Proxim Q2 Revenues Slip

SUNNYVALE, Calif. -- Proxim Corporation (Nasdaq: PROX - News), a global leader in wireless networking equipment for Wi-Fi and wide area networks, today announced financial results for the second quarter and six months ended June 27, 2003. The company also announced today that Warburg Pincus and Broadview Capital Partners have agreed to collectively invest $30 million, and potentially up to $40 million in Proxim. Details of this investment are described in a separate announcement.

Total revenue for the second quarter of 2003 was $34.8 million, compared to revenue of $45.2 million for the second quarter of 2002 and revenue of $40 million in the first quarter of 2003. Total revenue for the first quarter of 2003 included product revenue of $34.0 million and a one-time patent license fee of $6 million. Total revenue for the six months ended June 27, 2003 was $74.8 million, which included license revenues of $6 million, compared to total revenue of $70.6 million for the six months ended June 28, 2002. The 2002 financial results include: the results of the former Western Multiplex Corporation for the period from January 1, 2002 to June 28, 2002, and the results of the former Proxim, Inc. from March 27, 2002 to June 28, 2002, in accordance with generally accepted accounting principles (GAAP) for accounting for business combinations.

The net loss attributable to common stockholders computed in accordance with GAAP, for the second quarter of 2003 was $(48.7) million, or $(0.40) per share, compared to the GAAP net loss of $(6.7) million, or $(0.06) per share for the second quarter of 2002. The GAAP net loss attributable to common stockholders for the six months ended June 27, 2003 was $(59.5) million, or $(0.49) per share, compared to the GAAP net loss of $(65.3) million or $(0.72) per share for the six months ended June 28, 2002. The net loss attributable to common stockholders reflects accretion of redemption value of Series A Preferred Stock issued during the third and fourth quarters of 2002.

Excluding certain charges discussed below and the amortization of intangible assets and deferred stock compensation and purchased in-process research and development in the respective periods, the non-GAAP net loss for the second quarter of 2003 was $(4.7) million, or $(0.04) per share, compared to the non-GAAP net income of $0.4 million, or $0.00 per share on a diluted basis for the second quarter of 2002. The non-GAAP net loss for the six months ended June 27, 2003 was $(7.4) million, or $(0.06) per share, compared to the non-GAAP net loss of $(1.4) million, or $(0.02) per share for the six months ended June 28, 2002.

During the second quarter of 2003, Proxim recorded $12.5 million of restructuring charges in order to return to profitability more quickly at a lower break even point and better manage its cash position. These charges are related to the consolidation of excess facilities including fixed asset write-offs, workforce reductions and contract termination costs, and $22.5 million for excess and obsolete inventory for discontinued products. The non-GAAP results of operations for the second quarter of 2003 exclude the impact of the restructuring charges, amortization of intangible assets of $5.4 million, and accretion of Series A preferred stock redemption obligations of $1.6 million. In addition, the non-GAAP results for the second quarter of 2003 include a benefit for income taxes of $2.0 million, reflecting potential net operating loss carryforwards resulting from an operating loss during the period. These charges compare to charges in the second quarter of 2002 of $2.2 million related to the amortization of purchased intangibles, a restructuring charge of $3.6 million related to the closing of certain facilities and severance pay for terminated employees and $1.2 million charged to purchased in-process research and development.

As of June 27, 2003, cash, including cash equivalents, marketable securities and restricted cash totaled $7.9 million, as compared to $19.5 million as of December 31, 2002. A short term bank loan of $2.0 million was outstanding at June 27, 2003.

"Today, we are outlining a four point plan that we have implemented to position the company for long term, sustainable profitability," said Frank Plastina, President and CEO, Proxim. "We believe this plan will enable us to capture the significant growth opportunities as Wi-Fi converges with wireline and wireless networks."

Four Point Plan

Further details of this plan will be provided on the investor conference call today.

Lease Buyout

In an effort to reduce ongoing lease payment obligations, Proxim also announced the buyout of a $27 million lease obligation related to a building in Sunnyvale, California. The lease buyout agreement includes a $6 million payment to the lessor/building owner resulting in the termination of the lease obligation and assumption by Proxim of ownership of the building with the related mortgage obligation of approximately $3.2 million. The transaction is expected to close during the third quarter of 2003 and result in the reversal of previously recorded lease obligation restructuring reserves that are no longer required. Proxim intends to sell the building and the net estimated costs of the purchase and sale transactions will be offset against the available restructuring reserves.

In a separate release:

Proxim Corporation (Nasdaq: PROX - News), a global leader in wireless networking equipment for Wi-Fi and wide area networks, today announced that Warburg Pincus and Broadview Capital Partners have agreed to collectively invest $30 million, and potentially up to $40 million in Proxim. Proxim expects to use the proceeds of this investment to provide working capital for ongoing business operations as well as to fund certain one-time restructuring expenses including the settlement of lease obligations as part of this restructuring, and for legal expenses related to the patent infringement litigation with Symbol Technologies. The investment is in addition to Proxim's secured financing agreements with Silicon Valley Bank announced on July 7, 2003.

"We are very pleased by Warburg Pincus' and Broadview Capital Partners' continued support of Proxim's plan to take advantage of the significant growth opportunities that we expect to develop as Wi-Fi converges with wireless and wireline networks," said Frank Plastina, Chief Executive Officer and President of Proxim. "We believe that this investment provides the liquidity and capital required to support our growth objectives and to return to and sustain profitability."

The $30 million investment will be in the form of short term secured exchangeable promissory notes bearing interest at 25% per annum that will be exchanged, upon stockholder approval, into shares of Series B convertible preferred stock. The series B preferred stock converts into shares of Proxim's Class A common stock at an initial conversion price of $1.15 per share. This conversion price will be revised upward to the extent that the 15 day average closing price of Proxim's common stock for the period commencing on July 23, 2003 exceeds $2.00, and it will be revised downward to the extent that the 15 day average closing price of Proxim's common stock falls below $0.88. In both cases, the maximum adjustment will be $0.15 per share. In addition, for a period of 180 days commencing on July 23, 2003, Proxim will have the right to require the investors to purchase an additional $10 million of Series B convertible preferred stock following stockholder approval. Upon the issuance of the Series B convertible preferred stock, the investors will also be granted warrants to acquire an aggregate of 18,000,000 shares of common stock having an exercise price equal to the average closing price of Proxim's common stock for the 10 business days prior to and including July 22, 2003. The Series B convertible preferred stock will have the rights to a 12% cumulative dividend compounding quarterly for its 6 year life with acceleration of the dividend upon a change of control.

The shares of Series B convertible preferred stock to be issued upon exchange of the promissory notes and the warrants issued to Warburg Pincus and Broadview Capital Partners are expected to represent approximately 21% of Proxim's outstanding capital stock on an as-converted and as-exercised basis excluding employee options.

Proxim's Series A convertible preferred stock and warrants to purchase Proxim's common stock currently held by Warburg Pincus and Broadview Capital Partners, which previously represented approximately 24% of Proxim's outstanding capital stock prior to this investment will, following the issuance of the Series B convertible preferred stock, represent an aggregate of approximately 23% of Proxim's outstanding capital stock on an as-converted and as-exercised basis excluding employee options, as adjusted to account for the anti-dilution adjustments on the contemplated $30 million investment.

Promptly following the closing of the $30 million investment, Proxim plans to call a special stockholders meeting to approve the exchange of the secured exchangeable promissory notes for shares of Series B convertible preferred stock and the issuance of the warrants.

In the event of an occurrence of a change of control of Proxim while the promissory notes are outstanding, the noteholders have the right to put the promissory notes to the company for an amount equal to 150 percent of the accrued value of the promissory notes. In addition, if at any time prior to the stockholder vote, Proxim's board of directors withdraws its recommendation to its stockholders to vote in favor of the exchange of the promissory notes, then the promissory notes shall become immediately due and Proxim will pay the noteholders aggregate incremental interest of $1 million.

In view of the company's recent cash balances, lease default, patent litigation expenses, revenue and restructurings, a special committee of independent members of the Proxim board of directors determined that the investment is in the best interest of the Proxim stockholders. The special committee further ensured that Proxim has the ability to solicit or entertain other financing or merger and acquisition alternatives subject to the payment of break-up fees.

Proxim Corp.