##### 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 April 2,
    2004                                             
|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 May 5,
2004, was 123,407,287. No shares of the Companys
Class B common stock, par value $.01 per share, are
outstanding.



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TABLE OF CONTENTS

|                                 |  |                                                                                                                                 |    |      |    | 
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                 |  |                                                                                                                                 |    | Page
|                                 |  |                                                                                                                                 |    |     
|PART I FINANCIAL
    INFORMATION
|Item 1                           |  | Financial Statements                                                                                                            |    |      | 2  | 
|                                 |  | Condensed Consolidated
    Balance Sheets at April 2, 2004 and December 31, 2003
    (unaudited)                                |    |      | 2  | 
|                                 |  | Condensed Consolidated
    Statements of Operations for the three months ended
    April 2, 2004 and March 28, 2003 (unaudited) |    |      | 3  | 
|                                 |  | Condensed Consolidated
    Statements of Cash Flows for the three months ended
    April 2, 2004 and March 28, 2003 (unaudited) |    |      | 4  | 
|                                 |  | Notes to Condensed
    Consolidated Financial Statements (unaudited)                                                            |    |      |    | 
|Item 2                           |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                       |    |      | 27 | 
|Item 3                           |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                                  |    |      | 60 | 
|Item 4                           |  | Controls and Procedures                                                                                                         |    |      | 61 | 
|                                
|PART II OTHER
    INFORMATION   
|Item 1                           |  | Legal Proceedings                                                                                                               |    |      | 61 | 
|Item 5                           |  | Other Information                                                                                                               |    |      | 63 | 
|Item 6                           |  | Exhibits and Reports on Form
    8-K                                                                                            |    |      | 63 | 
|Signature                        |  |                                                                                                                                 | 64 |     
|EXHIBIT 10.65                   
|EXHIBIT 10.66                   
|EXHIBIT 10.67                   
|EXHIBIT 31.1                    
|EXHIBIT 31.2                    
|EXHIBIT 32.1                    
|EXHIBIT 32.2                    



1



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION






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

PROXIM CORPORATION



CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |          |         |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------ | ------- | ----- | ------ | -------- | ------- | ----- | 
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | April 2,                                                                                            |                                                                                                                        | December 31,
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | 2004                                                                                                |                                                                                                                        | 2003        
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |             
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                    
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | (In thousands, except share                                                                        
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | and per share data)                                                                                
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | (Unaudited)                                                                                        
|ASSETS                                                                                                                                                                                                                                                                  
|Current assets:                                                                                                                                                                                                                                                          |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         | Cash and cash equivalents                                                                                                                                              |                                                                                                     | $                                                                                                                      | 16,132       |         |       | $      | 19,756   |        
|                                                                                                                                                                                                                                                                         | Short-term investments                                                                                                                                                 |                                                                                                     |                                                                                                                        | 3,864        |         |       |        |         |        
|                                                                                                                                                                                                                                                                         | Accounts receivable, net                                                                                                                                               |                                                                                                     |                                                                                                                        | 9,945        |         |       |        | 13,961   |        
|                                                                                                                                                                                                                                                                         | Inventory                                                                                                                                                              |                                                                                                     |                                                                                                                        | 19,358       |         |       |        | 19,939   |        
|                                                                                                                                                                                                                                                                         | Other current assets                                                                                                                                                   |                                                                                                     |                                                                                                                        | 3,871        |         |       |        | 5,301    |        
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | Total current assets                                                                                |                                                                                                                        |              | 53,170  |       |        |          | 58,957  |      
|Property and equipment, net                                                                                                                                                                                                                                              |                                                                                                                                                                        |                                                                                                     | 6,761                                                                                                                  |              |         |       | 7,522  |         
|Goodwill                                                                                                                                                                                                                                                                 |                                                                                                                                                                        |                                                                                                     | 9,726                                                                                                                  |              |         |       | 9,726  |         
|Intangible assets, net                                                                                                                                                                                                                                                   |                                                                                                                                                                        |                                                                                                     | 34,968                                                                                                                 |              |         |       | 40,333 |         
|Restricted cash                                                                                                                                                                                                                                                          |                                                                                                                                                                        |                                                                                                     | 618                                                                                                                    |              |         |       | 1,254  |         
|Other assets                                                                                                                                                                                                                                                             |                                                                                                                                                                        |                                                                                                     | 316                                                                                                                    |              |         |       | 2,316  |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | Total assets                                                                                        |                                                                                                                        | $            | 105,559 |       |        | $        | 120,108 |      
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                        
|LIABILITIES, MANDATORILY REDEEMABLE
    CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
    (DEFICIT)                                                                                                                                                              
|Current liabilities:                                                                                                                                                                                                                                                     |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         | Accounts payable                                                                                                                                                       |                                                                                                     | $                                                                                                                      | 8,673        |         |       | $      | 10,500   |        
|                                                                                                                                                                                                                                                                         | Capital lease obligations, current                                                                                                                                     |                                                                                                     |                                                                                                                        | 1,176        |         |       |        | 1,176    |        
|                                                                                                                                                                                                                                                                         | Accrued royalties and interest                                                                                                                                         |                                                                                                     |                                                                                                                        | 27,819       |         |       |        | 26,906   |        
|                                                                                                                                                                                                                                                                         | Other accrued liabilities                                                                                                                                              |                                                                                                     |                                                                                                                        | 24,137       |         |       |        | 20,804   |        
|                                                                                                                                                                                                                                                                         | Convertible promissory note                                                                                                                                            |                                                                                                     |                                                                                                                        | 36,435       |         |       |        | 34,735   |        
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | Total current liabilities                                                                           |                                                                                                                        |              | 98,240  |       |        |          | 94,121  |      
|Capital lease obligations, long-term                                                                                                                                                                                                                                     |                                                                                                                                                                        |                                                                                                     | 635                                                                                                                    |              |         |       | 934    |         
|Long-term debt                                                                                                                                                                                                                                                           |                                                                                                                                                                        |                                                                                                     | 101                                                                                                                    |              |         |       | 101    |         
|Restructuring accruals, long-term                                                                                                                                                                                                                                        |                                                                                                                                                                        |                                                                                                     | 9,084                                                                                                                  |              |         |       | 8,660  |         
|Common stock warrants                                                                                                                                                                                                                                                    |                                                                                                                                                                        |                                                                                                     | 16,700                                                                                                                 |              |         |       | 21,800 |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | Total liabilities                                                                                   |                                                                                                                        |              | 124,760 |       |        |          | 125,616 |      
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|Commitments and contingencies (Notes 15 and
    17) Mandatorily redeemable convertible preferred stock:
    25,000,000 shares authorized; Series A, par value
    $.01; 3,000,000 shares issued and outstanding at
    April 2, 2004 and December 31, 2003, respectively |                                                                                                                                                                        |                                                                                                     | 75,937                                                                                                                 |              |         |       | 73,580 |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|Stockholders equity (deficit):                                                                                                                                                                                                                                          |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         | Common stock, Class A, par value $.01;
    authorized 390,000,000 shares:                                                                                              |                                                                                                     |                                                                                                                        |              |         |       |        |          |        
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     | 165,578,735 and 165,037,194 shares issued
    and outstanding at April 2, 2004 and December 31,
    2003, respectively |              |         | 1,655 |        |          |         | 1,650 | 
|                                                                                                                                                                                                                                                                         | Common stock, Class B, par value $.01;
    authorized 10,000,000 shares: no shares issued and
    outstanding at April 2, 2004 and December 31, 2003,
    respectively |                                                                                                     |                                                                                                                        |             |         |       |        |         |        
|                                                                                                                                                                                                                                                                         | Additional paid-in capital                                                                                                                                             |                                                                                                     |                                                                                                                        | 339,618      |         |       |        | 339,311  |        
|                                                                                                                                                                                                                                                                         | Treasury stock, at cost; 42,185,534 shares
    at April 2, 2004 and December 31, 2003                                                                                  |                                                                                                     |                                                                                                                        | (21,585      | )       |       |        | (21,585  | )      
|                                                                                                                                                                                                                                                                         | Notes receivable from stockholders                                                                                                                                     |                                                                                                     |                                                                                                                        | (711         | )       |       |        | (711     | )      
|                                                                                                                                                                                                                                                                         | Accumulated deficit                                                                                                                                                    |                                                                                                     |                                                                                                                        | (415,234     | )       |       |        | (397,753 | )      
|                                                                                                                                                                                                                                                                         | Accumulated other comprehensive income                                                                                                                                 |                                                                                                     |                                                                                                                        | 1,119        |         |       |        |         |        
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | Total stockholders deficit                                                                         |                                                                                                                        |              | (95,138 | )     |        |          | (79,088 | )    
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        | Total liabilities, mandatorily redeemable
    convertible preferred stock and stockholders deficit |                                                                                                                        | $            | 105,559 |       |        | $        | 120,108 |      
|                                                                                                                                                                                                                                                                         |                                                                                                                                                                        |                                                                                                     |                                                                                                                        |              |         |       |        |         

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

2



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##### Table of Contents



PROXIM CORPORATION



CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                               |                                      |                           |         |           |        |   |         |        |        | 
|------------------------------------------------------------------------------ | ------------------------------------ | ------------------------- | ------- | --------- | ------ | - | ------- | ------ | ------ | 
|                                                                               |                                      |                          
|                                                                               |                                      | Three Months Ended       
|                                                                               |                                      |                          
|                                                                               |                                      | April 2,                  |         | March 28,
|                                                                               |                                      | 2004                      |         | 2003     
|                                                                               |                                      |                           |         |          
|                                                                               |                                      |                          
|                                                                               |                                      | (In thousands, except per
|                                                                               |                                      | share data)              
|                                                                               |                                      | (Unaudited)              
|Product revenue, net                                                           |                                      | $                         | 26,697  |           |        | $ | 34,029  |       
|License revenue                                                                |                                      |                           |        |           |        |   | 6,000   |       
|                                                                               |                                      |                           |         |           |        |   |         |       
|                                                                               |                                      | Total revenue, net        |         |           | 26,697 |   |         |        | 40,029 | 
|Cost of revenue                                                                |                                      |                           | 17,377  |           |        |   | 20,928  |       
|Royalty charges                                                                |                                      |                           | 828     |           |        |   |        |       
|                                                                               |                                      |                           |         |           |        |   |         |       
|                                                                               |                                      | Gross profit              |         |           | 8,492  |   |         |        | 19,101 | 
|Operating expenses:                                                            |                                      |                           |         |           |        |   |         |       
|                                                                               | Research and development             |                           |         | 4,554     |        |   |         | 7,883  |       
|                                                                               | Selling, general and administrative  |                           |         | 11,371    |        |   |         | 12,095 |       
|                                                                               | Legal expense for certain litigation |                           |         | 745       |        |   |         | 3,000  |       
|                                                                               | Amortization of intangible assets    |                           |         | 5,365     |        |   |         | 5,500  |       
|                                                                               | Restructuring charges                |                           |         | 2,167     |        |   |         |       |       
|                                                                               |                                      |                           |         |           |        |   |         |       
|                                                                               |                                      | Total operating expenses  |         |           | 24,202 |   |         |        | 28,478 | 
|                                                                               |                                      |                           |         |           |        |   |         |       
|Loss from operations                                                           |                                      |                           | (15,710 | )         |        |   | (9,377  | )     
|Interest income (expense), net                                                 |                                      |                           | (858    | )         |        |   | 99      |       
|                                                                               |                                      |                           |         |           |        |   |         |       
|Loss before income taxes                                                       |                                      |                           | (16,568 | )         |        |   | (9,278  | )     
|Income tax benefit                                                             |                                      |                           | (745    | )         |        |   |        |       
|                                                                               |                                      |                           |         |           |        |   |         |       
|Net loss                                                                       |                                      |                           | (15,823 | )         |        |   | (9,278  | )     
|Accretion of Series A preferred stock
    obligations                          |                                      |                           | (1,658  | )         |        |   | (1,525  | )     
|                                                                               |                                      |                           |         |           |        |   |         |       
|Net loss attributable to common stockholders                                   |                                      | $                         | (17,481 | )         |        | $ | (10,803 | )     
|                                                                               |                                      |                           |         |           |        |   |         |       
|Net loss per share attributable to common
    stockholders  basic and diluted |                                      | $                         | (0.14   | )         |        | $ | (0.09   | )     
|                                                                               |                                      |                           |         |           |        |   |         |       
|Shares used to compute net loss per
    share  basic and diluted              |                                      |                           | 123,182 |           |        |   | 120,274 |       
|                                                                               |                                      |                           |         |           |        |   |         |       

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

3



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##### Table of Contents



PROXIM CORPORATION



CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |        |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------- | --------- | ----- | ------ | ------ | ------ | ------ | ------ | -
|                                                 |                                                                                 |                                                              
|                                                 |                                                                                 | Three Months Ended                                           
|                                                 |                                                                                 |                                                              
|                                                 |                                                                                 | April 2,                                                      |                                       | March 28,
|                                                 |                                                                                 | 2004                                                          |                                       | 2003     
|                                                 |                                                                                 |                                                               |                                       |          
|                                                 |                                                                                 |                                                              
|                                                 |                                                                                 | (In thousands)                                               
|                                                 |                                                                                 | (Unaudited)                                                  
|Cash flows from operating activities:            |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 | Net loss                                                                        |                                                               | $                                     | (15,823   | )     |        | $      | (9,278 | )     
|                                                 | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                               |                                       |           |       |        |        |        |       
|                                                 | Depreciation and amortization                                                   |                                                               |                                       | 5,949     |       |        |        | 6,568  |       
|                                                 | Amortization of warrants issued to customer                                     |                                                               |                                       | 174       |       |        |        |       |       
|                                                 | Provision for excess and obsolete inventory                                     |                                                               |                                       | 300       |       |        |        |        |       
|                                                 | Restructuring charges                                                           |                                                               |                                       | 2,167     |       |        |        |       |       
|                                                 | Loss on disposition of property and equipment                                   |                                                               |                                       | 350       |       |        |        |       |       
|                                                 | Amortization of debt discount on convertible
    notes and issuance costs       |                                                               |                                       | 2,892     |       |        |        |       |       
|                                                 | Deferred income taxes                                                           |                                                               |                                       | (745      | )     |        |        |       |       
|                                                 | Revaluation of common stock warrants                                            |                                                               |                                       | (5,100    | )     |        |        |       |       
|                                                 | Changes in assets and liabilities:                                              |                                                               |                                       |           |       |        |        |        |       
|                                                 |                                                                                 | Accounts receivable, net                                      |                                       |           | 4,016 |        |        |        | 1,380  |       
|                                                 |                                                                                 | Inventory, net                                                |                                       |           | 281   |        |        |        | (2,969 | )     
|                                                 |                                                                                 | Restricted cash and other assets, current and
    non-current |                                       |           | 1,274 |        |        |        | 1,851  |       
|                                                 |                                                                                 | Accounts payable and other accrued liabilities                |                                       |           | (119  | )      |        |        | 1,047  |       
|                                                 |                                                                                 | Accrued royalties and interest                                |                                       |           | 913   |        |        |        |       |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 |                                                                                 |                                                               | Net cash used in operating activities |           |       | (3,470 | )      |        |        | (1,401 | )
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|Cash flows from investing activities:            |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 | Purchase of property and equipment                                              |                                                               |                                       | (292      | )     |        |        | (350   | )     
|                                                 | Proceeds from repayment of loan to officer                                      |                                                               |                                       |          |       |        |        | 500    |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 |                                                                                 | Net cash provided by (used in) investing
    activities       |                                       |           | (292  | )      |        |        | 150    |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|Cash flows from financing activities:            |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 | Principal payments on capital lease obligations                                 |                                                               |                                       | (299      | )     |        |        |       |       
|                                                 | Issuance of common stock, net                                                   |                                                               |                                       | 437       |       |        |        | 136    |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 |                                                                                 | Net cash provided by financing activities                     |                                       |           | 138   |        |        |        | 136    |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|Net decrease in cash and cash equivalents        |                                                                                 |                                                               | (3,624                                | )         |       |        | (1,115 | )     
|Cash and cash equivalents at beginning of period |                                                                                 |                                                               | 19,756                                |           |       |        | 16,535 |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|Cash and cash equivalents at end of period       |                                                                                 | $                                                             | 16,132                                |           |       | $      | 15,420 |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|Supplemental disclosures:                        |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 | Cash paid (received) during the period for:                                     |                                                               |                                       |           |       |        |        |        |       
|                                                 |                                                                                 | Income taxes                                                  |                                       | $         |      |        |        | $      | (725   | )     
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 |                                                                                 | Interest on capital lease obligations                         |                                       | $         | 21    |        |        | $      |       |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       
|Non-cash transactions:                           |                                                                                 |                                                               |                                       |           |       |        |        |       
|                                                 | Accretion of Series A Preferred Stock
    redemption obligations                |                                                               | $                                     | 2,357     |       |        | $      | 2,290  |       
|                                                 |                                                                                 |                                                               |                                       |           |       |        |        |       

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

4



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##### 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

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



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

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

5



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

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

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

Upon the occurrence of an event of default or
change of control occurs or if the Investors decide not to
exchange the Notes for Series B Preferred Stock, the
Company may be required to repay the Notes upon the earlier of
demand by the Investors or the September 30, 2004 maturity
date. If the Company were required to repay the 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 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 16 for further description of the
amended credit facility.

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

6



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assessed a 6% royalty on the revenue of relevant
products. While the actual amount of past and future royalties
due has not been finally determined, as of April 2, 2004,
the Company has recorded an accrual for potential estimated
royalties payable of $24.7 million and $3.1 million
for interest. The Company has not been enjoined from continued
sales of these products. The Company will continue to evaluate
and review its estimate of the royalties and interest payable
from time to time for any indications that could require it to
change its assumptions relating to the amount already recorded.
On November 24, 2003, the District Court conducted a
one-day bench trial on the Companys equitable defenses not
addressed by the jury. The District Court has not reached a
decision on the equitable defenses.

With respect to the jury verdict in the
Companys litigation with Symbol, as described above, the
Companys cash flows will not be immediately affected by
this verdict, pending completion of related proceedings. The
Company intends to continue vigorously defending itself in
Symbols lawsuit against the Company and to consider all
available options after the conclusion of all matters before the
court.

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

The Companys revenue declined from
$38.6 million in the fourth quarter of 2003 to
$26.7 million in the first quarter of 2004. The decline in
quarter over quarter revenue and ongoing negative cash flows
from operations is expected to have a negative impact on our
future cash position. In addition, the Company has incurred
substantial losses and negative cash flows from operations
during the first quarter ended April 2, 2004 and the years
ended December 31, 2003, 2002 and 2001, and had an
accumulated deficit of $415.2 million as of April 2,
2004. The Company believes that it needs to obtain additional
financing to provide sufficient working capital for the
business. In the event that such additional financing is not
available, the Company may need to seek protection under
applicable bankruptcy laws. If the Company were required to make
payments to Symbol, post a bond to the court, and/or repay the
Notes and amounts, if any, which may be owed to Silicon Valley
Bank, either due to an event of default or otherwise, it will be
required to obtain immediate alternative sources of financing in
excess of the additional financing required to provide
sufficient working capital for the business. If the Company were
not able to obtain such alternative sources of financing, it
will 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. These consolidated financial
statements do not include any adjustments that might result from
this uncertainty.



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

The Company depends on single or limited source
suppliers for several key components used in the Companys
WLAN products. The Company depends on single sources for
proprietary application specific integrated circuits, or ASICs,
and assembled circuit boards for these products. Any disruptions
in the supply of these components or assemblies could delay or
decrease our revenues. In addition, even for components

7



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

with multiple sources, there have been, and may
continue to be, shortages due to capacity constraints caused by
high demand. The Company does not have any long-term
arrangements with any suppliers.

The Company relies on contract and subcontract
manufacturers for turnkey manufacturing and circuit board
assemblies which subjects the Company to additional risks,
including a potential inability to obtain an adequate supply of
finished assemblies and assembled circuit boards and reduced
control over the price, timely 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 condensed consolidated
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 April 2, 2004, the condensed consolidated statements of
operations for the three months ended April 2, 2004 and
March 28, 2003 and the condensed consolidated statements of
cash flows for the three months ended April 2, 2004 and
March 28, 2003, 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.

The balance sheet at December 31, 2003 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, 2003.



| |                 
| | ----------------
| | Use of Estimates

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.



| |                            
| | ---------------------------
| | 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 months ended April 2, 2004 and
March 28, 2003 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 April 2004, the Emerging Issues Task Force
issued Statement No. 03-06, Participating Securities and
the Two  Class Method Under FASB Statement
No. 128, Earnings Per Share,
(EITF 03-06). EITF 03-06 addresses a
number of questions regarding the computation of earnings per
share by companies that have

8



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

issued securities other than common stock that
contractually entitle the holder to participate in dividends and
earnings of the company when, and if, it declares dividends on
its common stock. EITF 03-06 also provides further guidance
in applying the two-class method of calculating earnings per
share, clarifying what constitutes a participating security and
how to apply the two-class method of computing earnings per
share once it is determined that a security is participating,
including how to allocate undistributed earnings to such a
security. EITF 03-06 is effective for fiscal periods
beginning after March 31, 2004. The Company is currently
evaluating the effect of adopting EITF 03-06 on its results
of operations.



|         |                                             
|-------- | --------------------------------------------
|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
Mandatorily Redeemable Convertible Series A Preferred Stock
(Series A Preferred Stock)
(Note 13) in the amount of $41.0 million, with a
conversion price of approximately $3.06 per share, and
warrants to purchase approximately 6.7 million shares of
Common Stock valued at $12.3 million. The value of the
warrants was recorded as a reduction of the Series A
Preferred Stock carrying value and recorded as additional
paid-in capital. During the quarter ended September 27,
2002, a deemed Preferred Stock dividend representing the
beneficial conversion feature of the Series A Preferred
Stock of $2.7 million was reflected in the determination of
the loss attributable to Common stockholders. The remaining
$34.0 million was in the form of convertible notes. Upon
the receipt of approval of the Companys stockholders at a
special meeting held on October 8, 2002, the notes issued
to these investors were converted into 1,360,000 shares of
Series A Preferred Stock and warrants to purchase
approximately 5.6 million shares of Common Stock valued at
approximately $1.6 million. The value of the warrants was
recorded as a reduction of the Series A Preferred Stock
carrying value and recorded as additional paid-in capital in the
quarter ended December 31, 2002. In total, the investors
were granted warrants to acquire 12,271,345 shares of
Common Stock for approximately $3.06 per share, valued at
approximately $14.0 million. The Series A Preferred
Stock and warrants issued to the investors represented
approximately 28% of Proxims outstanding common stock on
an as-converted and as-exercised basis including dividends as of
April 2, 2004. 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.

9



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##### 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.

10



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##### 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.

11



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##### 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 | 



|         |                  
|-------- | -----------------
|Note 4  | Intangible Assets

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

|                                 |                              |          |   |              |  |  |   |        | 
|-------------------------------- | ---------------------------- | -------- | - | ------------ |  |  | - | ------ | 
|                                 |                              | April 2, |   | December 31,
|                                 |                              | 2004     |   | 2003        
|                                 |                              |          |   |             
|Acquired intangible assets, net: |                              |          |   |              |  |  |   |       
|                                 | Proxim, Inc.                 |          | $ | 16,746       |  |  | $ | 18,810 | 
|                                 | 802.11 WLAN systems business |          |   | 18,222       |  |  |   | 21,523 | 
|                                 |                              |          |   |              |  |  |   |       
|                                 | Total intangible assets, net |          | $ | 34,968       |  |  | $ | 40,333 | 
|                                 |                              |          |   |              |  |  |   |       

12



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Acquired intangible assets by categories as of
April 2, 2004 consist of the following (in thousands):

|                               |                        |          |   |              |  |  |   |        | 
|------------------------------ | ---------------------- | -------- | - | ------------ |  |  | - | ------ | 
|                               |                        | Gross    |   |             
|                               |                        | Carrying |   | Accumulated 
|                               |                        | Amounts  |   | Amortization
|                               |                        |          |   |             
|Amortized intangible assets:   |                        |          |   |              |  |  |   |       
|                               | Core Technology        |          | $ | 26,531       |  |  | $ | 10,045 | 
|                               | Developed Technology   |          |   | 29,036       |  |  |   | 22,190 | 
|                               | Customer Relationships |          |   | 8,995        |  |  |   | 4,997  | 
|                               | Patents                |          |   | 3,439        |  |  |   | 1,710  | 
|                               |                        |          |   |              |  |  |   |       
|                               | Total                  |          | $ | 68,001       |  |  | $ | 38,942 | 
|                               |                        |          |   |              |  |  |   |       
|Unamortized intangible assets: |                        |          |   |              |  |  |   |       
|                               | Tradename              |          | $ | 5,909        |  |  |   |        | 
|                               |                        |          |   |              |  |  |   |       

The Company expects amortization expense of
intangible assets to be $12.5 million in the remaining
fiscal 2004, $8.7 million in fiscal 2005, $5.9 million
in fiscal 2006, and $1.9 million in fiscal 2007, at which
time intangible assets, other than Tradename, will be fully
amortized assuming no future impairments of those intangible
assets or additions as a result of acquisitions.

13



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                         
|-------- | ------------------------
|Note 5  | Balance Sheet Components

The following is a summary of certain of our
condensed consolidated balance sheets (in thousands):

|                             |                                                 |                                                                  |        |              |         |   |        |         |        |  
|---------------------------- | ----------------------------------------------- | ---------------------------------------------------------------- | ------ | ------------ | ------- | - | ------ | ------- | ------ | -
|                             |                                                 | April 2,                                                         |        | December 31,
|                             |                                                 | 2004                                                             |        | 2003        
|                             |                                                 |                                                                  |        |             
|Short-term investments:      |                                                 |                                                                  |        |              |         |   |        |        
|                             | Time deposits                                   |                                                                  | $      | 618          |         |   | $      | 1,254   |       
|                             | Restricted securities in a wireless company     |                                                                  |        | 3,864        |         |   |        |        |       
|                             |                                                 |                                                                  |        |              |         |   |        |        
|                             |                                                 |                                                                  | 4,482  |              |         |   | 1,254  |        
|                             | Less: long-term restricted portion              |                                                                  |        | (618         | )       |   |        | (1,254  | )     
|                             |                                                 |                                                                  |        |              |         |   |        |        
|                             | Current portion                                 |                                                                  | $      | 3,864        |         |   | $      |        |       
|                             |                                                 |                                                                  |        |              |         |   |        |        
|Accounts receivable, net:    |                                                 |                                                                  |        |              |         |   |        |        
|                             | Accounts receivable                             |                                                                  | $      | 28,663       |         |   | $      | 34,345  |       
|                             | Less: Deferred revenue                          |                                                                  |        | (7,748       | )       |   |        | (10,599 | )     
|                             |                                                 | Allowances for bad debts, sales returns and price
    Protection |        |              | (10,970 | ) |        |         | (9,785 | )
|                             |                                                 |                                                                  |        |              |         |   |        |        
|                             |                                                 | $                                                                | 9,945  |              |         | $ | 13,961 |        
|                             |                                                 |                                                                  |        |              |         |   |        |        
|Inventory:                   |                                                 |                                                                  |        |              |         |   |        |        
|                             | Raw materials                                   |                                                                  | $      | 5,778        |         |   | $      | 4,238   |       
|                             | Work-in-process                                 |                                                                  |        | 1,153        |         |   |        | 1,282   |       
|                             | Finished goods                                  |                                                                  |        | 7,239        |         |   |        | 8,223   |       
|                             | Consignment inventories                         |                                                                  |        | 5,188        |         |   |        | 6,196   |       
|                             |                                                 |                                                                  |        |              |         |   |        |        
|                             |                                                 | $                                                                | 19,358 |              |         | $ | 19,939 |        
|                             |                                                 |                                                                  |        |              |         |   |        |        
|Property and equipment, net: |                                                 |                                                                  |        |              |         |   |        |        
|                             | Computer and test equipment                     |                                                                  | $      | 10,991       |         |   | $      | 11,427  |       
|                             | Furniture and fixtures                          |                                                                  |        | 196          |         |   |        | 194     |       
|                             | Leased assets                                   |                                                                  |        | 2,942        |         |   |        | 2,942   |       
|                             | Leasehold improvements                          |                                                                  |        | 438          |         |   |        | 438     |       
|                             |                                                 |                                                                  |        |              |         |   |        |        
|                             |                                                 |                                                                  | 14,567 |              |         |   | 15,001 |        
|                             | Less: accumulated depreciation and amortization |                                                                  |        | (7,806       | )       |   |        | (7,479  | )     
|                             |                                                 |                                                                  |        |              |         |   |        |        
|                             |                                                 | $                                                                | 6,761  |              |         | $ | 7,522  |        
|                             |                                                 |                                                                  |        |              |         |   |        |        
|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                  |                                                                  |        | (38,942      | )       |   |        | (33,577 | )     
|                             |                                                 |                                                                  |        |              |         |   |        |        
|                             |                                                 | $                                                                | 34,968 |              |         | $ | 40,333 |        
|                             |                                                 |                                                                  |        |              |         |   |        |        

14



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                           |                                                 |          |        |              |  |   |        |       | 
|-------------------------- | ----------------------------------------------- | -------- | ------ | ------------ |  | - | ------ | ----- | 
|                           |                                                 | April 2, |        | December 31,
|                           |                                                 | 2004     |        | 2003        
|                           |                                                 |          |        |             
|Other accrued liabilities: |                                                 |          |        |              |  |   |        |      
|                           | Restructuring accruals, current portion         |          | $      | 5,488        |  |   | $      | 7,144 | 
|                           | Accrued interest on convertible promissory note |          |        | 5,795        |  |   |        | 3,247 | 
|                           | Accrued unconditional project commitments       |          |        | 815          |  |   |        | 1,284 | 
|                           | Accrued compensation                            |          |        | 4,140        |  |   |        | 3,402 | 
|                           | Accrued warranty costs                          |          |        | 1,366        |  |   |        | 1,395 | 
|                           | Other accrued liabilities                       |          |        | 6,533        |  |   |        | 4,332 | 
|                           |                                                 |          |        |              |  |   |        |      
|                           |                                                 | $        | 24,137 |              |  | $ | 20,804 |      
|                           |                                                 |          |        |              |  |   |        |      

The following is a summary of the movements in
allowance for bad debt, sales returns and price protection and
product warranty costs during the three months ended
April 2, 2004 (in thousands):

|                                   |  |                         |        |          |  |   |       |  
|---------------------------------- |  | ----------------------- | ------ | -------- |  | - | ----- | -
|                                   |  | Allowance for Bad Debt, |        | Product 
|                                   |  | Sales Returns           |        | Warranty
|                                   |  | and Discounts           |        | Costs   
|                                   |  |                         |        |         
|Balance as of December 31, 2003    |  | $                       | 9,785  |          |  | $ | 1,395 |  
|Additional provision               |  |                         | 5,218  |          |  |   | 42    |  
|Settlements made during the period |  |                         | (4,033 | )        |  |   | (71   | )
|                                   |  |                         |        |          |  |   |       |  
|Balance as of April 2, 2004        |  | $                       | 10,970 |          |  | $ | 1,366 |  
|                                   |  |                         |        |          |  |   |       |  

The following is a summary of the changes in the
reserve for excess and obsolete inventory during the three
months ended April 2, 2004 (in thousands):

|                                            |  |   |        |  
|------------------------------------------- |  | - | ------ | -
|Balance as of December 31, 2003             |  | $ | 5,072  |  
|Provision for excess and obsolete inventory |  |   | 300    |  
|Inventory scrapped                          |  |   | (1,526 | )
|                                            |  |   |        |  
|Balance as of April 2, 2004                 |  | $ | 3,846  |  
|                                            |  |   |        |  

Property and equipment includes $2.9 million
of computer equipment under capital leases at April 2,
2004. Accumulated amortization of assets under capital leases
totaled $371,000.



|         |                              
|-------- | -----------------------------
|Note 6  | Impairment of Loan to Officer

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

15



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                                          
|-------- | ---------------------------------------------------------
|Note 7  | 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 ORiNOCO 802.11 access point and client card products.
Total revenue during the three months ended March 28, 2003
also includes one-time license revenue of $6.0 million
related to the patent infringement legal settlement agreement
with Intersil (see Note 17). Revenue information by product
line is as follows (in thousands):

|                     |               |                    |        |           |  |   |        |        | 
|-------------------- | ------------- | ------------------ | ------ | --------- |  | - | ------ | ------ | 
|                     |               |                   
|                     |               | Three Months Ended
|                     |               |                   
|                     |               | April 2,           |        | March 28,
|Product Line         |               | 2004               |        | 2003     
|                     |               |                    |        |          
|WWAN                 |               | $                  | 13,074 |           |  | $ | 16,607 |       
|WLAN                 |               |                    | 13,623 |           |  |   | 17,422 |       
|WLAN license revenue |               |                    |       |           |  |   | 6,000  |       
|                     |               |                    |        |           |  |   |        |       
|                     | Total revenue |                    | $      | 26,697    |  |   | $      | 40,029 | 
|                     |               |                    |        |           |  |   |        |       

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 North
America is 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
|                              |               |                   
|                              |               | April 2,           |        | March 28,
|Geographic Region             |               | 2004               |        | 2003     
|                              |               |                    |        |          
|North America product revenue |               | $                  | 13,453 |           |  | $ | 17,122 |       
|North America license revenue |               |                    |       |           |  |   | 6,000  |       
|International product revenue |               |                    | 13,244 |           |  |   | 16907  |       
|                              |               |                    |        |           |  |   |        |       
|                              | Total revenue |                    | $      | 26,697    |  |   | $      | 40,029 | 
|                              |               |                    |        |           |  |   |        |       

Two customers accounted for 14.3% and 12.5% of
total revenue for the first quarter of 2004. One customer
accounted for 15.0% of total revenue, net for the first quarter
of 2003.



|         |                                                              
|-------- | -------------------------------------------------------------
|Note 8  | Restructuring Charges for Severance and Excess
    Facilities

During the three months ended April 2, 2004,
the Company recorded restructuring charges of $2.2 million,
consisting of $2.0 million of cash provisions and
$0.2 million of non-cash provisions for abandoned property
and equipment. The $2.0 million of cash provisions
consisted of $1.4 million of operating lease commitments,
less estimated future sublease receipts and exit costs related
to a portion of the Sunnyvale facility, which was closed in the
first quarter of 2004, and $0.6 million of severance
payments for five employees.

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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the restructuring
activities 2003 and the three months ended April 2, 2004
(in thousands):

|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------- |  | --------- | ------ | ---------- |  | ---------- | ------- | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                               |  |           |        |            |  | Asset Held |         |       |  |      
|                                               |  | Severance |        | Facilities |  | for Sale   |         | Other |  | Total
|                                               |  |           |        |            |  |            |         |       |  |      
|Balance as of December 31, 2002                |  |           |       |            |  |            | 30,450  |       |  |       |       |   |  |   |       |   |  |   | 30,450  |  
|Provision charged to operations                |  |           | 9,071  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 32,643  |  
|Reversal of previously recorded provision      |  |           |       |            |  |            | (27,764 | )     |  |       |       |   |  |   |       |   |  |   | (27,764 | )
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                                  |  |           | (5,451 | )          |  |            | (3,845  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (19,262 | )
|Proceeds from sale of asset held for sale, net |  |           |       |            |  |            |        |       |  |       | 3,041  |   |  |   |       |   |  |   | 3,041   |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                |  |           | 3,620  |            |  |            | 11,584  |       |  |       |       |   |  |   | 600    |   |  |   | 15,804  |  
|Provision charged to operations                |  |           | 601    |            |  |            | 1,447   |       |  |       |       |   |  |   | 119    |   |  |   | 2,167   |  
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (119   | ) |  |   | (119    | )
|Cash payments                                  |  |           | (2,424 | )          |  |            | (856    | )     |  |       |       |   |  |   |       |   |  |   | (3,280  | )
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of April 2, 2004                    |  | $         | 1,797  |            |  | $          | 12,175  |       |  | $     |       |   |  | $ | 600    |   |  | $ | 14,572  |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  

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

|                             |           |          |        |              |  |   |        |       | 
|---------------------------- | --------- | -------- | ------ | ------------ |  | - | ------ | ----- | 
|                             |           | April 2, |        | December 31,
|                             |           | 2004     |        | 2003        
|                             |           |          |        |             
|Restructuring accruals       |           |          |        |              |  |   |        |      
|                             | Current   |          | $      | 5,488        |  |   | $      | 7,144 | 
|                             | Long-term |          |        | 9,084        |  |   |        | 8,660 | 
|                             |           |          |        |              |  |   |        |      
|Total restructuring accruals |           | $        | 14,572 |              |  | $ | 15,804 |      
|                             |           |          |        |              |  |   |        |      



|         |             
|-------- | ------------
|Note 9  | Income Taxes

The income tax benefit recorded during the three
months ended April 2, 2004 represents the reversal of the
valuation allowance of deferred tax assets to offset the
deferred tax liability arising from the revaluation of
short-term investments.



|          |                                                       
|--------- | ------------------------------------------------------
|Note 10  | Loss Per Share Attributable to Common
    Stockholders

Basic and diluted net loss per share attributable
to common stockholders is presented in conformity with
SFAS No. 128, Earnings Per Share. The
following is a reconciliation of the numerators and denominators
of the basic and diluted net loss per share computations for the
three months ended April 2, 2004 and March 28, 2003
(in thousands except share data):

|                                             |  |                    |         |           |  |   |         |  
|-------------------------------------------- |  | ------------------ | ------- | --------- |  | - | ------- | -
|                                             |  |                   
|                                             |  | Three Months Ended
|                                             |  |                   
|                                             |  | April 2,           |         | March 28,
|                                             |  | 2004               |         | 2003     
|                                             |  |                    |         |          
|Net loss attributable to common stockholders |  | $                  | (17,481 | )         |  | $ | (10,803 | )
|Weighted average common shares outstanding   |  |                    | 123,182 |           |  |   | 120,274 |  
|                                             |  |                    |         |           |  |   |         |  
|Net loss per share  basic and diluted       |  | $                  | (0.14   | )         |  | $ | (0.09   | )
|                                             |  |                    |         |           |  |   |         |  

17



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For the three months ended April 2, 2004 and
March 28, 2003, basic net loss per share under
SFAS No. 128 was computed using the weighted average
number of shares outstanding during the period. Diluted net loss
per share was determined in the same manner as basic earnings
per share except that the number of shares was increased
assuming dilutive stock options and warrants using the treasury
stock method. For the three months ended April 2, 2004 and
March 28, 2003, 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 11  | Comprehensive Loss

The total comprehensive loss for the three months
ended April 2, 2004 and March 28, 2003 is as follows
(in thousands):

|                                             |                          |                    |         |           |   |   |         |         |  
|-------------------------------------------- | ------------------------ | ------------------ | ------- | --------- | - | - | ------- | ------- | -
|                                             |                          |                   
|                                             |                          | Three Months Ended
|                                             |                          |                   
|                                             |                          | April 2,           |         | March 28,
|                                             |                          | 2004               |         | 2003     
|                                             |                          |                    |         |          
|Net loss attributable to common stockholders |                          | $                  | (17,481 | )         |   | $ | (10,803 | )      
|Unrealized gain (loss) on investments        |                          |                    | 1,119   |           |   |   | 488     |        
|                                             |                          |                    |         |           |   |   |         |        
|                                             | Total comprehensive loss |                    | $       | (16,362   | ) |   | $       | (10,315 | )
|                                             |                          |                    |         |           |   |   |         |        



|          |                  
|--------- | -----------------
|Note 12  | Convertible Notes

As of April 2, 2004, the Company had
outstanding Notes with an aggregate principal amount of
$40 million and accrued interest of $5.8 million. New
Notes of $10 million, which were issued on
December 19, 2003, rank senior to the Amended Notes of
$30 million originally issued on July 30, 2003. The
Company may be required to repay the Notes, plus accrued and
unpaid interest, in the event its note holders do not exchange
the Notes for mandatorily Series B Preferred
StockSeries B Preferred Stock. Such repayment would be
required on September 30, 2004, the maturity date of the
Notes, or upon an event of default or change in control,
whichever is earlier. In addition, in connection with the
financing, the note holders also received warrants to purchase
common stock as described in Note 14.

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



| |                                                 
| | ------------------------------------------------
| | Conversion Rights and Liquidation
    Preference

At the option of the holder of Series B
Preferred Stock, if and when issued, the Notes can be exchanged
for shares of the Companys Series B Preferred Stock
with an aggregate initial liquidation preference equal to the
principal amount of the exchanged indebtedness, plus accrued but
unpaid interest, at the conversion price of $100.00 per
share. The liquidation preference accretes at 14% per year,
compounded quarterly, through the seventh anniversary of the
date on which we will first issue shares of our Series B
Preferred Stock, or the Series B Preferred Stock original
issue date.

At the option of the note holders, the
Series B Preferred Stock can be exchanged for shares of the
Companys common stock at an initial conversion price of
$1.15 per share. The Company has the right to require
conversion of the Series B Preferred Stock after five years
if the closing price of its common stock exceeds 300% of the
conversion price for ninety consecutive trading days. The
Series B Preferred Stock is convertible at any time, in
whole or in part, into that number of shares of common stock
equal to the liquidation preference then in effect divided by
the then current conversion price.

18



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PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |              
| | -------------
| | Anti-Dilution

The conversion price will be subject to customary
weighted average anti-dilution adjustments and other customary
adjustments upon some transactions that affect our capital stock.



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

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



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

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

The Company reserved 540,000 shares of
Series B Preferred Stock for the conversion of the Notes as
of April 2, 2004.

Pursuant to stockholder approval of the terms of
the Amended Agreement, including the Amended Notes and the New
Notes, on December 12, 2003 (see Note 1), the Company
issued to the Investors warrants as described in Note 14.

Assuming the exchange of $40 million in
aggregate principal amount of the Notes, together with accrued
interest, on September 30, 2004, the shares of
Series B Preferred Stock to be issued upon exchange of the
Notes would be expected to represent approximately 26.5% of the
Companys outstanding common stock on an as-converted and
as-exercised basis, based on 123,393,201 shares outstanding
as of April 2, 2004 and excluding outstanding employee
options, warrants and Series A Preferred Stock.



|          |                                                                
|--------- | ---------------------------------------------------------------
|Note 13  | Mandatorily Redeemable Convertible
    Series A Preferred Stock

As of April 2, 2004, Mandatorily Redeemable
Convertible Preferred Stock, Series A (Series A
Preferred Stock), consisted of the following:

|         |  |            |           |             |  |             |           |                 |  |   |            |  |  |  |            | 
|-------- |  | ---------- | --------- | ----------- |  | ----------- | --------- | --------------- |  | - | ---------- |  |  |  | ---------- | 
|         |  |            |           |             |  |             |           | Total Number of
|         |  |            |           |             |  |             |           | Shares of      
|         |  |            |           |             |  |             |           | Common Stock   
|         |  |            |           | Issued and  |  | Liquidation |           | Issuable Upon  
|         |  | Authorized |           | Outstanding |  | Preference  |           | Conversion     
|         |  |            |           |             |  |             |           |                
|Series A |  |            | 3,000,000 |             |  |             | 3,000,000 |                 |  | $ | 84,365,000 |  |  |  | 41,695,179 | 
|         |  |            |           |             |  |             |           |                 |  |   |            |  |  |  |            | 

In August 2002, in connection with the
acquisition of the 802.11 WLAN systems business of Agere
Systems, Inc., Warburg Pincus Private Equity VIII, L.P.,
Broadview Capital Partners L.P. and affiliated entities agreed
to collectively invest $75 million in the Company. These
investors received 1,640,000 shares of Series A
Preferred Stock in the amount of approximately $41 million,
with a conversion price of approximately $3.06 per share,
and warrants to purchase approximately 6.7 million shares
of our Common Stock valued at $12.3 million. The value of
the warrants was recorded as a reduction of the Series A
Preferred Stock carrying value and recorded as additional
paid-in capital. A deemed preferred stock dividend representing
the beneficial conversion feature of the Series A Preferred
Stock of $2.7 million was also recorded to increase the
loss attributable to holders of the Companys Common Stock.

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

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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Preferred Stock issued to the investors
represents approximately 21% of the Companys outstanding
Common Stock on an as-converted and as-exercised basis as of
April 2, 2004.

The issuance of Series A Preferred Stock,
convertible notes and related warrants and the subsequent
conversion, accretion and interest accrual were recorded through
April 2, 2004 as follows (in thousands):

|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------- |  | ----------- | ------- | --------- |  | ---------- | ------- | ----------- |  | - | ------ | - |  | - | ------- | -
|                                                                     |  |             |         |           |  | Additional |         |            
|                                                                     |  | Convertible |         | Preferred |  | Paid-In    |         | Accumulated
|                                                                     |  | Notes       |         | Stock     |  | Capital    |         | Deficit    
|                                                                     |  |             |         |           |  |            |         |            
|Issuance of Series A Preferred Stock                                 |  | $           |        |           |  | $          | 41,000  |             |  | $ |       |   |  | $ |        |  
|Issuance of convertible notes                                        |  |             | 34,000  |           |  |            |        |             |  |   |       |   |  |   |        |  
|Issuance of warrants                                                 |  |             |        |           |  |            | (13,993 | )           |  |   | 13,993 |   |  |   |        |  
|Conversion of convertible notes                                      |  |             | (34,000 | )         |  |            | 34,000  |             |  |   |       |   |  |   |        |  
|Deemed Preferred Stock dividend                                      |  |             |        |           |  |            |        |             |  |   | 2,740  |   |  |   | (2,740  | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 2,936   |             |  |   | (1,046 | ) |  |   | (1,890  | )
|Accrued interest on convertible notes payable in
    Preferred Stock |  |             |        |           |  |            | 469     |             |  |   |       |   |  |   |        |  
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2002                                      |  |             |        |           |  |            | 64,412  |             |  |   | 15,687 |   |  |   | (4,630  | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 9,168   |             |  |   | (2,865 | ) |  |   | (6,303  | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                                      |  | $           |        |           |  | $          | 73,580  |             |  | $ | 12,822 |   |  | $ | (10,933 | )
|Accretion of Preferred Stock redemption
    obligations              |  |             |        |           |  |            | 2,357   |             |  |   | (1,658 | ) |  |   | (699    | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  
|Balance as of April 2, 2004                                          |  | $           |        |           |  | $          | 75,937  |             |  | $ | 11,164 |   |  | $ | (11,632 | )
|                                                                     |  |             |         |           |  |            |         |             |  |   |        |   |  |   |         |  

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

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

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

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

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

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

20



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

The conversion price of the Series A
Preferred Stock, which initially was approximately
$3.06 per share, is subject to customary weighted average
anti-dilution adjustments and other customary adjustments, and
has been reduced to $2.049 per share.

In connection with the acquisition of the 802.11
WLAN systems business of Agere Systems, Inc., the Company also
issued warrants as described in Note 14.



|          |                      
|--------- | ---------------------
|Note 14  | Stockholders Deficit



| |                                      
| | -------------------------------------
| | Warrants to Purchase Common
    Stock

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

In connection with a three-year licensing and
distribution agreement entered into with Motorola, Inc. on
September 8, 2003, the Company issued to Motorola a fully
vested warrant to purchase 1,080,000 shares of the
Companys common stock at an exercise price of
$2.34 per share. This warrant will expire on
September 8, 2008. The Company has estimated the fair value
of the warrant using the Black-Scholes option valuation model at
$2.1 million. The fair value of the warrant is being
amortized on a straight-line basis over the three-year term of
the commercial arrangement with Motorola with quarterly charges
against revenue of $174,000 effective beginning in the first
quarter of 2004.

In connection with additional investments made by
Warburg Pincus Private Equity VIII, L.P., Broadview Capital
Partners L.P. and affiliated entities during the year ended
December 31, 2003, the Company issued to these investors
warrants to purchase 18.0 million and 6.0 million
shares of the Companys common stock at an exercise price
of $1.46 per share and $1.53 per share, respectively
(see Note 1 and 14). These warrants were valued by the
Company with the assistance of an independent valuation
consulting firm at $22.2 million at December 12, 2003
and $21.8 million at December 31, 2003. The fair value
of the warrants are recorded as a long-term liability, as the
warrant holders are entitled to require the Company to purchase
the warrants for cash, as defined in the agreement, upon the
occurrence of a change in control event. The fair value of the
warrants will be subject to revaluation adjustments at the end
of each reporting period, until they are exercised or expired,
whichever is earlier. The resulting gain or loss will be
recorded as other income or expense in the corresponding
reporting period. These warrants will expire on
December 15, 2010.

As of April 2, 2004, the Company had issued
warrants to purchase 44,952,918 shares of the
Companys common stock as of April 2, 2004.

21



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

The weighted average estimated grant date fair
value, as defined by SFAS No. 123, for stock options
granted under its stock option plans during the three months
ended April 2, 2004 and March 28, 2003 was $1.67 and
$0.60 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 three
months ended April 2, 2004 and March 28, 2003 was
$0.76 and $1.26 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
|                                                                              |  |                   
|                                                                              |  | April 2,           |         | March 28,
|                                                                              |  | 2004               |         | 2003     
|                                                                              |  |                    |         |          
|Net loss attributed to common stockholders as
    reported                    |  | $                  | (17,481 | )         |  | $ | (10,803 | )
|Less: Stock-based compensation expense determined
    under fair value method |  |                    | (1,794  | )         |  |   | (4,554  | )
|                                                                              |  |                    |         |           |  |   |         |  
|Pro forma net loss attributed to common
    stockholders                      |  | $                  | (19,275 | )         |  | $ | (15,357 | )
|                                                                              |  |                    |         |           |  |   |         |  

|             |                                                                              |                    |   |           |   |  |   |       |  
|------------ | ---------------------------------------------------------------------------- | ------------------ | - | --------- | - |  | - | ----- | -
|             |                                                                              |                   
|             |                                                                              | Three Months Ended
|             |                                                                              |                   
|             |                                                                              | April 2,           |   | March 28,
|             |                                                                              | 2004               |   | 2003     
|             |                                                                              |                    |   |          
|As reported: |                                                                              |                    |   |           |   |  |   |      
|             | Basic and diluted net loss attributable to common
    stockholders per share |                    | $ | (0.14     | ) |  | $ | (0.09 | )
|             |                                                                              |                    |   |           |   |  |   |      
|Pro forma:   |                                                                              |                    |   |           |   |  |   |      
|             | Basic and diluted net loss attributable to common
    stockholders per share |                    | $ | (0.16     | ) |  | $ | (0.13 | )
|             |                                                                              |                    |   |           |   |  |   |      

The pro forma effect on net loss and net loss per
share for the three months ended April 2, 2004 and
March 28, 2003 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 15  | Commitments and Contingencies

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

22



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

utilities. Future minimum lease payments under
non-cancelable operating leases at April 2, 2004 were as
follows (in thousands):

|                                     |  |   |        | 
|------------------------------------ |  | - | ------ | 
|Nine months ending December 31, 2004 |  | $ | 5,894  | 
|Year ending December 31:             |  |   |        | 
|2005                                 |  |   | 7,740  | 
|2006                                 |  |   | 6,708  | 
|2007                                 |  |   | 6,371  | 
|2008                                 |  |   | 6,435  | 
|Thereafter                           |  |   | 4,434  | 
|                                     |  |   |        | 
|Total minimum lease payments         |  | $ | 37,582 | 
|                                     |  |   |        | 

For the three months ended April 2, 2004 and
the years ended December 31, 2003 and 2002, the Company
recorded restructuring charges relating to the committed future
lease payments for closed facilities, net of estimated future
sublease receipts, of $19.5 million, which are included in
the above disclosures.



|          |                  
|--------- | -----------------
|Note 16  | 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 Accounts Receivable Financing
Agreement (as amended, the Amended A/R Financing
Agreement).

Under the Amended A/R Financing Agreement, the
Company may borrow up to $20 million in total. First, the
Company may borrow up to $10 million by financing a portion
of its eligible accounts receivable, primarily limited to
customers in the United States. Under this arrangement, the
Lender may agree to accept for collection through a lockbox
arrangement accounts receivable from the Company, and in return
the Company will receive advances from the Lender at a rate
equal to 80% of accounts receivable from account debtors who are
not distributors, and 50% of accounts receivable from account
debtors who are distributors, subject to borrowing restrictions
on most international accounts and at 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. Second, the Company may borrow up
to an additional $10 million, under which the Company is
required to maintain a compensating cash balance equal to such
borrowings.

Under the A/R Financing Agreement, the Company
may receive temporary advances from the Lender in excess of the
availability otherwise applicable under the A/R Financing
Agreement (Temporary Overadvances), in an amount
equal to $4.0 million for advances relating to letters of
credit and in an amount equal to $4.0 million to be used
for working capital purposes. The Company may receive Temporary
Overadvances under this arrangement through May 31, 2004.
This Temporary Overadvances arrangement

23



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

may be renewed upon agreement by both the Company
and the Lender. Borrowings outstanding under Temporary
Overadvances are subject to a finance charge of 1.5% per
week.

As of April 2, 2004, no borrowings were
outstanding under the Amended A/R Financing Agreement.

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 totaling $40 million 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 17). 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. In addition, we are
required to maintain restricted cash balances to the extent that
our outstanding letters of credit exceed $4.0 million. The
Company currently maintains substantially all of its cash, cash
equivalents and investments at Silicon Valley Bank and its
affiliates. In the event of default under the Amended A/R
Financing Agreement, the Lender has the right to offset such
cash, cash equivalents and investments against the
Companys obligations owing to the Lender.

In the first quarter of 2003, the Company entered
into an equipment and software lease agreement. Under the
agreement, the Company may either lease or finance certain
equipment, software and related services through a direct
leasing or sales and leaseback arrangement with the lessor for
up to $3.0 million. The lease term covers a period of
30 months, and the annual implicit interest rate on the
lease is approximately 4%. During the second quarter of 2003,
the Company installed and placed into service certain equipment,
software and related services through both a direct leasing and
sales leaseback arrangement and through a direct leasing
arrangement during the third and fourth quarters of 2003. As the
present value of total future minimum lease payments was greater
than 90% of the fair value of the leased assets, the Company
accounted for both the direct leasing and sales and leaseback
transactions as capital lease transactions. Net book value of
the leased assets capitalized in connection with this agreement
as of April 2, 2004 was $2.5 million. Future minimum
lease payments under non-cancelable capital leases at
April 2, 2004 were as follows (in thousands):

|                                               |  |   |       | 
|---------------------------------------------- |  | - | ----- | 
|Nine months ending April 2, 2004               |  | $ | 937   | 
|Year ending December 31:                       |  |   |       | 
|2005                                           |  |   | 901   | 
|2006                                           |  |   | 32    | 
|                                               |  |   |       | 
|Total minimum lease payments                   |  |   | 1,870 | 
|Less: amounts representing interest            |  |   | 59    | 
|                                               |  |   |       | 
|Present value of future minimum lease payments |  |   | 1,811 | 
|Less: current portion                          |  |   | 1,176 | 
|                                               |  |   |       | 
|Capital lease obligations, long-term portion   |  | $ | 635   | 
|                                               |  |   |       | 

24



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                  
|--------- | -----------------
|Note 17  | Legal Proceedings

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

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

On September 15, 2003, the Company announced
that a jury had rendered a verdict in the first phase of the
patent infringement suit with Symbol. On Symbols claims of
patent infringement, the jury found that certain of the
Companys products infringes two of Symbols patents
and assessed a 6% royalty. As of April 2, 2004, the Company
has recorded an accrual for potential estimated royalties
payable of $24.7 million and $3.1 million for
interest. The Company has not been enjoined from continued sales
of these products, and royalty payments, if any, on these sales
have not been determined by the court. In November 2003, the
court conducted a bench trial on the Companys remaining
equitable defenses not addressed by the jury and proceedings in
the case continue. The Company will continue to evaluate and
review the Companys estimate of the royalties and interest
payable from time to time for any indications that could require
the Company to change its assumptions relating to the amount
already recorded. In addition, the Companys cash flows
will not be immediately affected by this verdict, pending
completion of related proceedings.

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

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

25



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##### Table of Contents



PROXIM CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

time granted Top Globals motion for leave
to amend its complaint to allege a fraud claim against Agere.
The parties are currently conducting discovery. A trial date has
not been set.

On February 10, 2004, the Company received a
copy of a complaint filed on February 2, 2004 in Tokyo
District Court by Active Technology Corporation, a
Japanese-based distributor of the Companys products. The
complaint alleges, among other things, that the Company sold to
Active certain defective products, which Active in turn
subsequently sold to its customers. Active seeks damages of
559.2 million Japanese yen, which includes the purchase
price of the allegedly defective products and replacement costs
allegedly incurred by Active. Active seeks to offset the claim
of 559.2 million Japanese yen against outstanding accounts
payable by Active of 175.3 million Japanese yen to the
Company, resulting in a net claim against Proxim Corporation of
383.9 million Japanese yen. Translated into
U.S. dollars on May 5, 2004, Actives net claim
is approximately $3.5 million. This case is in its earliest
stages, as discovery has not yet commenced and a trial date has
not been established. The Company intends to defend itself
vigorously against this lawsuit.

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

The results of any litigation matters are
inherently uncertain. In the event of any adverse decision in
the described legal actions or disputes, or any other related
litigation with third parties that could arise in the future,
the Company could be required to pay damages and other expenses,
and, in the case of litigation related to patents or other
intellectual property rights, to cease the manufacture, use and
sale of infringing products, to expend significant resources to
develop non-infringing technology, or to obtain licenses to the
infringing technology. The Company cannot make any assurance
that these matters will not materially and adversely affect the
Companys business, financial condition, 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 Notes issued to
Warburg Pincus and affiliates of Broadview Capital. Upon such
occurrence, the Investors would have the ability to require the
Company to repay the Notes. In addition, entry of any judgment,
restraining order, injunction or any material adverse
development in the litigation with Symbol would result in an
event of default under the secured credit facility with Silicon
Valley Bank. Upon such occurrence, Silicon Valley Bank would
have the ability to require the Company to repay any outstanding
amounts under the credit facility and to prohibit the Company
from borrowing any additional amounts.

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

26



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

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

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



| |          
| | ---------
| | Liquidity

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

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restructuring the operations of the business. In
a two-part transaction, we raised an additional
$40.0 million in 2003. Warburg Pincus Private Equity VIII,
L.P. and Broadview Capital Partners L.P. and affiliates signed a
securities purchase agreement in July, 2003, later amended in
October, 2003, pursuant to which we received $30 million in
exchange for issuing demand notes bearing interest at
25% per annum and exchangeable for shares of Series B
Preferred Stock. (See Note 1 to the condensed consolidated
financial statements for a detailed description of the
Series B Financing). In December 2003, after stockholder
approval of our transactions with the investors, we exercised
our right to draw an additional $10 million from the
investors in exchange for additional notes, senior to but
otherwise having the same terms as the October notes. The
amounts owed on these demand notes, including accreted interest,
will total $51 million when due on September 30, 2004.
In the event that the term of these notes is not extended or
that these notes are not converted into Series B stock or
common stock by the investors, or additional financing were not
available to retire the notes, we would need to seek protection
under applicable bankruptcy laws. We are in discussions with the
investors regarding the terms of the notes and their effect on
our ability to raise additional capital. However, there can be
no assurance that the terms of the notes or the securities
issuable upon exchange thereof will be modified.


Our revenue for the first quarter of 2004 was
$26.7 million compared to $38.6 million for the fourth
quarter of 2003. Our cash and cash equivalents decreased by
$3.6 million from $19.8 million at December 31,
2003 to $16.1 million at April 2, 2004. We believe
that the decline in revenue was primarily due to a pronounced
seasonal decline in its WWAN business and issues associated with
our transition to our next generation ORiNOCO WLAN platform. The
decline in quarter over quarter revenue and ongoing negative
cash flow is expected to have a negative impact on our future
cash position. We believe that we need to obtain additional
financing to provide sufficient working capital for the
business. In the event such additional financing is not
available, we may need to seek protection under applicable
bankruptcy laws. In addition, almost all of the shares of common
stock we are authorized to issue pursuant to our certificate of
incorporation are either outstanding or reserved for future
issuance upon the exchange, conversion or exercise of
outstanding securities. We may need to seek approval of our
stockholders to amend our certificate of incorporation to
provide us with sufficient authorized shares for any new equity
or convertible debt financing.



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

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

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

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

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market categories that we believe will enable
Proxim to expand our market presence. Our new platforms include
the:




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

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

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



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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our total revenue, net for the first quarter of
    2004 was $26.7 million, a 33.3% decrease over our total
    revenue, net for the first quarter of 2003. Factors contributing
    to the revenue decrease included lower than expected carrier
    units sold resulting from carrier consolidation and delayed
    deployments. In addition, revenue declined due to sales order
    flow materializing later than expected in the first quarter of
    2004, product availability issues arising from the introduction
    of a new family of ORiNOCO access point products, and in the
    first quarter of 2003 a one-time patent license fee of
    $6.0 million, resulting from the patent litigation
    settlement with Intersil, as described in Note 17 to the
    condensed consolidated financial statements.
|
| |  | In our two geographies, North America and
    International, revenue comprised of 50.4% and 49.6%,
    respectively, of total revenue, net in the first quarter of 2004
    and 57.8% and 42.2%, respectively, of total revenue, net in
    first quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Net loss attributable to common stockholders in
    the first quarter of 2004 was $17.5 million versus
    $10.8 million in the first quarter of 2003. The increase
    from the 2003 quarter to the 2004 quarter is primarily
    attributable to the decrease in gross profit by
    $10.6 million, as described below, restructuring charges of
    $2.2 million recorded in the 2004 quarter, and a decrease
    in interest income and (expense), net of $1.0 million,
    partially offset by a decrease in combined research and
    development and selling, general and administrative expenses of
    $4.1 million, as described below, and an income tax benefit
    of $0.7 million.                                                                                                                           
|
| |  | Gross profit or gross margin decreased by
    $10.6 million or 55.5% from $19.1 million or 47.8% in
    the first quarter of 2003 to $8.5 million or 31.8% in the
    first quarter of 2004. Gross profit for the first quarter of
    2004 included royalty charges of $0.8 million. Gross profit
    for the first quarter of 2003 included the one-time license
    revenue of $6.0 million resulting from the patent
    litigation settlement with Intersil.                                                                                                                                                                                                                                                                                                                                                          



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Excluding royalty charges and the one-time
    license revenue, gross profit or gross margin declined by
    $3.8 million or 29.0% from $13.1 million or 38.5% in
    the first quarter of 2003 to $9.3 million or 34.8% in the
    first quarter of 2004, primarily attributable to lower overhead
    absorption resulting from lower than expected production
    volumes, partially offset by a higher percentage of WWAN product
    sales in the first quarter of 2004 compared to those sales in
    the first quarter of 2003. WWAN products generally carry higher
    product gross margins than WLAN products.



| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Combined research and development, selling,
    general and administrative expenses, and legal expenses for
    certain litigation improved from $23.0 million in the first
    quarter of 2003 to $16.7 million in the first

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quarter of 2004, partially attributable to our
    restructuring activities and cost reduction efforts implemented
    in 2003. Legal expenses for certain litigation included
    $3.0 million of litigation fees associated with our patent
    lawsuit with Intersil during the first quarter of 2003 and
    $745,000 of legal fees associated with our litigation with
    Symbol Technologies during the first quarter of 2004.

Critical Accounting Policies, Judgments and
Estimates

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

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



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

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

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



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

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

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



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

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

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material usage or service delivery costs differ
from our estimates, revisions to the estimated warranty
liability would be required.




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

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



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

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



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

We record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not
to be realized. While we have considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event we
were to determine that we would be able to realize our deferred
tax assets in the future in excess of our recorded amount, an
adjustment to the deferred tax asset would increase income in
the period such determination was made. Likewise, should we
determine that we would not be able to realize all or part of
our net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such
determination was made.



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

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



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

We have been involved in litigation in the normal
course of business. The results of any litigation matter are
inherently uncertain. In the event of any adverse decision in
litigation with third parties that was pending as of
April 2, 2004 and those that could arise in the future with
respect to patents, other intellectual property rights relevant
to our products and defective products, we could be required to
pay damages and other expenses, to cease the manufacture, use
and sale of infringing products, to expand significant resources
to develop non-infringing technology, or to obtain licenses to
the infringing technology. These charges may occur in any
particular quarter resulting in variability in our operating
results.

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Results of Operations

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

|                                                      |                                      |                          |       |           |      |  |       |      |      | 
|----------------------------------------------------- | ------------------------------------ | ------------------------ | ----- | --------- | ---- |  | ----- | ---- | ---- | 
|                                                      |                                      |                         
|                                                      |                                      | Three Months Ended      
|                                                      |                                      |                         
|                                                      |                                      | April 2,                 |       | March 28,
|                                                      |                                      | 2004                     |       | 2003     
|                                                      |                                      |                          |       |          
|Total revenue, net                                    |                                      |                          | 100.0 | %         |      |  | 100.0 | %   
|Cost of revenue                                       |                                      |                          | 65.1  |           |      |  | 52.3  |     
|Royalty charges                                       |                                      |                          | 3.1   |           |      |  |      |     
|                                                      |                                      |                          |       |           |      |  |       |     
|                                                      |                                      | Gross profit             |       |           | 31.8 |  |       |      | 47.7 | 
|Operating expenses:                                   |                                      |                          |      |           |      |  |      |     
|                                                      | Research and development             |                          |       | 17.1      |      |  |       | 19.7 |     
|                                                      | Selling, general and administrative  |                          |       | 42.6      |      |  |       | 30.2 |     
|                                                      | Legal expense for certain litigation |                          |       | 2.8       |      |  |       | 7.5  |     
|                                                      | Amortization of intangible assets    |                          |       | 20.1      |      |  |       | 13.7 |     
|                                                      | Restructuring charges                |                          |       | 8.1       |      |  |       |     |     
|                                                      |                                      |                          |       |           |      |  |       |     
|                                                      |                                      | Total operating expenses |       |           | 90.7 |  |       |      | 71.1 | 
|                                                      |                                      |                          |       |           |      |  |       |     
|Loss from operations                                  |                                      |                          | (58.8 | )         |      |  | (23.4 | )   
|Interest income (expense), net                        |                                      |                          | (3.2  | )         |      |  | 0.2   |     
|                                                      |                                      |                          |       |           |      |  |       |     
|Loss before income taxes                              |                                      |                          | (62.1 | )         |      |  | (23.2 | )   
|Income tax benefit                                    |                                      |                          | (2.8  | )         |      |  |      |     
|                                                      |                                      |                          |       |           |      |  |       |     
|Net loss                                              |                                      |                          | (59.3 | )         |      |  | (23.2 | )   
|Accretion of Series A Preferred Stock
    obligations |                                      |                          | (6.2  | )         |      |  | (3.8  | )   
|                                                      |                                      |                          |       |           |      |  |       |     
|Net loss attributable to common stockholders          |                                      |                          | (65.5 | )%        |      |  | (27.0 | )%  
|                                                      |                                      |                          |       |           |      |  |       |     

Comparison of the Three Months Ended
April 2, 2004 and March 28, 2003



| |                   
| | ------------------
| | Total revenue, net

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

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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 ORiNOCO 802.11 access point and client card products.
Total revenue, net during the three months ended March 28,
2003 also includes one-time license revenue of $6 million
related to the settlement agreement with Intersil during the
first quarter of 2003 (see Note 17 of the condensed
consolidated financial statements). 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
|                     |               |                   
|                     |               | April 2,           |        | March 28,
|Product Line         |               | 2004               |        | 2003     
|                     |               |                    |        |          
|WWAN                 |               | $                  | 13,074 |           |  | $ | 16,607 |       
|WLAN                 |               |                    | 13,623 |           |  |   | 17,422 |       
|WLAN license revenue |               |                    |       |           |  |   | 6,000  |       
|                     |               |                    |        |           |  |   |        |       
|                     | Total revenue |                    | $      | 26,697    |  |   | $      | 40,029 | 
|                     |               |                    |        |           |  |   |        |       

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 North America are
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
|                              |               |                   
|                              |               | April 2,           |        | March 28,
|Geographic Region             |               | 2004               |        | 2003     
|                              |               |                    |        |          
|North America                 |               | $                  | 13,453 |           |  | $ | 17,122 |       
|North America license revenue |               |                    |       |           |  |   | 6,000  |       
|International                 |               |                    | 13,244 |           |  |   | 16,907 |       
|                              |               |                    |        |           |  |   |        |       
|                              | Total revenue |                    | $      | 26,697    |  |   | $      | 40,029 | 
|                              |               |                    |        |           |  |   |        |       

Two customers accounted for 14.3% and 12.5% of
total revenue for the first quarter of 2004, respectively. One
customer accounted for 15.0% of total revenue for the first
quarter of 2003.

Total revenue, net decreased 33.3% from
$40.0 million in the first quarter of 2003 to
$26.7 million in the first quarter of 2004. The decrease
was attributable to lower than expected carrier units sold
resulting from carrier consolidation and delayed deployments. In
addition, revenue declined due to sales order flow materializing
later in the 2004 quarter, product availability issues arising
from the introduction of a new family of ORiNOCO access point
products, and in the 2003 quarter a one-time patent license fee
of $6.0 million, resulting from the patent litigation
settlement with Intersil, as described in Note 17 to the
condensed consolidated financial statements.



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

Cost of revenue decreased 17.0% from
$20.9 million in the first quarter of 2003 to
$17.4 million in the first quarter of 2004. As a percentage
of total revenue, net, cost of revenue increased from 52.3% in
the first quarter of 2003 to 65.1% in the first quarter of 2004.
Included in total revenue, net in the first quarter of 2003 was
the $6.0 million license revenue in connection with the
patent litigation settlement with Intersil. Excluding the
$6.0 million license revenue, cost of revenue as a
percentage of product revenue increased from 61.5% in the first
quarter of 2003 to 65.1% in the first quarter of 2004. The
decrease was primarily attributable to lower overhead absorption
resulting from lower than expected production volumes, partially
offset by a

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higher percentage of WWAN product sales in the
first quarter of 2004 compared to those sales in the first
quarter of 2003. WWAN products generally carry higher product
gross margins than WLAN products.


Royalty
Charges

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringe two of Symbols patents and assessed a 6% royalty
on the revenue of relevant products. While the actual amount of
past royalties due has not been finally determined, we recorded
an accrual for estimated potential royalty charges of
$23.9 million and $3.0 million for interest as of
December 31, 2003. During the first quarter of 2004, we
recorded an accrual for estimated potential royalty charges of
$828,000 and $85,000 for interest. See Note 17 of the
consolidated financial statements for further description of the
Symbol litigation.

Research and
Development Expense

Research and development expenses decreased 42.2%
from $7.9 million or 19.1% of total revenue, net in the
first quarter of 2003 to $4.6 million or 17.1% of total
revenue, net in the first quarter of 2004. The decrease in
research and development expense was primarily attributable to
the reduction in workforce implemented in 2003, resulting in
decreased personnel expenses. Severance pay associated with the
workforce reduction was included in the restructuring charges
recorded in 2003.

Selling,
General and Administrative Expense

Selling, general and administrative expenses
decreased 6.0% from $12.1 million or 30.1% of total
revenue, net in the first quarter of 2003 to $11.4 million
or 42.6% of total revenue, net in the first quarter of 2004. The
decrease in selling, general and administrative expenses from
the first quarter of 2003 to the first quarter of 2004 was
primarily attributable to the workforce reduction implemented in
2003, resulting in reduced personnel expenses.

Legal Expense
for Certain Litigation

Legal expenses for certain litigation of
$3.0 million incurred in the first quarter of 2003
represented litigation fees associated with our patent lawsuit
with Intersil. As described in Part II, Item 1, Legal
Proceedings, we settled our lawsuit with Intersil and recorded
license revenue of $6.0 million in the first quarter of
2003. Legal expenses for certain litigation of $745,000 incurred
in the first quarter of 2004 represented legal fees in
connection with our litigation with Symbol Technologies. Please
refer to Part II, Item 1, Legal Proceedings for a
description of our litigation.

Amortization
of Intangible Assets

Amortization of intangible assets was
$5.5 million in the first quarter of 2003 compared to
$5.4 million in the first quarter of 2004.

Restructuring
Charges for Severance and Excess Facilities

During the three months ended April 2, 2004,
the Company recorded restructuring charges of $2.2 million,
consisting of $2.0 million of cash provisions and
$0.2 million of non-cash provisions for abandoned property
and equipment. The $2.0 million of cash provisions
consisted of $1.4 million of operating lease commitments,
less estimated future sublease receipts and exit costs related
to a portion of a Sunnyvale facility, which was closed during
the first quarter of 2004, and $0.6 million of severance
payments for five employees.

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The following table summarizes the restructuring
activities in 2003 and the three months ended April 2, 2004
(in thousands):

|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------- |  | --------- | ------ | ---------- |  | ---------- | ------- | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                               |  |           |        |            |  | Asset Held |         |       |  |      
|                                               |  | Severance |        | Facilities |  | for Sale   |         | Other |  | Total
|                                               |  |           |        |            |  |            |         |       |  |      
|Balance as of December 31, 2002                |  | $         |       |            |  | $          | 30,450  |       |  | $     |       |   |  | $ |       |   |  | $ | 30,450  |  
|Provision charged to operations                |  |           | 9,071  |            |  |            | 12,743  |       |  |       | 6,925  |   |  |   | 3,904  |   |  |   | 32,643  |  
|Reversal of previously recorded provision      |  |           |       |            |  |            | (27,764 | )     |  |       |       |   |  |   |       |   |  |   | (27,764 | )
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (3,304 | ) |  |   | (3,304  | )
|Cash payments                                  |  |           | (5,451 | )          |  |            | (3,845  | )     |  |       | (9,966 | ) |  |   |       |   |  |   | (19,262 | )
|Proceeds from sale of asset held for sale, net |  |           |       |            |  |            |        |       |  |       | 3,041  |   |  |   |       |   |  |   | 3,041   |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of December 31, 2003                |  |           | 3,620  |            |  |            | 11,584  |       |  |       |       |   |  |   | 600    |   |  |   | 15,804  |  
|Provision charged to operations                |  |           | 601    |            |  |            | 1,447   |       |  |       |       |   |  |   | 119    |   |  |   | 2,167   |  
|Non-cash charges utilized                      |  |           |       |            |  |            |        |       |  |       |       |   |  |   | (119   | ) |  |   | (119    | )
|Cash payments                                  |  |           | (2,424 | )          |  |            | (856    | )     |  |       |       |   |  |   |       |   |  |   | (3,280  | )
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  
|Balance as of April 2, 2004                    |  | $         | 1,797  |            |  | $          | 12,175  |       |  | $     |       |   |  | $ | 600    |   |  | $ | 14,572  |  
|                                               |  |           |        |            |  |            |         |       |  |       |        |   |  |   |        |   |  |   |         |  

Interest
Income (Expense), Net

Interest income (expense), net decreased from
income of $99,000 in the first quarter of 2003 to expense of
$858,000 in the first quarter of 2004. The following table
summarizes interest income (expense), net (in thousands):

|                                                 |  |                    |        |           |  |   |    | 
|------------------------------------------------ |  | ------------------ | ------ | --------- |  | - | -- | 
|                                                 |  |                   
|                                                 |  | Three Months Ended
|                                                 |  |                   
|                                                 |  | April 2,           |        | March 28,
|                                                 |  | 2004               |        | 2003     
|                                                 |  |                    |        |          
|Interest expense on royalty charges              |  | $                  | (85    | )         |  | $ |   | 
|Interest expense on convertible notes            |  |                    | (2,548 | )         |  |   |   | 
|Amortization of debt discount and issuance costs |  |                    | (2,892 | )         |  |   |   | 
|Revaluation of common stock warrants             |  |                    | 5,100  |           |  |   |   | 
|Loss on disposal of property and equipment       |  |                    | (350   | )         |  |   |   | 
|Other interest income (expense), net             |  |                    | (83    | )         |  |   | 99 | 
|                                                 |  |                    |        |           |  |   |    | 
|                                                 |  | $                  | (858   | )         |  | $ | 99 | 
|                                                 |  |                    |        |           |  |   |    | 

Income Tax
Benefit

The income tax benefit recorded during the three
months ended April 2, 2004 represents the reversal of the
valuation allowance of deferred tax assets to offset the
deferred tax liability arising from the revaluation of
short-term investments.

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.

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Liquidity and Capital Resources

Sources and
Use of Cash

Cash and cash equivalents decreased by
$3.7 million from $19.8 million at December 31,
2003 to $16.1 million at April 2, 2004.

Net cash used in operating activities for the
three months ended April 2, 2004 was $3.5 million,
attributable to the net loss after the effect of non-cash
charges and a decrease in accounts payable and other accrued
liabilities, partially offset by a decrease in accounts
receivable, a decrease in inventory excluding restructuring
charges, a decrease in restricted cash and other assets, current
and non-current, and an increase in accrued royalties and
interest. Net cash used in operating activities for the three
months ended March 28, 2003 was $1.4 million and was
attributable to the net loss after the effect of non-cash
charges and an increase in inventory, partially offset by a
decrease in accounts receivable, a decrease in restricted cash
and other assets, current and non-current, and an increase in
accounts payable and other accrued liabilities.

Net cash used in investing activities for the
three months ended April 2, 2004 was $292,000 and
represented capital spending. Net cash provided by investing
activities for the three months ended March 28, 2003 was
$150,000, attributable to proceeds from repayment of a portion
of a loan to a former officer, offset by capital spending of
$350,000. As discussed in Note 6 to the condensed
consolidated financial statements, we intend to continue to seek
repayment on the outstanding loan balance from this former
officer.

Net cash provided by financing activities for the
three months ended April 2, 2004 was $138,000 and was
attributable to the issuance of common stock, net of $437,000,
offset by principal payments on capital lease obligations of
$299,000. Net cash provided by financing activities for the
three months ended March 28, 2003 was $136,000 and
represented the issuance of common stock, net.

Contractual
Commitments

We occupy our facilities under several
non-cancelable operating lease agreements expiring at various
dates through September 2009, and require payment of property
taxes, insurance, maintenance and utilities. Future payments
under contractual obligations as of April 2, 2004 were as
follows (in thousands):

|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |            |       |  |  |   |         |  |  |   |       |  |  |   |       | 
|-------------------------------------- |  | ---------------------- | ------- | ------------------------ |  | ---- | ------ | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ------- |  |  | - | ----- |  |  | - | ----- | 
|                                       |  |                       
|                                       |  | Payments Due By Period
|                                       |  |                       
|                                       |  |                        |         |                          |  |     
|                                       |  |                        |         | Year Ending December 31, |  |     
|                                       |  | Total Amounts          |         |                          |  |     
|                                       |  | Committed              |         | 2004                     |  | 2005 |        | 2006 |  | 2007 |       | 2008 |  | Thereafter
|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |           
|Severance pay                          |  | $                      | 1,797   |                          |  | $    | 1,797  |      |  | $    |      |      |  | $          |      |  |  | $ |        |  |  | $ |      |  |  | $ |      | 
|Repayment of convertible notes         |  |                        | 50,753  |                          |  |      | 50,753 |      |  |      |      |      |  |            |      |  |  |   |        |  |  |   |      |  |  |   |      | 
|Operating leases                       |  |                        | 37,582  |                          |  |      | 5,894  |      |  |      | 7,740 |      |  |            | 6,708 |  |  |   | 6,371   |  |  |   | 6,435 |  |  |   | 4,434 | 
|Capital leases                         |  |                        | 1,870   |                          |  |      | 937    |      |  |      | 901   |      |  |            | 32    |  |  |   |        |  |  |   |      |  |  |   |      | 
|Project commitments                    |  |                        | 815     |                          |  |      | 815    |      |  |      |      |      |  |            |      |  |  |   |        |  |  |   |      |  |  |   |      | 
|Redemption of Series A Preferred Stock |  |                        | 106,899 |                          |  |      |       |      |  |      |      |      |  |            |      |  |  |   | 106,899 |  |  |   |      |  |  |   |      | 
|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |            |       |  |  |   |         |  |  |   |       |  |  |   |       | 
|                                       |  | $                      | 199,716 |                          |  | $    | 60,196 |      |  | $    | 8,641 |      |  | $          | 6,740 |  |  | $ | 113,270 |  |  | $ | 6,435 |  |  | $ | 4,434 | 
|                                       |  |                        |         |                          |  |      |        |      |  |      |       |      |  |            |       |  |  |   |         |  |  |   |       |  |  |   |       | 

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

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

For the three months ended April 2, 2004 and
the years ended December 31, 2003 and 2002, we recorded
restructuring charges of $19.5 million related to the
committed future lease payments for closed facilities, net of
estimated future sublease receipts and reversal of previously
recorded provision, which are included in the operating leases
caption above. As of April 2, 2004, we had unconditional
purchase order commitments of $815,000, which are included as
accrued liabilities.

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Credit
Facilities

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

Under the Amended A/ R Financing Agreement, we
may borrow up to $20 million in total. First, we may borrow
up to $10 million by financing a portion of our eligible
accounts receivable, primarily to our customers in the United
States. Under this arrangement, we may accept for collection
through a lockbox arrangement 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 borrowing restrictions
on most international accounts and at the discretion of the
Lender. After collection of a receivable, the Lender will refund
to us the difference between the amount collected and the amount
initially advanced to us, less a finance charge applied against
the average monthly balance of all transferred but outstanding
receivables at a rate per annum equal to the Lenders prime
rate plus 1.50 percentage points, or 5.75%, whichever is
greater. In addition to a facility fee of $100,000, we must pay
each month to the Lender a handling fee equal to 0.25% of the
average monthly balance of transferred but outstanding
receivables. We must repay each advance upon the earliest to
occur of (i) the collection of the corresponding financed
receivable, (ii) the date on which the corresponding
financed receivable becomes an ineligible receivable pursuant to
the terms of the Amended A/ R Financing Agreement, or
(iii) July 31, 2004. Second, we may borrow up to an
additional $10 million, under which we are required to
maintain a compensating cash balance equal to such borrowings.

Under the A/ R Financing Agreement, the Company
may receive temporary advances from the Lender in excess of the
availability otherwise applicable under the A/ R Financing
Agreement (Temporary Overadvances), in an amount
equal to $4.0 million for advances relating to letters of
credit and in an amount equal to $4.0 million to be used
for working capital purposes. The Company may receive Temporary
Overadvances under this arrangement through May 31, 2004.
This Temporary Overadvances arrangement may be renewed upon
agreement by both the Company and the Lender. Borrowings
outstanding under Temporary Overadvances are subject to a
finance charge of 1.5% per week.

As of April 2, 2004, no borrowings were
outstanding under the Amended A/ R Financing Agreement.

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

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Other
Restructuring Activities

We have taken steps to reduce our expenses from
operations by decreasing research and development and general
and administrative expenses in order to begin generating cash
flow from operations. Restructuring charges related primarily to
severance payments.

Restructuring charges for the three months ended
April 2, 2004 were $2.2 million, consisting of
$2.0 million of cash provisions and $0.2 million of
non-cash provisions for abandoned property and equipment. The
$2.0 million of cash provisions consisted of
$1.4 million of operating lease commitments, less estimated
future sublease receipts and exit costs related to a portion of
a Sunnyvale facility, which was closed during the first quarter
of 2004, and $0.6 million of severance payments for five
employees.

Debt
Financing

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

In the event of default or change of control
occurs or these Investors decide not to exchange the Notes for
Series B Preferred Stock and/or common stock or extend
their maturity date, we may be required to repay the Notes upon
the earlier of demand by these investors or the
September 30, 2004 maturity date. If we were required to
repay the Notes, we would be required to obtain immediate
alternative sources of financing. If we were not able to obtain
an alternative source of financing, we would most likely have
insufficient cash to repay the Notes, be unable to meet our
ongoing operating obligations as they come due in the ordinary
course of business, and may have to seek protection under
applicable bankruptcy laws. We are in discussions with the
investors regarding the terms of the Notes and their effect on
our ability to raise additional capital. However, there can be
no assurance that the terms of the notes or the securities
issuable upon exchange thereof will be modified.

Litigation
with Symbol Technologies

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringes two of Symbols patents and assessed a 6%
royalty. While the actual amount of past royalties due has not
been finally determined, as of April 2, 2004, we have
recorded an accrual for potential estimated royalties payable of
$24.7 million and $3.1 million for interest.. We have
not been enjoined from continued sales of these products. We
will continue to evaluate and review its estimate of the
royalties and interest payable from time to time for any
indications that could require us to change our assumptions
relating to the amount already recorded. On November 24,
2003, the District Court conducted a one-day bench trial on our
equitable defenses of laches and estoppel not addressed by the
jury. The District Court has not reached a decision on the
equitable defenses.

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

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Silicon Valley Bank would have the ability to
require us to repay any outstanding amounts under the credit
facility and to prohibit us from borrowing any additional
amounts.


Depending upon the final ruling of the litigation
with Symbol, we may be required to pay royalty charges and
interest at the time specified by the court. Our current
estimate of approximately $27.8 million for royalties and
interest is not included in the above disclosure of future
payments under contractual obligations.

Additional
Sources of Financing

Our revenue declined from $38.6 million in
the fourth quarter of 2003 to $26.7 million in the first
quarter of 2004. The decline in quarter over quarter revenue and
ongoing negative cash flows from operations is expected to have
a negative impact on our future cash position. In addition, we
have incurred substantial losses and negative cash flows from
operations during the first quarter ended April 2, 2004 and
the years ended December 31, 2003, 2002 and 2001, and had
an accumulated deficit of $415.2 million as of
April 2, 2004. We believe that we need to obtain additional
financing to provide sufficient working capital for the
business. Our ability to raise funds may be adversely affected
by a number of factors relating to us, such as the terms of the
Notes and our other agreements with the Investors, as well as
factors beyond our control, including market uncertainty and
conditions in the capital markets. In addition, almost all of
the shares of common stock we are authorized to issue pursuant
to our certificate of incorporation are either outstanding or
reserved for future issuance upon the exchange, conversion or
exercise of outstanding securities. We may need to seek approval
of our stockholders to amend our certificate of incorporation to
provide us with sufficient authorized shares for any new equity
or convertible debt financing. 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. In the event that
such additional financing is not available, we may need to seek
protection under applicable bankruptcy laws. If we were required
to make payments to Symbol, post a bond to the court, and/or
repay the Notes and amounts, if any, which may be owed to
Silicon Valley Bank, either due to an event of default or
otherwise, we will be required to obtain immediate alternative
sources of financing in excess of the additional financing
required to provide sufficient working capital for the business.
If we were not able to obtain such alternative sources of
financing, we 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 our ability to
continue as a going concern. These consolidated financial
statements do not include any adjustments that might result from
this uncertainty.

Recent Accounting Pronouncements

In April 2004, the Emerging Issues Task Force
issued Statement No. 03-06, Participating Securities and
the Two  Class Method Under FASB Statement
No. 128, Earnings Per Share,
(EITF 03-06). EITF 03-06 addresses a
number of questions regarding the computation of earnings per
share by companies that have issued securities other than common
stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares
dividends on its common stock. The issue also provides further
guidance in applying the two-class method of calculating
earnings per share, clarifying what constitutes a participating
security and how to apply the two-class method of computing
earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings
to such a security. EITF 03-06 is effective for fiscal
periods beginning after March 31, 2004. The Company is
currently evaluating the effect of adopting EITF 03-06 on
its results of operations.

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.

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##### Table of Contents



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

Our revenue declined from $38.6 million in
the fourth quarter of 2003 to $26.7 million in the first
quarter of 2004. The decline in quarter over quarter revenue and
ongoing negative cash flows from operations is expected to have
a negative impact on our future cash position. In addition, we
have incurred substantial losses and negative cash flows from
operations during the three months ended April 2, 2004 and
the years ended December 31, 2003, 2002 and 2001, and have
an accumulated deficit of $415.2 million as of
April 2, 2004.

We believe that we need to obtain additional
financing to provide sufficient working capital for the
business. Our ability to raise funds may be adversely affected
by a number of factors relating to us, such as the terms of the
Notes and our other agreements with the Investors, as well as
factors beyond our control, including market uncertainty and
conditions in the capital markets. In addition, almost all of
the shares of common stock we are authorized to issue pursuant
to our certificate of incorporation are either outstanding or
reserved for future issuance upon the exchange, conversion or
exercise of outstanding securities. We may need to seek approval
of our stockholders to amend our certificate of incorporation to
provide us with sufficient authorized shares for any new equity
or convertible debt financing. 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. In the event that
such additional financing is not available, we may need to seek
protection under applicable bankruptcy laws.

During 2003, Warburg Pincus and Broadview Capital
invested $40 million in us in exchange for the Notes
Series B Preferred Stock and warrants to purchase our
common stock. Please refer to Note 1 to the condensed
consolidated financial statements for a detailed description of
our recent transactions with Warburg Pincus and Broadview
Capital Partners (the Investors), the terms of the
secured exchangeable promissory notes (the Notes),
and our amended and restated securities purchase agreement with
the Investors (the Amended Agreement).

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

If we were required to make payments to Symbol,
post a bond to the court, and/or repay the Notes and amounts, if
any, owed to Silicon Valley Bank, either due to an event of
default or otherwise, we would be required to obtain immediate
alternative sources of financing in excess of the additional
financing required to

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provide sufficient capital for the business. 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.


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

For the three months ended April 2, 2004 and
the year ended December 31, 2003 we had a net loss
attributable to holders of our common stock of
$17.5 million and $133.7 million, respectively. We
cannot assure you that our revenue will increase or continue at
current levels or growth rates or that we will achieve
profitability or generate cash from operations in future
periods. In view of the rapidly evolving nature of our business
and the limited histories of Western Multiplex, Proxim, Inc. and
the Agere 802.11 wireless systems business we acquired,
period-to-period comparisons of operating results are not
necessarily meaningful and you should not rely on them as
indicating what our future performance will be.

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

Our gross profit may decline in the
future.

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

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

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



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

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

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



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

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

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

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

Factors that may harm operating results include:



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

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

Historically, we do not operate with a
significant order backlog and a substantial portion of our
revenues in any quarter is derived from orders booked and
shipped in that quarter. Accordingly, a significant component of
our revenue expectations will be based almost entirely on
internal estimates of future demand and not on firm customer
orders. Planned operating expense levels are relatively fixed in
the short term and are based in large part on these estimates.
If orders and revenue do not meet expectations, our operating
results could be materially adversely affected. In this regard,
we did not achieve our revenue targets in the first and second
quarters of 2003 and the first quarter of 2004.

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

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

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

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

The potential for sales of substantial amounts of
our common stock into the public market may adversely affect the
market price of our common stock. Our Investors hold outstanding
shares of Series A preferred stock convertible into an
aggregate of 41,997,119 shares of common stock as of
May 5, 2004. Including additional accretion at an annual
rate of 8% through August 5, 2005, the Series A
preferred stock will be convertible into an aggregate of
46,314,752 shares of common stock. The Investors also hold
Notes exchangeable for shares of our Series B Preferred
Stock, which is then convertible into our common stock. Assuming
exchange of the Notes on their maturity date of
September 30, 2004, the Investors will receive
Series B Preferred Stock immediately convertible into
44,414,830 shares of our common stock. Including additional
accretion at an annual rate of 14% through the seventh
anniversary of the date of issuance of the Series B
Preferred Stock, the Series B Preferred Stock will be
convertible into 116,330,766 shares of our common stock. In
addition, the Investors currently hold warrants to purchase an
aggregate of 18,301,612 shares of our common stock at an
exercise price of $2.05 per share, 18,000,000 shares
of common stock at an exercise price of $1.46 per share and
6,000,000 shares of our common stock at an exercise price
of $1.53 per share.

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Assuming conversion of the notes on their
maturity date of September 30, 2004, the Series B
Preferred Stock issuable upon conversion of the notes, the
Series A Preferred Stock, and the warrants held by the
Series A and Series B Preferred Stock investors, would
be expected to represent approximately 51.3% of our outstanding
capital stock on an as-converted and as-exercised basis, based
on shares outstanding as of May 5, 2004, and excluding
total outstanding employee options and other warrants to
purchase approximately 30,892,084 shares and
2,651,306 shares, respectively, of common stock.

We have agreed to file a registration statement
on Form S-1, or, if available, Form S-3, with the
Securities and Exchange Commission (the SEC) by
June 15, 2004. Upon the effectiveness of such registration
statement, the investors will have the right to resell any
shares of common stock issuable upon conversion of the
Series A preferred stock and Series B Preferred Stock
and upon exercise of all of the warrants issued in connection
with the Series A Preferred Stock and Series B
Preferred Stock.

In addition to these securities, as of
May 5, 2004, options and warrants to acquire 30,892,084 and
2,651,306 shares, respectively, of our common stock were
outstanding. Also, as of May 5, 2004, approximately an
additional 11,770,369 shares of our common stock were
reserved for issuance to our employees under existing and/or
assumed stock option plans.

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

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

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

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

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

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compete with companies that have high volume
manufacturing and extensive marketing and distribution
capabilities, areas in which we have only limited experience. We
can offer no assurance that we will be able to compete
successfully against existing and new competitors as wireless
markets evolve and the level of competition increases.


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

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

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

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

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

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

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




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

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

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

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

During the three months ended April 2, 2004
and years ended December 31, 2003 and 2002, international
sales accounted for approximately 49%, 41% and 38% of our total
sales, respectively. We expect that our

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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 additional costs and add these
management burdens without successfully expanding sales. This
failure would harm our operating results.

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.

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

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



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

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

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

Our WWAN business has historically generated a
significant amount of revenue from a limited number of
distributors. The loss of business from any of these
distributors or the delay of significant orders from any of
them, even if only temporary, could significantly reduce our
revenue, delay recognition of revenue, harm our reputation or
reduce our ability to accurately predict cash flow. Two
distributors accounted for 14.3% and 12.5% of our total revenue
for the three months ended April 2, 2004, and one
distributor accounted for approximately 14% and 23% of our total
revenue for the years ended December 31, 2003 and 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 continue the development of our
distribution channels, we may consolidate demand through fewer,
larger distributors in order to effectively manage a growing
base of VARs, resellers and sub-distributors.

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

We depend on single or limited source suppliers
for several key components used in our products. 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

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capacity constraints caused by high demand. We do
not have any long-term arrangements with our suppliers and could
be at a disadvantage compared to other companies, particularly
larger companies that have contractual rights or preferred
purchasing arrangements. In addition, during periods of capacity
constraint, we are disadvantaged compared to better capitalized
companies, as suppliers have in the past and may in the future
choose not to do business with us, or may require letters of
credit guaranteeing our obligations, as a result of our
financial condition. 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 in large
scale or foreign manufacturing. There can be no assurance that
we will be able to develop or contract for additional
manufacturing capacity on acceptable terms on a timely basis. In
addition, in order to compete successfully, we will need to
achieve significant product cost reductions. Although we intend
to achieve cost reductions through engineering improvements,
production economies, and manufacturing at lower cost locations
including outside the United States, there can be no assurance
that we will be able to do so. In order to remain competitive,
we must continue to introduce new products and processes into
our manufacturing environment, and there can be no assurance
that any such new products will not create obsolete inventories
related to older products. For example, as part of our
restructuring charge in the second quarter of 2003, we increased
our provision for excess and obsolete inventory by
$22.5 million, primarily related to legacy WWAN products.
As a part of our restructuring charge in the first quarter of
2002, we increased our provision for obsolete and excess
inventory, including purchase commitments, totaling
$12.7 million, of which $7.7 million related to excess
inventory and $5.0 million related to purchase commitments,
primarily related to legacy WLAN products. These provisions
related to a decrease in demand for certain products as well as
our strategy to discontinue certain products in order to
concentrate on selling next generation products.

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

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

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

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

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

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

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

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

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

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| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | 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 they have tested the
products 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 future. If
the costs of remediating problems experienced by our customers
exceed our warranty reserves, these costs may adversely affect
our operating results.

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

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

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

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

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.

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

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

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



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

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

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

Warburg Pincus and entities affiliated with
Broadview Capital Partners hold outstanding shares of
Series A preferred stock convertible into an aggregate of
41,997,199 shares of common stock as of May 5, 2004.
Including additional accretion at an annual rate of 8% through
August 5, 2005, the Series A preferred stock will be
convertible into an aggregate of 46,314,752 shares of
common stock. The Investors also hold Notes exchangeable for
shares of our Series B Preferred Stock, which is then
convertible into our common stock. Assuming exchange of the
Notes on their maturity date of September 30, 2004, the
Investors will receive Series B Preferred Stock immediately
convertible into 44,414,830 shares of our common stock.
Including additional accretion at an annual rate of 14% through
the seventh anniversary of the date of issuance of the
Series B Preferred Stock, the Series B Preferred Stock
will be convertible into 116,330,766 shares of our

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common stock. In addition, the Investors
currently hold warrants to purchase an aggregate of
18,301,612 shares of our common stock at an exercise price
of $2.05 per share, 18,000,000 shares of our common
stock at an exercise price of $1.46 per share and
6,000,000 shares of our common stock at an exercise price
of $1.53 per share.


Assuming conversion of the notes on their
maturity date of September 30, 2004, the Series B
Preferred Stock issuable upon conversion of the notes, the
Series A Preferred Stock, and the warrants held by the
Series A and Series B Preferred Stock investors, would
be expected to represent approximately 51.3% of our outstanding
capital stock on an as-converted and as-exercised basis, based
on shares outstanding as of May 5, 2004, and excluding
outstanding employee options and warrants to purchase
approximately 30,892,084 shares and 2,651,306 shares,
respectively, of common stock.

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

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

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | from August 2005 through August 2007, shares of
    Series A preferred stock will be entitled to dividends
    equal to 8% of their liquidation preference per year, payable,
    at our election, in cash or shares of our common stock valued at
    the then-market price;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | each share of Series A preferred stock will
    have an initial liquidation preference of $25.00 and the
    liquidation preference will bear interest at 8%, compounded
    semi-annually, for three years. The liquidation preference is
    subject to adjustments in the event we undertake a business
    combination or other extraordinary transaction, or we are
    liquidated or dissolved;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | in August 2007, we will be required to redeem all
    outstanding shares of Series A preferred stock, if any, for
    cash equal to their liquidation preference plus accrued and
    unpaid dividends;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | in the event of a change of control of our
    company, we will have the right to convert the Series A
    preferred stock into common stock if upon such conversion the
    holders of Series A preferred stock would receive liquid
    securities or cash with a fair market value equal to or greater
    than 110% of the liquidation preference then in effect. If the
    consideration is less than 110% of the liquidation preference,
    we may either modify the conversion price so that the
    consideration will equal 110% of the liquidation preference then
    in effect or repurchase the Series A preferred stock for
    cash at 101% of the liquidation preference then in effect. In
    addition, in the event of a change of control that occurs prior
    to August 2005, the liquidation preference will increase as
    necessary to provide for three years of accretion;
|
| |  | holders of Series A preferred stock have
    rights to acquire additional shares of our capital stock or
    rights to purchase property in the event of certain grants,
    issuance or sales;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | the conversion price of the Series A
    preferred stock, which initially was approximately
    $3.06 per share, and was reduced to approximately $2.24 in
    connection with the issuance of the Notes, is subject to
    additional customary weighted average anti-dilution adjustments
    and other customary adjustments; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | the approval of holders of a majority of the
    Series A preferred stock is separately required to approve
    changes to our certificate of incorporation or bylaws that
    adversely affect these holders rights, any                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |  |                                                                                                                                                                                                                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | offer, sale or issuance of our equity or
    equity-linked securities ranking senior to or equally with the
    Series A preferred stock, and any repurchase or redemption
    of our equity securities (other than from an employee, director
    or consultant following termination), or the declaration or
    payment of any dividend on our common stock.

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



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

Warburg Pincus has agreed until July 22,
2007 to limit its voting rights to no more than 45% of our
issued and outstanding voting stock. In addition, for so long as
each of the Investors owns at least 25% of the aggregate
principal amount of the Notes issued to each of them or 25% of
the shares of Series B Preferred Stock issued to them
(including as owned and outstanding such shares of common stock
issuable upon conversion of the shares of Series B
Preferred Stock and upon exercise of the warrants), and Warburg
Pincus owns at least 25% of the shares of Series A referred
stock (including as owned and outstanding such shares of common
stock issuable upon conversion of the shares of Series A
preferred stock and exercise of the existing warrants), the
Investors will have the right to hold three out of a possible
nine seats on our Board of Directors and Warburg Pincus shall
have the right to have one observer attend meetings of the Board
of Directors.

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

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

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

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

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

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

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringes two of Symbols patents and assessed a 6%
royalty. As of April 2, 2004, we recorded an accrual for
potential estimated royalties payable of $24.7 million and
$3.1 million for interest. We have not been enjoined from
continued sales of these products, and royalty payments, if any,
on these sales have not been determined by the court. In
November 2003, the court conducted a bench trial on our
remaining equitable defenses not addressed by the jury and
proceedings in the case continue. We will continue to evaluate
and review our estimate of the royalties and interest payable
from time to time for any indications that could require us to
change our assumptions relating to the amount already recorded.
In addition, our cash flows will not be immediately affected by
this verdict, pending completion of related proceedings.

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

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alleges breach of contract. We answered the
amended complaint and asserted several defenses to Top
Globals claims. In January 2004, the parties mediated this
dispute but were unable to reach a settlement. In March 2004,
the Court dismissed the contract claims against Agere but at the
same time granted Top Globals motion for leave to amend
its complaint to allege a fraud claim against Agere. The parties
are currently conducting discovery. A trial date has not been
set.


On February 10, 2004, we received a copy of
a complaint filed on February 2, 2004 in Tokyo District
Court by Active Technology Corporation, a Japanese-based
distributor of our products. The complaint alleges, among other
things, that we sold to Active certain defective products, which
Active in turn subsequently sold to its customers. Active seeks
damages of 559.2 million Japanese yen, which includes the
purchase price of the allegedly defective products and
replacement costs allegedly incurred by Active. Active seeks to
offset the claim of 559.2 million Japanese yen against
outstanding accounts payable by Active of 175.3 million
Japanese yen to us, resulting in a net claim against Proxim
Corporation of 383.9 million Japanese yen. Translated into
U.S. dollars on May 5, 2004, Actives net claim
is approximately $3.5 million. This case is in its earliest
stages, as discovery has not yet commenced and a trial date has
not been established.

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

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

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

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

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

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



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

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

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

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

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affecting the pricing, characteristics and
quality of broadband wireless systems and products. Increased
government regulations could:




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

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

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

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

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

Changes in stock option accounting rules may
adversely impact our reported operating results prepared in
accordance with generally accepted accounting principles, our
stock price and our competitiveness in the employee
marketplace.

Technology companies like ours have a history of
using broad based employee stock option programs to hire,
incentivize and retain our workforce in a competitive
marketplace. Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based
Compensation (SFAS 123) allows companies
the choice of either using a fair value method of accounting for
options, which would result in expense recognition for all
options granted, or using an intrinsic value method, as
prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), with a pro forma disclosure of the impact on net
income (loss) of using the fair value option expense recognition
method. We have elected to apply APB 25 and accordingly we
generally do not recognize any expense with respect to employee
stock options as long as such options are granted at exercise
prices equal to the fair value of our common stock on the date
of grant.

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During March 2004 the FASB issued a proposed
Statement, Share-Based Payment, an amendment of FASB
Statements No. 123 and 95. The proposed statement
eliminates the treatment for share-based transactions using
APB 25 and generally would require share-based payments to
employees be accounted for using a fair-value-based method and
recognized as expenses in our statements of operations. The
proposed standard would require the modified prospective method
be used, which would require that the fair value of new awards
granted from the beginning of the year of adoption plus unvested
awards at the date of adoption be expensed over the vesting
term. In addition, the proposed statement encourages companies
to use the binomial approach to value stock options,
as opposed to the Black-Scholes option pricing model that we
currently use for the fair value of our options under
SFAS 123 disclosure provisions.

The effective date the proposed standard is
recommending is for fiscal years beginning after
December 15, 2004. Should this proposed statement be
finalized, it will have a significant impact on our consolidated
statement of operations as we will be required to expense the
fair value of our stock options rather than disclosing the
impact on our consolidated result of operations within our
footnotes in accordance with the disclosure provisions of
SFAS 123 (see Note 14 of the notes to condensed
consolidated financial statements). This will result in lower
reported earnings per share which could negatively impact our
future stock price. In addition, should the proposal be
finalized, this could impact our ability to utilize broad based
employee stock plans to reward employees and could result in a
competitive disadvantage to us in the employee marketplace.

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

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



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

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

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

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



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize our board of directors to issue
    preferred stock with the terms of each series to be fixed by the
    board of directors;

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

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

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

We are spending an increased amount of management
time and external resources to analyze and comply with changing
laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002,
new SEC regulations and Nasdaq Stock Market rules and listing
requirements. Devoting the necessary resources to comply with
evolving corporate governance and public disclosure standards
may result in increased general and administrative expenses and
a diversion of management time and attention to these compliance
activities.






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

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

Exchange Rate Risk

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

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

Investment Risk

We are exposed to market risk as it relates to
changes in the fair value of our investments. We have invested
in an equity instrument in a private company, which completed
its initial public offering in February 2004. This equity
investment, in a technology company, is subject to significant
fluctuations in fair value due to the volatility of the stock
market and the industries in which these companies participate.
As of April 2,

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2004, we had $1.1 million of unrealized
gain, net of tax on this investment recorded as a separate
component of stockholders deficit. 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.




PART II.     OTHER
INFORMATION






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

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

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

On September 15, 2003, we announced that a
jury had rendered a verdict in the first phase of the patent
infringement suit with Symbol. On Symbols claims of patent
infringement, the jury found that certain of our products
infringes two of Symbols patents and assessed a 6%
royalty. As of April 2, 2004, we recorded an accrual for
potential, estimated royalties payable of $24.7 million and
$3.1 million for interest. We have not been enjoined from
continued sales of these products, and royalty payments, if any,
on these sales have not been determined by the court. In
November 2003, the court conducted a bench trial on our
remaining equitable defenses not addressed by the jury and
proceedings in the case continue. We will continue to evaluate
and review our estimate of the royalties and interest payable
from time to time for any indications that could require us to
change our assumptions relating to the amount already recorded.
In addition, our cash flows will not be immediately affected by
this verdict, pending completion of related proceedings.

On March 17, 2003, we announced a settlement
with Intersil Corporation to resolve all pending patent-related
litigation between the two companies. Under the terms of the
agreement, Proxim, Inc. and Intersil have agreed to dismiss all
claims against each other, including lawsuits before the
International Trade

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Commission and Delaware and Massachusetts Federal
Courts. As part of the confidential settlement agreement, the
two companies entered into a patent cross license agreement for
their respective patent portfolios and Intersil agreed to make a
one-time payment of $6.0 million to us. The two companies
have also entered into a product supply agreement defining the
terms under which we will be able to purchase 802.11
products that utilize Intersils chipsets. During the first
quarter of 2003, we recorded $6 million as licensing
revenue and $3 million of legal expense as final settlement
of outstanding legal fees and expenses related to the terminated
patent litigation.


On or about March 10, 2003, we were served
with a complaint filed on January 15, 2003, by Top Global
Technology Limited (Top Global), a distributor for
Agere Systems Singapore. Our demurrer to Top Globals
complaint was sustained in May 2003. Top Global then filed and
served an amended complaint on May 30, 2003. Top
Globals lawsuit was filed against Agere Systems, Inc.,
Agere Systems Singapore, and Agere Systems Asia Pacific
(collectively, Agere) and us in the Superior Court
for the State of California, County of Santa Clara. Top
Global claims that it is entitled to return for a credit
$1.2 million of products that it purchased from Agere
Systems Singapore in June 2002 as a result of our decision to
discontinue a product line that we purchased from Agere in
August 2002. The amended complaint asks the court to determine
whether Agere or we are responsible for accepting the product
return and issuing a $1.2 million credit and also alleges
breach of contract. We answered the amended complaint and
asserted several defenses to Top Globals claims. In
January 2004, the parties mediated this dispute but were unable
to reach a settlement. In March 2004, the Court dismissed the
contract claims against Agere but at the same time granted Top
Globals motion for leave to amend its complaint to allege
a fraud claim against Agere. The parties are currently
conducting discovery. A trial date has not been set.

On February 10, 2004, we received a copy of
a complaint filed on February 2, 2004 in Tokyo District
Court by Active Technology Corporation, a Japanese-based
distributor of our products. The complaint alleges, among other
things, that we sold to Active certain defective products, which
Active in turn subsequently sold to its customers. Active seeks
damages of 559.2 million Japanese yen, which includes the
purchase price of the allegedly defective products and
replacement costs allegedly incurred by Active. Active seeks to
offset the claim of 559.2 million Japanese yen against
outstanding accounts payable by Active of 175.3 million
Japanese yen to us, resulting in a net claim against Proxim
Corporation of 383.9 million Japanese yen. Translated into
U.S. dollars on May 5, 2004, Actives net claim
is approximately $3.5 million. This case is in its earliest
stages, as discovery has not yet commenced and a trial date has
not been established.

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

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

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

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


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






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

On April 6, 2004, the corporate governance
and nominating committee (CGNC) of the
Companys Board of Directors adopted a Director Nomination
and Stockholder Communications Policy which, among other things,
sets forth a list of minimum qualifications for directors and
formalizes the procedure by which the Companys
stockholders can recommend to the CGNC potential nominees for
election to the Companys Board of Directors.

Pursuant to the Director Nomination and
Stockholder Communications Policy adopted by the CGNC, the
Companys stockholders may submit names of prospective
candidates for election to the Board of Directors by sending an
email to the Secretary of the Company at secretary@proxim.com
for referral to the CGNC. Alternatively, stockholders may submit
such recommendations by mail to the following address: Board of
Directors, c/o Corporate Secretary, Proxim Corporation, 935
Stewart Drive, Sunnyvale, California 94085. Any stockholder
recommendations should include the candidates name and
qualifications for membership on the Board of Directors. The
CGNC will consider persons properly recommended by the
Companys stockholders in the same manner as persons
recommended by the Board of Directors, individual directors or
management.

Any stockholder who wishes to make a nomination
for election to the Board of Directors at an annual or special
meeting for the election of directors must comply with
procedures set forth in the Companys bylaws.






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K



| |    |         
| | -- | --------
| | A. | Exhibits

|        |    |     |  |             |  |                                                                                                                              
|------- | -- | --- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 10 | .65 |  |             |  | Amendment to Loan Documents and Waiver, dated as
    of October 31, 2003, between the Registrant and Silicon
    Valley Bank.
|        | 10 | .66 |  |             |  | Amended Overadvance LC Rider, dated as of
    October 31, 2003, between the Registrant and Silicon Valley
    Bank.          
|        | 10 | .67 |  |             |  | Amendment to Overadvance LC Rider, dated as of
    March 31, 2004, between the Registrant and Silicon Valley
    Bank.       
|        | 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                                                                 



| |    |                    
| | -- | -------------------
| | B. | Reports on Form 8-K

|                 |  |                                                                                                                                                                                                         
|---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date             |  | Item Reported                                                                                                                                                                                           
|                 |  |                                                                                                                                                                                                         
|January 27, 2004 |  | On January 27, 2004, the Registrant issued a
    press release announcing financial results for the quarter and
    fiscal year ended December 31, 2003 and furnished its press
    release on Form 8-K.

63



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##### 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/ MICHAEL D. ANGEL

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Michael D. Angel                                
| | Executive Vice President and                    
| | Chief Financial Officer                         
| | (Principal Financial and Accounting
    Officer)

Date: May 11, 2004

64



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##### Table of Contents



EXHIBIT INDEX

|        |    |     |  |             |  |                                                                                                                              
|------- | -- | --- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 10 | .65 |  |             |  | Amendment to Loan Documents and Waiver, dated as
    of October 31, 2003, between the Registrant and Silicon
    Valley Bank.
|        | 10 | .66 |  |             |  | Amended Overadvance LC Rider, dated as of
    October 31, 2003, between the Registrant and Silicon Valley
    Bank.          
|        | 10 | .67 |  |             |  | Amendment to Overadvance LC Rider, dated as of
    March 31, 2004, between the Registrant and Silicon Valley
    Bank.       
|        | 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