current portion                          |  |   | 1,176 | 
|                                               |  |   |       | 
|Capital lease obligations, long-term portion   |  | $ | 934   | 
|                                               |  |   |       | 

The Company had been seeking to renegotiate a
material lease on a building in Sunnyvale, California that was
in excess of the requirements of the business for the
foreseeable future. This building was vacated in July 2002, and
the net expected lease costs were included in the restructuring
charge recorded in the second quarter of 2002, totaling
approximately $29.0 million through the expiration of the
lease in 2010, net of expected sublease proceeds. The rent rates
of this lease were substantially greater than the current local
market lease rates, and this unused space represented a negative
cash flow of approximately $800,000 per quarter. The
Company was not able to sublease the building since it was
vacated in July 2002. Since November 2002, the Company ceased
making direct lease payments, and the building owner utilized
the Companys cash security deposit to cover the monthly
payments and other lease charges. On July 21, 2003, the
Company entered into a letter agreement (as subsequently amended
and restated by that certain Purchase

112



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Agreement dated September 11, 2003) to buy
the leased property and terminate the lease on or before
September 12, 2003. On September 12, 2003, the Company
paid approximately $10.0 million to consummate the
transaction. Transaction costs included cash consideration of
$6.0 million to the building owner, $3.2 million to
pay off the mortgage obligation secured by the leased property,
$577,000 for prepayment premium, and a total of approximately
$200,000 for closing costs and operating costs incurred by the
building owner between the date of the letter agreement and the
closing. As a result of consummating the transaction, the
Company reversed $26.8 million of previously recorded lease
obligation restructuring reserves that are no longer required.

Subsequent to the purchase, the Company placed
the property on the market for sale. On October 22, 2003,
the Company entered into an agreement to sell the property for
$3.5 million. As of September 26, 2003, the property
was recorded as an asset held for sale of $3.0 million,
representing its estimated net realizable value. On
December 30, 2003, the Company consummated the sale and
received $3.0 million cash proceeds, net of broker
commissions, property repairs and closing costs.

Note 20  Legal
Proceedings

Proxim, Inc.s involvement in patent
litigation has resulted in, and could in the future continue to
result in, substantial costs and diversion of management
resources of the company. In addition, this litigation, if
determined adversely to the Company, could result in the payment
of substantial damages and/or royalties or prohibitions against
utilization of essential technologies, and could materially and
adversely affect the Companys business, financial
condition and operating results and cash flows.

On December 4, 2001, Symbol filed suit in
the U.S. District Court for the District of Delaware
alleging that Proxim, Inc. infringed four Symbol patents
related to systems for packet data transmission. Symbol sought
an award for unspecified damages and a permanent injunction
against Proxim, Inc. based on alleged patent infringement
counterclaims. On December 18, 2001, Proxim, Inc.
filed an answer and counterclaims seeking declaratory judgments
for non-infringement, invalidity and unenforceability of the
four asserted Symbol patents, injunctive and monetary relief for
Symbols infringement of a Proxim, Inc. patent,
monetary relief for Symbols false patent marking, and
injunctive and monetary relief for Symbols unfair
competition under the Lanham Act, common law unfair competition
and tortious interference.

On September 15, 2003, the Company announced
that a jury had rendered a verdict in the first phase of the
patent infringement suit with Symbol. On Symbols claims of
patent infringement, the jury found that certain of the
Companys products infringes two of Symbols patents
and assessed a 6% royalty on the Companys sales of these
products from January 1, 1995. Accordingly, the Company
recorded an accrual for estimated past royalties payable of
$22.9 million and $2.9 million for interest during the
third quarter of 2003. The Company has not been enjoined from
continued sales of these products, and royalty payments, if any,
on these sales have not been determined by the court. In
November 2003, the court conducted a bench trial on the
Companys remaining equitable defenses not addressed by the
jury and proceedings in the case continue. The Company will
continue to evaluate and review the Companys estimate of
the royalties and interest payable from time to time for any
indications that could require the Company to change its
assumptions relating to the amount already recorded. In
addition, the Company does not incur any immediate financial
obligation to Symbol as a result of this verdict, pending
completion of related proceedings.

On March 17, 2003, the Company announced a
settlement with Intersil Corporation to resolve all pending
patent-related litigation between the two companies. Under the
terms of the agreement, Proxim, Inc. and Intersil have
agreed to dismiss all claims against each other, including
lawsuits before the International Trade Commission and Delaware
and Massachusetts Federal Courts. As part of the confidential
settlement agreement, the two companies entered into a patent
cross license agreement for their respective patent portfolios
and Intersil agreed to make a one-time payment of
$6.0 million to the Company. The two companies have also
entered into a product supply agreement defining the terms under
which the Company

113



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

will be able to purchase 802.11 products that
utilize Intersils chipsets. During the first quarter of
2003, the Company recorded $6 million as licensing revenue
and $3 million of legal expense as final settlement of
outstanding legal fees and expenses related to the terminated
patent litigation.

On March 10, 2003, the Company was served
with a complaint filed on January 15, 2003, by Top Global
Technology Limited (Top Global), a distributor for
Agere Systems Singapore. The Companys demurrer to Top
Globals complaint was sustained in May 2003. Top Global
then filed and served an amended complaint on May 30, 2003.
Top Globals lawsuit was filed against Agere
Systems, Inc., Agere Systems Singapore, and Agere Systems
Asia Pacific (collectively, Agere) and in the
Superior Court for the State of California, County of
Santa Clara. Top Global claims that it is entitled to
return for a credit $1.2 million of products that it
purchased from Agere Systems Singapore in June 2002 as a result
of the Companys decision to discontinue a product line
that the Company purchased from Agere in August 2002. The
amended complaint asks the court to determine whether Agere or
the Company are responsible for accepting the product return and
issuing a $1.2 million credit and also alleges breach of
contract. We answered the amended complaint and asserted several
defenses to Top Globals claims. In January 2004, the
parties mediated this dispute but were unable to reach a
settlement. In March 2004, the Court dismissed the contract
claims against Agere but at the same time granted Top
Globals motion for leave to amend its complaint to allege
a fraud claim against Agere. Discovery continues and a trial
setting conference is scheduled for May 4, 2004.

On February 10, 2004, the Company received a
copy of a complaint filed on February 2, 2004 in Tokyo
District Court by Active Technology Corporation, a
Japanese-based distributor of the Companys products. The
complaint alleges, among other things, that the Company sold to
Active certain defective products, which Active in turn
subsequently sold to its customers. Active seeks damages of
559.2 million Japanese yen, which includes the purchase
price of the allegedly defective products and replacement costs
allegedly incurred by Active. Active seeks to offset the claim
of 559.2 million Japanese yen against outstanding accounts
payable by Active of 175.3 million Japanese yen to the
Company, resulting in a net claim against Proxim Corporation of
383.9 million Japanese yen. Translated into
U.S. dollars on March 5, 2004, Actives net claim
is approximately $3.4 million. This case is in its earliest
stages, as discovery has not yet commenced and a trial date has
not been established. The Company intends to defend ourselves
vigorously against this lawsuit.

The Company is a party to disputes, including
legal actions, with a number of suppliers and vendors. These
disputes relate primarily to excess materials and order
cancellation claims that resulted from the declines in demand
for the Companys products during 2001 and 2002 and the
commensurate reductions in manufacturing volumes. The Company
has recorded reserves related to these disputes to the extent
that management believes appropriate and intends to defend
ourselves vigorously against these claims.

The results of any litigation matters are
inherently uncertain. In the event of any adverse decision in
the described legal actions or disputes, or any other related
litigation with third parties that could arise in the future,
the Company could be required to pay damages and other expenses,
and, in the case of litigation related to patents or other
intellectual property rights, to cease the manufacture, use and
sale of infringing products, to expend significant resources to
develop non-infringing technology, or to obtain licenses to the
infringing technology. The Company cannot make any assurance
that these matters will not materially and adversely affect the
Companys business, financial condition or operating
results.

In particular, if the proceedings before the
court in the Companys litigation with Symbol are not
decided in the Companys favor, the Company would likely be
required to make significant payments to Symbol, including
payments for royalties related to past sales of products found
to infringe and additional royalties in connection with future
sales of these products, or the Company would be required to
post a bond in order to appeal the courts decision. Any
adverse ruling or judgment in this litigation that requires the
Company to render payment or post a bond equal to or greater
than $10 million, and any other ruling or judgment in this
or any other litigation that is material and adverse to the
Company, triggers an event of default under the Notes issued to
Warburg Pincus and affiliates of Broadview Capital. Upon such
occurrence, the Investors would have

114



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the ability to require the Company to repay the
Notes. In addition, entry of any judgment, restraining order,
injunction or any material adverse development in the litigation
with Symbol would result in an event of default under the
secured credit facility with Silicon Valley Bank. Upon such
occurrence, Silicon Valley Bank would have the ability to
require the Company to repay any outstanding amounts under the
credit facility and to prohibit the Company from borrowing any
additional amounts.

If the Company were required to make payments to
Symbol, post a bond to the court, and/or repay the Notes and
amounts, if any, owed to Silicon Valley Bank, either due to an
event of default or otherwise, the Company would be required to
obtain immediate alternative sources of financing. If the
Company were not able to obtain an alternative source of
financing, the Company would most likely have insufficient cash
to pay these obligations, be unable to meet its ongoing
operating obligations as they come due in the ordinary course of
business, and seek protection under applicable bankruptcy laws.

Note 21  Employee Benefit
Plan

The Company adopted an Employees Investment
401(k) Plan that covers all employees and provides that the
Company match employees salary deferrals up to 4% of
eligible employee compensation. The amounts charged to
continuing operations were $952,000, $936,000 and $795,000 in
2003, 2002 and 2001, respectively.

115



---



##### Table of Contents








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

On March 21, 2002, our Board of Directors,
upon recommendation of the Audit Committee, made a determination
not to engage Arthur Andersen LLP as the Companys
independent accountants and, on March 26, 2002, engaged
PricewaterhouseCoopers LLP to serve as our independent
accountants for the fiscal year ended December 31, 2002.
Arthur Andersens reports on our consolidated financial
statements for each of the years ended December 31, 2001
and 2000 did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.

During the years ended December 31, 2001 and
2000 and through the date of our engagement of
PricewaterhouseCoopers LLP, there were no disagreements with
Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Arthur Andersens
satisfaction, would have caused them to make reference to the
subject matter in connection with its report on the
Companys consolidated financial statements for such years;
and there were no reportable events as specified in
Item 304(a)(1)(v) of Regulation S-K.

The information set forth above and additional
information relating to our change in accountants for the fiscal
year ended December 31, 2002 is included in our Current
Report on Form 8-K filed on March 28, 2002.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

As of the end of the reporting period, we carried
out an evaluation, under the supervision and with the
participation of our principal executive officer and principal
financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on
this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material
information required to be included in our periodic filings with
the Securities and Exchange Commission. It should be noted that
the design of any system of controls is based in part upon
certain assumptions, and there can be no assurance that any
design will succeed in achieving its stated goals.

In addition, we reviewed our internal controls
and there have been no significant changes in our internal
control over financial reporting or in other factors that could
significantly affect our disclosure controls and procedures, nor
were there any significant deficiencies or material weaknesses
in our internal control over financial reporting, during the
last fiscal quarter.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Directors & Executive
Officers

The following information as of March 5,
2004 is provided with respect to each or our directors.



| |                                              
| | ---------------------------------------------
| | Class I Directors (Term Expiring in
    2004)

Franco Plastina,
Age 41.Mr. Plastina has
served as our President and CEO since May 2003 and was elected
Chairman of the Board in December 2003. From March 2003 to April
2003, Mr. Plastina served as Executive in Residence for
Warburg Pincus. Previously, Mr. Plastina was with Nortel
Networks for 15 years and most recently was President,
Metro & Enterprise Networks at Nortel Networks.
Mr. Plastina joined Nortel Networks in 1987 and held a
number of key executive positions, including President of
Wireless and Core Networks, President of Carrier Networks, Vice
President and COO of Internet and Service Provider Networks,
Vice President of Business Development for Carrier Packet
Solutions, and Vice President of Global Mergers and
Acquisitions. Prior to joining Nortel Networks,
Mr. Plastina was with the Toronto office of
PriceWaterhouseCoopers. Mr. Plastina received a Bachelor of
Commerce degree from the University of Toronto in 1985 and a
Chartered Accountant designation in 1987 from the Canadian
Institute of Chartered Accountants.

116



---



##### Table of Contents



Kenneth E. Westrick, Age
46.Mr. Westrick has served as a
member of our Board of Directors since March 2002. From 1997 to
2001, Mr. Westrick served as President and Chief Executive
Officer of New Focus, Inc., a supplier of fiber optic
components. Prior to 1997, Mr. Westrick spent nine years at
Cornerstone Imaging, Inc., where he held positions
including Senior Vice President, General Manager of the Display
Division and Managing Director of Europe. Mr. Westrick
received an M.B.A. from Stanford University and a B.A. from
Northwestern University.

Michael P. Ressner,
Age 55.Mr. Ressner has
served as a member of our Board of Directors since December
2003. Since January 2003, Mr. Ressner has been an Adjunct
Professor of Applied Financial Management at North Carolina
State University. From January 2001 to December 2002,
Mr. Ressner served as Vice President, Nortel Networks.
Prior to that time, Mr. Ressner served as Vice President of
Finance of Nortel Networks Enterprise Solutions group from
February 1999 to January 2001. From May 1994 to January 1999,
Mr. Ressner served as Vice President of Finance for the
Carrier Solutions business unit of Nortel Networks. Prior to
these assignments, Mr. Ressner held a number of senior
finance management posts within various business units of Nortel
Networks. Mr. Ressner currently serves as a member of the
board of directors for the following public companies:
Entrust Inc., Magellan Health Services and Riverstone
Networks. Mr. Ressner received a B.B.A. in Marketing and an
M.B.A. in Finance both from the University of Wisconsin.



| |                                               
| | ----------------------------------------------
| | Class II Directors (Term Expiring in
    2005)

Lorenzo A. Bettino,
Age 43.Mr. Bettino has
served as a member of our Board of Directors since October 2002.
Since September 2001, Mr. Bettino has been a Managing
Director of Warburg Pincus & Co. From 1996 to 2001,
Mr. Bettino was a founding partner at Baker Capital, a
private equity firm. From 1989 to 1996, Mr. Bettino was a
partner with Dillon Read Venture Capital, where he focused on
technology and data communications investments. An experienced
engineer, Mr. Bettino held a series of positions at
International Business Machines Corporation prior to 1989.
Mr. Bettino serves as a director of SS8
Networks, Inc., a telecommunications software provider, and
as a director of Elematics, Inc., an optical data
communications software provider. Mr. Bettino received an
M.B.A. from Harvard Business School and a B.S. in Electrical
Engineering in electrical engineering from Rensselaer
Polytechnic Institute.

Steven D. Brooks,
Age 51.Mr. Brooks has
served as a member of our Board of Directors since July 2003.
Mr. Brooks has been a general partner of Broadview Capital
Partners, a private equity firm, since February 1999. From
September 1997 to February 1999, Mr. Brooks was a managing
director of Donaldson, Lufkin & Jenrette Securities
Corporation, an investment-banking firm. From 1996 to 1997,
Mr. Brooks was a private investor and a consultant to
technology companies. From 1994 to 1997, Mr. Brooks served
as Managing Director and Head of Global Technology Investment
Banking at the Union Bank of Switzerland Securities, LLC.
Mr. Brooks serves as a director of Cogent Communications
Inc., Pharsight Corporation, and VERITAS Software Corporation.
Mr. Brooks received a B.A. degree from Yale College and a
J.D. degree from the University of Virginia Law School.

Merle L. Gilmore,
Age 56.Mr. Gilmore has
served as a member of our Board of Directors since March 2002.
Since August 2001, Mr. Gilmore has been an industrial
partner with Ripplewood Investments LLC, a private equity firm.
Since May 2001, he has also been Chairman of the Board of
D&M Holdings Inc., the parent company of Japan-based premium
audio, video and home theater brands Denon and Marantz.
Mr. Gilmore spent 30 years at Motorola, Inc.
prior to retiring in 2000, and during this time he held several
executive positions in Motorolas telecommunications
businesses. Mr. Gilmore also led Motorolas
acquisition of General Instruments and was President of Europe,
Middle East and Africa. Mr. Gilmore received an M.S.E.E.
from Florida Atlantic University and a B.S.E.E. from the
University of Illinois.



| |                                             
| | --------------------------------------------
| | Class III Directors (Term Expiring
    2006)

Jeffrey A. Harris,
Age 48.Mr. Harris has
served as a member of our Board of Directors since July 2003.
Since April 1983, Mr. Harris has been a Member and Managing
Director, Warburg Pincus LLC and a partner of Warburg
Pincus & Co. Mr. Harris serves as a director of
Spinnaker Exploration Co. Mr. Harris

117



---



##### Table of Contents



received a B.S. in Economics from Wharton School,
University of Pennsylvania and an M.B.A. from Harvard Business
School.


Jeffrey D. Saper,
Age 55.Mr. Saper has served
as a member of our Board of Directors since March 2002. From
December 1997 to March 2002, Mr. Saper served as a director
of Proxim, Inc. and from February 1997 to March 2002,
Mr. Saper served as Proxim, Inc.s Secretary.
Mr. Saper has been a corporate partner in the firm of
Wilson Sonsini Goodrich & Rosati, Professional
Corporation, since 1980 and is currently also a member of the
firms Executive Management Committee and Policy Committee.
Mr. Saper received a J.D. and a B.A., both from
New York University.

Joseph R. Wright, Jr.,
Age 65.Mr. Wright has
served as a member of our Board of Directors since March 2002.
Since August 2001, Mr. Wright has also served as President
and Chief Executive Officer of PanAmSat, Corp., one of the
worlds largest providers of global satellite-based
communications services. Mr. Wright is Vice Chairman of
Terremark Worldwide, Inc., a developer and operator of
network access points (NAPs) in the United States and
Brazil. Previously, he served as Chairman and Director of GRC
International, a public company providing advanced
IT, Internet and software technologies to government and
commercial customers. Mr. Wright also served as deputy
director and director of the Federal Office of Management and
Budget and a member of the Presidents Cabinet during the
Reagan Administration from 1982 to 1989 and, from 1981 to 1982,
as Deputy Secretary of Commerce. Mr. Wright held positions
as President of two Citibank subsidiaries and as a partner of
Booz Allen & Hamilton, Inc. Mr. Wright also
serves on the board of directors of the following public
companies: Fairmarket, Inc., an excess inventory solutions
provider; Titan Corporation, an information and communications
solutions provider for national security; and Verso
Technologies, Inc., a next generation communications
solutions provider. Mr. Wright received an M.I.A. from Yale
University and a B.S. in Professional Engineering from the
Colorado School of Mines.

Information required by this item with respect to
our executive officers is included in Part I, Item I
above under the caption, Executive Officers.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act
of 1934, as amended, requires our directors and executive
officers, and persons who own more than ten percent of a
registered class of our equity securities, to file with the
Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of our common stock and
other equity securities. Officers, directors and greater than
ten percent stockholders are required by Securities and Exchange
Commission regulations to furnish us with copies of all
Section 16(a) forms they file.

To our knowledge, based solely on a review of the
copies of such reports furnished to us and written
representations that no other reports were required, during the
fiscal year ended December 31, 2003, all Section 16(a)
filing requirements applicable to our officers, directors and
greater than ten percent beneficial owners were complied with
the exception of one late filing of Form 4 for each of
Stephen Brooks, Jeffrey Harris, Merle Gilmore, Jeffrey Saper,
Kenneth Westrick and Joseph Wright and two late filings of
Form 4 for Lorenzo Bettino, all due to administrative error
of the Company.



| |                                      
| | -------------------------------------
| | Identification of Audit
    Committee

Proxim has a separately-designated audit
committee established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended. The members of our audit committee are Merle L.
Gilmore, Michael P. Ressner and Joseph R. Wright, Jr., with
Mr. Ressner serving as Chairman of the committee. Our board
of directors has determined that each member of our audit
committee is independent as that term is defined in
Rule 10A-3 promulgated under the Securities Exchange Act of
1934, as amended.

118



---



##### Table of Contents





| |                                     
| | ------------------------------------
| | Audit Committee Financial
    Expert

Our board of directors has determined that
Mr. Ressner qualifies as an audit committee financial
expert as that term is defined in Item 401(h) of
Regulation S-K and is independent as that term
is defined in Nasdaq Marketplace Rule 4200(a)(15).



| |               
| | --------------
| | Code of Ethics

Proxim has adopted a code of ethics that applies
to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions. A copy of the code of ethics is
filed as an exhibit to this annual report on Form 10-K.
Proxim intends to satisfy the disclosure requirement under
Item 10 of Form 8-K regarding an amendment to, or
waiver from, a provision of our code of ethics by filing a
current report on Form 8-K with the Securities and Exchange
Commission disclosing such information or by posting such
information on our website, at the address specified above,
within the period required by Item 10 of Form 8-K and,
as applicable, the listing standards of the Nasdaq National
Market.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The following table sets forth information
regarding executive compensation for services rendered during
our fiscal years ended December 31, 2003, 2002 and 2001 by
the Companys chief executive officer, the Companys
former chief executive officer during part of fiscal year 2003
and our other four most highly compensated executive officers
who were serving as executive officers as of December 31,
2003 and whose salary and bonus for our last fiscal year
exceeded $100,000, and two individuals who would have been
included in this list of our most highly compensated executive
officers but for the fact that neither such individual was
serving as an executive officer as of December 31, 2003.
These eight individuals constitute the group referred to
elsewhere in this proxy statement as the Named Executive
Officers. The compensation summarized in the following table
does not include perquisites or other personal benefits that do
not in the aggregate exceed the lesser of $50,000 or 10% of the
Named Executive Officers salary and bonus.

Summary Compensation Table

|                            |                                  |                     |      |            |  |              |         |              |  |              |        |              |  |  |   |   |  |  |           |           |  |  |   |   | 
|--------------------------- | -------------------------------- | ------------------- | ---- | ---------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | ------------ |  |  | - | - |  |  | --------- | --------- |  |  | - | - | 
|                            |                                  |                     |      |            |  |              |         |              |  | Long-Term    |        |             
|                            |                                  |                     |      |            |  |              |         |              |  | Compensation |        |             
|                            |                                  |                     |      | Awards     |  |             
|                            |                                  | Annual Compensation |      |            |  |             
|                            |                                  |                     |      | Securities |  |             
|                            |                                  | Fiscal              |      |            |  | Other Annual |         | Underlying   |  | All Other   
|Name and Principle Position |                                  | Year                |      | Salary     |  | Bonus        |         | Compensation |  | Options(#)   |        | Compensation
|                            |                                  |                     |      |            |  |              |         |              |  |              |        |             
|Franco Plastina(1)          |                                  |                     | 2003 |            |  |              | 309,615 |              |  |              |       |              |  |  |  |   |  |  | 3,000,000 |           |  |  |  |  
|                            | Chairman of the Board, President |                     |      | 2002       |  |              |         |             |  |              |        |             |  |  |   |  |  |  |           |          |  |  |   |  | 
|                            | and Chief Executive Officer      |                     |      | 2001       |  |              |         |             |  |              |        |             |  |  |   |  |  |  |           |          |  |  |   |  | 
|Deborah Ablahat-Cipriano(2) |                                  |                     | 2003 |            |  |              | 106,154 |              |  |              |       |              |  |  |  |   |  |  | 500,000   |           |  |  |  |  
|                            | Senior Vice President            |                     |      | 2002       |  |              |         |             |  |              |        |             |  |  |   |  |  |  |           |          |  |  |   |  | 
|                            | Sales & Marketing                |                     |      | 2001       |  |              |         |             |  |              |        |             |  |  |   |  |  |  |           |          |  |  |   |  | 
|Ihab Abu-Hakima(3)          |                                  |                     | 2003 |            |  |              | 225,000 |              |  |              | 72,640 |              |  |  |  |   |  |  | 50,000    |           |  |  |  |  
|                            | Senior Vice President,           |                     |      | 2002       |  |              |         | 223,269      |  |              |        | 81,135       |  |  |   |  |  |  |           | 300,000   |  |  |   |  | 
|                            | Corporate Development            |                     |      | 2001       |  |              |         | 181,692      |  |              |        | 130,597      |  |  |   |  |  |  |           | 50,000    |  |  |   |  | 
|Kevin J. Duffy(4)           |                                  |                     | 2003 |            |  |              | 211,077 |              |  |              |       |              |  |  |  |   |  |  | 200,000   |           |  |  |  |  
|                            | Senior Vice President,           |                     |      | 2002       |  |              |         | 130,769      |  |              |        |             |  |  |   |  |  |  |           | 325,000   |  |  |   |  | 
|                            | Product Development              |                     |      | 2001       |  |              |         |             |  |              |        |             |  |  |   |  |  |  |           |          |  |  |   |  | 
|David E. Olson(5)           |                                  |                     | 2003 |            |  |              | 145,385 |              |  |              |       |              |  |  |  |   |  |  | 300,000   |           |  |  |  |  
|                            | Senior Vice President,           |                     |      | 2002       |  |              |         |             |  |              |        |             |  |  |   |  |  |  |           |          |  |  |   |  | 
|                            | Operations & Services            |                     |      | 2001       |  |              |         |             |  |              |        |             |  |  |   |  |  |  |           |          |  |  |   |  | 
|Jonathan N. Zakin(6)        |                                  |                     | 2003 |            |  |              | 321,154 |              |  |              |       |              |  |  |  |   |  |  |          |           |  |  |  |  
|                            | Former Chairman of the Board     |                     |      | 2002       |  |              |         | 500,000      |  |              |        |             |  |  |   |  |  |  |           | 1,000,000 |  |  |   |  | 
|                            | and Chief Executive Officer      |                     |      | 2001       |  |              |         | 257,830      |  |              |        | 275,521      |  |  |   |  |  |  |           | 900,000   |  |  |   |  | 

119



---



##### Table of Contents



|                            |                                  |                     |      |            |  |              |         |              |  |              |        |              |  |  |         |           |      |  |   |         |  |  |         |      | 
|--------------------------- | -------------------------------- | ------------------- | ---- | ---------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | ------------ |  |  | ------- | --------- | ---- |  | - | ------- |  |  | ------- | ---- | 
|                            |                                  |                     |      |            |  |              |         |              |  | Long-Term    |        |             
|                            |                                  |                     |      |            |  |              |         |              |  | Compensation |        |             
|                            |                                  |                     |      | Awards     |  |             
|                            |                                  | Annual Compensation |      |            |  |             
|                            |                                  |                     |      | Securities |  |             
|                            |                                  | Fiscal              |      |            |  | Other Annual |         | Underlying   |  | All Other   
|Name and Principle Position |                                  | Year                |      | Salary     |  | Bonus        |         | Compensation |  | Options(#)   |        | Compensation
|                            |                                  |                     |      |            |  |              |         |              |  |              |        |             
|Keith E. Glover(7)          |                                  |                     | 2003 |            |  |              | 186,153 |              |  |              |       |              |  |  |        |           |      |  |  |         |  |  | 96,462  | (8) 
|                            | Former Chief Financial Officer   |                     |      | 2002       |  |              |         | 145,154      |  |              |        |             |  |  |         |          |      |  |   | 150,000 |  |  |         |     | 
|                            | and Executive Vice President     |                     |      | 2001       |  |              |         |             |  |              |        |             |  |  |         |          |      |  |   |        |  |  |         |     | 
|Amir Zoufonoun(9)           |                                  |                     | 2003 |            |  |              | 173,269 |              |  |              | 95,836 |              |  |  | 879,931 | (10)      |      |  |  |         |  |  | 160,876 | (11)
|                            | Former Executive Vice President, |                     |      | 2002       |  |              |         | 256,923      |  |              |        |             |  |  |         | 546,223   | (12) |  |   | 500,000 |  |  |         |     | 
|                            | WAN Strategy and Business        |                     |      | 2001       |  |              |         | 228,725      |  |              |        | 189,283      |  |  |         | 3,168,173 | (13) |  |   | 100,000 |  |  |         |     | 
|                            | Development                      |                     |      |            |  |              |         |              |  |              |        |              |  |  |         |           |      |  |   |         |  |  |         |      | 



---



| |     |                                                                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Mr. Plastina was appointed President and
    Chief Executive Officer of the Company in May 2003.                                                                                        
|
| | (2) | Ms. Ablahat-Cipriano joined the Company in
    July 2003 and was appointed to Senior Vice President, Sales and
    Marketing in September 2003.                                         
|
| | (3) | Mr. Abu-Hakima was appointed to Senior Vice
    President, Corporate Development of the Company in September
    2003.                                                                  
|
| | (4) | Mr. Duffy was appointed to Senior Vice
    President, Product Development of the Company in September 2003.                                                                             
|
| | (5) | Mr. Olson joined the Company in April 2003
    and was appointed to Senior Vice President, Operations and
    Services in September 2003.                                               
|
| | (6) | Mr. Zakin tendered his resignation from the
    Company as Chief Executive Officer effective May 2003.                                                                                  
|
| | (7) | Mr. Glover tendered his resignation from the
    Company as Chief Financial Officer and Executive Vice President
    in August 2003.                                                    
|
| | (8) | This amount represents severance payments of
    $54,154 in connection with Mr. Glovers resignation as
    Chief Financial Officer and Personal Time Off accrual payout of
    $42,308.
|
| | (9) | Mr. Zoufonoun tendered his resignation from
    the Company as Executive Vice President, WAN Strategy and
    Business Development effective August 2003.                               



|     |                                                                                                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | This amount represents automobile allowances paid
    of $5,492 and gains on the sales of shares acquired upon
    exercise of nonqualified stock options of $874,439.                                                             
|    
|(11) | This amount represents severance payments of
    $91,731 in connection with Mr. Zoufonouns resignation
    as Executive Vice President, WAN Strategy and Business
    Development and Personal Time Off accrual payout of $69,145.
|    
|(12) | This amount represents automobile allowances paid
    of $8,400 and gains on the sale of shares acquired upon exercise
    of nonqualified stock options of $537,823.                                                              
|    
|(13) | This amount represents automobile allowances paid
    of $8,400 and gains on the sale of shares acquired upon exercise
    of nonqualified stock options of $3,159,733.                                                            

120



---



##### Table of Contents



The following table provides information
regarding stock options granted to the Named Executive Officers
during our fiscal year ended December 31, 2003.

Option Grants in Last Fiscal Year

|                         |  |                   |           |                      |  |           |       |                        |  |                |      |     |  |  |           |  |  |  |           |  |  |  |           | 
|------------------------ |  | ----------------- | --------- | -------------------- |  | --------- | ----- | ---------------------- |  | -------------- | ---- | --- |  |  | --------- |  |  |  | --------- |  |  |  | --------- | 
|                         |  |                   |           |                     
|                         |  | Individual Grants |           | Potential Realizable
|                         |  |                   |           | Value at Assumed    
|                         |  | Number of         |           | % of Total           |  |           |       | Annual Rates of Stock 
|                         |  | Securities        |           | Options              |  |           |       | Price Appreciation for
|                         |  | Underlying        |           | Granted to           |  | Exercise  |       |                        |  | Option Term(1)
|                         |  | Options           |           | Employees            |  | Price     |       |                        |  |               
|Name                     |  | Granted           |           | During 2003          |  | $(/Share) |       | Expiration Date        |  | 5%             |      | 10%
|                         |  |                   |           |                      |  |           |       |                        |  |                |      |    
|Franco Plastina          |  |                   | 3,000,000 |                      |  |           | 36.96 | %                      |  |                | 0.68 |     |  |  | 5/1/2013  |  |  |  | 1,282,945 |  |  |  | 3,251,235 | 
|Deborah Ablahat-Cipriano |  |                   | 500,000   |                      |  |           | 6.16  | %                      |  |                | 1.28 |     |  |  | 8/20/2013 |  |  |  | 402,493   |  |  |  | 1,019,995 | 
|Ihab Abu-Hakima          |  |                   | 50,000    |                      |  |           | 0.62  | %                      |  |                | 1.81 |     |  |  | 9/4/2013  |  |  |  | 56,915    |  |  |  | 144,234   | 
|Kevin J. Duffy           |  |                   | 200,000   |                      |  |           | 2.46  | %                      |  |                | 1.81 |     |  |  | 9/4/2013  |  |  |  | 227,660   |  |  |  | 576,935   | 
|David E. Olson           |  |                   | 250,000   |                      |  |           | 3.08  | %                      |  |                | 0.68 |     |  |  | 5/1/2013  |  |  |  | 106,912   |  |  |  | 270,936   | 
|                         |  |                   | 50,000    |                      |  |           | 0.62  | %                      |  |                | 1.81 |     |  |  | 9/4/2013  |  |  |  | 56,915    |  |  |  | 144,234   | 
|Jonathan N. Zakin        |  |                   |          |                      |  |           |      |                        |  |                |     |     |  |  |          |  |  |  |          |  |  |  |          | 
|Keith E. Glover          |  |                   |          |                      |  |           |      |                        |  |                |     |     |  |  |          |  |  |  |          |  |  |  |          | 
|Amir Zoufonoun           |  |                   |          |                      |  |           |      |                        |  |                |     |     |  |  |          |  |  |  |          |  |  |  |          | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 5% and 10% assumed annual rates of compounded
    stock price appreciated are mandated by the rules of the SEC.
    The actual value, if any, that an executive officer may realize
    will depend on the excess of the stock price over the exercise
    price on the date the option is exercised. There can be no
    assurance the value realized by an executive officer will be at
    or near the assumed 5% or 10% levels.

The following table sets forth information
regarding the exercise of stock options by the Named Executive
Officers and year-end option values as of December 31, 2003.

Aggregate Option Exercises and Fiscal Year-End
Option Values

|                         |  |             |         |                |  |                        |         |                      |  |             |           |               |  |  |           |  |  |  |       |  |  |  |           | 
|------------------------ |  | ----------- | ------- | -------------- |  | ---------------------- | ------- | -------------------- |  | ----------- | --------- | ------------- |  |  | --------- |  |  |  | ----- |  |  |  | --------- | 
|                         |  |             |         |                |  |                        |         |                      |  |            
|                         |  |             |         |                |  |                        |         | Value of Unexercised
|                         |  |             |         |                |  | Number of Unexercised  |         | In-The-Money Options
|                         |  | Shares      |         |                |  | Options at Year-End(#) |         | at Year-End($)(1)   
|                         |  | Acquired on |         | Value          |  |                        |         |                     
|Name                     |  | Exercise(#) |         | Realized($)(1) |  | Exercisable            |         | Unexercisable        |  | Exercisable |           | Unexercisable
|                         |  |             |         |                |  |                        |         |                      |  |             |           |              
|Franco Plastina          |  |             |        |                |  |                        |        |                      |  |             |          |               |  |  | 3,000,000 |  |  |  |      |  |  |  | 2,970,000 | 
|Deborah Ablahat-Cipriano |  |             |        |                |  |                        |        |                      |  |             |          |               |  |  | 500,000   |  |  |  |      |  |  |  | 195,000   | 
|Ihab Abu-Hakima          |  |             |        |                |  |                        |        |                      |  |             | 560,004   |               |  |  | 199,996   |  |  |  |      |  |  |  |          | 
|Kevin J. Duffy           |  |             |        |                |  |                        |        |                      |  |             | 150,003   |               |  |  | 374,997   |  |  |  | 6,250 |  |  |  | 12,500    | 
|David E. Olson           |  |             |        |                |  |                        |        |                      |  |             |          |               |  |  | 300,000   |  |  |  |      |  |  |  | 247,500   | 
|Jonathan N. Zakin        |  |             |        |                |  |                        |        |                      |  |             | 1,900,000 |               |  |  |          |  |  |  |      |  |  |  |          | 
|Keith E. Glover          |  |             |        |                |  |                        |        |                      |  |             |          |               |  |  | 1,349,893 |  |  |  |      |  |  |  | 19,361    | 
|Amir Zoufonoun           |  |             | 794,450 |                |  |                        | 874,439 |                      |  |             |          |               |  |  |          |  |  |  |      |  |  |  |          | 



---



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Assumes that the value of unexercised options at
    fiscal year-end was $1.67 per share, the closing price of
    our common stock on the Nasdaq National Market on
    December 31, 2003.

Director Compensation

For our fiscal year ended December 31, 2003
and for our fiscal year ending December 31, 2004, all
non-employee directors of the Company were and will be paid as
follows:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | an annual retainer of $50,000 for serving on the
    Board of Directors, payable in cash on a quarterly basis;

121



---



##### Table of Contents





| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an annual retainer of $10,000 for serving on the
    audit committee of the Board of Directors, payable in cash on a
    quarterly basis;                                    
|
| |  | an annual retainer of $5,000 for serving on the
    compensation committee of the Board of Directors, payable in
    each instance in cash on a quarterly basis;             
|
| |  | an annual retainer of $5,000 for serving on the
    governance and nominating committee of the Board of Directors,
    payable in each instance in cash on a quarterly basis;
|
| |  | a meeting fee of $2,500 for each meeting of the
    Board of Directors attended in person;                                                                                   
|
| |  | a meeting fee of $1,250 for each meeting of the
    Board of Directors attended via telephone or
    teleconference; and                                                     
|
| |  | a meeting fee of $1,200 for each meeting on any
    special committee of the Board of Directors attended via
    telephone or teleconference; and                            

Currently, each non-employee director is entitled
to receive an option to purchase 50,000 shares of our
common stock under the Proxim Corporation 2000 Stock Option Plan
for Non-Employee Directors (the 2000 Plan) initially
upon first becoming elected or appointed as a non-employee
director. In addition, each non-employee director who continues
to serve on our Board of Directors is entitled to receive an
option to purchase 25,000 shares of our common stock under
the 2000 Plan on the date of each annual meeting of our
stockholders during such term of service. During our fiscal year
ended December 31, 2003, we granted to directors options to
purchase an aggregate of 275,000 shares of our common stock
under the 2000 Plan.

EMPLOYMENT AGREEMENTS & CHANGE OF
CONTROL AGREEMENTS

Employment Agreements

Frank Plastina.In
May of 2003, we entered into an agreement with Frank Plastina,
appointing him as President and Chief Executive Officer of the
Company and as member of the Board of Directors. Under the terms
of the agreement, Mr. Plastina receives an annual base
salary of $500,000, subject to annual increases at the
discretion of the Board, and an annual bonus with a target
amount for achieving certain objectives of not less than 100% of
his base salary. Mr. Plastina also received options to
purchase 3,000,000 shares of the Companys common
stock at an exercise price of $0.68. The options vest over three
years and have a maximum term of ten years.

The Company may terminate
Mr. Plastinas employment at any time and
Mr. Plastina may terminate his employment upon
90 days prior written notice without good reason or
upon 30 days prior written notice for good reason
(good reason in each case as defined in the
employment agreement). In the event his employment is terminated
by the Company without good reason or he terminates his
employment for good reason, he is entitled to receive the
following benefits, reduced by the present value of any other
cash severance benefits payable to Mr. Plastina under any
other plans or programs of the Company:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Earned but unpaid base salary and target bonus,
    pro rated through the date of termination;                                                                                                     
|
| |  | Reimbursement for certain business expenses
    properly incurred;                                                                                                                                 
|
| |  | Any employee benefits to which he is entitled
    under the Companys benefit plans;                                                                                                               
|
| |  | Continued payment of base salary for the lesser
    of 12 months or the number of months he had been employed
    by the company (the Severance Period);                                         
|
| |  | His annual bonus target amount, pro rated based
    on the number of months in the Severance Period in the event he
    has been employed less than one year;                                      
|
| |  | Acceleration of all unvested options that would
    have vested during the Severance Period; and                                                                                                   
|
| |  | Continued coverage under the Companys
    medical insurance plans during the Severance Period at the same
    cost to him as was provided to him immediately prior to the date
    of termination.

122



---



##### Table of Contents



In the event the Company terminates
Mr. Plastinas employment without cause or he
terminates his employment for good reason upon or within
13 months following a change of control (as defined in the
employment agreement), Mr. Plastinas severance
benefits as described above shall be modified as follows:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | The base salary and target bonus amounts
    described above shall be paid as a lump sum within 10 business
    days following termination;
|
| |  | The term Severance Period shall mean
    12 months; and                                                                                  
|
| |  | All outstanding and unvested options shall vest
    and remain exercisable during the Severance Period.                                    

Mr. Plastina has agreed not to disclose any
confidential information pertaining to the Companys
business and has agreed not to compete with the Company during
his employment and for one year following termination of his
employment.

Deborah
Ablahat-Cipriano.In July of 2003, we
entered into an agreement with Deborah Ablahat-Cipriano, naming
her Senior Vice President, Sales and Marketing of the Company.
Under the terms of the agreement, Ms. Ablahat-Cipriano
receives an annual base salary of $240,000, subject to annual
increases at the discretion of the Board, and an annual bonus
with a target amount for achieving certain objectives of not
less than 60% of her base salary.

The Company may terminate
Ms. Ablahat-Ciprianos employment at any time and
Ms. Ablahat-Cipriano may terminate her employment upon
30 days prior written notice. In the event her
employment is terminated by the Company without cause or she
terminates her employment for good reason, she is entitled to
receive the following benefits, reduced by the present value of
any other cash severance benefits payable to
Ms. Ablahat-Cipriano under any other plans or programs of
the Company:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Earned but unpaid base salary and target bonus,
    pro rated through the date of termination;                                                                                                     
|
| |  | Reimbursement for certain business expenses
    properly incurred;                                                                                                                                 
|
| |  | Any employee benefits to which she is entitled
    under the Companys benefit plans;                                                                                                              
|
| |  | Continued payment of base salary for the lesser
    of 12 months or the number of months she had been employed
    by the company (the Severance Period);                                        
|
| |  | Her annual bonus target amount, pro rated based
    on the number of months in the Severance Period in the event she
    has been employed less than one year;                                     
|
| |  | Acceleration of all unvested options that would
    have vested during the Severance Period; and                                                                                                   
|
| |  | Continued coverage under the Companys
    medical insurance plans during the Severance Period at the same
    cost to her as was provided to her immediately prior to the date
    of termination.

In the event the Company terminates
Ms. Ablahat-Ciprianos employment without cause or she
terminates her employment for good reason upon or within
13 months following a change of control (as defined in the
employment agreement), Ms. Ablahat-Ciprianos
severance benefits as described above shall be modified as
follows:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | The base salary and target bonus amounts
    described above shall be paid as a lump sum within 10 business
    days following termination;
|
| |  | The term Severance Period shall mean
    12 months; and                                                                                  
|
| |  | All outstanding and unvested options shall vest
    and remain exercisable during the Severance Period.                                    

Ms. Ablahat-Cipriano has agreed not to
disclose any confidential information pertaining to the
Companys business and has agreed not to compete with the
Company during her employment and for one year following
termination of her employment.

Ihab Abu-Hakima.In
March of 2002, we entered into an agreement with Ihab
Abu-Hakima, naming him Senior Vice President, International
Sales of the Company. In September of 2003, Mr. Abu-Hakima
was

123



---



##### Table of Contents



named Senior Vice President, Corporate
Development. Mr. Abu-Hakima receives an annual base salary
of $225,000, subject to annual increases at the discretion of
the Board, and an annual bonus with a target amount for
achieving certain objectives of not less than 56.5% of his base
salary.


The Company may terminate
Mr. Abu-Hakimas employment at any time and
Mr. Abu-Hakima may terminate his employment upon
30 days prior written notice. In the event his
employment is terminated by the Company without cause or he
terminates his employment for good reason, he is entitled to
receive the following benefits, reduced by the present value of
any other cash severance benefits payable to Mr. Abu-Hakima
under any other plans or programs of the Company:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Earned but unpaid base salary and target bonus,
    pro rated through the date of termination;                                                                                                     
|
| |  | Reimbursement for certain business expenses
    properly incurred;                                                                                                                                 
|
| |  | Any employee benefits to which he is entitled
    under the Companys benefit plans;                                                                                                               
|
| |  | Continued payment of base salary for the lesser
    of 12 months or the number of months he had been employed
    by the company (the Severance Period);                                         
|
| |  | His annual bonus target amount, pro rated based
    on the number of months in the Severance Period in the event he
    has been employed less than one year;                                      
|
| |  | Acceleration of all unvested options that would
    have vested during the Severance Period; and                                                                                                   
|
| |  | Continued coverage under the Companys
    medical insurance plans during the Severance Period at the same
    cost to him as was provided to him immediately prior to the date
    of termination.

In the event the Company terminates
Mr. Abu-Hakimas employment without cause or he
terminates his employment for good reason upon or within
13 months following a change of control (as defined in the
employment agreement), Mr. Abu-Hakimas severance
benefits as described above shall be modified as follows:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | The base salary and target bonus amounts
    described above shall be paid as a lump sum within 10 business
    days following termination;
|
| |  | The term Severance Period shall mean
    12 months; and                                                                                  
|
| |  | All outstanding and unvested options shall vest
    and remain exercisable during the Severance Period.                                    

Mr. Abu-Hakima has agreed not to disclose
any confidential information pertaining to the Companys
business and has agreed not to compete with the Company during
his employment and for one year following termination of his
employment.

David E. Olson.In
April of 2003, we entered into an agreement with David E. Olson,
naming him Senior Vice President, Operations and Services of the
Company. Under the terms of the agreement, Mr. Olson
receives an annual base salary of $200,000, subject to annual
increases at the discretion of the Board, and an annual bonus
with a target amount for achieving certain objectives of not
less than 60% of his base salary.

The Company may terminate Mr. Olsons
employment at any time and Mr. Olson may terminate his
employment upon 30 days prior written notice. In the
event his employment is terminated by the Company without cause
or he terminates his employment for good reason, he is entitled
to receive the following benefits, reduced by the present value
of any other cash severance benefits payable to Mr. Olson
under any other plans or programs of the Company:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | Earned but unpaid base salary and target bonus,
    pro rated through the date of termination;
|
| |  | Reimbursement for certain business expenses
    properly incurred;                            
|
| |  | Any employee benefits to which he is entitled
    under the Companys benefit plans;          

124



---



##### Table of Contents





| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continued payment of base salary for the lesser
    of 12 months or the number of months he had been employed
    by the company (the Severance Period);                                         
|
| |  | His annual bonus target amount, pro rated based
    on the number of months in the Severance Period in the event he
    has been employed less than one year;                                      
|
| |  | Acceleration of all unvested options that would
    have vested during the Severance Period; and                                                                                                   
|
| |  | Continued coverage under the Companys
    medical insurance plans during the Severance Period at the same
    cost to him as was provided to him immediately prior to the date
    of termination.

In the event the Company terminates
Mr. Olsons employment without cause or he terminates
his employment for good reason upon or within 13 months
following a change of control (as defined in the employment
agreement), Mr. Olsons severance benefits as
described above shall be modified as follows:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | The base salary and target bonus amounts
    described above shall be paid as a lump sum within 10 business
    days following termination;
|
| |  | The term Severance Period shall mean
    12 months; and                                                                                  
|
| |  | All outstanding and unvested options shall vest
    and remain exercisable during the Severance Period.                                    

Mr. Olson has agreed not to disclose any
confidential information pertaining to the Companys
business and has agreed not to compete with the Company during
his employment and for one year following termination of his
employment.

Kevin J. Duffy.In
December of 2002, we entered into an agreement with Kevin J.
Duffy, naming him Senior Vice President and General Manager of
the Company. In September of 2003, Mr. Duffy was named
Senior Vice President of Product Development. Under the terms of
the agreement, Mr. Duffy receives an annual base salary of
$200,000, subject to annual increases at the discretion of the
Board, and an annual bonus with a target amount for achieving
certain objectives of not less than 60% of his base salary.

The Company may terminate Mr. Duffys
employment at any time and Mr. Duffy may terminate his
employment upon 30 days prior written notice. In the
event his employment is terminated by the Company without cause
or he terminates his employment for good reason, he is entitled
to receive the following benefits, reduced by the present value
of any other cash severance benefits payable to Mr. Duffy
under any other plans or programs of the Company:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Earned but unpaid base salary and target bonus,
    pro rated through the date of termination;                                                                                                     
|
| |  | Reimbursement for certain business expenses
    properly incurred;                                                                                                                                 
|
| |  | Any employee benefits to which he is entitled
    under the Companys benefit plans;                                                                                                               
|
| |  | Continued payment of base salary for the lesser
    of 12 months or the number of months he had been employed
    by the company (the Severance Period);                                         
|
| |  | His annual bonus target amount, pro rated based
    on the number of months in the Severance Period in the event he
    has been employed less than one year;                                      
|
| |  | Acceleration of all unvested options that would
    have vested during the Severance Period; and                                                                                                   
|
| |  | Continued coverage under the Companys
    medical insurance plans during the Severance Period at the same
    cost to him as was provided to him immediately prior to the date
    of termination.

In the event the Company terminates
Mr. Duffys employment without cause or he terminates
his employment for good reason upon or within 13 months
following a change of control (as defined in the employment
agreement), Mr. Duffys severance benefits as
described above shall be modified as follows:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | The base salary and target bonus amounts
    described above shall be paid as a lump sum within 10 business
    days following termination;

125



---



##### Table of Contents





| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | The term Severance Period shall mean
    12 months; and                                              
|
| |  | All outstanding and unvested options shall vest
    and remain exercisable during the Severance Period.

Mr. Duffy has agreed not to disclose any
confidential information pertaining to the Companys
business and has agreed not to compete with the Company during
his employment and for one year following termination of his
employment.

Jonathan N. Zakin.In May 2001, we entered into an agreement with Jonathan N.
Zakin, our former Chief Executive Officer and Chairman of our
Board of Directors, to amend his employment agreement, dated as
of October 1999. Pursuant to this amendment, Mr. Zakin
became employed full-time, his annual base salary was increased
from $50,000 to $500,000 and he became eligible to receive an
incentive bonus equal to 75% of his annual base salary based on
the achievement of performance targets established by our Board
of Directors. Mr. Zakin also received options to purchase
900,000 shares of our common stock at an exercise price of
$7.00 per share under the terms of the 1999 Plan. Upon the
completion of the Merger and effective March 26, 2002,
these 900,000 options vested and became fully exercisable.

Under the terms of the agreement, the Company
could terminate Mr. Zakins employment at any time for
cause or upon 60 days written notice without cause,
and Mr. Zakin could terminate his employment upon
60 days prior written notice. Mr. Zakin agreed
not to disclose any confidential information pertaining to the
Companys business. Furthermore, he agreed not to compete
with the Company during his employment and for one year
following the termination of his employment.

Amir Zoufonoun.In
November of 1999 we entered into an agreement with Amir
Zoufonoun, who was then serving as our President and Chief
Operating Officer. In connection with the merger of Western
Multiplex Corporation and Proxim Inc, Mr. Zoufonouns
title and responsibilities as an employee of the Company changed
and, from March 26, 2002 through the consummation of the
ORiNOCO Acquisition on August 5, 2002, he served as our
Executive Vice President, Technology. In August 2002,
Mr. Zoufonouns title and responsibilities were
modified and he became our Executive Vice President, WAN
Strategy and Business Development. Mr. Zoufonouns
annual base salary was $250,000 and provided that he was
eligible to receive an annual incentive cash bonus of up to 60%
of his base salary, based on his achievement of certain
performance targets established by the Board of Directors.

Under the terms of Mr. Zoufonouns
employment agreement, the Company could terminate
Mr. Zoufonouns employment at any time, and
Mr. Zoufonoun could terminate his employment on
90 days prior written notice. On August 8, 2003,
Mr. Zoufonoun resigned for good reason as defined in the
employment agreement and we provided Mr. Zoufonoun the
related severance benefits described below in the section
entitled Termination of Employment and Change-in-Control
Arrangements.

Mr. Zoufonoun has agreed not to disclose any
confidential information pertaining to the Companys
business. Furthermore, he has agreed not to compete with the
Company during his employment and for one year following the
termination of his employment.

Termination of Employment and
Change-in-Control Arrangements

Jonathan Zakin.In
August of 2003, we entered into a severance agreement with
Mr. Zakin pursuant to which the Company and Mr. Zakin
agreed to the following:



| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mr. Zakins service to the Company as
    an executive ended effective June 5, 2003;                                                                                                                                                                           
|
| |  | During a transition period from June 5, 2003
    until August 5, 2003, Mr. Zakin would serve as a
    non-executive employee and Chairman of the Board of Directors of
    the Company and would continue to receive his base salary and
    employee benefits;
|
| |  | Mr. Zakins termination was without
    cause;                                                                                                                                                                                                                 
|
| |  | Mr. Zakin would resign from all positions
    with the Company effective August 5, 2003.                                                                                                                                                                       

126



---



##### Table of Contents





| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | All options under Mr. Zakins stock
    option agreement would be fully vested and would be exercisable
    for a period of one year from August 5, 2003; and
|
| |  | Mr. Zakin would be entitled to reimbursement
    for reasonable business expenses properly incurred prior to
    August 5, 2003.                             

Keith E. Glover.On
October 17, 2003, Keith Glover, the Companys
Executive Vice President and Chief Financial Officer until
August 2003, terminated his employment in all remaining
capacities with the Company. Under the terms of the
Companys change of control and severance agreement with
Mr. Glover, he is entitled to receive:



| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash payments equal to 100% of his annual
    compensation (as defined in the agreement) paid over the
    12 months following termination;                                                                                                                              
|
| |  | Company-provided health, dental, vision and life
    insurance at the same level of coverage as was provided to him
    immediately prior to termination for a period of 12 months
    following termination;                                                            
|
| |  | Acceleration of all unvested options to purchase
    shares of the Companys common stock exercisable for a
    period of one year from the date of termination and the lapse of
    any repurchase right the Company may have with respect to stock
    held by him; and
|
| |  | Six months of outplacement assistance, not to
    exceed a cost of $10,000.                                                                                                                                                                                              

In connection with the resignation by
Mr. Glover, options to purchase 93,894 shares of our
common stock held by Mr. Glover on the date his employment
terminated, vested and became fully exercisable.

Amir Zoufonoun.On
August 8th, 2003, Amir Zoufonoun, the Companys former
Executive Vice President of WAN Strategy and Business
Development resigned from the Company. Under the terms of the
Companys employment agreement with Mr. Zoufonoun, he
is entitled to receive:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Cash payments equal to his base salary paid and
    pro-rated bonus, if any, over the 12 months following
    termination;
|
| |  | Company-provided health, dental, vision and life
    insurance for a period of 12 months following termination;           

Compensation Committee Interlocks and Insider
Participation

Messrs. Gilmore and Westrick served as
members of the compensation committee of our board of directors
from January 1, 2003 through December 31, 2003. Former
director Michael J. Boskin served as a member of the
compensation committee from January 1, 2003 until his
resignation from our board of directors on March 5, 2003.
Mr. Harris served as a member of the compensation committee
from September 4, 2003 through December 31, 2003.
Mr. Harris is a partner of Warburg Pincus & Co.
and a member and managing director of Warburg Pincus LLC,
affiliates of Warburg Pincus Private Equity VIII, L.P. Please
refer to Item 13, Certain Relationships and Related
Transactions  Transactions with Management and
Others  Recent Financing Activities for
additional information regarding Mr. Harris
relationship with Warburg Pincus Private Equity VIII, L.P. and
related transactions with Warburg Pincus Private Equity VIII,
L.P. and other Investors. As of the date of this report,
Mr. Harris is not serving as a member the compensation
committee of our board of directors.

During the year ended December 31, 2003:



| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | none of the members of our compensation committee
    was an officer (or former officer) or employee of employer any
    of its subsidiaries;                                                                                           
|
| |  | none of the members of the compensation committee
    entered into (or agreed to enter into) any transaction or series
    of transactions with the Company or any of its subsidiaries in
    which the amount involved exceeds $60,000;

127



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | none of the Companys executive officers
    served on the compensation committee (or other board committee
    with similar functions or, if there was no such committee, the
    entire board of directors) of another entity where one of that
    entitys officers served on the Companys board of
    directors or as member of the compensation committee; and
|
| |  | none of the Companys executive officers was
    a director of another entity where one of that entitys
    officers served on the Companys compensation committee.                                                                                                                                                                                                 






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The following table sets forth certain
information with respect to the beneficial ownership of the
Companys common stock and Series A preferred stock as
of March 5, 2004 by (i) each stockholder that we know
is the beneficial owner of more than 5% of the common stock and
each beneficial owner of our Series A preferred stock,
(ii) each executive officer of the Company named in the
Summary Compensation Table in the section above entitled
Executive Compensation, (iii) each director
(iv) all executive officers and directors of the Company as
a group. Unless otherwise indicated below, the address for each
listed 5% stockholder, director and executive officer is
c/o Proxim Corporation, 935 Stewart Drive, Sunnyvale,
California 94085.

Beneficial ownership is determined in accordance
with the rules of the SEC. Shares issuable upon exercise or
exchange of outstanding convertible securities, including our
Series A preferred stock, promissory notes and outstanding
options and warrants are not deemed outstanding for the purposes
of computing the percentage ownership of any other person.
Except as otherwise indicated in the footnotes to the table, we
believe that the beneficial owners listed in this table, based
on information provided by them, have sole voting and investment
power over the number of shares listed opposite their names,
subject to community property laws where applicable.

|                                         |                               |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|---------------------------------------- | ----------------------------- | ------------ | ---------- | ------------------------ |  | ---------------------- | ---- | ----------- |  | -------------------------- | --------- | ----------- |  |  | ---- |  |  |  | ----------- |  |  |  | ---- |  | 
|                                         |                               |              |            |                          |  |                        |      |             |  |                           
|                                         |                               |              |            |                          |  |                        |      |             |  | Shares of our Common Stock
|                                         |                               |              |            |                          |  | on an As-Converted and
|                                         |                               | Common Stock |            | Series A Preferred Stock |  | As-Exercised Basis    
|                                         |                               |              |            |                          |  |                       
|                                         |                               | Amount and   |            | Percent of               |  | Amount and             |      | Percent of  |  | Amount and                 |           | Percent of 
|                                         |                               | Nature of    |            | Outstanding              |  | Nature of              |      | Outstanding |  | Nature of                  |           | Outstanding
|Name and Address of                      |                               | Beneficial   |            | Shares of                |  | Beneficial             |      | Shares of   |  | Beneficial                 |           | Shares of  
|Beneficial Owner                         |                               | Ownership(1) |            | Class(2)                 |  | Ownership              |      | Class       |  | Ownership(3)               |           | Class(4)   
|                                         |                               |              |            |                          |  |                        |      |             |  |                            |           |            
|Warburg Pincus Private Equity VIII, L.P. |                               |              | 36,661,396 | (5)                      |  |                        | 22.9 |             |  |                            | 2,600,000 |             |  |  | 86.7 |  |  |  | 106,516,805 |  |  |  | 46.3 | 
|                                         | 466 Lexington Avenue          |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | New York, New York 10017      |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|Broadview Capital Partners L.P.          |                               |              | 682,466    | (6)                      |  |                        | 1.0  |             |  |                            | 48,400    |             |  |  | 1.2  |  |  |  | 1,982,853   |  |  |  | 1.6  | 
|                                         | 950 Tower Lane 18th Floor     |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | Foster City, California 94404 |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|Broadview Capital Partners               |                               |              | 4,939,137  | (7)                      |  |                        | 3.9  |             |  |                            | 350,280   |             |  |  | 11.7 |  |  |  | 14,350,274  |  |  |  | 10.4 | 
|                                         | Qualified Purchaser Fund L.P. |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | 950 Tower Lane 18th Floor     |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | Foster City, California 94404 |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|Broadview Capital Partners               |                               |              | 18,611     | (8)                      |  |                        | *    |             |  |                            | 1,320     |             |  |  | *    |  |  |  | 54,075      |  |  |  | *    | 
|                                         | Affiliates Fund LLC           |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | 950 Tower Lane 18th Floor     |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | Foster City, California 94404 |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|Kopp Investment Advisor, Inc.(9)         |                               |              | 21,746,177 |                          |  |                        | 17.6 |             |  |                            |          |             |  |  |     |  |  |  | 21,746,177  |  |  |  | 17.6 | 
|                                         | 7701 France Avenue South      |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | Suite 500                     |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|                                         | Edina, Minnesota 55435        |              |            |                          |  |                        |      |             |  |                            |           |             |  |  |      |  |  |  |             |  |  |  |      |  | 
|Franco Plastina(10)                      |                               |              | 1,000,000  |                          |  |                        | *    |             |  |                            |          |             |  |  |     |  |  |  | 1,000,000   |  |  |  | *    | 
|Deborah Ablahat-Cipriano                 |                               |              |           |                          |  |                        |     |             |  |                            |          |             |  |  |     |  |  |  |            |  |  |  | *    | 
|Ihab Abu-Hakima(11)                      |                               |              | 614,170    |                          |  |                        | *    |             |  |                            |          |             |  |  |     |  |  |  | 614,170     |  |  |  | *    | 
|Kevin J. Duffy(12)                       |                               |              | 208,311    |                          |  |                        | *    |             |  |                            |          |             |  |  |     |  |  |  | 208,311     |  |  |  | *    | 
|David E. Olson(13)                       |                               |              | 83,336     |                          |  |                        | *    |             |  |                            |          |             |  |  |     |  |  |  | 83,336      |  |  |  | *    | 

128



---



##### Table of Contents



|                                                                     |  |              |            |                          |  |                        |     |             |  |                            |   |             |  |  |   |  |  |  |            |  |  |  |     | 
|-------------------------------------------------------------------- |  | ------------ | ---------- | ------------------------ |  | ---------------------- | --- | ----------- |  | -------------------------- | - | ----------- |  |  | - |  |  |  | ---------- |  |  |  | --- | 
|                                                                     |  |              |            |                          |  |                        |     |             |  |                           
|                                                                     |  |              |            |                          |  |                        |     |             |  | Shares of our Common Stock
|                                                                     |  |              |            |                          |  | on an As-Converted and
|                                                                     |  | Common Stock |            | Series A Preferred Stock |  | As-Exercised Basis    
|                                                                     |  |              |            |                          |  |                       
|                                                                     |  | Amount and   |            | Percent of               |  | Amount and             |     | Percent of  |  | Amount and                 |   | Percent of 
|                                                                     |  | Nature of    |            | Outstanding              |  | Nature of              |     | Outstanding |  | Nature of                  |   | Outstanding
|Name and Address of                                                  |  | Beneficial   |            | Shares of                |  | Beneficial             |     | Shares of   |  | Beneficial                 |   | Shares of  
|Beneficial Owner                                                     |  | Ownership(1) |            | Class(2)                 |  | Ownership              |     | Class       |  | Ownership(3)               |   | Class(4)   
|                                                                     |  |              |            |                          |  |                        |     |             |  |                            |   |            
|Lorenzo A. Bettino(14)                                               |  |              | 41,668     |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 41,668     |  |  |  | *   | 
|Steven D. Brooks(15)                                                 |  |              | 16,667     |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 16,667     |  |  |  | *   | 
|Merle L. Gilmore(16)                                                 |  |              | 75,001     |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 75,001     |  |  |  | *   | 
|Jeffrey A. Harris(17)                                                |  |              | 16,667     |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 16,667     |  |  |  | *   | 
|Michael P. Ressner(18)                                               |  |              | 16,667     |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 16,667     |  |  |  | *   | 
|Jeffrey D. Saper(19)                                                 |  |              | 214,253    |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 214,253    |  |  |  | *   | 
|Kenneth E. Westrick(20)                                              |  |              | 75,001     |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 75,001     |  |  |  | *   | 
|Joseph R. Wright, Jr.(21)                                            |  |              | 75,001     |                          |  |                        | *   |             |  |                            |  |             |  |  |  |  |  |  | 75,001     |  |  |  | *   | 
|Jonathan N. Zakin(22)                                                |  |              | 6,393,645  |                          |  |                        | 5.1 |             |  |                            |  |             |  |  |  |  |  |  | 6,393,645  |  |  |  | 5.1 | 
|Keith E. Glover(23)                                                  |  |              | 1,479,893  |                          |  |                        | 1.2 |             |  |                            |  |             |  |  |  |  |  |  | 1,479,893  |  |  |  | 1.2 | 
|Amir Zoufonoun                                                       |  |              | 1,140,000  |                          |  |                        | 1.0 |             |  |                            |  |             |  |  |  |  |  |  | 1,140,000  |  |  |  | 1.0 | 
|All executive officers and directors as a group
    (17 persons)(24) |  |              | 11,450,280 |                          |  |                        | 8.9 |             |  |                            |  |             |  |  |  |  |  |  | 11,450,280 |  |  |  | 8.9 | 



---



| |   |                          
| | - | -------------------------
| | * | Represents less than 1.0%



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount of beneficial ownership includes accretion
    of the liquidation preference of our Series A preferred
    stock as of March 5, 2004 and antidilution adjustments to
    the Series A preferred stock and certain warrants for
    common stock in connection with the issuance of promissory notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(2) | Percentages for each person are based on
    123,341,837 shares of common stock outstanding on
    March 5, 2004, plus the total number of outstanding options
    or warrants held by such person that are exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | Amount of beneficial ownership includes accretion
    of the liquidation preference of our Series A preferred
    stock as of March 5, 2004 and antidilution adjustments to
    the Series A preferred stock and certain warrants for
    common stock in connection with the issuance of promissory
    notes, plus the number of shares of common stock issuable upon
    conversion of shares of Series B preferred stock issuable
    upon exchange of outstanding promissory notes, including accrued
    but unpaid interest, as of March 5, 2004.                                                                                                                                                                                                                                                                       
|   
|(4) | Percentages for each person are based on
    123,341,837 shares of common stock outstanding on
    March 5, 2004, plus the number of shares of common stock
    which holders of our Series A preferred stock would have
    been entitled to receive upon conversion of the Series A
    preferred shares held by such person as of March 5, 2004,
    plus the number of shares of common stock which holders of our
    promissory notes would be entitled to receive upon exchange of
    the promissory notes held by such person as of March 5,
    2004 (assuming conversion of the shares of Series B
    preferred stock issuable on exchange of the promissory notes),
    plus the total number of outstanding options or warrants held by
    such person that are exercisable within 60 days of
    March 5, 2004.
|   
|(5) | Constitutes 36,661,396 shares of common
    stock issuable upon the exercise of warrants exercisable within
    60 days of March 5, 2004. Warburg Pincus &
    Co. is the sole general partner of Warburg Pincus Private Equity
    VIII, LP. Warburg Pincus Private Equity VIII, LP is managed by
    Warburg Pincus LLC. The address of Warburg Pincus & Co.
    and Warburg Pincus LLC is 466 Lexington Avenue, New York,
    New York 10017.                                                                                                                                                                                                                                                                                                                                                                               
|   
|(6) | Constitutes 682,466 shares of common stock
    issuable upon the exercise of warrants exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(7) | Constitutes 4,939,137 shares of common stock
    issuable upon the exercise of warrants exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(8) | Constitutes 18,611 shares of common stock
    issuable upon the exercise of warrants exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

129



---



##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | Based on the Schedule 13G/ A filed by such
    beneficial owner with the SEC on January 30, 2004 and
    reflects common stock beneficially held as of December 31,
    2003, including 16,065,257 shares as to which Kopp
    Investment Advisors, Inc. has shared dispositive power,
    5,000,000 shares as to which Kopp Investment
    Advisors, Inc. has sole dispositive power and
    17,444,896 shares as to which Kopp Investment
    Advisors, Inc. has sole voting power.



|     |                                                                                                                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Constitutes 1,000,000 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                      
|    
|(11) | Constitutes 614,170 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                        
|    
|(12) | Includes 197,919 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                           
|    
|(13) | Constitutes 83,336 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(14) | Constitutes 41,668 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(15) | Constitutes 16,667 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(16) | Constitutes 75,001 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(17) | Constitutes 16,667 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(18) | Constitutes 16,667 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(19) | Includes 207,273 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                           
|    
|(20) | Constitutes 75,001 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(21) | Constitutes 75,001 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(22) | Includes 1,900,000 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004 and 3,920,061 shares of
    common stock held in the name of Seaview Holdings,
    303,235 shares of common stock in the name of Zakin 2002
    Investment Trust and 270,349 shares of common stock in the
    name of Jonathan N. Zakin Revocable Trust.
|    
|(23) | Includes 1,349,893 shares of common stock
    issuable upon the exercise of options exercisable within
    60 days of March 5, 2004.                                                                                                                                                                                                                                                         
|    
|(24) | Includes 5,669,263 shares of common stock
    issuable upon the exercise of options held by all directors and
    executive officers exercisable within 60 days of
    March 5, 2004. Included in this group are the Named
    Executive Officers listed in the section below entitled
    Summary Compensation Table and current
    directors of the Company.                            






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

Except for the compensation agreements and other
arrangements that are described under the sections above
entitled Director Compensation, Employment
Contracts, Termination of Employment and Change-in-Control
Arrangements, and the agreements and transactions
described under the subsections below entitled
Transactions with Management and Others,
Certain Business Relationships and
Indebtedness of Management there was not since the
beginning of our fiscal year ended December 31, 2003, nor
is there currently proposed, any transaction or series of
similar transactions to which the Company was or is to be a
party in which the amount involved exceeds $60,000 and in which
any director, executive officer, 5%

130



---



##### Table of Contents



stockholder or any member of the immediate family
of any of the foregoing persons had or will have a direct or
indirect material interest.




| |                                            
| | -------------------------------------------
| | Transactions with Management and
    Others

Recent Financing
Activities.During 2003, Warburg
Pincus Private Equity VIII, L.P. and Broadview Capital Partners
L.P. and affiliates invested an aggregate of $40 million in
us in exchange for secured promissory notes, exchangeable for
shares of our Series B preferred stock, and warrants to
purchase an aggregate of 24 million shares of our common
stock. Please refer to Part I, Item 1,
Business  Recent Financing Activities for
a detailed description of our recent transactions with these
Investors, the terms of the Notes and warrants, including terms
of conversion and exercise thereof, and our Amended Agreement
with the Investors. Prior to the investment, Warburg Pincus
Private Equity VIII, L.P. held approximately 87% of our
Series A preferred stock, and Broadview Capital Partners
L.P. and affiliates held approximately 13% of our Series A
preferred stock.

In connection with the investment and pursuant to
the terms of the Amended Agreement, we appointed Jeffrey A.
Harris and Steven D. Brooks as members of our board of directors
effective as of July 30, 2003. In addition, Lorenzo A.
Bettino has served as a member of our board of directors since
September 2002. These directors may have an indirect financial
interest in the investment as a result of positions held with
the Investors. Messrs. Bettino and Harris are partners of
Warburg Pincus & Co. and members and managing directors
of Warburg Pincus LLC, affiliates of Warburg Pincus Private
Equity VIII, L.P. Mr. Brooks is a member and managing
director of Broadview Capital Partners Management LLC, an
affiliate of Broadview Capital Partners L.P. In addition, in
connection with services provided as members of our board of
directors, each of Messrs. Harris and Brooks received an
initial option grant to purchase 50,000 shares of our
common stock under the Proxim Corporation 2000 Stock Option Plan
for Non-Employee Directors, and Mr. Bettino received an
annual option grant to purchase 25,000 shares of our common
stock under the same plan, as well as certain other remuneration
disclosed in the section above entitled Director
Compensation.



| |                                   
| | ----------------------------------
| | Certain Business
    Relationships

Legal Services.During the year ended December 31, 2003, the law firm of
Wilson Sonsini Goodrich & Rosati, Professional
Corporation, served, and in the current fiscal year continues to
serve, as outside general corporate counsel to the Company.
Mr. Saper, a director of the Company, is a member of Wilson
Sonsini Goodrich & Rosati, Professional Corporation. We
believe that the services performed by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, have been
provided on terms no more favorable than those with unrelated
parties.



| |                           
| | --------------------------
| | Indebtedness of Management

Promissory Note Issued by Amir
Zoufonoun.On January 31, 2000,
Mr. Zoufonoun issued a promissory note to us in the amount
of $465,500 in connection with his purchase of
950,000 shares of our common stock. The principal amount of
the promissory note is payable on the earlier of (i) the
thirtieth day after we exercise a right to repurchase
Mr. Zoufonouns shares of our common stock and under
the related stock purchase agreement with him, or (ii) the
tenth anniversary of the promissory note. Mr. Zoufonoun was
serving as an executive officer of the Company at the time the
note was issued to us and was serving as an executive officer of
the Company during a portion of the year ended December 31,
2003. As disclosed above in the section entitled Executive
Compensation  Summary Compensation Table,
Mr. Zoufonoun tendered his resignation from the Company
effective as of August 8, 2003.

The note accrues interest at a rate of
8% per year, compounded annually. The aggregate amount of
indebtedness outstanding in respect of the note during the year
ended December 31, 2003 was $611,399.

Mr. Zoufonoun also entered into a pledge
agreement pursuant to which we hold a first priority security
interest in the shares of our common stock purchased by him in
connection with his respective note, the options to purchase
shares of our common stock granted by the Company to him, the
shares received pursuant to the exercise of any such options,
and the proceeds received upon sale of any such shares purchased
or

131



---



##### Table of Contents



received in connection with the foregoing. Under
the pledge agreement with Mr. Zoufonoun, we have the right
to reclaim such collateral in the event of default under the
terms of the respective note. In the event any amounts
outstanding under the note are not satisfied following any such
reclamation of the collateral and our use of related proceeds to
offset amounts outstanding under the note, we are entitled to
seek recourse from Mr. Zoufonouns other personal
assets or income for up to half of the principal amount of the
loan.







|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Audit Fees

The aggregate fees PricewaterhouseCoopers LLP
billed us for each of the last two fiscal years for professional
services for the audits of our annual financial statements and
review of financial statements included in our Reports on
Form 10-Q or services normally provided by
PricewaterhouseCoopers LLP in connection with filings or
engagements for those years were $375,000 in 2002 and $410,000
in 2003. We engaged PricewaterhouseCoopers LLP as our
principal accountants on March 26, 2002. Additional
information relating to our predecessor principal accountants is
included in Part II, Item 9 above under the caption
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.

Audit-Related Fees

The aggregate fees PricewaterhouseCoopers LLP
billed us in each of the last two fiscal years for assurance and
related services that are reasonably related to the performance
of the audit or review of the Companys financial
statements and are not reported above under the caption
Audit Feeswere $270,000 in 2002, all of
which was for audit-related services in connection with our
merger with Proxim, Inc. and our acquisition of the 802.11
wireless LAN systems business of Agere, and the related
financing transactions, and $89,000 in 2003 for audit-related
services in connection with consultations regarding
restructuring activities, royalty charges, and filing of
registration statements and compliance with the Sarbanes-Oxley
Act of 2002.

Tax Fees

Aggregate fees billed for all other services
rendered by PricewaterhouseCoopers LLP for the fiscal year
ended December 31, 2002 and 2003 were approximately
$160,000 and $415,000, respectively. These fees are related to
tax compliance, advisory and planning services. The audit
committee has determined that the provision of such non-audit
services is compatible with the independent accountants
maintaining their independence.

All Other Fees

PricewaterhouseCoopers LLP did not bill us any
additional fees in the last two fiscal years for products and
services provided by PricewaterhouseCoopers LLP, other than the
services reported above.

Audit Committee Pre-Approval
Policies

The Audit Committee has adopted an Audit
Committee Charter, which sets forth the procedures and policies
pursuant to which services to be performed by the independent
auditor are to be pre-approved. Under the Charter, proposed
services either may be pre-approved by agreeing to a framework
with descriptions of allowable services with the Audit Committee
(general pre-approval), or require the specific
pre-approval of the Audit Committee. Unless a type of service
has received general pre-approval, it requires specific
pre-approval by the Audit Committee if it is to be provided by
the independent auditor.

The Audit Committee will annually review and
pre-approve the services that may be provided by the independent
auditor that are subject to general pre-approval. Under the
Charter, the Audit Committee may delegate pre-approval authority
one or more designated members of the Audit Committee the
authority to pre-approve audit and permissible non-audit
services, provided such pre-approval decision is presented to
the full Audit Committee at its scheduled meetings. The member
to whom such authority is delegated must

132



---



##### Table of Contents



report, for informational purposes only, any
pre-approval decisions to the Audit Committee at its next
meeting.





PART IV






|         |                                                           
|-------- | ----------------------------------------------------------
|Item 15. | Exhibits, Financial Statements and Reports
    on Form 8-K

(a) List of documents Filed as Part of
this Report



| |                                                   
| | --------------------------------------------------
| | (1) Index to Consolidated Financial
    Statements

|                                                    |  |      |    | 
|--------------------------------------------------- |  | ---- | -- | 
|                                                    |  | Page
|                                                    |  |     
|Report of Independent Auditors                      |  |      | 70 | 
|Report of Independent Public Accountants            |  |      | 71 | 
|Consolidated Balance Sheets                         |  |      | 72 | 
|Consolidated Statements of Operations               |  |      | 73 | 
|Consolidated Statements of Stockholders
    Equity |  |      | 74 | 
|Consolidated Statements of Cash Flows               |  |      | 76 | 
|Notes to Consolidated Financial Statements          |  |      | 78 | 



| |                                               
| | ----------------------------------------------
| | (2) Index to Financial Statement
    Schedules

Schedule II  Valuation and
Qualifying Accounts

All other schedules have been omitted because the
required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or
required.



| |              
| | -------------
| | (3) Exhibits.

The exhibits listed on the accompanying
Exhibit Index are filed or incorporated by reference as
part of this report and such Exhibit Index is incorporated
by reference herein. Management contracts or compensatory plans
or arrangements are identified in the accompanying
Exhibit Index and such identification listing is
incorporated by reference herein.

(b) Reports on Form 8-K.

|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date              |  | Item Reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|October 3, 2003   |  | On October 2, 2003, the Registrant issued a
    press release announcing that it had agreed to amended terms of
    the Securities Purchase Agreement, dated as of July 22,
    2003 and previously filed by the Registrant on July 29,
    2003 as an exhibit to Form 8-K, with Warburg Pincus Private
    Equity VIII, L.P., Broadview Capital Partners L.P.,
    Broadview Capital Partners Qualified Purchaser Fund L.P. and
    Broadview Capital Partners Affiliates Fund LLC (the
    Investors), and the Registrant filed the press
    release on Form 8-K.
|October 21, 2003  |  | On October 21, 2003, the Registrant issued a
    press release announcing its financial result for the fiscal
    quarter and the nine months ended September 26, 2003 and
    furnished certain financial statements and other information on
    Form 8-K.                                                                                                                                                                                                                                                                                                          
|October 27, 2003  |  | On October 27, 2003, the Registrant
    announced that it had entered into an Amended and Restated
    Securities Purchase Agreement (the Amended
    Agreement), dated as of October 21, 2003, with the
    Investors, and the Registrant filed the Amended Agreement on
    Form 8-K.                                                                                                                                                                                                                                                                             
|December 12, 2003 |  | On December 11, 2003, the Registrant issued
    a press release announcing that Frank Plastina had been
    appointed by the Board of Directors as its Chairman and that
    Michael Ressner had joined the Board of Directors, and the
    Registrant filed the press release on Form 8-K.                                                                                                                                                                                                                                                                           

133



---



##### Table of Contents



|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date              |  | Item Reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|December 16, 2003 |  | On December 15, 2003, the Registrant
    announced (i) the approval, at a Special Meeting of
    Stockholders held December 12, 2003, of certain proposals
    relating to the securities described in the Amended Agreement,
    and (ii) the filing by the Registrant with the Secretary of
    State of the State of Delaware a Certificate of Designations,
    Preferences and Rights of Series B Convertible Preferred
    Stock (the Certificate of Designations), and the
    Registrant filed the Certificate of Designations on
    Form 8-K.
|December 23, 2003 |  | The Registrant announced that, on
    December 19, 2003, it exercised its right pursuant to the
    terms of the Amended Agreement to issue to the Investors senior
    secured exchangeable promissory notes.                                                                                                                                                                                                                                                                                                                                           

134



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on our behalf by the
undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the 15th day of March, 2004.



| |                   
| | ------------------
| | PROXIM CORPORATION



| |     |                      
| | --- | ---------------------
| | By: | /s/ DAVID L. THOMPSON

| |                                                 
| | ------------------------------------------------
| |                                                 
| | David L. Thompson                               
| | Executive Vice President and                    
| | Chief Financial Officer                         
| | (Principal Financial and Accounting
    Officer)

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

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

|                                           |  |                                                                                                       |  |                |  | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                           |  |                                                                                                       |  |               
|Signature                                  |  | Title                                                                                                 |  | Date          
|                                           |  |                                                                                                       |  |               
|                                          
|/s/ FRANCO PLASTINA(Franco Plastina)       |  | Chairman, President and Chief Executive
    Officer
    (Principal Executive Officer)                 |  | March 15, 2004
|                                          
|/s/ DAVID L. THOMPSON(David L. Thompson)   |  | Executive Vice President and Chief Financial
    Officer (Principal Financial and Accounting Officer) |  | March 15, 2004
|                                          
|/s/ LORENZO A. BETTINO(Lorenzo A. Bettino) |  | Director                                                                                              |  | March 15, 2004
|                                          
|/s/ STEVEN D. BROOKS(Steven D. Brooks)     |  | Director                                                                                              |  | March 15, 2004
|                                          
|/s/ MERLE L. GILMORE(Merle L. Gilmore)     |  | Director                                                                                              |  | March 15, 2004
|                                          
|/s/ JEFFREY A. HARRIS(Jeffrey A. Harris)   |  | Director                                                                                              |  | March 15, 2004
|                                          
|/s/ MICHAEL P. RESSNER(Michael P. Ressner) |  | Director                                                                                              |  | March 15, 2004

135



---



##### Table of Contents



|                                                |  |          |  |                |  | 
|----------------------------------------------- |  | -------- |  | -------------- |  | 
|                                                |  |          |  |               
|Signature                                       |  | Title    |  | Date          
|                                                |  |          |  |               
|                                               
|/s/ JEFFREY D. SAPER(Jeffrey D. Saper)          |  | Director |  | March 15, 2004
|                                               
|/s/ KENNETH E. WESTRICK(Kenneth E. Westrick)    |  | Director |  | March 15, 2004
|                                               
|/s/ JOSEPH R. WRIGHT, JR.(Joseph R. Wright, Jr) |  | Director |  | March 15, 2004

136



---



##### Table of Contents



EXHIBIT INDEX

|        |   |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | - | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 2 | .1          |  | Amended and Restated Acquisition Agreement, dated
    as of September 30, 1999, by and among GTI Acquisition
    Corp., Glenayre Technologies, Inc., the Registrant and WMC
    Holding Corp. (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                    
|        | 2 | .2          |  | Amendment to Acquisition Agreement, dated as of
    October 31, 1999, by and among GTI Acquisition Corp.,
    Glenayre Technologies, Inc., the Registrant and WMC Holding
    Corp. (previously filed as an exhibit to the Registrants
    registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                              
|        | 2 | .3          |  | Agreement and Plan of Reorganization, dated as of
    January 16, 2002, among the Registrant, Walnut-Pine Merger
    Corp. and Proxim, Inc. (previously filed as an annex to the
    Registrants registration statement on Form S-4 (File
    No. 333-82014), as amended).                                                                                                                                        
|        | 2 | .4          |  | Asset Purchase Agreement, dated as of
    June 14, 2002, by and between the Registrant and Agere
    Systems, Inc. (previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    SEC on June 19, 2002).                                                                                                                                                                    
|        | 3 | .1          |  | Amended and Restated Certificate of Incorporation
    of the Registrant (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                                                                                                                                          
|        | 3 | .2          |  | Certificate of Amendment to Amended and Restated
    Certificate of Incorporation of the Registrant (filed herewith).                                                                                                                                                                                                                                                                                              
|        | 3 | .3          |  | Certificate of Designations, Preferences and
    Rights of Series A Convertible Preferred Stock of the
    Registrant (previously filed as an exhibit to the
    Registrants annual report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                
|        | 3 | .4          |  | Certificate of Designations, Preferences and
    Rights of Series B Convertible Preferred Stock of Proxim
    Corporation (previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    SEC on December 16, 2003).                                                                                                                                                         
|        | 3 | .5          |  | Amended and Restated By-laws of the Registrant
    (previously filed as an exhibit to the Registrants
    registration statement on Form S-4 (File
    No. 333-82014), as amended).                                                                                                                                                                                                                               
|        | 4 | .1          |  | Form of the Registrants Class A Common
    Stock Certificate (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                                                                                                                                                    
|        | 4 | .2          |  | Registration Rights Agreement, dated as of June
    8, 2000, among the Registrant, Ripplewood Holdings L.L.C. and
    WMC Holding Corp. (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                                                                          
|        | 4 | .3          |  | Common Stock and Warrant Purchase Agreement dated
    as of November 27, 2001 by and between Proxim, Inc. and
    each of the purchasers named in Exhibit A thereto
    (previously filed as an exhibit to Proxim, Inc.s current
    report on Form 8-K filed with the SEC on November 28,
    2001).                                                                                                             
|        | 4 | .4          |  | Form of Proxim, Inc. Common Stock Warrant issued
    to each of the purchasers (other than UBS Global Equity
    Arbitrage Master Ltd. and PIPES Corporate Strategies Ltd.) in
    connection with the Common Stock and Warrant Purchase Agreement
    dated as of November 27, 2001 (previously filed as an
    exhibit to Proxim, Inc.s current report on Form 8-K
    filed with the SEC on November 28, 2001).
|        | 4 | .5          |  | Form of Proxim, Inc. Common Stock Warrant issued
    to UBS Global Equity Arbitrage Master Ltd. and PIPES Corporate
    Strategies Ltd. in connection with the Common Stock and Warrant
    Purchase Agreement dated as of November 27, 2001
    (previously filed as an exhibit to Proxim, Inc.s current
    report on Form 8-K filed with the SEC on November 28,
    2001).                                    
|        | 4 | .6          |  | Form of Proxim, Inc. Irrevocable Proxy executed
    by each of UBS Global Equity Arbitrage Master Ltd. and PIPES
    Corporate Strategies Ltd. in connection with the Common Stock
    and Warrant Purchase Agreement dated as of November 27,
    2001 (previously filed as an exhibit to Proxim, Inc.s
    current report on Form 8-K filed with the SEC on
    November 28, 2001).                             
|        | 4 | .7          |  | Stockholders Agreement, dated as of
    January 16, 2002, among Ripplewood Partners, L.P.,
    Ripplewood Employee Co-Investment Fund, L.P., WMC Holding L.L.C.
    and the Registrant (previously filed as an exhibit to the
    Registrants registration statement on Form S-4 (File
    No. 333-82014), as amended).                                                                                           



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .8          |  | Securities Purchase Agreement, dated as of June
    16, 2002, by and among the Registrant, Warburg Pincus Private
    Equity VIII, L.P., Broadview Capital Partners L.P. and Broadview
    Capital Partners Qualified Purchasers Fund L.P. (previously
    filed as an exhibit to the Registrants current report on
    Form 8-K filed with the SEC on June 19, 2002).                                                                                      
|        | 4  | .9          |  | Form of Registrants Senior Promissory Notes
    issued to each of the investors in connection with the
    Securities Purchase Agreement, dated as of June 16, 2002
    (previously filed as an exhibit to the Registrants current
    report on Form 8-K filed with the SEC on June 19, 2002
    (included in exhibit 2.2 thereto)).                                                                                                                      
|        | 4  | .10         |  | Form of Registrants Warrant issued to each
    of the investors in connection with the Securities Purchase
    Agreement, dated as of June 16, 2002 (previously filed as
    an exhibit to the Registrants current report on
    Form 8-K filed with the SEC on June 19, 2002 (included
    in exhibit 2.2 thereto)).                                                                                                                                      
|        | 4  | .11         |  | Securities Purchase Agreement, dated as of July
    22, 2003, by and among Proxim Corporation, Warburg Pincus
    Private Equity VIII, L.P., Broadview Capital Partners L.P.,
    Broadview Capital Partners Qualified Purchaser Fund L.P. and
    Broadview Capital Partners Affiliates Fund LLC (previously filed
    as an exhibit to the Registrants current report on
    Form 8-K filed with the SEC on July 29, 2003).                               
|        | 4  | .12         |  | Form of Registrants Senior Secured
    Promissory Notes issued to each of the investors in connection
    with the Securities Purchase Agreement, dated as of
    July 22, 2003 (previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    SEC on July 29, 2003 (included in exhibit 2.1 thereto)).                                                                                                              
|        | 4  | .13         |  | Warrant to Purchase Common Stock of the
    Registrant, dated September 9, 2003, issued by the
    Registrant to Motorola, Inc. (filed herewith).                                                                                                                                                                                                                                                                                                            
|        | 4  | .14         |  | Amended and Restated Securities Purchase
    Agreement, dated as of October 21, 2003, by and among
    Proxim Corporation, Warburg Pincus Private Equity VIII, L.P.,
    Broadview Capital Partners L.P., Broadview Capital Partners
    Qualified Purchaser Fund L.P. and Broadview Capital Partners
    Affiliates Fund LLC (previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    SEC on October 27, 2003).
|        | 4  | .15         |  | Form of Registrants New Senior Secured
    Promissory Notes issued to each of the investors in connection
    with the Amended and Restated Securities Purchase Agreement,
    dated as of October 21, 2003 (previously filed as an
    exhibit to the Registrants current report on Form 8-K
    filed with the SEC on October 27, 2003 (included in exhibit
    2.1 thereto)).                                                                           
|        | 4  | .16         |  | Form of Registrants Subordinated Secured
    Promissory Notes issued to each of the investors in connection
    with the Amended and Restated Securities Purchase Agreement,
    dated as of October 21, 2003 (previously filed as an
    exhibit to the Registrants current report on Form 8-K
    filed with the SEC on October 27, 2003 (included in exhibit
    2.1 thereto)).                                                                         
|        | 10 | .1*         |  | Employment Agreement, dated as of
    November 1, 1999, by and between the Registrant and Amir
    Zoufonoun (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                                                                                                                                               
|        | 10 | .2*         |  | Subscription and Employee Stockholders
    Agreement, dated as of January 31, 2000, among WMC Holding
    Corp., the Registrant, Ripplewood Partners, L.P. and Amir
    Zoufonoun (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                                                                         
|        | 10 | .3          |  | Stocking Distributor Agreement, dated
    May 27, 1998, by and between the Registrant and Somera
    Communications Inc. (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                                                                                                                                   
|        | 10 | .4          |  | Credit Agreement, dated as of November 1,
    1999, among the Registrant, Credit Suisse First Boston as Lead
    Arranger and as Agent and the several financial institutions
    from time to time party to the agreement (previously filed as an
    exhibit to the Registrants registration statement on
    Form S-1 (File No. 333-35200), as amended).                                                                                                 
|        | 10 | .5          |  | Assignment and Assumption Agreement, dated
    October 18, 1999, between the Registrant and Glenayre
    Electronics, Inc., including the Lease, dated July 1, 1996,
    between Glenayre Electronics, Inc. and Yercaf N.V. (previously
    filed as an exhibit to the Registrants registration
    statement on Form S-1 (File No. 333-35200), as
    amended).                                                                                            



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .6          |  | Lease, dated February 27, 1998, between
    Ubiquity Communication, Inc. and G&W/ Copley Redwood
    Business Park, L.P. (previously filed as an exhibit to the
    Registrants registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                          
|        | 10 | .7*         |  | Promissory Note, dated as of January 31,
    2000 made by Amir Zoufonoun in favor of the Registrant
    (previously filed as an exhibit to the Registrants
    registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                           
|        | 10 | .8          |  | Intellectual Property Assignment, dated November
    1, 1999, from Glenayre Electronics, Inc. to the Registrant
    (previously filed as an exhibit to the Registrants
    registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                               
|        | 10 | .9          |  | License Agreement, dated November 1, 1999,
    by and between Glenayre Electronics, Inc. and the Registrant
    (previously filed as an exhibit to the Registrants
    registration statement on Form S-1 (File
    No. 333-35200), as amended).                                                                                   
|        | 10 | .10*        |  | Ubiquity Communication, Inc. 1997 Stock Option
    Plan (previously filed as an exhibit to the Registrants
    registration statement on Form S-1 (File No. 333-35200), as
    amended).                                                                                                                                           
|        | 10 | .11*        |  | Ubiquity Communication, Inc. 1998 Stock Plan
    (previously filed as an exhibit to the Registrants
    registration statement on Form S-1 (File No. 333-35200), as
    amended).                                                                                                                                                  
|        | 10 | .12*        |  | Ubiquity Communication, Inc. 1999 Stock Plan
    (previously filed as an exhibit to the Registrants
    registration statement on Form S-1 (File No. 333-35200), as
    amended).                                                                                                                                                  
|        | 10 | .13         |  | Indemnification Agreement, dated as of
    January 15, 2002, among the Registrant, WMC Holding L.L.C.,
    Ripplewood Partners, L.P. and Ripplewood Employee Co-Investment
    Fund, L.P. (previously filed as an exhibit to the
    Registrants registration statement on Form S-4 (File
    No. 333-82014), as amended).         
|        | 10 | .14*        |  | Employment Agreement, dated January 16,
    2002, between the Registrant and David C. King (previously filed
    as an exhibit to the Registrants registration statement on
    Form S-4 (File No. 333-82014), as amended).                                                                                                        
|        | 10 | .15*        |  | Amended Employment and Co-Investment Agreement,
    dated as of May 9, 2001, among Ripplewood Partners L.P.,
    WMC Holding LLC, Seaview Holdings L.L.C., the Registrant and
    Jonathan N. Zakin (previously filed as an exhibit to the
    Registrants annual report on Form 10-K filed with the
    SEC on February 25, 2002).
|        | 10 | .16*        |  | Proxim, Inc. 1994 Director Option Plan, as
    amended and restated (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on March 27, 2002).                                                                                                                           
|        | 10 | .17*        |  | Form of Proxim, Inc. 1994 Director Option Plan
    Subscription Agreement (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on March 27, 2002).                                                                                                                     
|        | 10 | .18*        |  | Proxim, Inc. 1995 Long-Term Incentive Plan, as
    amended and restated (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on March 27, 2002).                                                                                                                       
|        | 10 | .19*        |  | Form of Proxim, Inc. 1995 Long-Term Incentive
    Plan Subscription Agreement (previously filed as an exhibit to
    the Registrants registration statement on Form S-8
    filed with the SEC on March 27, 2002).                                                                                                                 
|        | 10 | .20*        |  | Proxim, Inc. 1999 Nonstatutory Stock Option Plan,
    as amended and restated (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on March 27, 2002).                                                                                                                 
|        | 10 | .21*        |  | Form of Proxim, Inc. 1999 Nonstatutory Stock
    Option Plan Subscription Agreement (previously filed as an
    exhibit to the Registrants registration statement on
    Form S-8 filed with the SEC on March 27, 2002).                                                                                                           
|        | 10 | .22*        |  | WirelessHome Corporation 1998 Stock Option Plan
    (previously filed as an exhibit to the Registrants
    registration statement on Form S-8 filed with the SEC on
    September 19, 2002).                                                                                                                                       
|        | 10 | .23*        |  | Change of Control Severance Agreement entered
    into June 18, 1998 between Proxim, Inc. and David C. King
    (previously filed as an exhibit to Proxim, Inc.s annual
    report on Form 10-K filed with the SEC on March 31,
    1999).                                                                                         



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .24*        |  | Change of Control Severance Agreement entered
    into June 18, 1998 between Proxim, Inc. and Keith E. Glover
    (previously filed as an exhibit to Proxim, Inc.s annual
    report on Form 10-K filed with the SEC on March 31,
    1999).                                                   
|        | 10 | .25         |  | Sublease Agreement between Applied Materials,
    Inc. (sublandlord) and Proxim, Inc. (subtenant) dated
    March 30, 1999 (previously filed as an exhibit to Proxim,
    Inc.s quarterly report on Form 10-Q filed with the
    SEC on May 17, 1999).                                         
|        | 10 | .26*        |  | Reimbursement and Security Agreement between
    Proxim, Inc. and David C. King dated March 15, 2001
    (previously filed as an exhibit to Proxim, Inc.s quarterly
    report on Form 10-Q filed with the SEC on August 14,
    2001).                                                        
|        | 10 | .27         |  | Form of Proxim Corporation Indemnification
    Agreement for Officers and Directors (filed herewith).                                                                                                                                                                                           
|        | 10 | .28         |  | Intellectual Property Agreement, dated as of
    August 5, 2002, by and between Agere Systems, Inc. and the
    Registrant (previously field as an exhibit to the
    Registrants current report on Form 8-K filed with the
    SEC on August 19, 2002).                                       
|        | 10 | .29         |  | Patent License Agreement, dated as of
    August 5, 2002, by and among Agere Systems Guardian
    Corporation, Agere Systems, Inc. and the Registrant (previously
    field as an exhibit to the Registrants current report on
    Form 8-K filed with the SEC on August 19, 2002).            
|        | 10 | .30         |  | Supply Agreement, dated as of August 5,
    2002, by and between Agere Systems, Inc. and the Registrant
    (previously field as an exhibit to the Registrants current
    report on Form 8-K filed with the SEC on August 19,
    2002).                                                      
|        | 10 | .31*        |  | First Amendment to Employment Agreement, dated
    December 9, 2002, between the Registrant and David C. King
    (previously filed as an exhibit to the Registrants annual
    report on Form 10-K filed with the SEC on March 31,
    2003).                                                 
|        | 10 | .32         |  | Loan and Security Agreement, dated
    December 27, 2002, by and between Silicon Valley Bank and
    the Registrant (previously filed as an exhibit to the
    Registrants annual report on Form 10-K filed with the
    SEC on March 31, 2003).                                               
|        | 10 | .33         |  | Amendment to Loan Agreement, dated March 18,
    2003, by and between Silicon Valley Bank and the Registrant
    (previously filed as an exhibit to the Registrants annual
    report on Form 10-K filed with the SEC on March 31,
    2003).                                                  
|        | 10 | .34         |  | Second Amendment to Employment Agreement, dated
    June 9, 2003, by and between the Registrant and David C.
    King (previously filed as an exhibit to the Registrants
    quarterly report on Form 10-Q filed with the SEC on
    August 11, 2003).                                         
|        | 10 | .35         |  | Letter Agreement, dated as of June 13, 2003,
    by and between the Registrant and Silicon Valley Bank
    (previously filed as an exhibit to the Registrants current
    report on Form 8-K filed with the Securities and Exchange
    Commission on July 8, 2003).                           
|        | 10 | .36         |  | Accounts Receivable Financing Agreement, dated as
    of June 13, 2003, by and between Registrant and Silicon
    Valley Bank (previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on July 8, 2003).        
|        | 10 | .37         |  | Temporary Overadvance Agreement, dated as of
    June 23, 2003, by and between the Registrant and Silicon
    Valley Bank (previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on July 8, 2003).            
|        | 10 | .38*        |  | Employment Agreement, dated April 24, 2003,
    by and between the Registrant and Franco Plastina (previously
    filed as an exhibit to the Registrants quarterly report on
    Form 10-Q filed with the SEC on August 11, 2003).                                                             
|        | 10 | .39*        |  | Amendment to Employment Agreement, effective as
    of May 2, 2003, by and between the Registrant and Franco
    Plastina (filed herewith).                                                                                                                                                     
|        | 10 | .40*        |  | Employment Agreement, dated June 28, 2003
    and effective as of September 4, 2003, by and between the
    Registrant and David L. Thompson (previously filed as an exhibit
    to the Registrants quarterly report on Form 10-Q
    filed with the SEC on November 10, 2003).                
|        | 10 | .49*        |  | Separation and Release Letter Agreement, dated
    August 21, 2003 and effective as of June 5, 2003, by
    and between the Registrant and Jonathan N. Zakin (previously
    filed as an exhibit to the Registrants quarterly report on
    Form 10-Q filed with the SEC on November 10, 2003).



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .50*        |  | Separation Agreement and Release, dated
    September 1, 2003 and effective as of July 7, 2003, by
    and between the Registrant and David C. King (previously filed
    as an exhibit to the Registrants quarterly report on
    Form 10-Q filed with the SEC on November 10, 2003).                                                                                                                   
|        | 10 | .51         |  | Intercreditor Agreement, dated as of
    July 22, 2003, by and among the Registrant, Silicon Valley
    Bank and Warburg Pincus Private Equity VIII, L.P. as collateral
    agent for the Noteholders (as defined therein) (previously filed
    as an exhibit to the Registrants quarterly report on
    Form 10-Q filed with the SEC on November 10, 2003).                                            
|        | 10 | .52         |  | Amendment to Loan Documents, dated July 25,
    2003, between the Registrant and Silicon Valley Bank (previously
    filed as an exhibit to the Registrants quarterly report on
    Form 10-Q filed with the SEC on November 10, 2003).                                                                                                                                                                  
|        | 10 | .53         |  | Purchase Agreement, dated September 11,
    2003, between Jerry M. Baker and Sandy L. Baker, Co-Trustees of
    the Baker Family Revocable Living Trust, and the Registrant with
    respect to the property located at 305 Soquel Avenue in
    Sunnyvale, California (previously filed as an exhibit to the
    Registrants quarterly report on Form 10-Q filed with
    the SEC on November 10, 2003).
|        | 10 | .54         |  | Amended and Restated Intercreditor Agreement,
    dated as of October 21, 2003, by and among the Registrant,
    Silicon Valley Bank and Warburg Pincus Private Equity VIII, L.P.
    as collateral agent for the Noteholders (filed herewith).                                                                                                                                                           
|        | 10 | .55         |  | Amendment to Loan Documents, dated
    October 31, 2003, between the Registrant and Silicon Valley
    Bank (filed herewith).                                                                                                                                                                                                                                                                             
|        | 10 | .56*        |  | Proxim Corporation 2002 Nonstatutory Stock Option
    Merger Plan (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on December 5, 2003).                                                                                                                                                                                                 
|        | 10 | .57*        |  | Form of Proxim Corporation 2002 Nonstatutory
    Stock Option Merger Plan Option Agreement (previously filed as
    an exhibit to the Registrants registration statement on
    Form S-8 filed with the SEC on December 5, 2003).                                                                                                                                                                        
|        | 10 | .58*        |  | Proxim Corporation 2002 Nonstatutory Stock Option
    Acquisition Plan (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on December 5, 2003).                                                                                                                                                                                            
|        | 10 | .59*        |  | Form of Proxim Corporation 2002 Nonstatutory
    Stock Option Acquisition Plan Option Agreement (previously filed
    as an exhibit to the Registrants registration statement on
    Form S-8 filed with the SEC on December 5, 2003).                                                                                                                                                                   
|        | 10 | .60*        |  | 2003 Stand-Alone Stock Option Agreement for
    Franco Plastina (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on December 5, 2003).                                                                                                                                                                                                   
|        | 10 | .61*        |  | Proxim Corporation 1999 Incentive Stock Option
    Plan, as amended (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on February 17, 2004).                                                                                                                                                                                              
|        | 10 | .62*        |  | Form of Proxim Corporation 1999 Incentive Stock
    Option Plan Option Agreement (previously filed as an exhibit to
    the Registrants registration statement on Form S-8
    filed with the SEC on February 17, 2004).                                                                                                                                                                                 
|        | 10 | .63*        |  | Proxim Corporation Employee Stock Purchase Plan,
    as amended (previously filed as an exhibit to the
    Registrants registration statement on Form S-8 filed
    with the SEC on February 17, 2004).                                                                                                                                                                                                  
|        | 10 | .64*        |  | Proxim Corporation 2000 Stock Option Plan for
    Non-Employee Directors, as amended (formerly the Western
    Multiplex Corporation 2000 Stock Option Plan for Non-Employee
    Directors) (filed herewith).                                                                                                                                                                                             
|        | 21 |             |  | Subsidiaries of the Registrant (filed herewith).                                                                                                                                                                                                                                                                                                                                                          
|        | 23 | .1          |  | Consent of Independent Accountants (filed
    herewith).                                                                                                                                                                                                                                                                                                                                                  
|        | 24 |             |  | Power of Attorney (included on signature page of
    this annual report on Form 10-K).                                                                                                                                                                                                                                                                                                                    
|        | 31 | .1          |  | Section 302 Certification of Principal
    Executive Officer (filed herewith)                                                                                                                                                                                                                                                                                                                             
|        | 31 | .2          |  | Section 302 Certification of Principal
    Financial Officer (filed herewith)                                                                                                                                                                                                                                                                                                                             
|        | 32 | .1          |  | Section 906 Certification of Principal
    Executive Officer (filed herewith)                                                                                                                                                                                                                                                                                                                             
|        | 32 | .2          |  | Section 906 Certification of Principal
    Financial Officer (filed herewith)                                                                                                                                                                                                                                                                                                                             



---



|  |                                                             
|- | ------------------------------------------------------------
|* | Management contract or compensatory plan or
    arrangement.