We believe investors will respond well to the news. Shareholders will retain 75% ownership of the company and receive a $9 per share distribution financed by a $325 million cash infusion from Elevation and a $400 million debt offering. Elevation is acquiring preferred stock convertible at a 16% premium over recent trading levels.

Consumers have reason to be optimistic as well. Given the entertainment industry background of Bono and Rubinstein, there is reason to expect a renewed focus by Palm on multimedia, an area meaningfully underexploited by the company in its existing devices. On the other hand, many in the Palm community are longing for a dramatic improvement in the hardware specifications of Treo smartphones. It's unclear how well suited the new team is to bring about such a result. Fortunately, existing Palm management, including Palm veteran and CEO Ed Colligan, will remain in place.

We do know there will be a renewed emphasis on software. "If the devices get any smaller they will be unusable," McNamee of Elevation said during an investor relations call after this morning's announcement. "Palm will close that gap, we believe, relatively soon. At which point, we think the game is all about software, and we think software is the place where this company truly excels."

Upon closing, Jon Rubinstein will become Executive Chairman of the Board. Fred Anderson and Roger McNamee, managing directors and co-founders of Elevation, will join Palm's board of directors as well, replacing Eric Benhamou and D. Scott Mercer.

Past strategic investments by Elevation include Forbes, Move (formerly Homestore, Inc.) and BioWare / Pandemic Studios.

Press Release

SUNNYVALE, Calif., June 4, 2007 – Palm, Inc., (Nasdaq: PALM) today announced a strategic relationship with the private-equity firm Elevation Partners ("Elevation”) and a recapitalization plan that will position Palm to lead the next phase of the smartphone and mobile-computing markets. Under the planned recapitalization, shareholders will receive a $9 per share cash distribution. Elevation will invest $325 million in Palm, and the company will utilize these proceeds along with existing cash and $400 million of new debt to finance the cash distribution.

Upon closing of the transaction, Jon Rubinstein, former senior vice president of hardware engineering and head of the iPod division at Apple, will join Palm as executive chairman of the board.

Fred Anderson and Roger McNamee, managing directors and co-founders of Elevation, will join Palm's board of directors upon closing of the transaction. Rubinstein, Anderson, and McNamee will replace Eric Benhamou and D. Scott Mercer, who will resign from Palm's board of directors at that time. The total number of directors on the board will be increased from eight to nine in connection with the transaction.

"As a result of this transaction, we will strengthen the Palm leadership team and create a more effective capital structure, which puts us in a great position to attract new talent, significantly strengthen our execution capabilities, and deliver long-term shareholder value,” said Ed Colligan, Palm president and chief executive officer.

Colligan continued: "Jon Rubinstein is one of the top engineering executives in Silicon Valley, and he will lead our product-development efforts. As a significant new investor, Elevation brings onboard unique partners and relationships, plus a long investment horizon. For shareholders, the recapitalization provides an immediate return on their investments and our shareholders will retain their ability to participate in the company's success and future growth.”

"This is by far the largest investment that Elevation has ever made, which reflects our enthusiasm for Palm and its opportunity. This investment fits perfectly with Elevation's investment strategy of partnering with great management teams to transform businesses in industries with dynamic technology change,” said Roger McNamee. "We see Palm as uniquely positioned to deliver the integrated software and hardware solutions that will drive the next generation of mobile computing.”

Jon Rubinstein added, "I have tremendous respect for Ed Colligan, Jeff Hawkins and their team, and I am thrilled by the prospect of helping Palm deliver innovative products capable of transforming the mobile-device market. Approximately 1 billion cell phones are sold each year, and mobile computing is a category with enormous potential. This is a company with an impressive history of introducing game-changing products – it pioneered the smartphone – and I intend to help extend that legacy.”

Under the terms of the recapitalization plan, Elevation will purchase $325 million of a new series of convertible preferred stock. The conversion price will be $8.50 per share, which represents a premium of approximately 16 percent to the implied post-distribution price over the 10 trading days ended June 1, 2007, excluding the $9 per share cash distribution. Upon completion of the transaction, Elevation will own approximately 25 percent of Palm's outstanding common stock on an as-converted and diluted basis, based on the number of shares of common stock outstanding as of March 30, 2007.

The company has secured commitments for $400 million of new debt and a $40 million revolving credit facility which is not expected to be drawn at closing. JPMorgan and Morgan Stanley will be 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 $940 million. The distribution is expected to be treated as a return of capital for most shareholders(1). Elevation will not be eligible to participate in the cash distribution.

The distribution represents more than one-half of Palm's current market capitalization and enables existing equity holders to retain nearly three-quarters of the post-transaction equity on a fully diluted basis. The company expects to have more than $300 million of cash on the balance sheet after the distribution.

The recapitalization is expected to close in the third quarter of the calendar year and is subject to shareholder approval, customary regulatory approvals including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and other customary closing conditions. A definitive purchase agreement has been executed. The board of directors of Palm has unanimously approved the purchase agreement.

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

Biographical Information

Jon Rubinstein was most recently the senior vice president and general manager of Apple's iPod division, until his departure from the company in 2006. He joined Apple as senior vice president of hardware engineering in 1997. As part of Apple's turnaround, Rubinstein quickly overhauled the engineering teams, product roadmaps and manufacturing processes, resulting in a new, more nimble engineering department. In 2001, Rubinstein was instrumental in conceiving the iPod and became head of the business when it was spun off as a separate division in 2004. Additionally, Rubinstein led the team that built the iMac, and he incorporated into Apple products a pair of little-known technologies that became commonplace as a result – USB and Wi-Fi. Before joining Apple, Rubinstein spent two decades at a variety of other computer companies, including Hewlett-Packard and NeXT, and started his own computer company, Firepower Systems Inc. Rubinstein was elected to serve as a member of the National Academy of Engineering in 2005 for "outstanding industry leadership in the design and development of innovative personal computing and consumer electronics products and technologies,” and is a senior member of the IEEE.

Fred Anderson is a managing director and co-founder of Elevation Partners with extensive operating and financial experience as a senior executive in the technology industry. From 1996-2004, Anderson was executive vice president and chief financial officer of Apple, during which time he made major contributions to Apple's turnaround, including resolving a major liquidity crisis, executing a massive restructuring, and working with the company's executive team to re-energize Apple's revenue and profit growth. Prior to joining Apple, Anderson was chief financial officer of ADP and, prior to that, was president of MAI Systems Corp. Anderson currently serves on the boards of directors of eBay and Move, Inc.

Roger McNamee also is a managing director and co-founder of Elevation Partners. McNamee was previously a co-founder of Silver Lake Partners and of Integral Capital Partners, two leading technology-investment firms. Prior to Integral, McNamee worked for nine years in a variety of portfolio management and research positions at T. Rowe Price Associates, including portfolio manager of the top-performing Science & Technology Fund. McNamee serves on the boards of Move, Inc. and Forbes, Inc.

About Elevation Partners

Elevation Partners is a $1.9 billion private equity firm that makes large-scale investments in market-leading media, entertainment, and consumer-related businesses where it can partner with management to enhance growth and profitability through a combination of strategic capital and operational insight. Its investment team has a unique combination of media, entertainment, and technology knowledge and relationships; investing experience; and operating expertise. Elevation's five partners are Fred Anderson, former EVP and CFO of Apple; Bret Pearlman, former senior managing director of The Blackstone Group; Marc Bodnick, a founding principal of Silver Lake Partners; Roger McNamee, co-founder of Silver Lake Partners and Integral Capital Partners; and Bono, lead singer and co-founder of the rock band U2.

Related Links

Yahoo Finance: Palm, Inc.

Elevation Partners Website

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Palm Deal in the Final Stretch?

Palm, Inc. for Sale?

The complete press release including investor conference call details is available at Palm.com.

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