Palm Closes Elevation Recapitalization Deal

Palm today announced that its recapitalization plan with the private-equity firm Elevation Partners has closed. Elevation has invested $325 million in Palm, and the company will utilize these proceeds along with existing cash and $400 million of new debt to finance a $9 per share cash distribution. Palm shareholders of record as of Oct. 24, 4 p.m. EDT, should receive the cash distribution within approximately 10 business days.

Jon Rubinstein, former senior vice president of hardware engineering and head of the iPod division at Apple, has joined Palm as executive chairman of the board, and Fred Anderson and Roger McNamee, managing directors and co-founders of Elevation, have joined Palm's board of directors. Rubinstein, Anderson, and McNamee replace Eric Benhamou and Bruce Dunlevie, who resigned from Palm's board of directors. The total number of directors on the board has been increased from eight to nine in connection with the transaction.

"This transaction lays the groundwork for Palm to recapture our position as the leading innovator and brand of the mobile-computing revolution. We will build on our history of innovation to create next-generation, software-rich mobile solutions that enable people to more effectively manage their lives and communicate with family, friends and colleagues wherever they are," said Ed Colligan, Palm president and chief executive officer. "We are also pleased that we can reward our shareholders with this $9 cash distribution, and provide them with the opportunity to be rewarded further through their continued long-term investment in Palm."

Jon Rubinstein said, "I am focused on working with Ed and the team to build on the legacy of Palm and drive innovation in the mobile-computing market. Over the last few months, I've seen the huge potential that lies in Palm's brand, distribution and loyal customer base. Palm's future roadmap in terms of both the software and products is impressive and complements the new products that Palm has recently introduced. While there is much work to be done, there are exciting days ahead for all of us."

Roger McNamee added, "The next generation of mobile computing will be defined by companies that have deep software expertise as well as leading design capabilities. We are confident that Palm can and will drive the future of mobile computing with its integrated software solutions, history of innovation and loyal customer base. We look forward to working with Ed, Jon and the entire Palm team to deliver cutting-edge products that will transform the mobile-device market and create long-term value for Palm's shareholders."

Palm Recapitalization Deal

Under the terms of the recapitalization plan, Elevation has purchased $325 million of a new series of convertible preferred stock. The conversion price is $8.50 per share. Elevation will own approximately 27 percent of Palm's outstanding common stock on an as-converted basis, based on the number of shares of common stock outstanding as of August 31, 2007.

The company secured commitments for $400 million of new debt and a $30 million revolving credit facility, which will not be drawn at closing. JPMorgan and Morgan Stanley were joint bookrunners for these facilities.

Palm intends to use the proceeds from the sale of the preferred stock, existing cash and the proceeds from the $400 million of new debt to fund the cash distribution. The amount of total proceeds to be distributed to shareholders is estimated to be approximately $950 million. The distribution is expected to be treated as a return of capital for most shareholders. Elevation will not be eligible to participate in the cash distribution.

Palm's payment agent expects to transfer funds to the Depository Trust Company and mail checks to registered shareholders on Oct. 31, 2007, and brokers and shareholders should receive the cash distribution shortly thereafter.

In connection with Mr. Rubinstein's appointment as executive chairman of the board, the company will issue to him options to purchase an aggregate of two million shares of Palm's common stock and an award of one million restricted stock units ("RSUs"). The stock options will be granted at fair market value on the date of grant, and half of the shares underlying the options will vest on a time-based formula. The RSUs will have a purchase price of $0.001 per share, which will be deemed paid through the provision of services, and half of the shares underlying the RSUs will vest on a time-based formula. The remaining stock options and RSUs will vest upon the later of the achievement of certain performance targets for the company or a time-based formula. Pursuant to Nasdaq Marketplace Rule 4350(i)(1)(A)(iv), the company will grant the stock options and RSUs to Mr. Rubinstein as a new employee of Palm.

Morgan Stanley served as financial advisor to Palm; Houlihan Lokey Howard & Zukin Advisory Services, Inc. provided a fairness opinion to Palm; and JPMorgan acted as financial advisor to Elevation. Wilson Sonsini Goodrich & Rosati, Professional Corporation, served as outside counsel to Palm; and Simpson Thacher & Bartlett LLP acted as legal advisor to Elevation.