##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q

|   |  |                                                                                              
|-- |  | ---------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
|  
|   |  | For the quarterly period ended
    September 26, 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

(formerly Western Multiplex
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)


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

The
number of shares outstanding of the Companys Class A
common stock, par value $.01 per share, as of November 5,
2003, was 122,700,096. No shares of the Companys
Class B common stock, par value $.01 per share, are
outstanding.



---






---

TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities and Use of Proceeds                                            
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.49                
|EXHIBIT 10.50                
|EXHIBIT 10.51                
|EXHIBIT 10.53                
|EXHIBIT 10.54                
|EXHIBIT 10.55                
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 
|EXHIBIT 32.2                 



---



##### Table of Contents



TABLE OF CONTENTS

|                             |  |                                                                                                                                                   |    |      |    | 
|---------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                             |  |                                                                                                                                                   |    | Page
|                             |  |                                                                                                                                                   |    |     
|PART I FINANCIAL INFORMATION
|Item 1                       |  | Financial Statements                                                                                                                              |    |      | 2  | 
|                             |  | Condensed Consolidated Balance Sheets at
    September 26, 2003 and December 31, 2002 (unaudited)                                                 |    |      | 2  | 
|                             |  | Condensed Consolidated Statements of Operations
    for the three and nine months ended September 26, 2003 and
    September 27, 2002 (unaudited) |    |      | 3  | 
|                             |  | Condensed Consolidated Statements of Cash Flows
    for the nine months ended September 26, 2003 and
    September 27, 2002 (unaudited)           |    |      | 4  | 
|                             |  | Notes to Condensed Consolidated Financial
    Statements (unaudited)                                                                              |    |      | 5  | 
|Item 2                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                         |    |      | 30 | 
|Item 3                       |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                                                    |    |      | 71 | 
|Item 4                       |  | Controls and Procedures                                                                                                                           |    |      | 71 | 
|PART II OTHER INFORMATION   
|Item 1                       |  | Legal Proceedings                                                                                                                                 |    |      | 72 | 
|Item 2                       |  | Changes in Securities and Use of Proceeds                                                                                                         |    |      | 74 | 
|Item 5                       |  | Other Information                                                                                                                                 |    |      | 75 | 
|Item 6                       |  | Exhibits and Reports on Form 8-K                                                                                                                  |    |      | 76 | 
|Signature                    |  |                                                                                                                                                   | 78 |     

1



---



##### Table of Contents






PART I. FINANCIAL
INFORMATION






|        |                     
|------- | --------------------
|Item 1. | Financial Statements

PROXIM CORPORATION




CONDENSED CONSOLIDATED BALANCE
SHEETS

|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ---------------------------------------------------------------------------------------------------------------- | -------- | ------------ | ------- | - | -------- | ------ | ------- | 
|                                                                                                                                                                                                        |                                    | September 26,                                                                                                    |          | December 31,
|                                                                                                                                                                                                        |                                    | 2003                                                                                                             |          | 2002        
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |             
|                                                                                                                                                                                                        |                                    |                                                                                                                 
|                                                                                                                                                                                                        |                                    | (In thousands, except share                                                                                     
|                                                                                                                                                                                                        |                                    | and per share data)                                                                                             
|                                                                                                                                                                                                        |                                    | (Unaudited)                                                                                                     
|ASSETS                                                                                                                                                                                                 
|Current assets:                                                                                                                                                                                         |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        | Cash and cash equivalents          |                                                                                                                  | $        | 12,512       |         |   | $        | 16,535 |        
|                                                                                                                                                                                                        | Short-term investments             |                                                                                                                  |          | 1,085        |         |   |          | 513    |        
|                                                                                                                                                                                                        | Accounts receivable, net           |                                                                                                                  |          | 17,409       |         |   |          | 30,535 |        
|                                                                                                                                                                                                        | Asset held for sale                |                                                                                                                  |          | 3,041        |         |   |          |       |        
|                                                                                                                                                                                                        | Inventory, net                     |                                                                                                                  |          | 24,937       |         |   |          | 36,799 |        
|                                                                                                                                                                                                        | Other current assets               |                                                                                                                  |          | 4,288        |         |   |          | 4,657  |        
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        |                                    | Total current assets                                                                                             |          |              | 63,272  |   |          |        | 89,039  | 
|Property and equipment, net                                                                                                                                                                             |                                    |                                                                                                                  | 7,828    |              |         |   | 10,110   |       
|Goodwill, net                                                                                                                                                                                           |                                    |                                                                                                                  | 9,726    |              |         |   | 9,726    |       
|Intangible assets, net                                                                                                                                                                                  |                                    |                                                                                                                  | 45,697   |              |         |   | 61,926   |       
|Restricted cash                                                                                                                                                                                         |                                    |                                                                                                                  | 1,990    |              |         |   | 2,489    |       
|Other assets                                                                                                                                                                                            |                                    |                                                                                                                  | 2,555    |              |         |   | 4,133    |       
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        |                                    | Total assets                                                                                                     |          | $            | 131,068 |   |          | $      | 177,423 | 
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|LIABILITIES, MANDATORILY REDEEMABLE
    CONVERTIBLE PREFERRED STOCK
    STOCKHOLDERS EQUITY (DEFICIT)                                                                                                 
|Current liabilities:                                                                                                                                                                                    |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        | Accounts payable                   |                                                                                                                  | $        | 17,848       |         |   | $        | 18,147 |        
|                                                                                                                                                                                                        | Capital lease obligations, current |                                                                                                                  |          | 1,060        |         |   |          |       |        
|                                                                                                                                                                                                        | Accrued royalties and interest     |                                                                                                                  |          | 25,819       |         |   |          |       |        
|                                                                                                                                                                                                        | Other accrued liabilities          |                                                                                                                  |          | 20,952       |         |   |          | 16,917 |        
|                                                                                                                                                                                                        | Convertible promissory note        |                                                                                                                  |          | 30,000       |         |   |          |       |        
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        |                                    | Total current liabilities                                                                                        |          |              | 95,679  |   |          |        | 35,064  | 
|Capital lease obligations, long-term                                                                                                                                                                    |                                    |                                                                                                                  | 1,075    |              |         |   |         |       
|Long-term debt                                                                                                                                                                                          |                                    |                                                                                                                  | 101      |              |         |   | 101      |       
|Restructuring accruals, long-term                                                                                                                                                                       |                                    |                                                                                                                  | 10,001   |              |         |   | 26,579   |       
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        |                                    | Total liabilities                                                                                                |          |              | 106,856 |   |          |        | 61,744  | 
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|Commitments and contingencies (Notes 13 and
    15)                                                                                                                                                     |                                    |                                                                                                                  |          |              |         |   |          |       
|Mandatorily redeemable convertible preferred
    stock: Series A, par value $.01; 3,000,000 shares
    authorized, issued and outstanding at September 26, 2003
    and December 31, 2002, respectively |                                    |                                                                                                                  | 71,258   |              |         |   | 64,412   |       
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|Stockholders equity (deficit):                                                                                                                                                                         |                                    |                                                                                                                  |          |              |         |   |          |       
|Common stock, Class A, par value $.01;
    authorized 200,000,000 shares: 122,173,376 and 162,328,944
    shares issued and outstanding at September 26, 2003 and
    December 31, 2002, respectively   |                                    |                                                                                                                  | 1,628    |              |         |   | 1,623    |       
|Common stock, Class B, par value $.01;
    authorized 100,000,000 shares: no shares issued and outstanding
    at September 26, 2003 and December 31, 2002,
    respectively                            |                                    |                                                                                                                  |         |              |         |   |         |       
|Additional paid-in capital                                                                                                                                                                              |                                    |                                                                                                                  | 334,441  |              |         |   | 335,830  |       
|Treasury stock, at cost; 42,185,534 shares at
    September 26, 2003 and December 31, 2002                                                                                                              |                                    |                                                                                                                  | (21,585  | )            |         |   | (21,585  | )     
|Notes receivable from stockholders                                                                                                                                                                      |                                    |                                                                                                                  | (711     | )            |         |   | (898     | )     
|Accumulated deficit                                                                                                                                                                                     |                                    |                                                                                                                  | (361,698 | )            |         |   | (264,010 | )     
|Accumulated other comprehensive income                                                                                                                                                                  |                                    |                                                                                                                  | 879      |              |         |   | 307      |       
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        |                                    | Total stockholders equity (deficit)                                                                             |          |              | (47,046 | ) |          |        | 51,267  | 
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       
|                                                                                                                                                                                                        |                                    | Total liabilities, mandatorily redeemable
    convertible preferred stock and stockholders equity
    (deficit) |          | $            | 131,068 |   |          | $      | 177,423 | 
|                                                                                                                                                                                                        |                                    |                                                                                                                  |          |              |         |   |          |       

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

2



---



##### Table of Contents



PROXIM CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |        |         | 
|------------------------------------------------------------------------------ | ------------------------------------------- | ------------------------------------- | ------- | ----------------- | ------ | ------------- | ------- | ------------- | ------ | - | ------- | ------ | ------- | - | -------- | ------ | ------- | 
|                                                                               |                                             |                                       |         |                  
|                                                                               |                                             | Three Months Ended                    |         | Nine Months Ended
|                                                                               |                                             |                                       |         |                  
|                                                                               |                                             | September 26,                         |         | September 27,     |        | September 26, |         | September 27,
|                                                                               |                                             | 2003                                  |         | 2002              |        | 2003          |         | 2002         
|                                                                               |                                             |                                       |         |                   |        |               |         |              
|                                                                               |                                             |                                      
|                                                                               |                                             | (In thousands, except per share data)
|                                                                               |                                             | (Unaudited)                          
|Product revenue                                                                |                                             | $                                     | 35,058  |                   |        | $             | 24,118  |               |        | $ | 103,892 |        |         | $ | 94,709   |       
|License revenue                                                                |                                             |                                       |        |                   |        |               |        |               |        |   | 6,000   |        |         |   |         |       
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|                                                                               |                                             | Total revenue                         |         |                   | 35,058 |               |         |               | 24,118 |   |         |        | 109,892 |   |          |        | 94,709  | 
|Cost of revenue                                                                |                                             |                                       | 22,041  |                   |        |               | 14,091  |               |        |   | 64,670  |        |         |   | 54,730   |       
|Royalty charges                                                                |                                             |                                       | 22,869  |                   |        |               |        |               |        |   | 22,869  |        |         |   |         |       
|Restructuring provision for excess and obsolete
    inventory                  |                                             |                                       |        |                   |        |               |        |               |        |   | 22,549  |        |         |   | 12,659   |       
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Gross profit (loss)                                                            |                                             |                                       | (9,852  | )                 |        |               | 10,027  |               |        |   | (196    | )      |         |   | 27,320   |       
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Operating expenses:                                                            |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|                                                                               | Research and development                    |                                       |         | 4,915             |        |               |         | 8,699         |        |   |         | 19,032 |         |   |          | 20,543 |        
|                                                                               | Selling, general and administrative         |                                       |         | 13,179            |        |               |         | 15,220        |        |   |         | 37,720 |         |   |          | 35,617 |        
|                                                                               | Legal expense for certain litigation        |                                       |         | 1,700             |        |               |         |              |        |   |         | 5,700  |         |   |          |       |        
|                                                                               | Amortization of intangible assets           |                                       |         | 5,364             |        |               |         | 4,606         |        |   |         | 16,229 |         |   |          | 6,959  |        
|                                                                               | Amortization of deferred stock compensation |                                       |         |                  |        |               |         | 316           |        |   |         |       |         |   |          | 741    |        
|                                                                               | Bad debt arising from restructuring         |                                       |         | 2,305             |        |               |         |              |        |   |         | 2,305  |         |   |          |       |        
|                                                                               | Restructuring charges (benefit)             |                                       |         | (5,194            | )      |               |         | 2,335         |        |   |         | 7,298  |         |   |          | 41,295 |        
|                                                                               | In-process research and development         |                                       |         |                  |        |               |         | 10,364        |        |   |         |       |         |   |          | 16,100 |        
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|                                                                               |                                             | Total operating expenses              |         |                   | 22,269 |               |         |               | 41,540 |   |         |        | 88,284  |   |          |        | 121,255 | 
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Loss from operations                                                           |                                             |                                       | (32,121 | )                 |        |               | (31,513 | )             |        |   | (88,480 | )      |         |   | (93,935  | )     
|Interest income (expense), net                                                 |                                             |                                       | (4,434  | )                 |        |               | (355    | )             |        |   | (4,527  | )      |         |   | 16       |       
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Loss before income taxes                                                       |                                             |                                       | (36,555 | )                 |        |               | (31,868 | )             |        |   | (93,007 | )      |         |   | (93,919  | )     
|Income tax provision                                                           |                                             |                                       |        |                   |        |               |        |               |        |   |        |        |         |   | 3,224    |       
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Net loss                                                                       |                                             |                                       | (36,555 | )                 |        |               | (31,868 | )             |        |   | (93,007 | )      |         |   | (97,143  | )     
|Deemed Series A preferred stock dividend                                       |                                             |                                       |        |                   |        |               | (2,740  | )             |        |   |        |        |         |   | (2,740   | )     
|Accretion of Series A Preferred Stock
    redemption obligations               |                                             |                                       | (1,596  | )                 |        |               | (476    | )             |        |   | (4,681  | )      |         |   | (476     | )     
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Net loss attributable to common stockholders                                   |                                             | $                                     | (38,151 | )                 |        | $             | (35,084 | )             |        | $ | (97,688 | )      |         | $ | (100,359 | )     
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Net loss per share attributable to common
    stockholders  basic and diluted |                                             | $                                     | (0.31   | )                 |        | $             | (0.29   | )             |        | $ | (0.81   | )      |         | $ | (1.00    | )     
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       
|Shares used to compute net loss per share 
    basic and diluted              |                                             |                                       | 121,985 |                   |        |               | 119,557 |               |        |   | 121,324 |        |         |   | 100,006  |       
|                                                                               |                                             |                                       |         |                   |        |               |         |               |        |   |         |        |         |   |          |       

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

3



---



##### Table of Contents



PROXIM CORPORATION






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |         |        |         |  
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ----------------------------------------- | ------------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                              |                                                                                                 |                                                                               
|                                                              |                                                                                                 | Nine Months Ended                                                             
|                                                              |                                                                                                 |                                                                               
|                                                              |                                                                                                 | September 26,                                                                  |                                           | September 27,
|                                                              |                                                                                                 | 2003                                                                           |                                           | 2002         
|                                                              |                                                                                                 |                                                                                |                                           |              
|                                                              |                                                                                                 |                                                                               
|                                                              |                                                                                                 | (In thousands)                                                                
|                                                              |                                                                                                 | (Unaudited)                                                                   
|Cash flows from operating activities:                         |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Net loss                                                                                        |                                                                                | $                                         | (93,007       | )      |         | $       | (97,143 | )     
|                                                              | Adjustments to reconcile net loss to net cash
    used in operating activities:                 |                                                                                |                                           |               |        |         |         |         |       
|                                                              |                                                                                                 | Deferred tax assets                                                            |                                           |               |       |         |         |         | 12,624 |        
|                                                              |                                                                                                 | Depreciation and amortization                                                  |                                           |               | 18,669 |         |         |         | 10,567 |        
|                                                              |                                                                                                 | Restructuring provision for excess and obsolete
    inventory                  |                                           |               | 22,549 |         |         |         | 12,659 |        
|                                                              |                                                                                                 | Bad debt arising from restructuring                                            |                                           |               | 2,305  |         |         |         |       |        
|                                                              |                                                                                                 | Restructuring charges (benefit)                                                |                                           |               | (2,668 | )       |         |         | 41,295 |        
|                                                              |                                                                                                 | In-process research and development                                            |                                           |               |       |         |         |         | 16,100 |        
|                                                              |                                                                                                 | Changes in assets and liabilities, net of effect
    of business combinations: |                                           |               |        |         |         |         |        |        
|Accounts receivable, net                                      |                                                                                                 |                                                                                | 10,821                                    |               |        |         | 7,790   |        
|Inventory, net                                                |                                                                                                 |                                                                                | (10,687                                   | )             |        |         | (25,690 | )      
|Restricted cash and other assets, current and
    non-current |                                                                                                 |                                                                                | 1,946                                     |               |        |         | (1,933  | )      
|Accounts payable and other accrued liabilities                |                                                                                                 |                                                                                | 535                                       |               |        |         | 6,891   |        
|Accrued royalties and interest                                |                                                                                                 |                                                                                | 25,819                                    |               |        |         |        |        
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              |                                                                                                 |                                                                                | Net cash used in operating activities     |               |        | (23,718 | )       |         |        | (16,840 | )
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|Cash flows from investing activities:                         |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Purchase of property and equipment                                                              |                                                                                |                                           | (2,873        | )      |         |         | (3,146  | )     
|                                                              | Purchase of an asset held for sale                                                              |                                                                                |                                           | (9,966        | )      |         |         |        |       
|                                                              | Proceeds from repayment of loan to officer                                                      |                                                                                |                                           | 500           |        |         |         |        |       
|                                                              | Sale of short-term investments                                                                  |                                                                                |                                           |              |        |         |         | 6,943   |       
|                                                              | Net cash used in business combinations                                                          |                                                                                |                                           |              |        |         |         | (50,577 | )     
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              |                                                                                                 |                                                                                | Net cash used in investing activities     |               |        | (12,339 | )       |         |        | (46,780 | )
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|Cash flows from financing activities:                         |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Borrowings on capital lease obligations                                                         |                                                                                |                                           | 1,605         |        |         |         |        |       
|                                                              | Principal payments on capital lease obligations                                                 |                                                                                |                                           | (539          | )      |         |         |        |       
|                                                              | Proceeds from repayments of notes receivable from
    stockholders                              |                                                                                |                                           | 187           |        |         |         | 20      |       
|                                                              | Proceeds from issuance of Series A preferred
    stock                                          |                                                                                |                                           |              |        |         |         | 41,000  |       
|                                                              | Proceeds from issuance of convertible promissory
    note                                       |                                                                                |                                           | 30,000        |        |         |         | 34,000  |       
|                                                              | Issuance of common stock, net                                                                   |                                                                                |                                           | 781           |        |         |         | 919     |       
|                                                              | Purchase of treasury stock                                                                      |                                                                                |                                           |              |        |         |         | (618    | )     
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              |                                                                                                 |                                                                                | Net cash provided by financing activities |               |        | 32,034  |         |         |        | 75,321  |  
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|Net increase (decrease) in cash and cash
    equivalents      |                                                                                                 |                                                                                | (4,023                                    | )             |        |         | 11,701  |        
|Cash and cash equivalents at beginning of period              |                                                                                                 |                                                                                | 16,535                                    |               |        |         | 16,552  |        
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|Cash and cash equivalents at end of period                    |                                                                                                 | $                                                                              | 12,512                                    |               |        | $       | 28,253  |        
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|Supplemental disclosures:                                     |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Income taxes refund received                                                                    |                                                                                | $                                         | 1,655         |        |         | $       | 7,938   |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Interest payments on capital lease obligations                                                  |                                                                                | $                                         | 51            |        |         | $       |        |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|Non-cash transactions:                                        |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Properties and equipment acquired under capital
    leases                                      |                                                                                | $                                         | 1,069         |        |         | $       |        |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Issuance of common stock and stock options
    assumed in connection with business combinations |                                                                                | $                                         |              |        |         | $       | 159,039 |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Restructuring charges                                                                           |                                                                                | $                                         |              |        |         | $       | 10,136  |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Accretion of Series A Preferred Stock
    redemption obligations                                |                                                                                | $                                         | 6,846         |        |         | $       | 834     |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Warrants issued in connection with Series A
    preferred stock                                 |                                                                                | $                                         |              |        |         | $       | 12,345  |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        
|                                                              | Deemed preferred stock dividend                                                                 |                                                                                | $                                         |              |        |         | $       | 2,740   |       
|                                                              |                                                                                                 |                                                                                |                                           |               |        |         |         |        

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

4



---



##### Table of Contents



PROXIM CORPORATION






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


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

Agreement to Sell Property.On September 12, 2003, the
Company completed its purchase of a property it had previously
been leasing in Sunnyvale, California and terminated the lease
(see Note 14). 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 approximately $3.5 million, which sale is scheduled to
close on or before December 30, 2003. The purchasers
obligation to purchase the property is conditioned upon its
approval of the condition of the property, title, survey and
zoning and purchasers satisfaction of its ability to
finance the property. 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.

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 if the Company
calls an additional borrowing of $5 million from the
Investors prior to its special meeting of stockholders. 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;

5



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | any date upon which a holder of an Amended 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 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 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.

Upon receipt of stockholder approval, the Company
will issue to the Investors warrants to purchase an aggregate of
18 million shares of Class A common stock with an
exercise price of $1.46, as previously agreed, and warrants to
purchase 6 million shares of Class A common stock
having an exercise price equal to $1.53 per share (collectively,
the Warrants). Assuming exchange of $30 million
in aggregate principal amount of the Amended Notes, together
with accrued interest, on September 30, 2004, the shares of
Series B Preferred Stock to be issued upon exchange of the
Amended Notes and the Warrants would be expected to represent
approximately 14.3% and 10.1%, respectively, of the
Companys outstanding capital stock on an as-converted and
as-exercised basis, based on shares outstanding as of
October 9, 2003 and excluding outstanding employee options
and warrants to purchase approximately 31.7 million shares
of common stock. Prior to this transaction and excluding the
effects of the Investors initial $30 million
financing on July 30, 2003, the Companys
Series A mandatorily redeemable convertible preferred stock
(Series A Preferred Stock) and warrants
currently held by the Investors (the Existing
Warrants) represented approximately 16.7% and 7.6%,
respectively, of the Companys outstanding capital stock on
an as-converted and as-exercised basis, based on shares
outstanding as of October 9, 2003 and excluding employee
options and warrants to purchase approximately 31.7 million
shares of common stock. Assuming the issuance of the
Series B Preferred Stock upon exchange of the Amended Notes
on September 30, 2004 and the issuance of the Warrants, the
Series A Preferred Stock and the Existing Warrants would be
expected to represent an aggregate of approximately 17.1% and
7.2%, respectively, of the Companys outstanding capital
stock on an as-converted and as-exercised basis, based on shares
outstanding as of October 9, 2003 and excluding employee
options and warrants, and as adjusted to account for
anti-dilution adjustments in connection with the issuance of the
Amended Notes.

The Investors have also agreed to make available
to the Company an 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. Of this amount, the Investors have agreed to
permit the Company to call an investment of $5 million
prior to stockholder approval and the balance for up to
90 days following stockholder

6



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approval at the special meeting, provided in each
case that no event of default has occurred. If the Company calls
an investment of $5 million prior to stockholder approval,
the interest rate on all outstanding indebtedness to the
Investors will increase by 5% until such time as stockholder
approval is obtained. The interest rate on all outstanding
indebtedness also increases by 5% upon the occurrence of an
event of default under the Amended Notes or New Notes, or
otherwise from and after the maturity date. Additional
information regarding the Amended Agreement, the Amended Notes,
Series B Preferred Stock and the Warrants is set forth in
the Companys Current Report on Form 8-K, including
the exhibits thereto, filed with the Securities and Exchange
Commission on October 27, 2003.

The Company will hold a special meeting of
stockholders to approve the Investors right to exchange
the Amended Notes for Series B Preferred Stock and the
issuance of the Warrants on December 12, 2003. In the event
that the Companys stockholders do not approve the exchange
of the Amended Notes and the issuance of the Warrants, an event
of default or change of control occurs, or 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 14 for
further description of the amended credit facility.

Litigation with Symbol.On September 15, 2003, Company
announced that a jury had rendered a verdict in the first phase
of the patent infringement suit with Symbol. The jury found that
certain of the Companys products infringe 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
royalties payable of $22.9 million and $2.9 million
for interest during the third quarter of 2003. Proceedings will
continue with the court to conduct a bench trial on the
Companys remaining equitable defenses not addressed by the
jury. 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. 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 related to the amount already
recorded.



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

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 vigorously defend
itself in Symbols suit against the Company and the
Companys suit and related counterclaims against Symbol 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
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

7



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 and to prevent
the Company from calling an additional $10 million
investment. 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 nine months ended
September 26, 2003 and the years ended December 31,
2002 and 2001, and has an accumulated deficit of
$361.7 million as of September 26, 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 unaudited condensed consolidated
financial statements do not include any adjustments that might
result from this uncertainty.

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. In
connection with the Companys acquisition of Ageres
802.11 WLAN systems business, the Company entered into a
three-year strategic supply agreement with Agere, pursuant to
which Agere will provide the Company with 802.11 chips, modules
and cards. Other than this agreement, the Company does not have
any long-term arrangements with any other 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 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 unaudited financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim
financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. The
condensed consolidated balance sheet as of September 26,
2003, the condensed consolidated statements of operations for
the three and nine months ended September 26, 2003 and
September 27, 2002 and the condensed consolidated
statements of cash flows for the nine months ended
September 26, 2003 and September 27, 2002, are
unaudited, but include all adjustments (consisting of normal
recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position, operating results
and cash flows for the periods presented.

8



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

The balance sheet at December 31, 2002 has
been derived from Proxim Corporations audited consolidated
financial statements as of that date. Certain information and
footnote information normally included in financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or
omitted pursuant to the rules and regulations of the Securities
and Exchange Commission. Results for any interim period are not
necessarily indicative of results for any future interim period
or for the entire year. The accompanying condensed consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2002.



| |                            
| | ---------------------------
| | Principles of Consolidation

The condensed consolidated financial statements
include the financial statements of Proxim Corporation and all
of its subsidiaries. The financial condition and results of
operations for the three and nine months ended
September 26, 2003 and September 27, 2002 include the
results of acquired subsidiaries from their effective dates. All
significant intercompany transactions and balances are
eliminated in consolidation.

Note 2  Recent Accounting
Pronouncements

In July 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (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 November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it
assumes under that guarantee and further requires a guarantor to
provide additional disclosures regarding guarantees. The
Interpretations provisions for initial recognition and
measurement should be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements
of periods that end after December 15, 2002. The Company
adopted FIN 45 in the quarter ended December 31, 2002
and the adoption of the disclosure provisions within this
Interpretation did not have a material effect on the
Companys consolidated financial statements.

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

9



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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.

Note 3  Recent Significant
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 11) 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 $1.7 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 24%
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.

10



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED 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.

11



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED 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



| |                         
| | ------------------------
| | 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 |  
|                                             |  |   |         |  

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.

12



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



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

The following table represents unaudited pro
forma financial information for the nine months ended
September 27, 2002 had Proxim Corporation, Proxim, Inc.,
nBand and the 802.11 WLAN systems business of Agere been
combined as of January 1, 2002. 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, Proxim,
Inc., nBand and the 802.11 WLAN systems business of Agere been a
combined company during the specified period. The pro forma
results include the effects of the amortization of identifiable
intangible assets and adjustments to the income tax provision or
benefits and accretion of Preferred Stock redemption
obligations. The pro forma combined results 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 (in
thousands except per share data):

|                                                                             |  |                    |          |  
|---------------------------------------------------------------------------- |  | ------------------ | -------- | -
|                                                                             |  | Nine Months Ended 
|                                                                             |  | September 27, 2002
|                                                                             |  |                   
|Total revenue                                                                |  | $                  | 156,102  |  
|Net loss attributable to common stockholders                                 |  | $                  | (117,907 | )
|Basic and diluted net loss per share attributable
    to common stockholders |  | $                  | (1.08    | )
|                                                                             |  |                    |          |  
|Shares used to compute basic and diluted net loss
    per share              |  |                    | 109,162  |  
|                                                                             |  |                    |          |  

13



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The Company paid cash of $50,577,000 in
connection with its business combinations with Proxim, Inc.,
nBand and the 802.11 wireless LAN systems business of Agere in
the nine months ended September 27, 2002, described below
(in thousands):

|                                       |  |                    |          |  
|-------------------------------------- |  | ------------------ | -------- | -
|                                       |  | Nine Months Ended 
|                                       |  | September 27, 2002
|                                       |  |                   
|Purchase price                         |  | $                  | 246,454  |  
|Common stock issued                    |  |                    | (159,039 | )
|Accrued transactions costs             |  |                    | (877     | )
|                                       |  |                    |          |  
|Cash paid                              |  |                    | 86,538   |  
|Less: cash acquired                    |  |                    | (35,961  | )
|                                       |  |                    |          |  
|Net cash used in business combinations |  | $                  | 50,577   |  
|                                       |  |                    |          |  



| |                                         
| | ----------------------------------------
| | Goodwill and Other Intangible
    Assets

In December 2002, due to the recent significant
decline in forecasted revenue and the cash flows therefrom, the
Company made a complete assessment of the carrying value of all
long-lived assets, goodwill, and other intangible assets in
accordance 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 goodwill 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.

Goodwill, net of impairment charge and
accumulated amortization, consist of the following as of
September 26, 2003 and December 31, 2002 (in
thousands):

|               |                              |                                  |   |          |         | 
|-------------- | ---------------------------- | -------------------------------- | - | -------- | ------- | 
|               |                              | Amount                          
|               |                              |                                 
|Goodwill, net: |                              |                                  |   |         
|               | GTI                          |                                  | $ | 17,126   |        
|               | WirelessHome                 |                                  |   | 18,775   |        
|               | Proxim, Inc.                 |                                  |   | 79,847   |        
|               | 802.11 WLAN systems business |                                  |   | 23,086   |        
|               |                              |                                  |   |         
|               |                              | Total goodwill before impairment |   |          | 138,834 | 
|               | Less: impairment charge      |                                  |   | (129,108 | )      
|               |                              |                                  |   |         
|               |                              | Goodwill, net                    |   | $        | 9,726   | 
|               |                              |                                  |   |         

14



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                 |                              |               |   |              |  |  |   |        | 
|-------------------------------- | ---------------------------- | ------------- | - | ------------ |  |  | - | ------ | 
|                                 |                              | September 26, |   | December 31,
|                                 |                              | 2003          |   | 2002        
|                                 |                              |               |   |             
|Acquired intangible assets, net: |                              |               |   |              |  |  |   |       
|                                 | WirelessHome and other       |               | $ |             |  |  | $ | 136    | 
|                                 | Proxim, Inc.                 |               |   | 20,875       |  |  |   | 27,068 | 
|                                 | 802.11 WLAN systems business |               |   | 24,822       |  |  |   | 34,722 | 
|                                 |                              |               |   |              |  |  |   |       
|                                 | Intangible assets, net       |               | $ | 45,697       |  |  | $ | 61,926 | 
|                                 |                              |               |   |              |  |  |   |       

Acquired intangible assets by categories as of
September 26, 2003 consist of the following (in thousands):

|                               |                        |                |   |              |  |  |   |        | 
|------------------------------ | ---------------------- | -------------- | - | ------------ |  |  | - | ------ | 
|                               |                        | Gross Carrying |   | Accumulated 
|                               |                        | Amounts        |   | Amortization
|                               |                        |                |   |             
|Amortized intangible assets:   |                        |                |   |              |  |  |   |       
|                               | Core Technology        |                | $ | 26,531       |  |  | $ | 7,392  | 
|                               | Developed Technology   |                |   | 29,036       |  |  |   | 16,052 | 
|                               | Customer Relationships |                |   | 8,995        |  |  |   | 3,498  | 
|                               | Patents                |                |   | 3,439        |  |  |   | 1,271  | 
|                               |                        |                |   |              |  |  |   |       
|                               | Total                  |                | $ | 68,001       |  |  | $ | 28,213 | 
|                               |                        |                |   |              |  |  |   |       
|Unamortized intangible assets: |                        |                |   |              |  |  |   |       
|                               | Tradename              |                | $ | 5,909        |  |  |   |        | 
|                               |                        |                |   |              |  |  |   |       



| |                                                  
| | -------------------------------------------------
| | Purchased In-Process Research and
    Development

Purchased in-process research and development
consisted primarily of technology acquired in the business
combinations 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
the Proxim, Inc. merger. The following table summarizes the key
assumptions underlying the valuation for the Companys
purchase transactions completed in 2002 (in thousands):

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

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
expects that products incorporating the acquired technology will
be completed and begin to generate cash flows in 2003. Actual

15



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 4  Balance Sheet
Components

|                          |                                                                  |                |        |              |   |   |        |         |  
|------------------------- | ---------------------------------------------------------------- | -------------- | ------ | ------------ | - | - | ------ | ------- | -
|                          |                                                                  | September 26,  |        | December 31,
|                          |                                                                  | 2003           |        | 2002        
|                          |                                                                  |                |        |             
|                          |                                                                  |               
|                          |                                                                  | (In thousands)
|Investments:              |                                                                  |                |        |              |   |   |        |        
|                          | Corporate bonds and time deposits                                |                | $      | 1,990        |   |   | $      | 2,489   |  
|                          | Equity investment in a wireless company listed in
    Canada     |                |        | 1,085        |   |   |        | 513     |  
|                          |                                                                  |                |        |              |   |   |        |        
|                          |                                                                  |                | 3,075  |              |   |   | 3,002  |        
|                          | Less: long-term, restricted portion                              |                |        | (1,990       | ) |   |        | (2,489  | )
|                          |                                                                  |                |        |              |   |   |        |        
|                          | Current portion                                                  |                | $      | 1,085        |   |   | $      | 513     |  
|                          |                                                                  |                |        |              |   |   |        |        
|Accounts receivable, net: |                                                                  |                |        |              |   |   |        |        
|                          | Gross accounts receivable                                        |                | $      | 43,055       |   |   | $      | 52,750  |  
|                          | Less: deferred revenue                                           |                |        | (14,737      | ) |   |        | (14,715 | )
|                          | Allowances for bad debts, sales returns and price
    protection |                |        | (10,909      | ) |   |        | (7,500  | )
|                          |                                                                  |                |        |              |   |   |        |        
|                          |                                                                  | $              | 17,409 |              |   | $ | 30,535 |        
|                          |                                                                  |                |        |              |   |   |        |        
|Inventory, net:           |                                                                  |                |        |              |   |   |        |        
|                          | Raw materials                                                    |                | $      | 10,495       |   |   | $      | 37,472  |  
|                          | Work-in-process                                                  |                |        | 2,848        |   |   |        | 5,820   |  
|                          | Finished goods                                                   |                |        | 13,224       |   |   |        | 17,523  |  
|                          | Consignment inventories                                          |                |        | 9,432        |   |   |        | 8,829   |  
|                          |                                                                  |                |        |              |   |   |        |        
|                          |                                                                  |                | 35,999 |              |   |   | 69,644 |        
|                          | Less: reserve for excess and obsolete inventory                  |                |        | (11,062      | ) |   |        | (32,845 | )
|                          |                                                                  |                |        |              |   |   |        |        
|                          |                                                                  | $              | 24,937 |              |   | $ | 36,799 |        
|                          |                                                                  |                |        |              |   |   |        |        

16



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                             |                                                 |                |        |              |   |   |        |          |  
|---------------------------- | ----------------------------------------------- | -------------- | ------ | ------------ | - | - | ------ | -------- | -
|                             |                                                 | September 26,  |        | December 31,
|                             |                                                 | 2003           |        | 2002        
|                             |                                                 |                |        |             
|                             |                                                 |               
|                             |                                                 | (In thousands)
|Property and equipment, net: |                                                 |                |        |              |   |   |        |         
|                             | Computer and test equipment                     |                | $      | 11,397       |   |   | $      | 18,102   |  
|                             | Furniture and fixtures                          |                |        | 184          |   |   |        | 890      |  
|                             | Leased assets                                   |                |        | 2,674        |   |   |        |         |  
|                             | Leasehold improvements                          |                |        | 438          |   |   |        | 265      |  
|                             |                                                 |                |        |              |   |   |        |         
|                             |                                                 |                | 14,693 |              |   |   | 19,257 |         
|                             | Less: accumulated depreciation and amortization |                |        | (6,865       | ) |   |        | (9,147   | )
|                             |                                                 |                |        |              |   |   |        |         
|                             |                                                 | $              | 7,828  |              |   | $ | 10,110 |         
|                             |                                                 |                |        |              |   |   |        |         
|Goodwill, net:               |                                                 |                |        |              |   |   |        |         
|                             | Goodwill                                        |                | $      | 148,433      |   |   | $      | 148,433  |  
|                             | Less: impairment charge                         |                |        | (129,108     | ) |   |        | (129,108 | )
|                             | Accumulated amortization                        |                |        | (9,599       | ) |   |        | (9,599   | )
|                             |                                                 |                |        |              |   |   |        |         
|                             |                                                 | $              | 9,726  |              |   | $ | 9,726  |         
|                             |                                                 |                |        |              |   |   |        |         
|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                  |                |        | (28,213      | ) |   |        | (11,984  | )
|                             |                                                 |                |        |              |   |   |        |         
|                             |                                                 | $              | 45,697 |              |   | $ | 61,926 |         
|                             |                                                 |                |        |              |   |   |        |         
|Other accrued liabilities:   |                                                 |                |        |              |   |   |        |         
|                             | Restructuring accruals, current portion         |                | $      | 7,951        |   |   | $      | 3,871    |  
|                             | Accrued unconditional project commitments       |                |        | 2,432        |   |   |        | 1,509    |  
|                             | Accrued compensation                            |                |        | 3,344        |   |   |        | 3,921    |  
|                             | Accrued warranty costs                          |                |        | 1,660        |   |   |        | 2,041    |  
|                             | Other                                           |                |        | 5,565        |   |   |        | 5,575    |  
|                             |                                                 |                |        |              |   |   |        |         
|                             |                                                 | $              | 20,952 |              |   | $ | 16,917 |         
|                             |                                                 |                |        |              |   |   |        |         

17



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of the movements in
allowance for bad debt, sales returns and price protection and
product warranty costs during the nine months ended
September 26, 2003 (in thousands):

|                                   |  |                         |        |          |  |   |       |  
|---------------------------------- |  | ----------------------- | ------ | -------- |  | - | ----- | -
|                                   |  | Allowance for Bad Debt, |        | Product 
|                                   |  | Sales Returns and       |        | Warranty
|                                   |  | Price Protection        |        | Costs   
|                                   |  |                         |        |         
|Balance as of December 31, 2002    |  | $                       | 7,500  |          |  | $ | 2,041 |  
|Additional provision               |  |                         | 6,031  |          |  |   | 132   |  
|Settlements made during the period |  |                         | (2,622 | )        |  |   | (513  | )
|                                   |  |                         |        |          |  |   |       |  
|Balance as of September 26, 2003   |  | $                       | 10,909 |          |  | $ | 1,660 |  
|                                   |  |                         |        |          |  |   |       |  

Note 5  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):

|             |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |        | 
|------------ | ------------- | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  | - | ------ | ------- |  | - | ------ | ------ | 
|             |               |                    |        |                  
|             |               | Three Months Ended |        | Nine Months Ended
|             |               |                    |        |                  
|             |               | September 26,      |        | September 27,     |  | September 26, |        | September 27,
|Product Line |               | 2003               |        | 2002              |  | 2003          |        | 2002         
|             |               |                    |        |                   |  |               |        |              
|WWAN         |               | $                  | 17,324 |                   |  | $             | 4,193  |               |  | $ | 52,736 |         |  | $ | 57,643 |       
|WLAN         |               |                    | 17,734 |                   |  |               | 19,925 |               |  |   | 57,156 |         |  |   | 37,066 |       
|             |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       
|             | Total revenue |                    | $      | 35,058            |  |               | $      | 24,118        |  |   | $      | 109,892 |  |   | $      | 94,709 | 
|             |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       

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 are primarily export sales denominated in United States
dollars. Disaggregated financial information regarding the
Companys revenue by geographic region is as follows (in
thousands):

|                  |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |        | 
|----------------- | ------------- | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  | - | ------ | ------- |  | - | ------ | ------ | 
|                  |               |                    |        |                  
|                  |               | Three Months Ended |        | Nine Months Ended
|                  |               |                    |        |                  
|                  |               | September 26,      |        | September 27,     |  | September 26, |        | September 27,
|Geographic Region |               | 2003               |        | 2002              |  | 2003          |        | 2002         
|                  |               |                    |        |                   |  |               |        |              
|North America     |               | $                  | 21,464 |                   |  | $             | 16,744 |               |  | $ | 64,939 |         |  | $ | 56,691 |       
|International     |               |                    | 13,594 |                   |  |               | 7,374  |               |  |   | 44,953 |         |  |   | 38,018 |       
|                  |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       
|                  | Total revenue |                    | $      | 35,058            |  |               | $      | 24,118        |  |   | $      | 109,892 |  |   | $      | 94,709 | 
|                  |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       

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, the Company 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 have 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 Company included the
license revenue of $6.0 million in the WLAN product line
and the North America geographic region in the above analysis.
The Company recognizes license revenue when persuasive evidence
of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and the collection of the related

18



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

receivable is reasonable assured. Additionally,
the Company recorded a charge of $3.0 million in the first
quarter of 2003 for legal fees and other litigation-related
expenses associated with this settlement and the defense of the
Companys intellectual property.

Two customers accounted for 16.6% and 13.2% of
total revenue for the three months ended September 26,
2003, and one customer accounted for 14.9% of total revenue for
the three months September 27, 2002. One customer accounted
for 13.9% and 21.2% of total revenue for the nine months ended
September 26, 2003 and September 27, 2002,
respectively.

Note 6  Restructuring
Provision for Excess and Obsolete Inventory

During the quarter ended June 27, 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 had 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 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 nine months ended
September 26, 2003 (in thousands):

|                                            |  |   |         |  
|------------------------------------------- |  | - | ------- | -
|Balance as of December 31, 2002             |  | $ | 32,845  |  
|Provision for excess and obsolete inventory |  |   | 22,549  |  
|Inventory scrapped                          |  |   | (44,332 | )
|                                            |  |   |         |  
|Balance as of September 26, 2003            |  | $ | 11,062  |  
|                                            |  |   |         |  

Note 7  Restructuring Charges
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

19



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 the
closure of certain facilities and severance pay. The charges
included $40.8 million of cash provisions, including
severance of $7.4 million for 194 employees,
$33.1 million for future lease commitments, net of
estimated future sublease receipts, exit costs related to the
closure of four facilities, and consulting fees of
$0.3 million. The charges also included $2.4 million
of non-cash provisions related to property and equipment 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.

During the nine months ended September 26,
2003, the Company recorded restructuring charges of
$7.3 million, consisting of $23.8 million of cash
provisions and $3.3 million of non-cash provisions for
abandoned property and equipment, partially offset by a
$19.8 million net reversal of restructuring accruals
related to an abandoned building in Sunnyvale, California (see
Notes 1 and 14). The $23.8 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, $8.1 million of severance
payments for 110 employees, $0.6 million of consulting
fees, and $2.4 million of project commitments. The
$19.8 million net reversal of restructuring accruals
represented the reversal of $26.7 million of restructuring
accruals, partially offset by the write-down of fair value of an
asset held for sale of $6.9 million.

The following table summarizes the restructuring
activities in 2002 and the nine months ended September 26,
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           |  |           | 8,080  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 31,652  |  
|Reversal of previously recorded provision |  |           |       |            |  |            | (26,754 | )     |  |       |       |   |  |   |       |   |  |   | (26,754 | )
|Non-cash charges utilized                 |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                             |  |           | (4,448 | )          |  |            | (2,719  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (17,133 | )
|                                          |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of September 26, 2003          |  | $         | 3,632  |            |  | $          | 13,720  |       |  | $     | (3,041 | ) |  | $ | 600    |   |  | $ | 14,911  |  
|                                          |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  

20



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                           |           |               |        |               |  |   |        |        | 
|-------------------------- | --------- | ------------- | ------ | ------------- |  | - | ------ | ------ | 
|                           |           | September 26, |        | September 27,
|                           |           | 2003          |        | 2003         
|                           |           |               |        |              
|Asset held for sale        |           | $             | (3,041 | )             |  | $ |       |       
|Restructuring accruals     |           |               |        |               |  |   |        |       
|                           | Current   |               |        | 7,951         |  |   |        | 3,871  | 
|                           | Long-term |               |        | 10,001        |  |   |        | 26,579 | 
|                           |           |               |        |               |  |   |        |       
|Net restructuring accruals |           | $             | 14,911 |               |  | $ | 30,450 |       
|                           |           |               |        |               |  |   |        |       

Note 8  Income Taxes

The income tax provision for the nine months
ended September 27, 2002 is primarily due to establishing a
valuation allowance to offset deferred tax assets brought
forward from December 31, 2001. The Company was 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 the Company generating taxable income in the
future. As a result of the operating losses incurred in recent
periods, the Company has determined that it is more likely than
not that these deferred tax assets will not be realized.
Accordingly, the Company has 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.

Note 9  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. Basic
net loss per share under SFAS No. 128 was computed using
the weighted average number of shares outstanding of 121,985,000
and 119,557,000 for the three months ended September 26,
2003 and September 27, 2002, respectively, and weighted
average number of shares outstanding of 121,324,000 and
100,006,000 for the nine months ended September 26, 2003
and September 27, 2002, respectively. Diluted net loss per
share is determined in the same manner as basic earnings per
share except that the number of shares is increased assuming
dilutive stock options and warrants using the treasury stock
method. For the three and nine months ended September 26,
2003 and September 27, 2002, 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.

Note 10  Comprehensive
Loss

The total comprehensive loss for the nine months
periods ended September 26, 2003 and September 27,
2002 are as follows (in thousands):

|                                             |                          |                    |         |                   |   |               |         |               |   |   |         |         |   |   |          |          |  
|-------------------------------------------- | ------------------------ | ------------------ | ------- | ----------------- | - | ------------- | ------- | ------------- | - | - | ------- | ------- | - | - | -------- | -------- | -
|                                             |                          |                    |         |                  
|                                             |                          | Three Months Ended |         | Nine Months Ended
|                                             |                          |                    |         |                  
|                                             |                          | September 26,      |         | September 27,     |   | September 26, |         | September 27,
|                                             |                          | 2003               |         | 2002              |   | 2003          |         | 2002         
|                                             |                          |                    |         |                   |   |               |         |              
|Net loss attributable to common stockholders |                          | $                  | (38,151 | )                 |   | $             | (35,084 | )             |   | $ | (97,688 | )       |   | $ | (100,359 | )       
|Unrealized gain (loss) on investments        |                          |                    | 168     |                   |   |               | 57      |               |   |   | 572     |         |   |   | 229      |         
|                                             |                          |                    |         |                   |   |               |         |               |   |   |         |         |   |   |          |         
|                                             | Total comprehensive loss |                    | $       | (37,983           | ) |               | $       | (35,027       | ) |   | $       | (97,116 | ) |   | $        | (100,130 | )
|                                             |                          |                    |         |                   |   |               |         |               |   |   |         |         |   |   |          |         

21



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 11  Mandatorily
Redeemable Convertible Series A Preferred Stock

Mandatorily Redeemable Convertible Series A
Preferred Stock, or Series A Preferred Stock, at
September 26, 2003 consists of the following:

|         |  |            |           |             |  |             |           |                 |  |   |            |  |  |  |            | 
|-------- |  | ---------- | --------- | ----------- |  | ----------- | --------- | --------------- |  | - | ---------- |  |  |  | ---------- | 
|         |  |            |           |             |  |             |           | Total Number of
|         |  |            |           |             |  |             |           | Shares of      
|         |  |            |           |             |  |             |           | Common Stock   
|         |  |            |           |             |  | Liquidation |           | Issuable Upon  
|         |  | Authorized |           | Outstanding |  | Preference  |           | Conversion     
|         |  |            |           |             |  |             |           |                
|Series A |  |            | 3,000,000 |             |  |             | 3,000,000 |                 |  | $ | 81,120,000 |  |  |  | 26,545,371 | 
|         |  |            |           |             |  |             |           |                 |  |   |            |  |  |  |            | 

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 $75.0 million in the Company. These
investors received 1,640,000 shares of Series A
Preferred Stock 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 our Common
Stock valued at approximately $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 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 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 approximately $1.7 million. The value of the
warrants was recorded as a reduction of the Preferred Stock
carrying value and recorded as additional paid-in capital. In
total, the investors were granted warrants to acquire
12,271,345 shares of Common Stock for approximately $3.06
per share value at approximately $14.0 million. The
Series A Preferred Stock and warrants issued to the
investors represented approximately 24% of the Companys
outstanding Common Stock on an as-converted and as-exercised
basis as of October 22, 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 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              |  |             |        |           |  |            | 6,846   |             |  |   | (2,165 | ) |  |   | (4,681 | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |        |  
|Balance as of September 26, 2003                                     |  | $           |        |           |  | $          | 71,258  |             |  | $ | 13,522 |   |  | $ | (9,311 | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |        |  

22



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 12  Stockholders
Equity



| |                          
| | -------------------------
| | Warrants for Common Stock

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-year term of the commercial arrangement
with Motorola with periodic charges against revenue effective
beginning in the quarter ending December 31, 2003.



| |                                                               
| | --------------------------------------------------------------
| | 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 the nine months
ended September 26, 2003 and September 27, 2002 was
$1.12 and $1.59 per share, respectively. The weighted average
estimated grant date fair value of stock purchase rights granted
pursuant to its employee stock purchase plan during the nine
months ended September 26, 2003 and September 27, 2002
was $0.75 and $1.85 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.

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 loss attributable
to common stockholders and net loss per share attributable to
common stockholders would have been (in thousands, except per
share data):

|                                                                              |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|----------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ------------- | ------- | ------------- |  | - | -------- | - |  | - | -------- | -
|                                                                              |  |                    |         |                  
|                                                                              |  | Three Months Ended |         | Nine Months Ended
|                                                                              |  |                    |         |                  
|                                                                              |  | September 26,      |         | September 27,     |  | September 26, |         | September 27,
|                                                                              |  | 2003               |         | 2002              |  | 2003          |         | 2002         
|                                                                              |  |                    |         |                   |  |               |         |              
|Net loss attributed to common stockholders as
    reported                    |  | $                  | (38,151 | )                 |  | $             | (35,084 | )             |  | $ | (97,688  | ) |  | $ | (100,359 | )
|Add: Stock-based compensation expense included in
    reported net loss       |  |                    |        |                   |  |               | 316     |               |  |   |         |   |  |   | 741      |  
|Less: Stock-based compensation expense determined
    under fair value method |  |                    | (1,057  | )                 |  |               | (6,572  | )             |  |   | (6,770   | ) |  |   | (23,894  | )
|                                                                              |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|Pro forma net loss attributed to common
    stockholders                      |  | $                  | (39,208 | )                 |  | $             | (41,340 | )             |  | $ | (104,458 | ) |  | $ | (123,512 | )
|                                                                              |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  

23



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|             |                                                                              |                    |   |                   |   |               |   |               |   |  |   |       |   |  |   |       |  
|------------ | ---------------------------------------------------------------------------- | ------------------ | - | ----------------- | - | ------------- | - | ------------- | - |  | - | ----- | - |  | - | ----- | -
|             |                                                                              |                    |   |                  
|             |                                                                              | Three Months Ended |   | Nine Months Ended
|             |                                                                              |                    |   |                  
|             |                                                                              | September 26,      |   | September 27,     |   | September 26, |   | September 27,
|             |                                                                              | 2003               |   | 2002              |   | 2003          |   | 2002         
|             |                                                                              |                    |   |                   |   |               |   |              
|As reported: |                                                                              |                    |   |                   |   |               |   |               |   |  |   |       |   |  |   |      
|             | Basic and diluted net loss attributable to common
    stockholders per share |                    | $ | (0.31             | ) |               | $ | (0.29         | ) |  | $ | (0.81 | ) |  | $ | (1.00 | )
|             |                                                                              |                    |   |                   |   |               |   |               |   |  |   |       |   |  |   |      
|Pro forma:   |                                                                              |                    |   |                   |   |               |   |               |   |  |   |       |   |  |   |      
|             | Basic and diluted net loss attributable to common
    stockholders per share |                    | $ | (0.32             | ) |               | $ | (0.35         | ) |  | $ | (0.86 | ) |  | $ | (1.24 | )
|             |                                                                              |                    |   |                   |   |               |   |               |   |  |   |       |   |  |   |      

The pro forma effect on net loss and net loss per
share for the three and nine months ended September 26,
2003 and September 27, 2002 is not representative of the
pro forma effect on net loss in future years because it does not
take into consideration pro forma compensation expense related
to grants made prior to 1996.

Note 13  Commitments and
Contingencies

The Company occupies its facilities under several
noncancellable operating lease agreements expiring at various
dates through September 2009, and requiring payment of property
taxes, insurance, maintenance and utilities. Future minimum
lease payments under noncancellable operating leases at
September 26, 2003 were as follows (in thousands):

|                                      |  |   |        | 
|------------------------------------- |  | - | ------ | 
|Three months ending December 31, 2003 |  | $ | 2,470  | 
|Year ending December 31:              |  |   |        | 
|2004                                  |  |   | 8,893  | 
|2005                                  |  |   | 8,658  | 
|2006                                  |  |   | 7,385  | 
|2007                                  |  |   | 6,939  | 
|Thereafter                            |  |   | 11,559 | 
|                                      |  |   |        | 
|Total minimum lease payments          |  | $ | 45,904 | 
|                                      |  |   |        | 

For the year ended December 31, 2002 and the
nine months ended September 26, 2003, the Company recorded
restructuring charges relating to the committed future lease
payments for closed facilities, net of estimated future sublease
receipts, of $19.0 million, which was included in the above
disclosures.

Note 14  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

24



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

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
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 15).
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 quarter 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

25



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

capitalized in connection with this agreement as
of September 26, 2003 was $2.1 million. Future minimum
lease payments under noncancellable capital leases at September
26, 2003 were as follows (in thousands):

|                                               |  |   |       | 
|---------------------------------------------- |  | - | ----- | 
|Three months ending December 31, 2003          |  | $ | 295   | 
|Year ending December 31:                       |  |   |       | 
|2004                                           |  |   | 1,145 | 
|2005                                           |  |   | 784   | 
|                                               |  |   |       | 
|Total minimum lease payments                   |  |   | 2,224 | 
|Less: amounts representing interest            |  |   | 89    | 
|                                               |  |   |       | 
|Present value of future minimum lease payments |  |   | 2,135 | 
|Less: current portion                          |  |   | 1,060 | 
|                                               |  |   |       | 
|Capital lease obligations, long-term portion   |  | $ | 1,075 | 
|                                               |  |   |       | 

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 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
approximately $3.5 million, which sale is scheduled to
close on or before December 30, 2003. The purchasers
obligation to purchase the property is conditioned upon its
approval of the condition of the property, title, survey and
zoning and the purchasers satisfaction of its ability to
finance the property. As of September 26, 2003, the
property was recorded as assets held for sale of
$3.0 million, representing its estimated net realizable
value.

Note 15  Legal
Proceedings

The Companys involvement in patent and
International Trade Commission litigation has resulted in, and
could in the future continue to result in, substantial costs and
diversion of management resources. 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. In particular, as described in detail below and in
Note 1, on September 15, 2003, we announced that the
jury had rendered a verdict in the first phase of the

26



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

patent infringement litigation with Symbol
Technologies, finding that certain of our products infringe two
of Symbols patents.

On March 8, 2001, Proxim, Inc. filed two
lawsuits for infringement of three United States Patents for
wireless networking technology: one suit in the
U.S. District Court for the District of Massachusetts
against Cisco Systems, Incorporated and Intersil Corporation;
and one suit in the U.S. District Court for the District of
Delaware against 3Com Corporation, SMC, Symbol Technologies and
Wayport. These suits sought an injunction against continued
infringement, damages resulting from the infringement and the
defendants conduct, interest on the damages,
attorneys fees and costs, and such further relief as the
respective courts deem just and appropriate.

On March 9, 2001, Proxim, Inc. filed suit
with the International Trade Commission (ITC) in
Washington, D.C. asking the ITC to stop the importation of
products that infringe its patented wireless networking
technology. Eight companies were identified in this action;
Acer, Addtron, Ambicom, Compex, D-Link, Enterasys, Linksys and
Melco. Proxim, Inc. notified these and other companies that it
believed to have been infringing its patents. On May 9,
2001, Proxim, Inc. filed to remove Compex from the ITC complaint
as Compex entered into an agreement with Proxim, Inc. to license
these patents. Intersil and Agere have filed motions to
intervene in the proceedings before the ITC and these motions
were approved by the ITC.

On or about April 24, 2001, Intersil
Corporation and Cisco Systems, Incorporated filed suit in the
U.S. District Court for the District of Delaware seeking
that Proxim, Inc.s patents be found invalid, unenforceable
and not infringed. Intersil and Cisco sought damages and
attorneys fees from Proxim, Inc. based upon alleged breach
of contract and unfair competition.

On or about May 1, 2001, Symbol Technologies
filed patent infringement counterclaims 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. These counterclaims were
later severed from the lawsuit by the District Court and refiled
by Symbol on December 4, 2001.

On or about May 31, 2001, Agere filed suit
in the U.S. District Court for the District of Delaware
alleging that Proxim, Inc. infringed three Agere patents. Agere
sought unspecified damages and a permanent injunction against
Proxim, Inc. related to its infringement claims. On July 9,
2001, Proxim, Inc. filed an amended answer and counterclaim to
the Agere suit. Proxim, Inc. sought declaratory judgment for
non-infringement, invalidity and unenforceability of certain
Agere patents, as well as damages for violation of the antitrust
laws of the United States.

On August 8, 2001, Proxim, Inc. filed an
amended answer and counterclaim, and further sought damages for
violation of the antitrust laws of the United States. On
December 13, 2001, Proxim, Inc. filed a second amended
answer and counterclaim, and sought to add Ageres parent,
Agere Guardian Systems Inc., as a party.

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 August 5, 2002, in connection with the
Companys acquisition of the 802.11 WLAN systems business
from Agere, the Company announced that it had entered into a
cross-license agreement with Agere whereby,

27



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

in part, the Company and Agere agreed to settle
the pending patent-related litigation between the two companies.

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, the Company 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, as described in Note 5 to
the condensed consolidated financial statements.

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. Proceedings will continue
with the court to conduct a bench trial on the Companys
remaining equitable defenses not addressed by the jury. On
Symbols claims of patent infringement, the jury found that
certain of the Companys products infringe 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
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. The Company will continue to evaluate
and review its estimate of 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. 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
September 29, 2003, in connection with Companys
counterclaims against Symbol, the jury rendered a verdict that
Symbol did not infringe on a patent held by the Company. The
Company intends to vigorously defend itself in Symbols
suit against the Company and to consider all available options
after the conclusion of all matters before the court.

As a result of the settlement with Agere Systems
and its customers on August 5, 2002, and the settlement
with Intersil and its customers on March 17, 2003, the only
patent infringement litigation that remains open relates to
Symbol Technologies suit against the Company.

On or about 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
or about May 30, 2003. Top Globals lawsuit was filed
against Agere Systems, Inc., Agere Systems Singapore, and Agere
Systems Asia Pacific (collectively, Agere) and the
Company 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 is responsible for accepting the product return and
issuing a $1.2 million credit and also alleges breach of
contract. The case is in its earliest stages, as discovery
recently commenced and a trial date has not been set. The
Company intends to defend itself vigorously against the lawsuit.

On or about August 22, 2003, ISIS Surface
Mounting, Inc. (ISIS) filed a complaint against the
Company in the Superior Court of the State of California, County
of Santa Clara. ISIS alleges, among other things, that between
August 1997 and March 2001, the Company agreed to purchase
circuit board assemblies from ISIS in accordance with written
forecasts and specifications provided by the Company. The
complaint further alleges that the Company breached this alleged
agreement by failing to buy circuit board assemblies in
accordance with its previous forecasts. ISIS seeks damages of at
least $6.2 million, plus interest, attorneys fees,
costs of suit, and certain equitable relief. The case is in its
earliest stages, as discovery has not yet

28



---



##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

commenced and a trial date has not been set. The
Company intends to defend itself vigorously against the lawsuit.

The Company is 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. The Company has recorded reserves related
to these disputes to the extent that management believes that
the Company is liable. 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,
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, operating results,
or cash flows.

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 Amended Notes.
Upon such occurrence, the Investors would have the ability to
require the Company to repay the Amended Notes and to prevent
the Company from calling an additional $10 million
investment. 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
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.

29



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Except for any historical information
contained herein, the matters discussed in this Quarterly Report
on Form 10-Q contain certain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to our financial
condition, results of operations, cash flows, revenues,
financing plans, business strategies and market acceptance of
its products. The words anticipate,
believe, estimate, expect,
plan, intend, and similar expressions,
are intended to identify these forward-looking statements. These
forward-looking statements are found at various places
throughout this Quarterly 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 Quarterly Report or to reflect the
occurrence of unanticipated events. Forward-looking statements
are subject to risks and uncertainties that could cause actual
results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a
difference include, but are not limited to those discussed below
under Risk Factors and elsewhere in this
Report.

The following discussion should be read
together with our financial statements, notes to those financial
statements included elsewhere in this Quarterly Report on
Form 10-Q, our financial statements, notes to those
financial statements and Managements Discussion and
Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K filed with the Securities and
Exchange Commission.

Overview

Proxim Corporation is the company created by the
March 26, 2002 merger of Proxim, Inc. and Western Multiplex
Corporation. 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.

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 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 has developed Tsunami 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. located in Sunnyvale, California which designs,
manufactures and markets high performance WLAN and
building-to-building network products based on RF technology and
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 completed our
acquisition of the 802.11 WLAN systems business of Agere
Systems, including its ORiNOCO product line, for
$65 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 us. These investors received
1,640,000 shares of Series A mandatorily redeemable
convertible preferred stock (Series A Preferred
Stock) 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 approximately $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 approximately $2.7 million was reflected in the
determination of the loss attributable to common stockholders.
The investors were also issued $34.0 million of convertible
notes. Upon

30



---



##### Table of Contents



the receipt of approval of our 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 were
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 25% of our outstanding common stock on an
as-converted and as-exercised basis, including dividends, as of
September 26, 2003. In addition, in connection with the
transaction, we entered into a patent cross-license agreement
and settled all outstanding patent-related litigation with
Agere, and have entered into a three-year strategic supply
agreement, pursuant to which Agere will provide 802.11 chips,
modules and cards to us at specified prices.


On July 22, 2003, we 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 us.
On July 30, 2003, these Investors collectively invested
$30 million, and we 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, we amended and restated our
securities purchase agreement (the Amended
Agreement) with the Investors and our $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 if we call an additional
investment of $5 million from the Investors prior to our
special meeting of stockholders. 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; and                                                                                                                                                                    
|
| |  | September 30, 2004.                                                                                                                                                                                                                                                                                    

As amended, 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 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 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.

Upon receipt of stockholder approval, we will
issue to the Investors warrants to purchase an aggregate of
18 million shares of Class A common stock with an
exercise price of $1.46, as previously agreed, and warrants

31



---



##### Table of Contents



to purchase 6 million shares of Class A
common stock having an exercise price equal to $1.53 per share
(collectively, the Warrants). Assuming exchange of
$30 million in aggregate principal amount of the Amended
Notes, together with accrued interest, on September 30,
2004, the shares of Series B Preferred Stock to be issued
upon exchange of the Amended Notes and the Warrants would be
expected to represent approximately 14.3% and 10.1%,
respectively, of our outstanding capital stock on an
as-converted and as-exercised basis, based on shares outstanding
as of October 9, 2003 and excluding outstanding employee
options and warrants to purchase approximately 31.7 million
shares of common stock. Prior to this transaction and excluding
the effects of the Investors initial $30 million
financing on July 30, 2003, our Series A mandatorily
redeemable convertible preferred stock (Series A
Preferred Stock) and warrants currently held by the
Investors (the Existing Warrants) represented
approximately 16.7% and 7.6%, respectively, of our outstanding
capital stock on an as-converted and as-exercised basis, based
on shares outstanding as of October 9, 2003 and excluding
employee options and warrants to purchase approximately
31.7 million shares of common stock. Assuming the issuance
of the Series B Preferred Stock upon exchange of the
Amended Notes on September 30, 2004 and the issuance of the
Warrants, the Series A Preferred Stock and the Existing
Warrants would be expected to represent an aggregate of
approximately 17.1% and 7.2%, respectively, of our outstanding
capital stock on an as-converted and as-exercised basis, based
on shares outstanding as of October 9, 2003 and excluding
employee options and warrants, and as adjusted to account for
anti-dilution adjustments in connection with the issuance of the
Amended Notes.


The Investors have also agreed to make available
to us an 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. Of this amount, the Investors have agreed to permit us to
call an investment of $5 million prior to stockholder
approval and the balance for up to 90 days following
stockholder approval at the special meeting, provided in each
case that no event of default has occurred. If we call an
investment of $5 million prior to stockholder approval, the
interest rate all outstanding indebtedness to the Investors will
increase by 5% until such time as stockholder approval is
obtained. The interest rate on all outstanding indebtedness also
increases by 5% upon the occurrence of an event of default under
the Amended Notes or New Notes, or otherwise from and after the
maturity date. Additional information regarding the Amended
Agreement, the Amended Notes, Series B Preferred Stock and
the Warrants is set forth in our Current Report on
Form 8-K, including the exhibits thereto, filed with the
Securities and Exchange Commission on October 27, 2003.

The financial statements include the results of
acquired subsidiaries from their respective dates of acquisition.

Revenue.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
ORiNOCO 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 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 located in
the United States 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.
Product revenue on shipments to distributors for both WWAN and
WLAN products which have rights of return and price protection
is deferred until shipment to the 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. Formerly, 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

32



---



##### Table of Contents



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 consists of product revenues, reduced by
estimated sales returns and allowances, and license revenue
related to the settlement of outstanding patent litigation in
the first quarter of 2003. 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.

Our sales force focuses on key strategic accounts
and also develops relationships with end users that purchase our
products through distributors and value-added resellers.
Distributors sell our products to end users, and value-added
resellers not only sell our products to end users, but also
assist end users in network design, installation and testing. We
market our products through strategic relationships we have with
systems integrators, which design and install networks that
incorporate our systems. 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.

During the nine months ended September 26,
2003, we sold our products to approximately 350 customers
in 80 countries. International sales accounted for
approximately 41% and 40% of our total revenue in the nine
months ended September 26, 2003 and September 27,
2002, respectively. We expect international sales to vary but
remain significant as a percentage of overall sales 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.

As we have increased sales through our
distributors and value-added resellers beginning from the
quarter ended March 29, 2002, we have experienced a decline
in the average selling prices of our products. This decline is
primarily because the prices of the products that we sell
indirectly through distributors and value-added resellers are
typically lower than the prices of the products we sell directly
through our sales force to end users. We have also lowered our
prices for older products as we introduce additional products
that provide faster data rates. On average, our international
sales also have lower average selling prices on average when
compared to our North American selling prices. This is primarily
due to our higher reliance on distributors and value-added
resellers for international sales, and also because our lower
speed products, with significantly lower prices, are being sold
in larger quantities internationally than domestically. If
indirect sales and sales in our international markets increase,
we would expect that our average selling prices to further
decline.

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 and provisions for excess
and obsolete inventory. 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.

Gross profit.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

33



---



##### Table of Contents



products, product mix, competitive pricing
pressures, the degree of customization of individual products
required by OEM customers and component and assembly costs.


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.

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. We intend to
decrease our selling, general and administrative expenditures
during the next two quarters in order to reduce our breakeven
point.

Stock option programs.We have implemented stock option
programs for employees and members of our board of directors to
attract and retain highly skilled and qualified business and
technical personnel. Prior to our initial public offering, we
recorded deferred stock compensation on certain options for the
difference between the exercise price and the deemed fair value
of our common stock on the date the stock options were granted.
This amount was included as a reduction of stockholders
equity and was amortized by charges to operations over the
vesting periods of the options. The amortization expense related
to options awarded to employees in all operating expense
categories. As of December 31, 2002, all deferred stock
compensation was amortized, and accordingly, no amortization is
required subsequent to December 31, 2002.

Critical Accounting Policies, Judgments and
Estimates

Our discussion and analysis of our financial
condition and results of operations are based upon our 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, 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 as described
in our Annual Report on Form 10-K filed with Securities and
Exchange Commission on March 31, 2003:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | revenue recognition;                                                     
|
| |  | allowance for doubtful accounts, returns and
    discounts;              
|
| |  | warranty provision;                                                      
|
| |  | valuation of inventories;                                                
|
| |  | valuation of deferred tax assets; and                                    
|
| |  | restructuring costs and impairment of goodwill
    and intangible assets.



| |                                             
| | --------------------------------------------
| | 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
September 26, 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

34



---



##### Table of Contents



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.


On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. Proceedings will continue with
the court to conduct a bench trial on our remaining equitable
defenses not addressed by the jury. 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. 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 it 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
September 29, 2003, in connection with our counterclaims
against Symbol, the jury rendered a verdict that Symbol did not
infringe on a patent held by us. We intend to vigorously defend
ourself in Symbols suit against us and to consider all
available options after the conclusion of all matters before the
court.

Results of Operations

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

|                                                              |                                             |                          |       |                   |       |               |        |               |       |  |       |      |       |   |       |      |       | 
|------------------------------------------------------------- | ------------------------------------------- | ------------------------ | ----- | ----------------- | ----- | ------------- | ------ | ------------- | ----- |  | ----- | ---- | ----- | - | ----- | ---- | ----- | 
|                                                              |                                             |                          |       |                  
|                                                              |                                             | Three Months Ended       |       | Nine Months Ended
|                                                              |                                             |                          |       |                  
|                                                              |                                             | September 26,            |       | September 27,     |       | September 26, |        | September 27,
|                                                              |                                             | 2003                     |       | 2002              |       | 2003          |        | 2002         
|                                                              |                                             |                          |       |                   |       |               |        |              
|Product revenue                                               |                                             |                          | 100.0 | %                 |       |               | 100.0  | %             |       |  | 94.5  | %    |       |   | 100.0 | %   
|License revenue                                               |                                             |                          |      |                   |       |               |       |               |       |  | 5.5   |      |       |   |      |     
|                                                              |                                             |                          |       |                   |       |               |        |               |       |  |       |      |       |   |       |     
|                                                              |                                             | Total revenue            |       |                   | 100.0 |               |        |               | 100.0 |  |       |      | 100.0 |   |       |      | 100.0 | 
|Cost of revenue                                               |                                             |                          | 62.9  |                   |       |               | 58.4   |               |       |  | 58.8  |      |       |   | 57.8  |     
|Royalty charges                                               |                                             |                          | 65.2  |                   |       |               |       |               |       |  | 20.9  |      |       |   |      |     
|Restructuring provision for excess and obsolete
    inventory |                                             |                          |      |                   |       |               |       |               |       |  | 20.5  |      |       |   | 13.4  |     
|                                                              |                                             |                          |       |                   |       |               |        |               |       |  |       |      |       |   |       |     
|                                                              |                                             | Gross profit (loss)      |       |                   | (28.1 | )             |        |               | 41.6  |  |       |      | (0.2  | ) |       |      | 28.8  | 
|                                                              |                                             |                          |       |                   |       |               |        |               |       |  |       |      |       |   |       |     
|Operating expenses:                                           |                                             |                          |       |                   |       |               |        |               |       |  |       |      |       |   |       |     
|                                                              | Research and development                    |                          |       | 14.0              |       |               |        | 36.1          |       |  |       | 17.3 |       |   |       | 21.7 |      
|                                                              | Selling, general and administrative         |                          |       | 37.6              |       |               |        | 63.1          |       |  |       | 34.3 |       |   |       | 37.6 |      
|                                                              | Legal expense for certain litigation        |                          |       | 4.8               |       |               |        |              |       |  |       | 5.2  |       |   |       |     |      
|                                                              | Amortization of intangible assets           |                          |       | 15.3              |       |               |        | 19.1          |       |  |       | 14.8 |       |   |       | 7.3  |      
|                                                              | Amortization of deferred stock compensation |                          |       |                  |       |               |        | 1.3           |       |  |       |     |       |   |       | 0.8  |      
|                                                              | Bad debt arising from restructuring         |                          |       | 6.6               |       |               |        |              |       |  |       | 2.1  |       |   |       |     |      
|                                                              | Restructuring charges                       |                          |       | (14.8             | )     |               |        | 9.6           |       |  |       | 6.6  |       |   |       | 43.6 |      
|                                                              | In-process research and development         |                          |       |                  |       |               |        | 43.0          |       |  |       |     |       |   |       | 17.0 |      
|                                                              |                                             |                          |       |                   |       |               |        |               |       |  |       |      |       |   |       |     
|                                                              |                                             | Total operating expenses |       |                   | 63.5  |               |        |               | 172.2 |  |       |      | 80.3  |   |       |      | 128.0 | 
|Loss from operations                                          |                                             |                          | (91.6 | )                 |       |               | (130.6 | )             |       |  | (80.5 | )    |       |   | (99.2 | )   
|Interest income (expense), net                                |                                             |                          | (12.6 | )                 |       |               | (1.5   | )             |       |  | (4.1  | )    |       |   |      |     
|                                                              |                                             |                          |       |                   |       |               |        |               |       |  |       |      |       |   |       |     

35



---



##### Table of Contents



|                                                                 |  |                    |        |                   |  |               |        |               |  |  |       |    |  |  |        |   
|---------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  |  | ----- | -- |  |  | ------ | --
|                                                                 |  |                    |        |                  
|                                                                 |  | Three Months Ended |        | Nine Months Ended
|                                                                 |  |                    |        |                  
|                                                                 |  | September 26,      |        | September 27,     |  | September 26, |        | September 27,
|                                                                 |  | 2003               |        | 2002              |  | 2003          |        | 2002         
|                                                                 |  |                    |        |                   |  |               |        |              
|Loss before income taxes                                         |  |                    | (104.2 | )                 |  |               | (132.1 | )             |  |  | (84.6 | )  |  |  | (99.2  | ) 
|Income tax provision                                             |  |                    |       |                   |  |               |       |               |  |  |      |    |  |  | 3.4    |   
|                                                                 |  |                    |        |                   |  |               |        |               |  |  |       |    |  |  |        |   
|Net loss                                                         |  |                    | (104.2 | )                 |  |               | (132.1 | )             |  |  | (84.6 | )  |  |  | (102.6 | ) 
|Deemed Series A preferred stock dividend                         |  |                    |       |                   |  |               | (11.4  | )             |  |  |      |    |  |  | (2.9   | ) 
|Accretion of Series A Preferred Stock
    redemption obligations |  |                    | (4.6   | )                 |  |               | (2.0   | )             |  |  | (4.3  | )  |  |  | (0.5   | ) 
|                                                                 |  |                    |        |                   |  |               |        |               |  |  |       |    |  |  |        |   
|Net loss attributable to common stockholders                     |  |                    | (108.8 | )%                |  |               | (145.5 | )%            |  |  | (88.9 | )% |  |  | (106.0 | )%
|                                                                 |  |                    |        |                   |  |               |        |               |  |  |       |    |  |  |        |   

Comparison of the Three and Nine Months Ended
September 26, 2003 and September 27, 2002



| |        
| | -------
| | Revenue

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 and license revenue of
$6 million related to the settlement agreement with
Intersil. 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):

|             |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |        | 
|------------ | ------------- | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  | - | ------ | ------- |  | - | ------ | ------ | 
|             |               |                    |        |                  
|             |               | Three Months Ended |        | Nine Months Ended
|             |               |                    |        |                  
|             |               | September 26,      |        | September 27,     |  | September 26, |        | September 27,
|Product Line |               | 2003               |        | 2002              |  | 2003          |        | 2002         
|             |               |                    |        |                   |  |               |        |              
|WWAN         |               | $                  | 17,324 |                   |  | $             | 4,193  |               |  | $ | 52,736 |         |  | $ | 57,643 |       
|WLAN         |               |                    | 17,734 |                   |  |               | 19,925 |               |  |   | 57,156 |         |  |   | 37,066 |       
|             |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       
|             | Total revenue |                    | $      | 35,058            |  |               | $      | 24,118        |  |   | $      | 109,892 |  |   | $      | 94,709 | 
|             |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       

We sell our products worldwide through a direct
sales force, independent distributors, and value-added
resellers. We currently operate in two geographic regions: North
America and International. Revenue outside of the North America
is primarily export sales denominated in United States dollars.
Disaggregated financial information regarding our revenue by
geographic region is as follows (in thousands):

|                  |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |        | 
|----------------- | ------------- | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  | - | ------ | ------- |  | - | ------ | ------ | 
|                  |               |                    |        |                  
|                  |               | Three Months Ended |        | Nine Months Ended
|                  |               |                    |        |                  
|                  |               | September 26,      |        | September 27,     |  | September 26, |        | September 27,
|Geographic Region |               | 2003               |        | 2002              |  | 2003          |        | 2002         
|                  |               |                    |        |                   |  |               |        |              
|North America     |               | $                  | 21,464 |                   |  | $             | 16,744 |               |  | $ | 64,939 |         |  | $ | 56,691 |       
|International     |               |                    | 13,594 |                   |  |               | 7,374  |               |  |   | 44,953 |         |  |   | 38,018 |       
|                  |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       
|                  | Total revenue |                    | $      | 35,058            |  |               | $      | 24,118        |  |   | $      | 109,892 |  |   | $      | 94,709 | 
|                  |               |                    |        |                   |  |               |        |               |  |   |        |         |  |   |        |       

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, Intersil has agreed with us 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 have 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.

36



---



##### Table of Contents



Total revenue increased 45.4% from
$24.1 million in the third quarter of 2002 to
$35.1 million in the third quarter of 2003. Revenue
increased primarily due 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 $22.2 million of revenue from WWAN products
shipped to distributors during the third quarter that were not
sold through to end customers. This increase was offset by a
decrease in the WLAN product sales due in part to increasing
competition for wireless networking products and continued slow
spending in the telecom industry.

Total revenue increased 16.0% from
$94.7 million in the nine months ended September 27,
2002 to $109.9 million in the nine months ended
September 26, 2003. Total revenue for the first quarter of
2003 included product revenue and a one-time patent license fee
of $6 million resulting from the Intersil settlement (as
described in Notes 5 and 15 in the condensed consolidated
financial statements). Product revenue increased 9.7% from
$94.7 million in the nine months ended September 27,
2002 to $103.9 million in the nine months ended
September 26, 2003. The increase in product revenue was
primarily due to the increase in WLAN revenue attributable to
the acquisition of the ORiNOCO product line of Agere Systems on
August 5, 2002 and the contribution of that product line
revenue for the full nine months of 2003, offset by the
accounting estimate change resulting in a deferral of WWAN
revenue during the third quarter of 2002.



| |                
| | ---------------
| | Cost of Revenue

Cost of revenue increased 56.4% from
$14.1 million in the third quarter of 2002 to
$22.0 million in the third quarter of 2003. As a percentage
of revenue, cost of revenue increased from 58.4% in the third
quarter of 2002 to 62.9% in the third quarter of 2003. The
increase in cost of revenue as a percentage of product 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 product gross
margins than WWAN products.

Cost of revenue increased 18.2% from
$54.7 million in the nine months ended September 26,
2002 to $64.7 million in the nine months ended
September 26, 2003. As a percentage of total revenue, cost
of revenue increased from 57.8% in the nine months end
September 27, 2002 to 58.8% in the nine months ended
September 26, 2003. Included in revenue in the first
quarter of 2003 was the $6.0 million settlement with
Intersil related to license revenue. Excluding license revenue
as a percentage of product revenue, non-GAAP cost of revenue
increased from 57.8% in the nine months ended September 27,
2002 to 62.2% in the nine months ended September 26, 2003.
The increase in cost of revenue as a percentage of product
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.



| |                
| | ---------------
| | Royalty Charges

During the third quarter of 2003, the Company
recorded an accrual for estimated royalties payable of
$22.9 million as a result of a jury verdict rendered in
September 2003 in the first phase of the patent infringement
suit with Symbol (see Notes 1 and 15 of the unaudited
condensed consolidated financial statements).



| |                                                              
| | -------------------------------------------------------------
| | Restructuring Provision for Excess and
    Obsolete Inventory

During the second quarter of 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 had 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 WWAN Lynx and Tsunami license-exempt point-to-point and
    WLAN 802.11a and Harmony products;

37



---



##### Table of Contents





| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | Notification from customers that they would not
    be ordering as many products as they had previously indicated
    they would;       
|
| |  | 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;
|
| |  | Managements strategy to discontinue
    products, and in certain cases replace these products with new
    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 nine months
ended September 26, 2003 (in thousands):

|                                            |  |   |         |  
|------------------------------------------- |  | - | ------- | -
|Balance as of December 31, 2002             |  | $ | 32,845  |  
|Provision for excess and obsolete inventory |  |   | 22,549  |  
|Inventory scrapped                          |  |   | (44,332 | )
|                                            |  |   |         |  
|Balance as of September 26, 2003.           |  | $ | 11,062  |  
|                                            |  |   |         |  



| |                         
| | ------------------------
| | Research and Development

Research and development expenses decreased 43.5%
from $8.7 million in the third quarter of 2002 to
$4.9 million in the third quarter of 2003. The decrease in
research and development expense was primarily attributable to
the reduction in workforce implemented in the second quarter of
2003, resulting in decreased personnel and related expenses in
the third quarter of 2003 compared to the third quarter of 2002.
Severance pay associated with the workforce reduction was
included in the restructuring charges recorded in the second
quarter of 2003.

Research and development expenses decreased 7.4%
from $20.5 million in the nine months ended
September 27, 2002 to $19.0 million in the nine months
ended September 26, 2003. The decrease in research and
development expenses was primarily attributable to the workforce
reduction implemented in the second quarter of 2003 resulting in
decreased personnel and related expenses in the second and third
quarters of 2003 compared to the same period in 2002, offset by
the cost of increased personnel in the first quarter of 2003,
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 expense decreased from
21.7% in the nine months ended September 27, 2002 to 17.3%
in the nine months ended September 26, 2003. The percentage
decrease was primarily due to workforce reduction offset, in
part by increased personnel expenses from first quarter of 2002
to the first quarter of 2003.



| |                                        
| | ---------------------------------------
| | Selling, General and
    Administrative

Selling, general and administrative expenses
decreased 13.4% from $15.2 million in the third quarter of
2002 to $13.2 million in the third quarter of 2003 and
increased 5.9% from $35.6 million in the nine months ended
September 27, 2002 to $37.7 million in the nine months
ended September 26, 2003. The decrease in selling, general
and administrative expenses from the third quarter of 2002 to
the third quarter of 2003 was primarily due to the workforce
reduction implemented in the second quarter of 2003, resulting
in reduced personnel expenses in the third quarter of 2003
compared to the third quarter of 2002. The increase in selling,

38



---



##### Table of Contents



general and administrative expenses from the nine
months ended September 27, 2002 to the nine months ended
September 26, 2003 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, offset by
the workforce reduction affecting the second and third quarters
of 2003.


As a percentage of revenue, selling, general and
administrative expenses decreased from 63.1% in the third
quarter of 2002 to 37.6% in the third quarter of 2003. The
decrease was primarily due to the increase in revenue resulting
from the adoption of the uniform sell-through revenue
recognition methodology in the third quarter of 2002 and the
workforce reduction in the second quarter of 2003 affecting the
third quarter of 2003. As a percentage of revenue, selling,
general and administrative expenses decreased from 37.6% in the
nine months ended September 27, 2002 to 34.3% in the nine
months ended September 26, 2003. The decrease was primarily
due to the increase in revenue for the corresponding periods,
offset by increased sales and marketing expenses resulting from
the Proxim, Inc. merger and the acquisition of the
802.11 WLAN systems business of Agere.



| |                                      
| | -------------------------------------
| | Amortization of Intangible
    Assets

Amortization of intangible assets increased from
$4.6 million in the third quarter of 2002 to
$5.4 million in the third quarter of 2003. Amortization of
intangible assets increased from $7.0 million in the nine
months ended September 27, 2002 to $16.2 million in
the nine months ended September 26, 2003. Amortization of
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.



| |                                                              
| | -------------------------------------------------------------
| | Restructuring Charges for Severance and
    Excess Facilities

During the year ended December 31, 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 the closure of
certain facilities and severance pay. The charges included
$40.8 million of cash provisions, including severance of
$7.4 million for 194 employees, $33.1 million for
future lease commitments, net of estimated future sublease
receipts, exit costs related to the closure of four facilities,
and consulting fees of $0.3 million. The charges also
included $2.4 million of non-cash provisions related to
property and equipment that will no longer be used at the
facilities.

During the nine months ended September 26,
2003, we recorded restructuring charges of $7.3 million,
consisting of $23.8 million of cash provisions and
$3.3 million of non-cash provisions for abandoned property
and equipment, partially offset by a $19.8 million net
reversal of restructuring accruals related to an abandoned
building in Sunnyvale, California (see Notes 1 and 14 of
the condensed consolidated financial statements). The
$23.8 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, $8.1 million of severance payments for
110 employees, $0.6 million of consulting fees, and
$2.4 million of project commitments. The $19.8 million
net reversal of restructuring accruals represented the reversal
of $26.7 million of restructuring accruals, partially
offset by the write-down of fair value of an asset held for sale
of $6.9 million.

39



---



##### Table of Contents



The following table summarizes the restructuring
activities in 2002 and the nine months ended September 26,
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           |  |           | 8,080  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 31,652  |  
|Reversal of previously recorded provision |  |           |       |            |  |            | (26,754 | )     |  |       |       |   |  |   |       |   |  |   | (26,754 | )
|Non-cash charges utilized                 |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                             |  |           | (4,448 | )          |  |            | (2,719  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (17,133 | )
|                                          |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of September 26, 2003.         |  | $         | 3,632  |            |  | $          | 13,720  |       |  | $     | (3,041 | ) |  | $ | 600    |   |  | $ | 14,911  |  
|                                          |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  



| |                                                  
| | -------------------------------------------------
| | Purchased In-process Research and
    Development

Purchased in-process research and development
consists primarily of acquired technology that has not reached
technological feasibility and had no alternative future use as
of the date of acquisition.

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 wireless
LAN 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 related to the Proxim, Inc. merger.

No purchased in-process research and development
charge was recorded in the nine months ended September 26,
2003.



| |                                   
| | ----------------------------------
| | Interest Income (Expense),
    Net

Interest income (expense), net, increased from
expense of $355,000 in the third quarter of 2002 to expense of
$4.4 million, net of income in the third quarter of 2003.
Interest income (expense), net, decreased from income of $16,000
in the nine months ended September 27, 2002 to expense of
$4.5 million, net of income in the nine months ended
September 26, 2003. The increase in expense from the third
quarter of 2002 to the third quarter of 2003 was primarily due
to interest charges of $2.9 million on potential royalty
charges, interest of $1.2 million on the $30 million
convertible promissory note, and amortization of deferred
financing costs of $242,000 recorded in the third quarter of
2003. The decrease from income to expense from the nine months
ended September 27, 2002 to the nine months ended
September 26, 2003 was also attributable to the interest
charges recorded in connection with the potential royalty
charges, the convertible promissory note, and the deferred
financing costs during the third quarter of 2003, together with
a decrease in interest income as a consequence of lower
applicable return rates and lower cash and investments balances.



| |                     
| | --------------------
| | Income Tax Provision

The income tax provision for the nine months
ended September 27, 2002 was primarily due to establishing
a valuation allowance to offset deferred tax assets brought
forward from December 31, 2001. We

40



---



##### Table of Contents



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.




| |                                                                 
| | ----------------------------------------------------------------
| | 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.

Liquidity and Capital Resources

Cash and cash equivalents decreased by
$4.0 million from $16.5 million at December 31,
2002 to $12.5 million at September 26, 2003.

Net cash used in operating activities was
$23.7 million for the nine months ended September 26,
2003, primarily due to the net loss after the effect of non-cash
charges, and an increase in inventory excluding a restructuring
provision for excess and obsolete inventory, partially offset by
a decrease in accounts receivable and restricted cash and other
assets, and an increase in accrued royalties and interest. Net
cash used in operating activities was $16.8 million for the
nine months ended September 27, 2002 primarily due to net
loss after the effect of non-cash charges and an increase in
inventory and other assets, partially offset by a decrease in
accounts receivable and an increase in accounts payable and
other accrued liabilities.

Net cash used in investing activities was
$12.3 million for the nine months ended September 26,
2003, due to capital spending and a purchase of an asset held
for sale, offset by proceeds from repayment of loan to officer.
Net cash used in investing activities was $46.8 million for
the nine months ended September 27, 2002 due to
$50.6 million in cash used in the merger with Proxim, Inc.,
the acquisition of the 802.11 wireless LAN systems business of
Agere and the acquisition of nBand and $3.1 million in
capital spending, partially offset by $6.9 million in net
proceeds from the sale of investment securities.

Net cash provided by financing activities was
$32.0 million for the nine months ended September 26,
2003 due to borrowings on capital lease obligations, proceeds
from repayments of notes receivable from stockholders, proceeds
from the issuance of secured exchangeable promissory notes on
July 30, 2003, and issuance of common stock as a result of
the exercise of employee stock options and purchases under the
employee stock purchase plan, partially offset by principal
payments on capital lease obligations. Net cash provided by
financing activities was $75.3 million for the nine months
ended September 27, 2002 due to proceeds from the issuance
of Series A preferred stock, the convertible promissory
notes and the issuance of common stock as a result of the
exercise of employee stock options and purchases under the
employee stock purchase plan, partially offset by purchases of
treasury stock related to employee stock forward sale agreements.

41



---



##### Table of Contents



We occupy our facilities under several
noncancellable 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 September 26, 2003,
were as follows (in thousands):

|                                       |  |                        |         |              |  |              |       |              |  |            |        |  |  |   |       |  |  |   |         | 
|-------------------------------------- |  | ---------------------- | ------- | ------------ |  | ------------ | ----- | ------------ |  | ---------- | ------ |  |  | - | ----- |  |  | - | ------- | 
|                                       |  |                       
|                                       |  | Payments Due By Period
|                                       |  |                       
|                                       |  |                        |         |              |  |             
|                                       |  |                        |         | Three Months |  | Year Ending  |       |             
|                                       |  |                        |         | Ending       |  |              |       |             
|                                       |  | Total Amounts          |         | December 31, |  | December 31, |       | December 31, |  |           
|                                       |  | Committed              |         | 2003         |  | 2004         |       | 2005         |  | Thereafter
|                                       |  |                        |         |              |  |              |       |              |  |           
|Severance pay                          |  | $                      | 3,632   |              |  | $            | 3,632 |              |  | $          |       |  |  | $ |      |  |  | $ |        | 
|Professional fees                      |  |                        | 600     |              |  |              | 600   |              |  |            |       |  |  |   |      |  |  |   |        | 
|Operating leases                       |  |                        | 45,904  |              |  |              | 2,470 |              |  |            | 8,893  |  |  |   | 8,658 |  |  |   | 25,883  | 
|Capital leases                         |  |                        | 2,224   |              |  |              | 295   |              |  |            | 1,145  |  |  |   | 784   |  |  |   |        | 
|Purchase order commitments             |  |                        | 2,432   |              |  |              | 2,432 |              |  |            |       |  |  |   |      |  |  |   |        | 
|Convertible promissory note            |  |                        | 37,500  |              |  |              |      |              |  |            | 37,500 |  |  |   |      |  |  |   |        | 
|Redemption of Series A Preferred Stock |  |                        | 106,899 |              |  |              |      |              |  |            |       |  |  |   |      |  |  |   | 106,899 | 
|                                       |  |                        |         |              |  |              |       |              |  |            |        |  |  |   |       |  |  |   |         | 
|                                       |  | $                      | 199,191 |              |  | $            | 9,429 |              |  | $          | 47,538 |  |  | $ | 9,442 |  |  | $ | 132,782 | 
|                                       |  |                        |         |              |  |              |       |              |  |            |        |  |  |   |       |  |  |   |         | 

For the year ended December 31, 2002 and the
nine months ended September 26, 2003, we recorded
restructuring charges related to the committed future lease
payments for closed facilities, net of estimated future sublease
receipts of $19.0 million. As of September 26, 2003,
we had unconditional purchase order commitments of
$2.4 million, which were included as accrued liabilities.

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

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

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 $25.8 million for royalties and
interest is not included in the above disclosure of future
payments under contractual obligations.

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

42



---



##### Table of Contents



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 to the funds
affiliated with Warburg Pincus and Broadview Capital under the
secured promissory notes issued in July 2003 and amended in
October 31, 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 the failure of the Investors to
provide an additional $10.0 million in exchange for
additional secured promissory notes in accordance with the
Amended Agreement (see Note 1) and 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 (see Note 15). 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.

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 had not been 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 had been utilizing 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 $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 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.

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

43



---



##### Table of Contents



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 nine months ended
September 26, 2003 were $7.3 million resulting from
$27.1 million of recorded restructuring charges, offset by
a net benefit of $19.8 million recorded as a result of
buying a leased property in Sunnyvale, California and
terminating the lease (see Note 1 and Note 14). The
net benefit of $19.8 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.

On July 30, 2003, Warburg Pincus and
entities affiliated with Broadview Capital collectively invested
$30 million in us and we issued short-term secured
exchangeable promissory notes bearing interest at 25% per annum.
The notes will be exchanged, upon approval at a special meeting
of our stockholders, into shares of Series B Preferred
Stock at the sole discretion of these investors. Upon receipt of
stockholder approval, we will issue to these investors warrants
to purchase an aggregate of 18 million shares of
Class A common stock with an exercise price of $1.46, as
previously agreed, and warrants to purchase 6 million
shares of Class A common stock having an exercise price
equal to $1.53 per share (collectively, the
Warrants). In the event that our stockholders do not
approve the exchange of the notes and the issuance of the
Warrants, an 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 the September 30, 2004
maturity date or upon demand.

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol Technologies. 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. 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 Amended Notes. Upon such
occurrence, the Investors would have the ability to require us
to repay the Amended Notes and to prevent us from calling an
additional $10 million investment. 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.

We have incurred substantial losses and negative
cash flows from operations during the nine months ended
September 26, 2003 and the years ended December 31,
2002 and 2001, and have an accumulated deficit of
$361.7 million as of September 26, 2003. If we 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, 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. 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

44



---



##### Table of Contents



time or times as required by us. We may need to
raise additional funds if our estimates change or prove
inaccurate, or in order for us to take advantage of
unanticipated opportunities or to strengthen our financial
position. Our ability to raise funds may be adversely affected
by a number of factors relating to Proxim, as well as factors
beyond our control, including the continued weakness of the
wireless communications industry, volatility and uncertainty in
the capital markets, our ability to remain listed on the Nasdaq
National Market, our ability to pay obligations as they become
due, as well as market uncertainty following the terrorist
attacks of September 11, 2001 and the ongoing U.S. war
on terrorism. 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.


Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (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 November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it
assumes under that guarantee and further requires a guarantor to
provide additional disclosures regarding guarantees. The
Interpretations provisions for initial recognition and
measurement should be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements
of periods that end after December 15, 2002. The adoption
of this Interpretation did not have a material effect on our
consolidated financial statements.

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. We believe
that the adoption of this Interpretation will have no material
impact on our 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 period of adoption. Restatement is not
permitted. Adoption of this Statement is not expected to have a
material impact on the Companys consolidated financial
statements.

45



---



##### Table of Contents



RISK FACTORS

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

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

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

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

Our cash and investment balance declined by
$11.3 million in the fourth quarter of 2002 and further
declined by $4.0 million during the nine months ended
September 26, 2003. On July 22, 2003, we announced
that Warburg Pincus and entities affiliated with Broadview
Capital Partners had agreed to collectively invest
$30 million, and potentially up to $40 million, in us.
On July 30, 2003, the investors collectively invested
$30 million and we issued short-term secured exchangeable
promissory notes bearing interest at 25% per annum. On
October 21, 2003, we amended and restated our securities
purchase agreement with these investors and our $30 million
short-term secured promissory notes issued to these investors on
July 30, 2003. These notes, as amended, will continue to
bear interest at 25 percent per annum, subject to increase
on an event of default or if we call an additional investment of
$5 million from the investors prior to our special meeting
of stockholders. 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 were modified to provide for
exchange at the investors sole discretion following
stockholder approval.

In addition, the investors have also agreed to
make available to us an additional $10 million, issuable in
exchange for senior secured exchangeable promissory notes with
the same terms as, but senior to, the notes, as amended. Of this
amount, the investors have agreed to permit us to call an
investment of $5 million prior to stockholder approval and
the balance for up to 90 days following stockholder
approval at the special meeting, provided in each case that no
event of default has occurred.

We have incurred substantial losses and negative
cash flows from operations during the nine months ended
September 26, 2003 and the years ended December 31,
2002 and 2001, and have an accumulated deficit of
$361.7 million as of September 26, 2003. Further, if
the stockholders do not approve the exchange of the amended
notes for Series B Preferred Stock, an event of default or
change of control occurs, or the 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 the September 30, 2004 maturity date or upon demand. 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 amended
notes. Upon such occurrence, the investors would have the
ability to require us to repay the amended notes and to prevent
us from calling an additional $10 million investment. 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, 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.

46



---



##### Table of Contents



If we 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, 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, if our
estimates change or prove inaccurate, or if we need additional
funds to take advantage of unexpected opportunities or
strengthen our financial position, we may need to raise
additional funds. Our ability to raise funds may be adversely
affected by a number of factors relating to us, as well as
factors beyond our control, including increased market
uncertainty following the events of September 11, 2001, the
ongoing U.S. war on terrorism, as well as conditions in
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.

We may not achieve certain benefits and
synergies expected from our March 26, 2002 merger with
Proxim, Inc. or the August 5, 2002 acquisition of the
802.11 WLAN systems business of Agere, either of which may have
a material adverse effect on our business, financial condition
and operating results and/or could result in the loss of key
personnel.

We will need to continue to overcome significant
ongoing challenges in order to realize any benefits or synergies
from our merger with Proxim, Inc. and our acquisition of the
802.11 WLAN systems business of Agere, including Ageres
ORiNOCO product line. Such challenges include the timely,
efficient and successful execution of a number of
post-transaction events, including:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | integrating the operations of these businesses,
    particularly geographically dispersed operations;
|
| |  | integrating the management information systems,
    accounting systems and reporting process;        
|
| |  | retaining and assimilating the key personnel of
    each company;                                    
|
| |  | retaining existing customers of each company and
    attracting additional customers;                
|
| |  | retaining strategic partners of each company and
    attracting new strategic partners; and          
|
| |  | creating uniform standards, controls, procedures,
    policies and information systems.              

The execution of these post-transaction events
will involve considerable risks and may not be successful. These
risks include:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the potential disruption of our ongoing business
    and distraction of our management;                                                                                                   
|
| |  | unanticipated expenses, including possible
    additional restructuring charges, and potential delays related
    to integration of technology and other resources of these
    companies;
|
| |  | the impairment of relationships with employees,
    suppliers and customers as a result of any integration of new
    management personnel; and                                           
|
| |  | potential unknown liabilities associated with the
    transactions and the combined operations.                                                                                           

In addition, termination of employees in
connection with our restructuring efforts following these
transactions may expose us to claims seeking damages for
wrongful terminations. In that regard, we have been and may
continue to be a party to disputes, including legal actions,
with a number of former employees. These disputes relate
primarily to claims for wrongful termination and severance
benefits due to several reductions in force we have implemented
in 2002 and 2003 following the merger with Proxim, Inc. and the
acquisition of Ageres 802.11 WLAN systems business.

As a result of the merger between Proxim, Inc.
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. We implemented a new enterprise
resource planning and

47



---



##### Table of Contents



financial accounting and planning system during
the second quarter of 2003, integrating this new system with our
customer relationship management system and our product
management system, as well as creating 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 and the ongoing efforts to optimize the
operation of these systems and improve management reporting, 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. Delays or errors in the
implementation of the new system or the subsequent optimization
efforts 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.


The combined company may not succeed in
addressing these risks or any other problems encountered in
connection with our merger with Proxim, Inc. or our acquisition
of Ageres 802.11 WLAN systems business.

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

We had a $244.5 million and
$97.7 million net loss attributable to holders of our
Common Stock for the year ended December 31, 2002 and the
nine months ended September 26, 2003, respectively. We
cannot assure you that our revenue will increase or continue at
current levels 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 WLAN systems business we acquired in
producing many of their products, 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
significant 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 business, operating results and financial condition.

The terms of the notes issued to Warburg
Pincus and Broadview Capital Partners in connection with our
July 2003 financing transaction may adversely affect our
business and financial results.

In connection with the July 2003 financing
transaction, we have issued notes with an aggregate principal
amount of $30 million to Warburg Pincus and Broadview
Capital. As described above, we subsequently amended these notes
in October 2003.

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 its assets, other than
    in limited circumstances or in the ordinary course of business;
    or
|
| |  | pay or declare any dividend or distribution.                                                                               

To remain competitive, we may need to continue
restructuring our organization. Failure to effectively manage
our organization could result in an inability to support and
maintain our operations.

We announced a reorganization of our corporate
structure on December 9, 2002, consolidating our operating
divisions from four to two. In addition, in April 2003, we
announced that we were in the process of restructuring and
reducing our workforce and consolidating our facilities. We
implemented a workforce reduction in the second and third
quarters of 2003 and consolidated our research and development
facilities

48



---



##### Table of Contents



from six sites worldwide to two in the third
quarter of 2003. These changes could place a significant strain
on our management and operational resources. We cannot assure
you that:




| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | our personnel, systems, procedures and controls
    will be adequate to support our future operations;           
|
| |  | our management will be able to hire, train,
    motivate or manage required personnel; or                        
|
| |  | our management will be able to successfully
    identify and exploit existing and potential market opportunities.

We cannot assure you that our reorganization
efforts will be successful or will not impair our ability to
manage our business.

The market price of our Common Stock may
further decline as a result of our merger with Proxim, Inc. or
our acquisition of Ageres 802.11 WLAN systems
business.

The market price of our Common Stock declined
following our acquisition in 2002 and may further decline as a
result of these transactions for a number of reasons, including
if:



| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the integration of these businesses is not
    completed in a timely and efficient manner;                                                                                                      
|
| |  | the combined company does not achieve the
    perceived benefits of these transactions as rapidly or to the
    extent anticipated by financial analysts, industry analysts or
    investors; or
|
| |  | the effect of these transactions on our financial
    results is not consistent with the expectations of financial
    analysts, industry analysts or investors.                                

In this regard, our financial results for the
third quarter of 2002 and the first half of 2003 did not meet
the expectations of financial analysts and the market price of
our Common Stock declined.

Our merger with Proxim, Inc. and our
acquisition of Ageres 802.11 WLAN systems business may
adversely affect our financial results.

We incurred transaction costs of approximately
$16.7 million in connection with our merger with Proxim,
Inc. and approximately $5 million in connection with the
Agere asset purchase. If the benefits of these transactions do
not exceed the associated costs, including costs associated with
integrating these businesses and dilution to our stockholders
resulting from the issuance of shares in connection with the
merger and the asset purchase and related financing, our
financial results, including earnings per share, could be
materially harmed. As a result of the reduced demand for our
products during the first and second quarters of 2003 and the
limited business visibility, we have taken further actions to
reduce our operating expenses during the remainder of 2003, and
decrease our quarterly revenue breakeven point. We recorded a
significant restructuring charge in the second quarter of 2003
primarily related to excess and obsolete inventory, severance
payments and closure of certain facilities.

Product sales could decline if customer
relationships are disrupted by our merger with Proxim, Inc. and
our acquisition of Ageres 802.11 WLAN systems
business.

The merger with Proxim, Inc. or the Agere asset
purchase may have the effect of disrupting customer
relationships. Former customers of Western Multiplex, Proxim,
Inc. and Agere may not continue their current buying patterns
following these transactions and the subsequent integration of
our operations. Customers may defer purchasing decisions as they
evaluate the likelihood of successful integration of the
combined company or may instead purchase products of
competitors. Any significant delay or reduction in orders for
our products could cause our products sales to decline.

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.

Proxim, Inc. produced its 802.11a products for a
limited amount of time and Western Multiplex had just begun
production of its Tsunami point-to-multipoint product prior to
the merger. Agere also had a limited

49



---



##### Table of Contents



operating history with its 802.11 WLAN
equipment. 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 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.

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

50



---



##### Table of Contents



Historically, Proxim, Inc., Western Multiplex and
the 802.11 WLAN system business do not operate with a
significant order backlog and a substantial portion of their
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.

We have adopted a uniform sell-through method
of revenue recognition that may result in greater variability in
our revenue recognition and therefore increased fluctuations in
our operating results.

Effective at the beginning of the third quarter
of 2002, we adopted a uniform sell-through revenue recognition
methodology for products that are sold through North American
distribution channels with rights of return under accounting
principles generally accepted in the United States of America.
After the merger of Proxim, Inc. and Western Multiplex, we
maintained the historical revenue recognition methods used by
the two companies prior to the merger for the respective product
lines: a sell-through method for our WLAN, products, and a
sell-in method for our WWAN products. We have adopted the
sell-through method on a uniform basis because, following the
acquisition of Ageres 802.11 WLAN systems business,
which also uses the sell-through method, the WLAN business is
expected to represent more than half of Proxims revenues,
and adopting one uniform method is consistent with our plans to
sell bundled and integrated WLAN and WWAN products. The adoption
of the sell-through method of revenue recognition for WWAN
products could result in greater variability in our revenue
recognition, and, therefore, increased fluctuations in our
operating results, because sell-through shipments to customers
may not be as predictable as sell-in shipments to distributors.

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. and
the Agere asset purchase 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 business combination with 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. Any excess of the purchase
price over those fair market values has been 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. To finance our acquisition of
Ageres 802.11 WLAN systems business, we entered into
a securities purchase agreement with Warburg Pincus and
Broadview Capital, who agreed to collectively invest
$75.0 million in us. These investors received
1,640,000 shares of Series A Preferred Stock in the
amount of $41.0 million, with a conversion price of
approximately $3.06 per share, and

51



---



##### Table of Contents



warrants to purchase approximately
6.7 million shares of our common stock valued at
approximately $12.3 million. The remaining
$34.0 million of the funding for the acquisition was in the
form of convertible notes. Upon receipt of approval of our
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 we
granted to these investors additional warrants to purchase
approximately 5.6 million shares of our common stock valued
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. The initial liquidation
preference of $25.00 per share attributable to the Series A
Preferred Stock bears interest at an annual rate of 8% through
the third anniversary of the date of issuance, resulting in an
increase in the number of shares of common stock issuable upon
conversion of the Series A Preferred Stock over time, to an
aggregate of approximately 42.4 million, including
antidilution adjustments currently in effect.


On July 22, 2003, we announced that Warburg
Pincus and entities affiliated with Broadview Capital had agreed
to collectively invest $30 million, and potentially up to
$40 million, in us. On July 30, 2003, these investors
collectively invested $30 million in us and we issued
short-term secured exchangeable promissory notes bearing
interest at 25% per annum. On October 21, 2003, we amended
and restated our securities purchase agreement with these
investors and our $30 million short-term secured promissory
notes issued to these investors on July 30, 2003. 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
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 our
Class A common stock at a conversion price of $1.15 per
share, as previously agreed. The initial liquidation preference
of $100.00 per share attributable to the Series B Preferred
Stock bears interest at an annual rate of 14% through the
seventh anniversary of the date of issuance, resulting in an
increase in the number of shares of common stock issuable upon
conversion of the Series B Preferred Stock over time, to an
aggregate of approximately 89.1 million, assuming exchange
on September 30, 2004 of $30 million of aggregate
principal amount of the amended notes, together with accrued but
unpaid interest at a rate of 25%. Upon receipt of stockholder
approval, we will issue to the investors warrants to purchase an
aggregate of 18 million shares of Class A common stock
with an exercise price of $1.46, as previously agreed, and
warrants to purchase 6 million shares of Class A
common stock having an exercise price equal to $1.53 per share.

Assuming exchange of $30 million in
aggregate principal amount of the amended notes, together with
accrued interest, on September 30, 2004, the shares of
Series B Preferred Stock to be issued upon exchange of the
amended notes and the warrants would be expected to represent
approximately 14.3% and 10.1%, respectively, of our outstanding
capital stock on an as-converted and as-exercised basis, based
on shares outstanding as of October 9, 2003 and excluding
outstanding employee options and warrants to purchase
approximately 31.7 million shares of common stock. Prior to
this transaction and excluding the effects of the
investors initial $30 million financing on
July 30, 2003, our Series A mandatorily redeemable
convertible preferred stock and warrants currently held by the
investors represented approximately 16.7% and 7.6%,
respectively, of our outstanding capital stock on an
as-converted and as-exercised basis, based on shares outstanding
as of October 9, 2003 and excluding employee options and
warrants to purchase approximately 31.7 million shares of
common stock. Assuming the issuance of the Series B
Preferred Stock upon exchange of the amended notes on
September 30, 2004 and the issuance of the warrants, the
Series A Preferred Stock and the existing warrants would be
expected to represent an aggregate of approximately 17.1% and
7.2%, respectively, of our outstanding capital stock on an
as-converted and as-exercised basis, based on shares outstanding
as of October 9, 2003 and excluding employee options and
warrants, and as adjusted to account for anti-dilution
adjustments in connection with the issuance of the amended notes
and the warrants to purchase 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 our annual report on
Form 10-K with the SEC for the year ending
December 31, 2003. Upon the effectiveness of such
registration

52



---



##### Table of Contents



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 exercise of all of the warrants.


In addition to outstanding shares eligible for
sale, as of September 26, 2003, options and warrants to
acquire 44.3 million shares of our common stock were
outstanding. Also, as of September 26, 2003, approximately
an additional 16.2 million 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
competitors, particularly Alcatel, Business Networks AB,
Cisco Systems, D-Link, and LinkSys (acquired by Cisco Systems in
March 2003), that have broader distribution channels, brand
recognition, extensive patent portfolios and more diversified
product lines. We have several competitors in our commercial
wireless business, including without limitation, Alvarion (the
merger of Breezecom and Floware), Ceragon Networks, Cisco
Systems, DMC Stratex Networks, Enterasys Networks, Harris
Corporation, , Nokia Corporation, Symbol Technologies and 3Com
Corporation.

Numerous companies have announced their intention
to develop competing products in both the commercial wireless
and home networking markets, including several Asia-based
companies offering low-price IEEE 802.11b and 802.11g
products. We could also face future competition from companies
that offer products which replace network adapters or offer
alternative communications solutions, or from large computer
companies, PC peripheral companies, as well as other large
networking equipment companies 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 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.

53



---



##### Table of Contents



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 products will have
a meaningful commercial impact. In 1999, the IEEE approved a new
2.4 GHz WLAN standard, designated as 802.11b. Based on
direct sequence spread spectrum technology, this new standard
increased the nominal data rate from 2 Mbps to
11 Mbps. In addition, we developed higher-speed frequency
hopping technology based on the FCC Part 15 rule
change adopted in August 2000, that allowed for wider band
hopping channels and increased the data rate from 1.6 Mbps
to up to 10 Mbps. There can be no assurance that any such
new products will compete effectively with IEEE 802.11b
standard compliant products. In August 2002, we completed the
acquisition of Ageres 802.11 WLAN systems business,
including its ORiNOCO product line, and we are now selling a
full line of 802.11b products.

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

In 2000, the IEEE approved a new
5 GHz WLAN standard designated as 802.11a. This new
standard is based on Orthogonal Frequency Division Multiplexing,
or OFDM, technology with multiple data rates ranging from below
10 Mbps to approximately 50 Mbps. In 1999, the
European Telecommunications Standards Institute Project BRAN
(Broadband Radio Access Networks) committee approved a new
5 GHz WLAN standard designated as HiperLAN2, also
based on OFDM technology. We are currently shipping commercial
units of 802.11a products, and certain competitors are also
shipping 802.11a products.

The IEEE is evaluating a number of improvements
and enhancements to 802.11a at 5 GHz and 802.11b at
2.4 GHz standards. During the second quarter of 2003, the
IEEE approved the 802.11g standard, a high speed extension of
802.11b, offering up to 54 Mbps of throughput, and
commercial products are available. In addition, we have begun
commercial shipment of and recognized revenue for dual-band
adapters that comply with both the 802.11b and the 802.11a
standards and a new dual-band, tri-protocal 802.11a, b and
g WLAN combination solution. The 802.11e proposal is a
quality of service enhancement to the 802.11a and 802.11b
protocol for streaming multimedia support. The 802.11i proposal
addresses enhanced security for both 802.11a and 802.11b. The
802.11h proposal addresses dynamic frequency selection and
transmit power control for worldwide radio regulation.

In January 2003, the IEEE ratified a new WWAN
standard designated as 802.16. This new standard specifies a
common broadband wireless access platform for WWAN
point-to-multipoint devices. In April 2003, we joined the newly
expanded Worldwide Interoperability for Microwave Access Forum,
or WiMAX Forum, as a principal member and obtained a seat on the
board of directors. The WiMAX Forum is a nonprofit corporation
formed to promote and certify the compatibility and
interoperability of WWAN point-to-multipoint devices using the
IEEE 802.16 specifications.

Given the emerging nature of the WLAN and WWAN
markets, there can be no assurance that these products and
technology, or our other products or technology, will not be
rendered obsolete by alternative or competing technologies. 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

54



---



##### Table of Contents



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.


We will 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 nine months ended September 26,
2003 and the year ended December 31, 2002, international
sales accounted for approximately 41% and 38% of our total
sales, respectively. Revenue from shipments by Western Multiplex
to customers outside of North America, principally to a limited
number of distributors, represented 24% and 33% of total revenue
during the calendar years 2001 and 2000, respectively. Revenue
from shipments by Proxim, Inc. to customers outside North
America, principally to a limited number of distributors and OEM
customers, represented 33% and 18% of total revenue during the
calendar years 2001 and 2000, respectively. 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 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

55



---



##### Table of Contents



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. General economic conditions in the U.S.
have caused and may continue to cause U.S. businesses to slow
spending on products and to delay sales cycles. Similarly, a
continued worsening in the global economy 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.

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 Alcatel, Cisco Systems
(including Linksys) and 3Com Corporation, among others, our
principal product offerings rely solely 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 are currently
investing substantial capital, have only been 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

56



---



##### Table of Contents



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.

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.

The combined company may be dependent on and
receive a significant percentage of its revenue from a limited
number of OEM customers.

A limited number of OEM customers may contribute
a significant percentage of our revenue. Sales to one Proxim,
Inc. customer in calendar year 2000 represented approximately
12% of total revenue. Ageres sales of its ORiNOCO products
included sales to OEM customers. 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.
Proxim, Inc. also experienced quarter-to-quarter variability in
sales to each of its major OEM customers. Sales of many of
Proxim, Inc.s wireless networking products depended upon
the decision of a prospective OEM customer to develop and market
wireless solutions that incorporated Proxim, Inc.s
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;                                              

57



---



##### Table of Contents





| |   |                        
| | - | -----------------------
| |  | contract awards; and   
|
| |  | competitive situations.

Proxim, Inc.s agreements with OEM customers
typically did not require minimum purchase quantities. 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 the six months ended June 27, 2003 and year
ended December 31, 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 purchase orders,
if any, from a limited number of distributors. In addition, as
we continued 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. In connection with our
acquisition of Ageres 802.11 WLAN systems business,
we have entered into a three-year strategic supply agreement
with Agere, pursuant to which Agere will provide us with
802.11 chips, modules and cards. Other than this agreement,
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 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

58



---



##### Table of Contents



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.


Proxim, Inc. relied 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.

Western Multiplex depended on three domestic
contract manufacturers to produce the majority of its products,
and it depended on one of these manufacturers for the entire
production of its Tsunami point-to-multipoint product. Changes
in our manufacturing operations to incorporate new products and
processes, or to manufacture at lower cost locations outside the
United States, could cause disruptions, which, in turn, could
adversely affect customer relationships, cause a loss of market
opportunities and negatively affect our business and operating
results. 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. During the fourth quarter of 2002, we began
to transition manufacturing of our Tsunami point-to-multipoint
products from a domestic contract manufacturing to off-shore
contract manufacturing. 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.

The average selling prices of the products of
Western Multiplex, Proxim, Inc. and Ageres WLAN systems
business declined in recent years. 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 that can be sold at higher average selling
prices or produced at lower costs.

59



---



##### Table of Contents



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 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. Recently, we have
identified performance issues related to a power supply
component provided by one of our contract manufacturers. 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.

Western Multiplex sold its Lynx and Tsunami
point-to-point and Tsunami point-to-multipoint products and
Agere sold its ORiNOCO products through domestic and
international distributors. We intend to add new distributors
and value-added resellers for the Tsunami point-to-multipoint
products. In general, distributors, value-added resellers and
retailers offer products of several different companies,
including products that may

60



---



##### Table of Contents



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.

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, Chief Financial Officer and Secretary,
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. In addition, our
employees may experience uncertainty about their participation
in the future of the combined company due to the following
issues relating to recent business combination transactions:
changing employee roles with respect to Proxims announced
operations strategies, the management of an increasing number of
geographically dispersed operations and the related challenges
of integrating a growing number of diverse local regulations,
customs and practices. These conditions may adversely affect our
ability to attract and retain key management, technical, sales
and

61



---



##### Table of Contents



marketing personnel. We must also continue to
motivate employees and keep them focused on the strategies and
goals of the combined company, which may be particularly
difficult due to the potential distractions of the merger and
morale challenges posed by workforce reductions and
restructurings.


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.

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.

Upon receipt of stockholder approval, we will
issue Warburg Pincus and entities affiliated with Broadview
Capital warrants to purchase an aggregate of eighteen million
shares of Class A common stock with an exercise price of
$1.46, and warrants to purchase six million shares of
Class A common stock having an exercise price equal to
$1.53 per share. Assuming exchange by these investors of
$30 million in aggregate principal amount of the amended
notes, together with accrued interest, on September 30,
2004, the shares of Series B Preferred Stock to be issued
upon exchange of the amended notes and the warrants would be
expected to represent approximately 14.3% and 10.1%,
respectively, of our outstanding capital stock on an
as-converted and as-exercised basis, based on shares outstanding
as of October 9, 2003 and excluding outstanding employee
options and warrants to purchase approximately 31.7 million
shares of common stock. Prior to this transaction and excluding
the effects of the investors initial $30 million
financing on July 30, 2003, our Series A Preferred
Stock and warrants currently held by these investors represented
approximately 16.7% and 7.6%, respectively, of our outstanding
capital stock on an as-converted and as-exercised basis, based
on shares outstanding as of October 9, 2003 and excluding
employee options and warrants to purchase approximately
31.7 million shares of common stock. Assuming the issuance
of the Series B Preferred Stock upon exchange of the
amended notes on September 30, 2004 and the issuance of the
warrants, the Series A Preferred Stock and the existing
warrants held by these investors would be expected to represent
an aggregate of approximately 17.1% and 7.2%, respectively, of
our outstanding capital stock on an as-converted and
as-exercised basis, based on shares outstanding as of
October 9, 2003 and excluding employee options and
warrants, and as adjusted to account for anti-dilution
adjustments in connection with the issuance of the

62



---



##### Table of Contents



amended notes. These stockholders will be 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.


Holders of our Series A Preferred Stock
have rights that are senior to those of our common stock. Upon
exchange of outstanding notes for Series B Preferred Stock,
the holders of our Series B Preferred Stock will also have
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 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 shall be approximately $3.06
    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 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.                                                                                                                                                                                                                                                                                                          

If approved at a special meeting of our
stockholders, Warburg Pincus and Broadview Capital will have the
right to exchange the notes issued to these investors in July
2003 for shares of Series B Preferred Stock. We
subsequently amended and restated these notes in October 2003.
Upon such issuance of the notes, as amended, 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

63



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 sixth
    anniversary of the issuance of the Series B Preferred
    Stock, the liquidation preference will increase as necessary to
    provide for six years of accretion; provided, however, that if a
    change of control occurs within nine months of the issuance of
    the Series B Preferred Stock, the accretion amount will be
    capped at 80% of its maximum value;
|
| |  | 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 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 amended notes issued to each of them on
October 21, 2003 or 25% of the shares of Series B
Preferred 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 Preferred 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

64



---



##### Table of Contents



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 and
International Trade Commission litigation has resulted in, and
could in the future continue to result in, substantial costs and
diversion of management resources of the combined 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 March 8, 2001, Proxim, Inc. filed two
lawsuits for infringement of three United States Patents for
wireless networking technology: one suit in the
U.S. District Court for the District of Massachusetts
against Cisco Systems, Incorporated and Intersil Corporation;
and one suit in the U.S. District Court for the District of
Delaware against 3Com Corporation, SMC, Symbol Technologies and
Wayport. These suits sought an injunction against continued
infringement, damages resulting from the infringement and the
defendants conduct, interest on the damages,
attorneys fees and costs, and such further relief as the
respective courts deem just and appropriate.

On March 9, 2001, Proxim, Inc. filed suit
with the International Trade Commission (ITC) in
Washington, D.C. asking the ITC to stop the importation of
products that infringe its patented wireless networking
technology. Eight companies were identified in this action;
Acer, Addtron, Ambicom, Compex, D-Link, Enterasys, Linksys and
Melco. Proxim, Inc. notified these and other companies that it
believed to have been infringing its patents. On May 9,
2001, Proxim, Inc. filed to remove Compex from the ITC complaint
as Compex entered into an agreement with Proxim, Inc. to license
these patents. Intersil and Agere have filed motions to
intervene in the proceedings before the ITC and these motions
were approved by the ITC.

On or about April 24, 2001, Intersil
Corporation and Cisco Systems, Incorporated filed suit in the
U.S. District Court for the District of Delaware seeking
that Proxim, Inc.s patents be found invalid, unenforceable
and not infringed. Intersil and Cisco sought damages and
attorneys fees from Proxim, Inc. based upon alleged breach
of contract and unfair competition.

On or about May 1, 2001, Symbol Technologies
filed patent infringement counterclaims 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. These counterclaims were
later severed from the lawsuit by the District Court and refiled
by Symbol on December 4, 2001.

On or about May 31, 2001, Agere filed suit
in the U.S. District Court for the District of Delaware
alleging that Proxim, Inc. infringed three Agere patents. Agere
sought unspecified damages and a permanent injunction against
Proxim, Inc. related to its infringement claims. On July 9,
2001, Proxim, Inc. filed an amended answer and counterclaim to
the Agere suit. Proxim, Inc. sought declaratory judgment for
non-infringement, invalidity and unenforceability of certain
Agere patents, as well as damages for violation of the antitrust
laws of the United States.

On August 8, 2001, Proxim, Inc. filed an
amended answer and counterclaim, and further sought damages for
violation of the antitrust laws of the United States. On
December 13, 2001, Proxim, Inc. filed a second amended
answer and counterclaim, and sought to add Ageres parent,
Agere Guardian Systems Inc., as a party.

65



---



##### Table of Contents



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 August 5, 2002, in connection with our
acquisition of the 802.11 WLAN systems business from Agere,
we announced that we had entered into a cross-license agreement
with Agere whereby, in part, Agere agreed to settle the pending
patent-related litigation between the two companies.

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, we 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 have 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.

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. Proceedings will continue with
the court to conduct a bench trial on our remaining equitable
defenses not addressed by the jury. 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. 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 do not incur any
immediate financial obligation to Symbol as a result of this
verdict, pending completion of related proceedings. On
September 29, 2003, in connection with our counterclaims
against Symbol, the jury rendered a verdict that Symbol did not
infringe on a patent held by us.

As a result of the settlement with Agere Systems
and its customers on August 5, 2002, and the settlement
with Intersil and its customers on March 17, 2003, the only
patent infringement litigation that remains open relates to
Symbol Technologies suit against Proxim.

On or about 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
or about May 30, 2003. Top Globals lawsuit was filed
against Agere Systems, Inc., Agere Systems Singapore, and Agere
Systems Asia Pacific (collectively, Agere) and the
Company 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 is responsible for accepting the product return and
issuing a $1.2 million credit and also alleges breach of
contract. The case is in its earliest stages, as discovery
recently commenced and a trial date has not been set. The
Company intends to defend itself vigorously against the lawsuit.

On or about August 22, 2003, ISIS Surface
Mounting, Inc. (ISIS) filed a complaint against the
Company in the Superior Court of the State of California, County
of Santa Clara. ISIS alleges, among other things, that between
August 1997 and March 2001, the Company agreed to purchase
circuit board assemblies from ISIS in accordance with written
forecasts and specifications provided by the Company. The
complaint further alleges that the Company breached this alleged
agreement by failing to buy circuit board assemblies in
accordance with its previous forecasts. ISIS seeks damages of at
least $6.2 million, plus interest, attorneys

66



---



##### Table of Contents



fees, costs of suit, and certain equitable
relief. The case is in its earliest stages, as discovery has not
yet commenced and a trial date has not been set. The Company
intends to defend itself vigorously against the lawsuit.


The Company is 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. The Company has recorded reserves related
to these disputes to the extent that management believes that
the Company is liable. 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 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 amended 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 amended notes and to prevent us from calling an
additional $10 million investment. 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 the Company to repay any outstanding
amounts under the credit facility and to prohibit the Company
from borrowing any additional amounts.

If we 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, 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.

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

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

67



---



##### Table of Contents



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


The FCC is coordinating discussions between the
United States military and the commercial wireless industry
regarding the operation and potential interference from
unlicensed 5 GHz systems. These discussions are intended to
resolve the potential interference issues without a rule change
to the operation of unlicensed 5 GHz systems. If a solution
cannot be agreed upon by the parties, the FCC could change the
regulations related to the operation of unlicensed 5 GHz
products. Such a change could have a material adverse affect
upon the sale of our unlicensed 5 GHz products.

Our products are also subject to regulatory
requirements in international markets and, therefore, we must
monitor the development of spread spectrum and other radio
frequency regulations in certain countries that represent
potential markets for our products. While 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
allocation of available frequency spectrum, could significantly
affect our operations by restricting our development efforts,
rendering current products obsolete or increasing the
opportunity for additional competition. 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
    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.

We may not be able to continue to meet the
listing criteria for the Nasdaq National Market, which would
adversely affect the ability of investors to trade our common
stock and could adversely affect our business and financial
condition.

We cannot assure you that we will be able to
maintain the listing of our common stock on the Nasdaq National
Market, or that we will be able to meet the listing criteria for
the Nasdaq SmallCap Market. In particular, from time to time in
recent periods, the bid price of our Common Stock has closed
below the $1.00 per share minimum required for continued
inclusion on the Nasdaq National Market pursuant to
Nasdaqs Marketplace Rules. If as a result of the
application of these listing requirements, our common stock is
delisted from The Nasdaq National Market, our common stock would
become more difficult to buy and sell. In

68



---



##### Table of Contents



addition, our common stock could be subject to
certain rules placing additional requirements on brokers-dealers
who sell or make a market in our securities. Consequently, if we
were removed from the Nasdaq National Market, the ability or
willingness of broker-dealers to sell or make a market in our
common stock might decline, which would adversely affect the
ability of investors to resell our common stock. In addition,
our ability to secure additional capital in financing
transactions with investors might be impacted, which would
adversely affect our business and financial condition.


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 has 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. In
addition, 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.

69



---



##### Table of Contents



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

70



---



##### Table of Contents








|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | 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

Other than our equity investments as described
below, our investments include restricted cash, representing
funds held in financial institutions as collateral on security
deposits required under lease agreements. As these funds consist
of time deposits that are generally held to maturity, they are
not generally subject to interest rate risk. In July 2003, we
issued to Warburg Pincus and Broadview Capital secured
exchangeable promissory notes and subsequently amended these
notes in October 2003. As amended, these notes bear interest at
a rate of 25% per annum and mature on September 30, 2004.
As these notes bear interest at a fixed rate through maturity,
they are not subject to interest rate risk.

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 invest in
equity investments in a public company for business and
strategic purposes and we have classified these securities as
available-for-sale. We also invest in equity instruments in a
private company. These equity investments, primarily in
technology companies, are 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
September 26, 2003, we had unrealized gain of $879,000
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.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Evaluation of disclosure controls and
procedures.Our Chief Executive
Officer and our Chief Financial Officer, after evaluating the
effectiveness of the Companys disclosure controls
and procedures (as defined in the Securities Exchange Act
of 1934, as amended (the Exchange Act)
Rules 13a-15(e) or 15d-15(e)) as of the end of the period
covered by this quarterly report, have concluded that our
disclosure controls and procedures are effective based on their
evaluation of these controls and procedures required by
paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Changes in internal control over financial
reporting.There were no changes in
our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15 or 15d-15 that occurred during
our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.

71



---



##### Table of Contents






PART II. OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

Our involvement in patent and International Trade
Commission litigation has resulted in, and could in the future
continue to result in, substantial costs and diversion of
management resources of the combined 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. In particular, as described in
detail below, on September 15, 2003, we announced that the
jury had rendered a verdict in the first phase of the patent
infringement litigation with Symbol Technologies finding that
certain of our products infringe two of Symbols patents.

On March 8, 2001, Proxim, Inc. filed two
lawsuits for infringement of three United States Patents for
wireless networking technology: one suit in the
U.S. District Court for the District of Massachusetts
against Cisco Systems, Incorporated and Intersil Corporation;
and one suit in the U.S. District Court for the District of
Delaware against 3Com Corporation, SMC, Symbol Technologies and
Wayport. These suits sought an injunction against continued
infringement, damages resulting from the infringement and the
defendants conduct, interest on the damages,
attorneys fees and costs, and such further relief as the
respective courts deem just and appropriate.

On March 9, 2001, Proxim, Inc. filed suit
with the International Trade Commission (ITC) in
Washington, D.C. asking the ITC to stop the importation of
products that infringe its patented wireless networking
technology. Eight companies were identified in this action;
Acer, Addtron, Ambicom, Compex, D-Link, Enterasys, Linksys and
Melco. Proxim, Inc. notified these and other companies that it
believed to have been infringing its patents. On May 9,
2001, Proxim, Inc. filed to remove Compex from the ITC complaint
as Compex entered into an agreement with Proxim, Inc. to license
these patents. Intersil and Agere have filed motions to
intervene in the proceedings before the ITC and these motions
were approved by the ITC.

On or about April 24, 2001, Intersil
Corporation and Cisco Systems, Incorporated filed suit in the
U.S. District Court for the District of Delaware seeking
that Proxim, Inc.s patents be found invalid, unenforceable
and not infringed. Intersil and Cisco sought damages and
attorneys fees from Proxim, Inc. based upon alleged breach
of contract and unfair competition.

On or about May 1, 2001, Symbol Technologies
filed patent infringement counterclaims 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. These counterclaims were
later severed from the lawsuit by the District Court and refiled
by Symbol on December 4, 2001.

On or about May 31, 2001, Agere filed suit
in the U.S. District Court for the District of Delaware
alleging that Proxim, Inc. infringed three Agere patents. Agere
sought unspecified damages and a permanent injunction against
Proxim, Inc. related to its infringement claims. On July 9,
2001, Proxim, Inc. filed an amended answer and counterclaim to
the Agere suit. Proxim, Inc. sought declaratory judgment for
non-infringement, invalidity and unenforceability of certain
Agere patents, as well as damages for violation of the antitrust
laws of the United States.

On August 8, 2001, Proxim, Inc. filed an
amended answer and counterclaim, and further sought damages for
violation of the antitrust laws of the United States. On
December 13, 2001, Proxim, Inc. filed a second amended
answer and counterclaim, and sought to add Ageres parent,
Agere Guardian Systems Inc., as a party.

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

72



---



##### Table of Contents



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 August 5, 2002, in connection with our
acquisition of the 802.11 WLAN systems business from Agere, we
announced that we had entered into a cross-license agreement
with Agere whereby, in part, we and Agere agreed to settle the
pending patent-related litigation between the two companies.

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, we and Intersil 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.

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. Proceedings will continue with
the court to conduct a bench trial on our remaining equitable
defenses not addressed by the jury. 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. We will
continue to evaluate and review our estimate of 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 do not
incur any immediate financial obligation to Symbol as a result
of this verdict, pending completion of related proceedings. On
September 29, 2003, in connection with our counterclaims
against Symbol, the jury rendered a verdict that Symbol did not
infringe on a patent held by us. We intend to vigorously defend
ourself in Symbols suit against us and to consider all
available options after the conclusion of all matters before the
court.

As a result of the settlement with Agere Systems
and its customers on August 5, 2002, and the settlement
with Intersil and its customers on March 17, 2003, the only
patent infringement litigation that remains open relates to
Symbol Technologies suit against Proxim, and Proxims
suit.

On or about 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
or about May 30, 2003. Top Globals lawsuit was filed
against Agere Systems, Inc., Agere Systems Singapore, and Agere
Systems Asia Pacific (collectively, Agere) and the
Company 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 is responsible for accepting the product return and
issuing a $1.2 million credit and also alleges breach of
contract. The case is in its earliest stages, as discovery
recently commenced and a trial date has not been set. The
Company intends to defend itself vigorously against the lawsuit.

On or about August 22, 2003, ISIS Surface
Mounting, Inc. (ISIS) filed a complaint against the
Company in the Superior Court of the State of California, County
of Santa Clara. ISIS alleges, among other things, that between
August 1997 and March 2001, the Company agreed to purchase
circuit board assemblies from ISIS in accordance with written
forecasts and specifications provided by the Company. The
complaint further alleges that the Company breached this alleged
agreement by failing to buy circuit board assemblies in
accordance with its previous forecasts. ISIS seeks damages of at
least $6.2 million, plus interest, attorneys fees,
costs of suit, and certain equitable relief. The case is in its
earliest stages, as discovery has not yet commenced and a trial
date has not been set. The Company intends to defend itself
vigorously against the lawsuit.

73



---



##### Table of Contents



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 amended 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 amended notes and to prevent us from calling an
additional $10 million investment. 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 the Company to repay any
outstanding amounts under the credit facility and to prohibit
the Company from borrowing any additional amounts.

If we 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, 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 2. | Changes in Securities and Use of
    Proceeds

Recent Sales
of Unregistered Securities

From June 28, 2003 through
September 26, 2003, the Company issued and sold the
following unregistered securities which, on October 21,
2003, were amended and restated as described below:

On July 30, 2003, the Company issued to
Warburg Pincus Private Equity VIII, L.P. and Broadview
Capital Partners L.P. and affiliates (the Investors)
short-term secured exchangeable promissory notes with an
aggregate principal amount equal to $30 million and bearing
interest at 25% per annum. The short-term secured exchangeable
promissory notes were issued in exchange for an investment in
the Company by the investors in the amount of $30 million
under the terms of the securities purchase agreement, entered
into as of July 22, 2003, by and among the Company and
these investors. The securities purchase agreement provided for
a potential investment of up to $40 million, as described
above in Note 1, The Company  Liquidity
and Significant Events  Amended Exchangeable
Promissory Notes.

On October 21, 2003, the Company amended and
restated the securities purchase agreement (the Amended
Agreement) and amended and restated the short-term secured
exchangeable promissory notes (the Amended Notes).
The Amended Notes continue to bear interest at 25% per annum,
subject to increase on an event of default or if the Company
calls an additional investment of $5 million from the
investors prior to its special meeting of stockholders. 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;

74



---



##### Table of Contents





| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | any date upon which a holder of an Amended 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 in Amended Agreement, includes
(i) any adverse ruling or judgment in the Companys
pending patent infringement litigation with Symbol Technologies,
Inc. 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 rulings or
judgments made against the Company and/or any of its
subsidiaries in the patent infringement litigation with Symbol
or any other litigations, the effects of which rulings or
judgments are material and adverse to the Company and its
subsidiaries, taken as a whole.

The terms providing for the automatic exchange of
the short-term secured exchangeable promissory notes, upon
stockholder approval, for shares of Series B mandatorily
redeemable convertible preferred stock (the 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.

Upon receipt of stockholder approval, the Company
will issue to the Investors warrants to purchase an aggregate of
18 million shares of Class A common stock with an
exercise price of $1.46, as previously agreed, and warrants to
purchase 6 million shares of Class A common stock
having an exercise price equal to $1.53 per share (collectively,
the Warrants). The Company will hold a special
meeting of stockholders to approve the Investors right to
exchange the Amended Notes for Series B Preferred Stock and
the issuance of the Warrants on December 12, 2003.

Proceeds from this $30 million investment in
the Company 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 set forth above. The
issuance was made pursuant to Section 4(2) of the
Securities Act of 1933, as amended.

Rights of
Security Holders

Holders of Amended Notes receive additional
rights to board representation. In addition, upon exchange of
the Amended Notes for Series B preferred stock, such
holders of our Series B preferred stock will be entitled to
receive certain benefits not available to holders of our common
stock or our Series A preferred stock, including certain
preferential dividends, liquidation preferences, redemption
rights, preemptive rights that apply to certain future issuances
of our capital stock, change of control conversion rights,
conversion price adjustments, certain protective provisions
relating to future corporate actions, and continued additional
rights to board representation.






|        |                  
|------- | -----------------
|Item 5. | Other Information

On August 5, 2003, Jonathan Zakin,
Proxims former Chairman and Chief Executive Officer,
vacated his position as Chairman of the Board of Directors.
Following the appointment of Frank Plastina as President and
Chief Executive Officer of Proxim on May 1, 2003 and until
August 5, 2003, Mr. Zakin had continued as Chairman of
the Board of Directors and worked with Mr. Plastina on
strategic initiatives and investor relations. Proxim is
currently endeavoring to appoint a new Chairman of the Board of
Directors.

75



---



##### Table of Contents



In connection with Mr. Zakins
departure on August 5, 2003, we entered into a separation
and release letter agreement with him pursuant to which
(i) Mr. Zakin acknowledged that the termination of his
employment constituted a termination by the Company, without
cause, as such term is defined in the Amended and Restated
Employment and Co-Investment Agreement, dated October 31,
1999, by and among the Company, Mr. Zakin and certain other
entities, and (ii) certain options to purchase our common
stock held by Mr. Zakin fully vested and became exercisable
until August 5, 2004.

As previously reported, David C. King
vacated his position as Vice Chairman of the Board of Directors,
effective July 7, 2003. In connection with
Mr. Kings departure, we entered into a separation
agreement and release with him, pursuant to which (i) the
Company agreed that good reason, as referenced therein, existed
as of December 9, 2002 and continued to exist until the
Separation Date and (ii) that Mr. King is entitled to
all payments and benefits under Section 9(c)(iii) of that
certain employment agreement, as amended, dated January 16,
2002 and as amended December 9, 2002 and June 9, 2003,
and Section 3(a)(i) of that certain Change of Control
Agreement, dated June 18, 1998 and as amended June 9,
2003.

Effective September 4, 2003, David L.
Thompson was appointed our Executive Vice President, Chief
Financial Officer and Secretary. On October 27, 2003,
Richard J. Tallman joined Proxim as our Vice President, General
Counsel and Secretary. Mr. Thompson continues to hold the
titles of Executive Vice President and Chief Financial Officer.




Item
6.Exhibits and Reports on Form
8-K

A. Exhibits

| |           |  |  |                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.15(1)*  |  |  | Form of Registrants Secured Promissory Note
    issued to each of the investors in connection with the
    Securities Purchase Agreement, dated July 22, 2003, by and
    among the Registrant, 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.
| | 10.49     |  |  | Employment Agreement, dated June 28, 2003
    and effective as of September 4, 2003, by and between the
    Registrant and David L. Thompson.                                                                                                                                                                                                                                                       
| | 10.50     |  |  | 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.                                                                                                                                                                                                                                       
| | 10.51     |  |  | Separation Agreement and Release, dated
    September 1, 2003 and effective as of July 7, 2003, by
    and between the Registrant and David C. King.                                                                                                                                                                                                                                                
| | 10.52(2)* |  |  | Securities Purchase Agreement, dated
    July 22, 2003, by and among the Registrant, 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.                                                                                                            
| | 10.53*    |  |  | Intercreditor Agreement, dated 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).                                                                                                                                                                               
| | 10.54     |  |  | Amendment to Loan Documents, dated July 25,
    2003, between the Registrant and Silicon Valley Bank.                                                                                                                                                                                                                                                                                               
| | 10.55     |  |  | 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.                                                                                                                             
| | 31.1      |  |  | Section 302 Certification of Principal
    Executive Officer                                                                                                                                                                                                                                                                                                                                        
| | 31.2      |  |  | Section 302 Certification of Principal
    Financial Officer                                                                                                                                                                                                                                                                                                                                        
| | 32.1      |  |  | Section 906 Certification of Principal
    Executive Officer                                                                                                                                                                                                                                                                                                                                        
| | 32.2      |  |  | Section 906 Certification of Principal
    Financial Officer                                                                                                                                                                                                                                                                                                                                        



---



|    |                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on July 29, 2003
    (included as an attachment to Exhibit 2.1).

76



---



##### Table of Contents





|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on July 29, 2003.



|  |                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Please refer to the exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on October 27, 2003 for
    important information regarding the subsequent amendment and
    restatement of the security or agreement to which this exhibit
    relates.

B. Reports on Form 8-K

|                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date               |  | Item Reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|July 29, 2003      |  | On July 22, 2003, the Registrant issued a
    press release announcing that it has entered into a Securities
    Purchase Agreement, dated July 22, 2003, 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 Original Purchase Agreement) and filed the
    press release and the Original Purchase Agreement on
    Form 8-K.
|August 25, 2003    |  | In connection with the calling of a Special
    Meeting of Stockholders to approve proposals relating to the
    securities described in the Original Purchase Agreement, the
    Registrant furnished certain financial statements and other
    information on Form 8-K.                                                                                                                                                                                                                    
|September 15, 2003 |  | On September 15, 2003, the Registrant issued
    a press release relating to the jury verdict in the first phase
    of Symbol Technologies, Inc.s patent suit with the
    Registrant before the U.S. District Court before the
    District of Delaware and filed the press release on
    Form 8-K.                                                                                                                                                                                       

77



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.



| |                   
| | ------------------
| | PROXIM CORPORATION



| |     |                      
| | --- | ---------------------
| | By: | /s/ DAVID L. THOMPSON

| |                                                 
| | ------------------------------------------------
| |                                                 
| | David L. Thompson                               
| | Executive Vice President and                    
| | Chief Financial Officer                         
| | (Principal Financial and Accounting
    Officer)

Date: November 10, 2003

78



---



##### Table of Contents






EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .15(1)*     |  | Form of Registrants Secured Promissory Note
    issued to each of the investors in connection with the
    Securities Purchase Agreement, dated July 22, 2003, by and
    among the Registrant, 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.
|        | 10 | .49         |  | Employment Agreement, dated June 28, 2003
    and effective as of September 4, 2003, by and between the
    Registrant and David L. Thompson.                                                                                                                                                                                                                                                       
|        | 10 | .50         |  | 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.                                                                                                                                                                                                                                       
|        | 10 | .51         |  | Separation Agreement and Release, dated
    September 1, 2003 and effective as of July 7, 2003, by
    and between the Registrant and David C. King.                                                                                                                                                                                                                                                
|        | 10 | .52(2)*     |  | Securities Purchase Agreement, dated as of
    July 22, 2003, by and among the Registrant, 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.                                                                                                      
|        | 10 | .53*        |  | 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).                                                                                                                                                                         
|        | 10 | .54         |  | Amendment to Loan Documents, dated July 25,
    2003, between the Registrant and Silicon Valley Bank.                                                                                                                                                                                                                                                                                               
|        | 10 | .55         |  | 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.                                                                                                                             
|        | 31 | .1          |  | Section 302 Certification of Principal
    Executive Officer                                                                                                                                                                                                                                                                                                                                        
|        | 31 | .2          |  | Section 302 Certification of Principal
    Financial Officer                                                                                                                                                                                                                                                                                                                                        
|        | 32 | .1          |  | Section 906 Certification of Principal
    Executive Officer                                                                                                                                                                                                                                                                                                                                        
|        | 32 | .2          |  | Section 906 Certification of Principal
    Financial Officer                                                                                                                                                                                                                                                                                                                                        



---



|    |                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on July 29, 2003
    (included as an attachment to Exhibit 2.1).
|   
|(2) | Previously filed as an exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on July 29, 2003.                                               



|  |                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Please refer to the exhibit to the
    Registrants current report on Form 8-K filed with the
    Securities and Exchange Commission on October 27, 2003 for
    important information regarding the subsequent amendment and
    restatement of the security or agreement to which this exhibit
    relates.