10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February 27, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 000-29597

Palm, Inc.

(Exact name of registrant as specified in its charter)

Delaware	94-3150688
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

950 West Maude Avenue

Sunnyvale, California

94085

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (408) 617-7000

Former name, former address and former fiscal year, if changed since last report: N/A

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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-Accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

As of March 27, 2009, 137,841,009 shares of the Registrant’s Common Stock were outstanding.

Palm, Inc. (*)

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations Three and nine months ended February 28, 2009 and 2008	3
	Condensed Consolidated Balance Sheets February 28, 2009 and May 31, 2008	4
	Condensed Consolidated Statements of Cash Flows Nine months ended February 28, 2009 and 2008	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 6.	Exhibits	70
Signatures		74

(*) Palm’s 52-53 week fiscal year ends on the Friday nearest May 31, with each fiscal quarter ending on the Friday generally nearest August 31, November 30 and February 28. For presentation purposes, the periods are shown as ending on August 31, November 30, February 28 and May 31, as applicable.

The page numbers in this Table of Contents reflect actual page numbers, not EDGAR page tag numbers.

Palm, Treo, Foleo, Centro, Palm Pre, Palm OS, and Palm webOS are among the trademarks or registered trademarks owned by or licensed to Palm, Inc. All other brand and product names are or may be trademarks of, and are used to identify products or services of, their respective owners.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Palm, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended February 28,						Nine Months Ended February 28,
	2009			2008			2009			2008
Revenues	$	90,624		$	312,144		$	649,099		$	1,022,536
Cost of revenues (*)		86,414			218,994			509,407			695,197
Gross profit		4,210			93,150			139,692			327,339
Operating expenses:
Sales and marketing (*)		38,059			53,909			140,748			175,570
Research and development (*)		42,786			48,553			139,317			154,739
General and administrative (*)		14,000			14,414			41,539			48,647
Amortization of intangible assets		884			969			2,650			2,892
Restructuring charges (*)		5,692			12,305			13,515			29,054
Casualty loss		4,982			—			4,982			—
Patent acquisition cost (refund)		—			—			(1,537	)		5,000
Gain on sale of land		—			—			—			(4,446	)
Total operating expenses		106,403			130,150			341,214			411,456
Operating loss		(102,193	)		(37,000	)		(201,522	)		(84,117	)
Impairment of non-current auction rate securities		(3,960	)		(25,482	)		(33,178	)		(25,482	)
Interest (expense)		(5,941	)		(8,832	)		(20,521	)		(13,022	)
Interest income		1,039			3,877			5,111			19,560
Gain on series C derivative		20,573			—			20,573			—
Other income (expense), net		(3,895	)		(451	)		(4,708	)		(896	)
Loss before income taxes		(94,377	)		(67,888	)		(234,245	)		(103,957	)
Income tax provision (benefit)		646			(13,224	)		406,425			(39,604	)
Net loss		(95,023	)		(54,664	)		(640,670	)		(64,353	)
Accretion of series B and series C redeemable convertible preferred stock		3,004			2,357			7,829			3,137
Net loss applicable to common shareholders	$	(98,027	)	$	(57,021	)	$	(648,499	)	$	(67,490	)
Net loss per common share:
Basic and diluted	$	(0.89	)	$	(0.53	)	$	(5.92	)	$	(0.64	)
Shares used to compute net loss per common share:
Basic and diluted		110,529			106,707			109,506			105,334
(*)    Costs and expenses include stock-based compensation as follows:
Cost of revenues	$	291		$	347		$	1,068		$	1,409
Sales and marketing		868			1,356			3,022			5,423
Research and development		2,487			2,615			8,038			7,824
General and administrative		1,703			1,868			6,058			10,951
Restructuring charges		694			135			1,189			1,091
	$	6,043		$	6,321		$	19,375		$	26,698

See notes to condensed consolidated financial statements.

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Palm, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value amounts)

(Unaudited)

	February 28, 2009			May 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	130,767		$	176,918
Short-term investments		88,604			81,830
Accounts receivable, net of allowance for doubtful accounts of $1,226 and $1,169, respectively		52,736			116,430
Inventories		15,332			67,461
Deferred income taxes		178			82,011
Series C derivative		73,983			—
Prepaids and other		11,582			15,436
Total current assets		373,182			540,086
Restricted investments		9,758			8,620
Non-current auction rate securities		9,297			29,944
Property and equipment, net		32,534			39,636
Goodwill		166,332			166,332
Intangible assets, net		51,497			61,048
Deferred income taxes		466			318,850
Other assets		13,369			15,746
Total assets	$	656,435		$	1,180,262
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	97,312		$	161,642
Income taxes payable		1,120			1,088
Accrued restructuring		7,389			8,058
Current portion of long-term debt		4,000			4,000
Other accrued liabilities		232,622			236,558
Total current liabilities		342,443			411,346
Non-current liabilities:
Long-term debt		391,000			394,000
Non-current tax liabilities		7,094			6,127
Other non-current liabilities		180			2,098
Series B redeemable convertible preferred stock, $0.001 par value, 325 shares authorized and outstanding; aggregate liquidation value: $325,000		262,943			255,671
Series C redeemable convertible preferred stock, $0.001 par value, 100 shares authorized; 100 shares and 0 shares outstanding, respectively; aggregate liquidation value: $100,000 and $0, respectively		78,462			—
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value, 125,000 shares authorized:
Series A: 2,000 shares authorized; none outstanding		—			—
Common stock, $0.001 par value, 2,000,000 shares authorized; outstanding: 111,063 shares and 108,369 shares, respectively		111			108
Additional paid-in capital		752,998			659,141
Accumulated deficit		(1,178,154	)		(537,484	)
Accumulated other comprehensive loss		(642	)		(10,745	)
Total stockholders’ equity (deficit)		(425,687	)		111,020
Total liabilities and stockholders’ equity (deficit)	$	656,435		$	1,180,262

See notes to condensed consolidated financial statements.

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Palm, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended February 28,
	2009			2008
Cash flows from operating activities:
Net loss	$	(640,670	)	$	(64,353	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation		15,098			14,351
Stock-based compensation		19,375			26,698
Amortization of intangible assets		9,551			13,093
Amortization of debt issuance costs		2,355			1,049
Deferred income taxes		412,237			(29,569	)
Realized loss (gain) on short-term investments		3,282			(388	)
Excess tax benefit related to stock-based compensation		(119	)		(52	)
Realized gain on sale of land		—			(4,446	)
Impairment of non-current auction rate securities		33,178			25,482
Gain on series C derivative		(20,573	)		—
Changes in assets and liabilities:
Accounts receivable		61,141			46,286
Inventories		51,669			(1,712	)
Prepaids and other		3,491			2,381
Accounts payable		(61,910	)		(35,513	)
Income taxes payable		(9,041	)		(11,748	)
Accrued restructuring		908			8,899
Other accrued liabilities		3,917			5,512
Net cash used in operating activities		(116,111	)		(4,030	)
Cash flows from investing activities:
Purchase of property and equipment		(9,599	)		(19,650	)
Proceeds from sale of land		—			64,446
Purchase of brand name intangible		—			(1,500	)
Purchase of short-term investments		(61,518	)		(439,801	)
Sale of short-term investments		52,235			774,465
Cash paid for business acquisition		—			(495	)
Purchase of restricted investments		(2,000	)		(8,951	)
Sale of restricted investments		862			166
Principal received from investment in non-current auction rate securities		—			250
Net cash provided by (used in) investing activities		(20,020	)		368,930
Cash flows from financing activities:
Proceeds from issuance of common stock, employee stock plans		6,455			23,903
Proceeds from issuance of series B redeemable convertible preferred stock, net		—			315,190
Proceeds from issuance of series C units, net		99,204			—
Excess tax benefit related to stock-based compensation		119			52
Proceeds from issuance of debt, net		—			381,107
Repayment of debt		(12,555	)		(1,817	)
Cash distribution to stockholders		(259	)		(948,769	)
Net cash provided by (used in) financing activities		92,964			(230,334	)
Effects of exchange rate changes on cash and cash equivalents		(2,984	)		—
Change in cash and cash equivalents		(46,151	)		134,566
Cash and cash equivalents, beginning of period		176,918			128,130
Cash and cash equivalents, end of period	$	130,767		$	262,696
Other cash flow information:
Cash paid for income taxes	$	2,671		$	2,170
Cash paid for interest	$	17,947		$	11,604
Non-cash investing and financing activities:
Series C derivative	$	53,410		$	—
Warrants recorded in connection with issuance of series C units	$	21,966		$	—

See notes to condensed consolidated financial statements.

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Palm, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Palm, Inc. (“Palm,” the “Company,” “us,” “we” or “our”), without audit, pursuant to the rules of the Securities and Exchange Commission, or SEC. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of Palm’s financial position as of February 28, 2009, results of operations for the three and nine months ended February 28, 2009 and 2008 and cash flows for the nine months ended February 28, 2009 and 2008. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in Palm’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008. The results of operations for the three and nine months ended February 28, 2009 are not necessarily indicative of the operating results for the full fiscal year or any future period.

Palm was incorporated in 1992 as Palm Computing, Inc. In 1995, the Company was acquired by U.S. Robotics Corporation. In 1996, the Company sold its first handheld computer, quickly establishing a significant position in the handheld computer industry. In 1997, 3Com Corporation, or 3Com, acquired U.S. Robotics. In 1999, 3Com announced its intent to separate the handheld computer business from 3Com’s business to form an independent, publicly-traded company. In preparation for that spin-off, Palm Computing, Inc. changed its name to Palm, Inc., or Palm, and was reincorporated in Delaware in December 1999. In March 2000, Palm sold shares in an initial public offering and concurrent private placements. In July 2000, 3Com distributed its remaining shares of Palm common stock to 3Com stockholders.

In December 2001, Palm formed PalmSource, Inc., or PalmSource, a stand-alone subsidiary for its operating system, or OS, business. On October 28, 2003, Palm distributed all of the shares of PalmSource common stock held by Palm to Palm stockholders. On October 29, 2003, Palm acquired Handspring, Inc., or Handspring, and changed the Company’s name to palmOne, Inc., or palmOne.

In connection with the spin-off of PalmSource, the Palm Trademark Holding Company, LLC, or PTHC, was formed to hold trade names, trademarks, service marks and domain names containing the word or letter string “palm”. In May 2005, the Company acquired PalmSource’s interest in PTHC, including the Palm trademark and brand, for $30.0 million, payable over 3.5 years. In July 2005, the Company changed its name back to Palm, Inc., or Palm.

In October 2007, the Company sold 325,000 shares of series B redeemable convertible preferred stock, or Series B Preferred Stock, to the private-equity firm Elevation Partners, L.P., or Elevation, in exchange for $325.0 million. On an as-converted basis, these shares represented 27% of the voting shares outstanding of the Company at the close of the transaction. The Company utilized these proceeds, along with existing cash and the proceeds of $400.0 million of new debt, to finance a $9.00 per share one-time cash distribution of $949.7 million to shareholders of record as of October 24, 2007, or the Recapitalization Transaction. Upon closing the Recapitalization Transaction, Palm adjusted outstanding equity awards in a manner designed to preserve the pre-distribution intrinsic value of the awards.

In January 2009, the Company sold 100,000 units to Elevation in exchange for $100.0 million. Each unit, or the Series C Unit, consists of one share of Palm’s series C redeemable convertible preferred stock, or Series C Preferred Stock, and a warrant exercisable for the purchase of 70 shares of Palm’s common stock, or the Detachable Warrants. As a provision of this transaction, Palm may elect, until March 31, 2009, to cause Elevation to sell up to 49% of its original $100.0 million investment to other investors on the same or better terms than on which Elevation acquired the Series C Units, with Palm to receive any net gains realized upon such a sale. On an as-converted basis, the outstanding shares of Series C Preferred Stock, in combination with the outstanding shares of Series B Preferred Stock, represented 38% of the voting shares outstanding of the Company at the close of the transaction. At the close of the transaction, holders of the Series B Preferred Stock and Series C Preferred Stock, voting together, were entitled to designate three directors to Palm’s Board of Directors.

Palm’s 52-53 week fiscal year ends on the Friday nearest to May 31, with each fiscal quarter ending on the Friday generally nearest to August 31, November 30 and February 28. Fiscal years 2009 and 2008 both contain 52 weeks. For presentation purposes, the periods are shown as ending on August 31, November 30, February 28 and May 31, as applicable.

2. Recent Accounting Pronouncements

In February 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position, or FSP, No. FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of Statement of Financial Accounting

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Standards, or SFAS, No. 157, Fair Value Measurements, for all non-financial assets and liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. Palm adopted SFAS No. 157 to account for its financial assets and liabilities for the fiscal year beginning June 1, 2008 (see Note 3 to the condensed consolidated financial statements). The partial adoption of SFAS No. 157 for financial assets and liabilities did not have a material impact on Palm’s financial condition, results of operations or cash flows. Palm is required to adopt SFAS No. 157 to account for certain nonfinancial assets and liabilities for the fiscal year beginning June 1, 2009. Palm is currently evaluating the effect, if any, that the adoption of the deferred provisions of SFAS No. 157 will have on its condensed consolidated financial statements, but does not expect it to have a material impact.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. SFAS No. 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Palm is required to adopt SFAS No. 141(R) for the fiscal year beginning June 1, 2009. Palm does not expect the adoption of SFAS No. 141(R) to have an impact on Palm’s historical financial position or results of operations at the time of adoption.

In June 2008, the FASB ratified Emerging Issues Task Force, or EITF, Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock. EITF Issue No. 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. Palm is required to adopt EITF Issue No. 07-5 for the fiscal year beginning June 1, 2009. Palm has not yet determined the impact that EITF Issue No. 07-5 will have on its condensed consolidated financial statements, but expects that the impact of adoption will be material.

3. Fair Value Measurements

Effective June 1, 2008, Palm adopted SFAS No. 157, Fair Value Measurements, to account for its financial assets and liabilities. SFAS No. 157 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The standard establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

• Level 1 - Observable quoted prices for identical instruments in active markets;

• Level 2 - Observable quoted prices for similar instruments in active markets, observable quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; or

• Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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For the three and nine months ended February 28, 2009, there was no material impact from the adoption of SFAS No. 157 on Palm’s condensed consolidated financial statements. Financial assets measured at fair value on a recurring basis as of February 28, 2009 are classified based on the valuation technique level in the table below:

	Fair Value Measurements as of February 28, 2009
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents, money market funds		49,492		49,492		—		—
Short-term investments:
Federal government obligations		86,513		86,467		46		—
Corporate notes/bonds		2,091		—		2,091		—
Series C derivative		73,983		—		73,983		—
Restricted investments, money market funds		9,238		9,238		—		—
Non-current auction rate securities, corporate notes/bonds		9,297		—		—		9,297
Total assets at fair value	$	230,614	$	145,197	$	76,120	$	9,297

The fair value of Palm’s Level 1 financial assets is based on quoted market prices of the identical underlying security and generally includes money market funds and United States Treasury securities with quoted prices in active markets.

The fair value of Palm’s Level 2 financial assets is based on observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency and generally includes United States government agency debt securities, corporate debt securities and Palm’s derivative related to its Series C Units (see Note 14 to the condensed consolidated financial statements for further information).

Palm did not have observable inputs for the valuation of its non-current auction rate securities. Palm’s methodology for valuing these assets is described in Note 7 to the condensed consolidated financial statements. The following tables provide a summary of changes in fair value of Palm’s Level 3 financial assets for the three and nine months ended February 28, 2009 (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Three Months Ended February 28, 2009
	Non-current Auction Rate Securities(1)
Balances, November 30, 2008	$	13,257
Total losses (realized/unrealized):
Included in net loss		(3,960	)
Included in other comprehensive (loss)		—
Purchases, sales, issuances and settlements		—
Transfers in and/or out of Level 3		—
Balances, February 28, 2009	$	9,297
Amount of total losses for the period included in net loss attributable to the change in unrealized losses relating to assets still held at February 28, 2009	$	—

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	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Nine Months Ended February 28, 2009
	Non-current Auction Rate Securities(1)
Balances, May 31, 2008	$	29,944
Total losses (realized/unrealized):
Included in net loss		(33,178	)
Included in other comprehensive (loss)		12,531
Purchases, sales, issuances and settlements		—
Transfers in and/or out of Level 3		—
Balances, February 28, 2009	$	9,297
Amount of total losses for the period included in net loss attributable to the change in unrealized losses relating to assets still held at February 28, 2009	$	12,531

(1)    The primary cause of the decline in fair value of Palm’s non-current auction rate securities, or ARS, was an increase in the estimated required rates of return (which considered both the credit quality and the market liquidity for these investments) used to discount the estimated future cash flows over the estimated life of each security. See Note 7 to the condensed consolidated financial statements for further information regarding non-current auction rate securities.

As of February 28, 2009, Palm does not have liabilities that are measured at fair value on a recurring basis.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115. SFAS No. 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item must be reported in current operations at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to draw comparisons between the different measurement attributes Palm elects for similar types of assets and liabilities. Palm adopted SFAS No. 159 as of June 1, 2008. Palm evaluated its existing eligible financial assets and liabilities and elected not to adopt the fair value option for any eligible items during the three or nine months ended February 28, 2009. However, because the SFAS No. 159 election is based on an instrument-by-instrument election at the time Palm first recognizes an eligible item or enters into an eligible firm commitment, Palm may decide to exercise the option on new items when business reasons support doing so in the future. The adoption of SFAS No. 159 did not have any impact on Palm’s financial condition, results of operations or cash flows for the three or nine months ended February 28, 2009.

4. Net Loss Per Common Share

The following table sets forth the computation of basic and diluted net loss per common share for the three and nine months ended February 28, 2009 and 2008 (in thousands, except per share amounts):

	Three Months Ended February 28,						Nine Months Ended February 28,
	2009			2008			2009			2008
Numerator:
Net loss	$	(95,023	)	$	(54,664	)	$	(640,670	)	$	(64,353	)
Accretion of series B and series C redeemable convertible preferred stock		3,004			2,357			7,829			3,137
Net loss applicable to common shareholders	$	(98,027	)	$	(57,021	)	$	(648,499	)	$	(67,490	)
Denominator:
Shares used to compute basic and diluted net loss per common share (weighted average shares outstanding during the period, excluding shares of restricted stock subject to repurchase)		110,529			106,707			109,506			105,334
Basic and diluted net loss per common share	$	(0.89	)	$	(0.53	)	$	(5.92	)	$	(0.64	)

Palm follows EITF Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128, which requires earnings available to common shareholders for the period, after deduction of redeemable convertible preferred stock dividends, to be allocated between the common and redeemable convertible preferred shareholders based

9

on their respective rights to receive dividends. Basic and diluted earnings per share is then calculated by dividing income (loss) allocable to common shareholders (after the reduction for any undeclared, preferred stock dividends assuming current income for the period had been distributed) by the weighted average number of common shares outstanding. EITF Issue No. 03-6 does not require the presentation of basic and diluted earnings per share for securities other than common stock; therefore, the earnings per common share amounts only pertain to Palm’s common stock.

For the three and nine months ended February 28, 2009, 22,767,000 and 21,680,000 weighted average share-based payment awards to purchase Palm common stock, respectively, and 16,568,000 and 5,523,000 weighted average shares related to the Series C Preferred Stock, respectively, were excluded from the computation of diluted net loss per common share because the inclusion of such items would be antidilutive to the net loss per share. For both the three and nine months ended February 28, 2009, 38,235,000 shares related to the Series B Preferred Stock were also excluded. For the three and nine months ended February 28, 2008, 16,485,000 and 11,504,000 weighted average options to purchase Palm common stock, respectively, and 38,235,000 and 17,941,000 shares related to the Series B Preferred Stock, respectively, were excluded. To determine the shares of preferred stock excluded because the inclusion of such shares would be antidilutive, Palm used the “if converted” method, under which the Series B Preferred Stock and Series C Preferred Stock are assumed to be converted to common shares at conversion prices of $8.50 per share and $3.25 per share, respectively, taking into consideration the accretion against net loss applicable to common shareholders.

5. Stock-Based Compensation

Determining Fair Value

Palm relies primarily on the Black-Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan, or ESPP, shares. The determination of the fair value of share-based payment awards on the date of grant using an option-valuation model is affected by Palm’s stock price as well as assumptions regarding a number of complex variables. These variables include Palm’s expected stock price volatility over the term of the awards, projected employee stock option exercise behavior, expected risk-free interest rate and expected dividends.

Palm estimates the expected term of options granted based on historical time from vesting until exercise and the expected term of ESPP shares using the average life of the purchase periods under each offering. Palm estimates the volatility of its common stock based upon the implied volatility derived from the historical market prices of Palm’s traded options with similar terms. Palm’s decision to use this measure of volatility was based upon the availability of actively traded options on its common stock and Palm’s assessment that this measure of volatility is more representative of future stock price trends than the historical volatility in Palm’s common stock. Palm bases the risk-free interest rate for option valuation on Constant Maturity Treasury rates provided by the United States Treasury with remaining terms similar to the expected term of the options. Palm does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. In addition, SFAS No. 123(R), Share-Based Payment, requires forfeitures of share-based awards to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Palm uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation only for those awards that are expected to vest.

There was an ESPP offering period in September 2008 with the following assumptions: risk-free interest rate of 1.8%, volatility of 55%, option term of 1.3 years, dividend yield of 0.0% and weighted average fair value at the date of purchase of $2.36 per share. There have been no other offerings through the end of the third quarter of fiscal year 2009. There was an ESPP offering period in October 2007 with the following assumptions: risk-free interest rate of 3.8%, volatility of 46%, option term of 1.3 years, dividend yield of 0.0% and weighted average fair value at the date of purchase of $3.83 per share.

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The key assumptions used in the Black-Scholes option valuation model to determine the fair value of stock options granted during the three and nine months ended February 28, 2009 and 2008 are provided below:

	Three Months Ended February 28,						Nine Months Ended February 28,
	2009			2008			2009			2008
Assumptions applicable to stock options:
Risk-free interest rate		1.5	%		2.6	%		2.6	%		3.7	%
Volatility		72	%		36	%		56	%		36	%
Option term (in years)		3.9			3.1			3.9			3.2
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Weighted average fair value of stock options at date of grant	$	2.01		$	1.66		$	2.40		$	2.64

In September 2007, Palm stockholders approved amendments to the Board of Director stock option plans and the Handspring stock option plans, which were assumed in connection with a merger, to include anti-dilution provisions for options awarded under these plans. The addition of these anti-dilution provisions to the plans resulted in a modification of the original awards. In accordance with SFAS No. 123(R), Palm performed a valuation of the affected options to compare the fair value before and after the addition of these anti-dilution provisions using the Trinomial Lattice simulation model. The Trinomial Lattice simulation model was utilized to incorporate more complex variables than closed-form models such as the Black-Scholes option valuation model. The weighted-average assumptions, using the Trinomial Lattice simulation model, included volatility and risk-free interest rates based on the remaining contractual term of the option, dividend yield of 0.0%, early exercise multiple of 1.95, stock price on September 12, 2007 adjusted for the expected $9.00 per share one-time cash distribution, or $5.87, and strike price based on the contractual strike price adjusted for the $9.00 per share distribution. As a result, Palm determined that 180 awards had $8.2 million of incremental fair value, of which $8.0 million was recorded as stock-based compensation expense during fiscal year 2008 related to the modification of options that had vested. An additional $26,000 and $101,000 were recognized during the three and nine months ended February 28, 2009, respectively, for options vesting during the period. The remaining $81,000 will be amortized relative to the vesting period of the affected stock options, which is expected to be the next 1.5 years.

Upon the closing of the Recapitalization Transaction, all outstanding options and restricted stock units, other than awards held by employees located in certain foreign jurisdictions, were adjusted to preserve the pre-distribution intrinsic value by adjusting the exercise price and/or the number of shares subject to stock options outstanding as of October 24, 2007. The fair value of the modified awards was calculated using a Trinomial Lattice simulation model as described above, and compared to the fair value of the options outstanding just prior to the transaction. The weighted-average assumptions, using the Trinomial Lattice simulation model, included volatility and risk-free interest rates based on the remaining contractual term of the option, dividend yield of 0.0%, early exercise multiple of 1.95, stock price on October 24, 2007 adjusted for the $9.00 per share distribution, or $10.18, and strike price based on the contractual strike price adjusted for the $9.00 per share distribution. As a result, Palm determined that 60 awards had incremental fair value of less than $0.1 million, which was completely recognized as of the first quarter of fiscal year 2009.

During the second quarter of fiscal year 2008, Palm granted 1.0 million stock options, 0.7 million restricted stock units and 0.2 million restricted stock awards with vesting based on market conditions, or performance of Palm’s stock price. The Geometric Brownian Motion simulation model was utilized to incorporate more complex variables than closed-form models such as the Black-Scholes option valuation model. The use of the Geometric Brownian Motion simulation model requires a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends and inputs such as the stock and strike prices. For the awards granted during the second quarter of fiscal year 2008, Palm used the following key assumptions and inputs: volatility of 37%, risk-free interest rate of 4.1%, dividend yield of 0.0% and stock and strike prices of $8.91, the closing stock price on the date of grant. The weighted average fair value of the stock options was $2.62 per share, of the restricted stock units was $5.71 per share and of the restricted stock awards was $7.00 per share.

Palm uses straight-line attribution as its expensing method of the value of share-based compensation for options, restricted stock units and awards granted beginning June 1, 2006. Compensation expense for all share-based awards granted prior to June 1, 2006 will continue to be recognized using the accelerated expensing method.

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Income Tax Benefit Recorded in Stockholders’ Equity (Deficit)

The total income tax benefit realized from stock option exercises and ESPP rights for the three and nine months ended February 28, 2009 was less than $0.1 million and $1.9 million, respectively. The income tax benefit recorded in stockholders’ equity (deficit) was reduced by $4.4 million and $2.4 million for the three and nine months ended February 28, 2008, respectively, due to income tax deficiencies realized from stock option exercises and ESPP rights.

Stock-Based Options and Awards Activity

Palm had no stock-based compensation costs capitalized as part of the cost of an asset.

A summary of Palm’s stock option program as of February 28, 2009 is as follows (dollars and shares in thousands, except per share data):

	Outstanding Options			Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
	Number of Shares	Weighted Average Exercise Price Per Share
Options vested and expected to vest as of February 28, 2009	17,457	$	6.16	5.2	$	32,692
Options exercisable as of February 28, 2009	10,864	$	5.93	4.6	$	24,232

The aggregate intrinsic value represents the difference between Palm’s closing stock price on the last trading day of the fiscal period, which was $7.24 and $6.47 as of February 28, 2009 and 2008, respectively, and the option exercise price of the shares for options that were in the money multiplied by the number of options outstanding. Total intrinsic value of options exercised was $1.7 million and $8.9 million for the three and nine months ended February 28, 2009, respectively, and $0.8 million and $14.3 million for the three and nine months ended February 28, 2008, respectively.

As of February 28, 2009, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested stock options was $18.6 million, which is expected to be recognized over the next 2.9 years.

As of February 28, 2009, total unrecognized compensation costs related to non-vested restricted stock awards was $1.4 million, which is expected to be recognized over the next 2.4 years.

A summary of Palm’s restricted stock unit program as of February 28, 2009 is as follows (dollars and units in thousands, except per share data):

	Number of Units	Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Restricted stock units vested and expected to vest as of February 28, 2009	603	$	6.98	1.3	$	4,368

As of February 28, 2009, total unrecognized compensation costs, adjusted for estimated forfeitures, related to non-vested restricted stock units was $3.7 million, which is expected to be recognized over the next 2.4 years.

A summary of Palm’s ESPP as of February 28, 2009 is as follows (dollars and shares in thousands, except per share data):

	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
ESPP shares vested and expected to vest as of February 28, 2009	2,015	$	4.32	1.1	$	5,890

As of February 28, 2009, total unrecognized compensation costs related to ESPP was $2.9 million, which is expected to be recognized over the next 1.1 years.

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6. Comprehensive Loss

The components of comprehensive loss are (in thousands):

	Three Months Ended February 28,						Nine Months Ended February 28,
	2009			2008			2009			2008
Net loss	$	(95,023	)	$	(54,664	)	$	(640,670	)	$	(64,353	)
Other comprehensive loss:
Net unrealized loss on available-for-sale investments		(1,051	)		(1,205	)		(1,439	)		(48	)
Net unrealized change in value of non-current auction rate securities		(3,960	)		(39,174	)		(20,647	)		(39,174	)
Net recognized loss on non-current auction rate securities included in results of operations		3,960			25,482			33,178			25,482
Net recognized (gain) loss on available-for-sale investments included in results of operations		3,282			(33	)		3,282			(388	)
Accumulated translation adjustments		(95	)		901			(4,271	)		1,836
	$	(92,887	)	$	(68,693	)	$	(630,567	)	$	(76,645	)

7. Short-Term Investments and Non-Current Auction Rate Securities

The following table summarizes the fair value of federal government obligations and corporate debt securities classified as short-term investments based on stated maturities as of February 28, 2009 (in thousands):

	Fair Value
Short-term investments:
Due within one year	$	86,467
Due within two years		—
Due within three years		—
Due after three years		2,137
	$	88,604

As of February 28, 2009, Palm’s short-term investments balance reflects a net recognized loss of $3.4 million, which primarily consisted of a loss of $3.4 million on its investments in corporate debt securities. Palm recognized a net gain of $0.1 million on the sale of certain of its short-term investments during the three months ended February 28, 2009, which consisted of a gain of $0.6 million the sale of federal government obligation securities partially offset by a loss of $0.5 million on the sale of a corporate debt security. During the third quarter of fiscal year 2009, Palm re-evaluated its short-term investments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and related guidance issued by the FASB and the SEC and concluded that the impairment of each of its investments in corporate debt securities was other-than-temporary.

Palm believes that it will be able to collect all principal and interest amounts due to Palm at maturity for its investments in federal government obligations given the credit quality of these investments and because they are due within one year. Because the decline in market value is primarily attributable to market conditions and not the nature and credit quality of the investments, and because Palm has the ability and intent to hold these investments until a recovery of par value, which may be maturity, Palm does not consider these investments to be other-than-temporarily impaired at February 28, 2009.

Palm holds a variety of interest bearing ARS that represent investments in pools of assets, including preferred stock, collateralized debt obligations, credit linked notes and credit derivative products. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. Beginning in fiscal year 2008, uncertainties in the credit markets affected all of Palm’s holdings in ARS investments and auctions for Palm’s investments in these securities failed to settle on their respective settlement dates. Auctions for Palm’s investments in these securities have continued to fail during fiscal year 2009. Consequently, the investments are not currently liquid and Palm will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2017 to 2052. All of the investments were investment grade quality and were in compliance with Palm’s investment policy at the time of acquisition. During the first quarter of fiscal year 2009, one of Palm’s ARS investments was converted into a debt instrument and no longer is subject to auctions but has retained comparable

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contractual interest rates and payment dates. This change had no effect on the underlying collateral structure of Palm’s investment in the original security and Palm continues to classify this instrument in its non-current auction rate securities balance. During the third quarter of fiscal year 2009, the issuer of another of Palm’s ARS investments exercised an option to replace the collateral underlying Palm’s original investment with the issuer’s own preferred stock. Palm’s investment in this security has retained comparable par value, interest rates, payment dates and auction cycles after the exchange. Palm currently classifies all of these investments as non-current auction rate securities in its condensed consolidated balance sheet because of Palm’s continuing inability to determine when these investments will settle. Palm has also modified its current investment strategy and increased its investments in more liquid money market investments and United States Treasury securities.

Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process. While Palm continues to earn interest on most of its investments at the maximum contractual rate, all of Palm’s investments in ARS are not currently trading and therefore do not currently have a readily determinable market value. As of February 28, 2009, the par value of Palm’s investment in ARS was $74.7 million. The estimated fair value no longer approximates par value.

As of February 28, 2009, Palm used a discounted cash flow model to estimate the fair value of its investments in ARS which incorporated the total expected future cash flows of each security and an estimated market-required rate of return. Expected future cash flows were calculated using estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. For the three and nine months ended February 28, 2009, using this assessment of fair value, Palm determined there was a further decline in the fair value of its ARS investments of $4.0 million and $20.6 million, respectively, all of which was recognized as a pre-tax other-than-temporary impairment charge. In addition, during the nine months ended February 28, 2009, due to the continued declines in fair value of its investments in ARS, Palm concluded that the impairment of each of these ARS investments was other-than-temporary and the associated unrealized losses of $12.5 million were recognized as additional pre-tax impairments of non-current ARS, with a corresponding decrease in accumulated other comprehensive loss.

Palm reviews its impairments in accordance with SFAS No. 115, and related guidance issued by the FASB and the SEC in order to determine the classification of the impairment as “temporary” or “other-than-temporary.” A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive loss component of stockholders’ equity (deficit) and does not affect net loss for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the condensed consolidated statement of operations and is a component of the net loss for the applicable accounting period. The primary differentiating factors considered by Palm to classify its impairments between temporary and other-than-temporary impairments are the length of the time and the extent to which the market value of the investment has been less than cost, the financial condition and near-term prospects of the issuer and the intent and ability of Palm to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

8. Inventories

Inventories consist of the following (in thousands):

	February 28, 2009		May 31, 2008
Finished goods	$	11,012	$	65,263
Work-in-process and raw materials		4,320		2,198
	$	15,332	$	67,461

9. Business Combinations

During October 2007, Palm acquired substantially all of the assets of a corporation focused on developing solutions to enhance the performance of web applications. Palm acquired these assets in an all-cash transaction and agreed to the purchase price based on arm’s length negotiations. Palm expects this acquisition to accelerate the development of future products. The purchase price of $0.5 million was comprised of $0.5 million in cash and less than $0.1 million in direct transaction costs. This acquisition was accounted for as a purchase in accordance with SFAS No. 141, Business Combinations. Palm performed a valuation and determined that the respective fair value of the assets acquired, using a discounted cash flow approach, was de minimis. As a result, goodwill, representing the excess of the purchase price over the fair value of the net identifiable assets acquired, was $0.5 million and is expected to be fully deductible for tax purposes.

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During February 2007, Palm acquired the assets of two sole proprietorships focused on mobile computing and media devices, one a developer of user interface environments and the other a developer of email software applications. Palm acquired these assets in all-cash transactions and agreed to the purchase prices based on arm’s length negotiations. Palm expects these acquisitions to accelerate the development of future products. The purchase prices of $19.2 million in the aggregate were comprised of $19.0 million in cash and $0.2 million in direct transaction costs. These acquisitions were each accounted for as a purchase in accordance with SFAS No. 141. Palm performed valuations and allocated the total purchase consideration to the assets and liabilities acquired, including identifiable intangible assets based on their respective fair values on the acquisition dates, generally using a discounted cash flow approach. Palm acquired $14.6 million of intangible assets, consisting of $13.7 million in core technology, $0.5 million in non-compete agreements and $0.4 million in customer relationships to be amortized over a weighted-average period of 79 months. Additionally, $3.7 million of the purchase prices represented in-process research and development that had not yet reached technological feasibility, had no future alternative use and was charged to operations at the time of acquisition. Palm did not acquire any tangible assets or assume any liabilities as a result of the acquisitions. Goodwill, representing the excess of the purchase prices over the fair value of the net tangible and identifiable intangible assets acquired, was $0.9 million and is expected to be fully deductible for tax purposes.

The results of operations for these acquisitions have been included in Palm’s results of operations since the acquisition dates. The financial results of these businesses prior to their acquisition are immaterial for purposes of pro forma financial disclosures.

10. Goodwill

Changes in the carrying amount of goodwill are (in thousands):

Balance, May 31, 2007	$	167,596
Acquisition of a business (see Note 9)		495
Goodwill adjustments		(1,759	)
Balances, May 31, 2008 and February 28, 2009	$	166,332

Goodwill decreased during fiscal year 2008 due to adjustments relating to the Handspring acquisition primarily for the recognition of foreign tax loss carryforwards and liabilities of $(1.8) million, partially offset by the acquisition of a corporation resulting in goodwill of $0.5 million during the year ended May 31, 2008. Palm will continue to adjust goodwill as required for changes in taxes associated with the Handspring acquisition.

11. Intangible Assets

Intangible assets consist of the following (dollars in thousands):

	Weighted Average Amortization Period (Months)	February 28, 2009							May 31, 2008
		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Brand	238	$	28,700	$	(5,251	)	$	23,449	$	28,700	$	(4,166	)	$	24,534
ACCESS Systems licenses	60		44,000		(25,700	)		18,300		44,000		(18,900	)		25,100
Acquisition related:
Core technology	83		13,670		(4,099	)		9,571		13,670		(2,562	)		11,108
Contracts and customer relationships	12		400		(400	)		—		400		(400	)		—
Non-compete covenants	36		520		(343	)		177		520		(214	)		306
		$	87,290	$	(35,793	)	$	51,497	$	87,290	$	(26,242	)	$	61,048

Amortization expense related to intangible assets was $2.6 million and $4.0 million for the three months ended February 28, 2009 and 2008, respectively, and $9.6 million and $13.1 million for the nine months ended February 28, 2009 and 2008, respectively. Amortization of the ACCESS Systems licenses and the applicable portion of core technology are included in cost of revenues.

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The following table presents the estimated future amortization of intangible assets (in thousands):

Years Ended May 31,
Remaining three months in fiscal year 2009	$	2,583
2010		10,291
2011		9,965
2012		6,561
2013		3,361
2014		2,883
Thereafter		15,853
	$	51,497

In January 2008, Palm signed an agreement with Palm Entertainment, LLC to acquire additional rights for use of the Palm trademark in Palm’s operations. For these rights, Palm paid Palm Entertainment a total of $1.5 million in the third quarter of fiscal year 2008 and is amortizing the intangible asset over the remaining life of Palm’s existing brand intangible asset, or 17 years.

In December 2006, Palm signed an agreement with ACCESS Systems Americas, Inc. (formerly PalmSource, Inc.), or ACCESS Systems, to license the source code for Palm OS Garnet, the version of the Palm OS used in several Palm smartphone models and all Palm handheld computers. Under the agreement, Palm has a royalty-free perpetual license to use as well as to innovate on the Palm OS Garnet code base. Palm will retain ownership rights in its innovations. The agreement also provides Palm flexibility to use Palm OS Garnet in whole or in part in any Palm product, and together with any other system technologies. In addition, Palm secured an expansion of its existing patent license from ACCESS Systems to cover all current and future Palm products, regardless of the underlying OS. For all of these rights, Palm paid ACCESS Systems a total of $44.0 million in the third quarter of fiscal year 2007 and is amortizing the intangible asset over five years.

In May 2005, Palm acquired PalmSource’s 55% share of PTHC and rights to the brand name Palm. The rights to the brand had been co-owned by the two companies through PTHC since the October 2003 spin-off of PalmSource from Palm, Inc. The agreement provides for Palm to pay $30.0 million in installments over 3.5 years (net present value of $27.2 million) and grants PalmSource certain rights to Palm trademarks for PalmSource and its licensees for a four-year transition period.

12. Income Taxes

The income tax provision for the three months ended February 28, 2009 represented (0.7)% of pre-tax loss, which includes foreign and state income taxes of $0.2 million and additional interest on unrecognized tax benefits of $0.4 million.

During the second quarter of fiscal year 2009, Palm recorded a tax provision of $407.4 million, net of tax benefits generated during the second quarter of fiscal year 2009, related to establishing a valuation allowance on its deferred tax assets in the United States to reduce them to their estimated net realizable value. SFAS No. 109, Accounting for Income Taxes, requires companies to assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified.

Palm assesses, on a quarterly basis, the realizability of its deferred tax assets by evaluating all available evidence, both positive and negative, including: (1) the cumulative results of operations in recent years, (2) the nature of recent losses, (3) estimates of future taxable income and (4) the length of operating loss carryforward periods. During the second quarter of fiscal year 2009, Palm’s operating results reflected a cumulative three-year loss after adjusting for the effect of the valuation of Palm’s investment in non-current auction rate securities and a one-time gain on the sale of its land. The cumulative three-year loss is considered significant negative evidence which is objective and verifiable. Additional negative evidence Palm considered at that time included the uncertainty regarding the magnitude and length of the current economic recession and the highly competitive nature of the smartphone and mobile phones market. Positive evidence considered by Palm in its assessment at that time included lengthy operating loss carryforward periods, a lack of unused expired operating loss carryforwards in Palm’s history and estimates of future taxable income. However, there is uncertainty as to Palm’s ability to meet its estimates of future taxable income in order to recover its deferred tax assets in the United States. The valuation allowance is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance.

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After considering both the positive and negative evidence for the second quarter of fiscal year 2009, Palm determined that it was no longer more-likely-than-not that it would realize the full value of its United States deferred tax assets. As a result, Palm established a valuation allowance against its deferred tax assets in the United States to reduce them to their estimated net realizable value with a corresponding non-cash charge of $407.4 million to the provision for income taxes, net of tax benefits generated during the second quarter of fiscal year 2009.

In accordance with FASB Financial Interpretation, or FIN, No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, the total amount of unrecognized tax benefits as of February 28, 2009 was $51.7 million, of which $1.4 million was recorded during the nine months ended February 28, 2009, as a result of an evaluation of new facts, circumstances and information, including entering into a closing agreement with the Internal Revenue Service relating to Palm’s tax year ended May 31, 2004. Palm’s balance of unrecognized tax benefits as of February 28, 2009 included $29.4 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The recognition of the remaining unrecognized tax benefits of $22.3 million would affect goodwill, if recognized. However, one or more of these unrecognized tax benefits could be subject to a valuation allowance if and when recognized in a future period, which could impact the timing of any related effective tax rate benefit. Additionally, $0.4 million and $0.6 million of additional interest was recognized for the three and nine months ended February 28, 2009, respectively.

Palm is subject to taxation in the United States, various states and several foreign jurisdictions. Palm is unable to make a determination as to whether or not recognition of any unrecognized tax benefits will occur within the next 12 months nor can it make an estimate of the range of any potential changes to the unrecognized tax benefits.

13. Long-Term Debt

In October 2007, Palm entered into a credit agreement with JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc., or the Credit Agreement, which governs a senior secured term loan in the aggregate principal amount of $400.0 million, or the Term Loan, and a credit facility in the aggregate principal amount of $30.0 million, or the Revolver.

The Term Loan matures in April 2014, and bears interest at Palm’s election at one-, two-, three-, or six-month LIBOR plus 3.50%, or the Alternate Base Rate (higher of Prime Rate or Federal Funds Effective Rate plus 0.50%) plus 2.50%. As of February 28, 2009, the interest rate was based on one-month LIBOR plus 3.50%, or 3.98%. The principal is payable in quarterly installments of $1.0 million for the first five and a half years, beginning on December 31, 2007. The remaining principal amount is payable in quarterly installments during the final year preceding the maturity.

The Revolver matures in October 2012, and bears interest at Palm’s election at one-, two-, three-, or six-month LIBOR plus 3.50%, or the Alternate Base Rate (higher of Prime Rate or Federal Funds Effective Rate plus 0.50%) plus 2.50%. In addition, Palm is required to pay a commitment fee of 0.50% per annum on the average daily unused portion of the Revolver. As of February 28, 2009, Palm has not used the Revolver.

Palm paid issuance costs of $18.9 million related to the Credit Agreement, which will be amortized to interest expense over the life of the debt using the effective yield method. For the three and nine months ended February 28, 2009, total debt issuance costs of $0.8 million and $2.4 million were amortized to interest expense, respectively. For the three and nine months ended February 28, 2008, total debt issuance costs of $0.8 million and $1.0 million were amortized to interest expense, respectively. The remaining balance of unamortized costs was $14.7 million as of February 28, 2009, of which $3.1 million was included in prepaids and other on Palm’s condensed consolidated balance sheet and $11.6 million was included in other assets.

The Credit Agreement requires Palm to prepay the outstanding balance of the Term Loan using all net cash proceeds Palm receives from the issuance of additional debt or from the disposition of assets outside the ordinary course of business (subject to threshold and reinvestment exceptions). On an annual basis after each fiscal-year end, Palm is also required to prepay the Term Loan in an amount between 25% and 75% of excess cash flow for the fiscal year, as defined in the Credit Agreement. As of February 28, 2009, Palm was not required to make any mandatory prepayments on its Term Loan. If Palm elects to make additional prepayments of the Term Loan in excess of those required under the Credit Agreement, Palm will be responsible to pay call premiums of (i) 103% in the first year, (ii) 102% in the second year, and (iii) 101% in the third year. Palm is permitted to make voluntary prepayments on the Revolver at any time without premium or penalty.

The Credit Agreement permits Palm to add one or more incremental term loan facilities and/or increase commitments under the Revolver up to $25 million, subject to certain restrictions.

The Term Loan and Revolver contain restrictions on Palm’s and its subsidiaries’ ability to (i) incur certain debt, (ii) make certain investments, (iii) make certain acquisitions of other entities, (iv) incur liens, (v) dispose of assets, (vi) make non-cash distributions to shareholders (except the $9.00 per share distribution described in Note 15 to the condensed

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consolidated financial statements), and (vii) engage in transactions with affiliates. The Credit Agreement is secured by all of the capital stock of certain Palm subsidiaries (limited, in the case of foreign subsidiaries, to 65% of the capital stock of such subsidiaries) and substantially all of Palm’s present and future assets.

As of February 28, 2009, $395.0 million and $0 were outstanding under the Term Loan and Revolver, respectively.

14. Redeemable Convertible Preferred Stock, Detachable Warrants and Series C Derivative

On October 24, 2007, Elevation invested $325.0 million in Palm in exchange for 325,000 shares of Palm’s Series B Preferred Stock. On January 9, 2009, Elevation invested an additional $100.0 million in Palm in exchange for 100,000 detachable units, or the Series C Units. Each Series C Unit consists of one share of Palm’s Series C Preferred Stock and a warrant exercisable for the purchase of 70 shares of Palm common stock, or Detachable Warrants.

Series B and Series C Redeemable Convertible Preferred Stock

The Series B Preferred Stock and Series C Preferred Stock are both classified as mezzanine equity due to redemption provisions which provide for mandatory redemption at the liquidation preference on October 24, 2014 of any outstanding shares. At issuance, the Series B Preferred Stock reflected a discount of $9.8 million related to issuance costs, resulting in net cash proceeds of $315.2 million. Of these net cash proceeds, $250.2 million was allocated to Series B Preferred Stock, with the remaining $65.0 million allocated to additional paid-in capital as a result of the beneficial conversion feature discussed below. At issuance, the Series C Units reflected a discount of $1.6 million related to issuance costs, resulting in net cash proceeds of $98.4 million. Because Palm may elect to cause Elevation to sell a portion of these Series C Units to other investors (see Series C Derivative, below), Palm realized an additional benefit of $53.4 million, resulting in total consideration of $153.4 million received from the sale of the Series C Units. This total consideration was allocated to each of the Series C Unit components at issuance using their relative fair values, resulting in $131.4 million ascribed to the Series C Preferred Stock and $22.0 million ascribed to the Detachable Warrants. Approximately $51.9 million of the value of the Series C Preferred Stock was allocated to additional paid-in capital as a result of the beneficial conversion feature discussed below, resulting in a carrying value of $77.9 million, net of issuance costs.

The holders of the Series B Preferred Stock and Series C Preferred Stock have various rights and preferences as follows:

Voting: Generally, the holders of Series B Preferred Stock and Series C Preferred Stock are entitled to vote on all matters which the holders of Palm’s common stock are entitled to vote, except for the election of directors. The holders of Series B Preferred Stock and Series C Preferred Stock will vote together with the holders of common stock as a single class. Each share of Series B Preferred Stock and Series C Preferred Stock is entitled to a number of votes equal to the number of shares of common stock into which such share is convertible on the relevant record date, provided that the collective voting interest of a holder and its affiliates will be capped at 39.9%. In addition, subject to certain conditions, holders of the Series B Preferred Stock and Series C Preferred Stock, as a separate class, are entitled to designate a number of directors proportional to the ownership of Palm’s common stock by Elevation and its permitted assigns, on an as-converted basis. These director designation rights will terminate when Elevation and its permitted assigns cease to own at least a number of shares of Series B Preferred Stock and Series C Preferred Stock that, if converted, would be convertible into a number of shares of common stock that is greater than or equal to 50% of the shares of common stock issuable upon conversion of 325,000 shares of Series B Preferred Stock. As of February 28, 2009, holders of the Series B Preferred Stock and Series C Preferred Stock voting together were entitled to designate three directors.

Dividends: Subject to certain exceptions for stock dividends and distributions of rights under Palm’s rights plan, the holders of Series B Preferred Stock and Series C Preferred Stock are entitled to receive, on an as-converted basis, the same type and amount of dividends or distributions to be made to holders of Palm’s common stock. In addition, if Palm fails to respect certain obligations under the certificate of designation for the Series B Preferred Stock and Series C Preferred Stock, then Palm will be required to pay an additional cash dividend on each share of Series B Preferred Stock and Series C Preferred Stock at an annual rate equal to the prime rate of JPMorgan Chase Bank N.A. plus 4%.

Liquidation: The Series B Preferred Stock and Series C Preferred Stock have aggregate liquidation preferences equal to the greater of $325.0 million and $100.0 million, respectively, plus any accrued and unpaid dividends or the amount that holders of the Series B Preferred Stock and Series C Preferred Stock would receive had such holders converted into common stock. If Palm engages in a transaction in which the shares of Palm’s common stock, when aggregated with Series B Preferred Stock and Series C Preferred Stock on an as-converted basis, no longer hold the majority of voting power of the surviving entity, or certain divestures of all or substantially all of Palm’s assets, business or securities, Palm will be required to offer to repurchase all of the outstanding shares of Series B Preferred Stock and Series C Preferred Stock for total cash equal to 101% of the liquidation preference, or, under certain conditions, for publicly traded shares of the acquiring entity with a total value equal to 105% of the liquidation preference.

Conversion: Shares of Series B Preferred Stock and Series C Preferred Stock are convertible into shares of common stock at the option of the holder, provided that such conversion may not cause the collective voting interest of the holder

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and its affiliates to exceed the 39.9% limitation. The conversion price is entitled to customary anti-dilution adjustments, including for stock splits, dividends, distributions, rights issuances and certain tender offers or exchange offers. The Series C Preferred Stock also contains a “down-round provision” which would cause the conversion price to decrease, limited to a floor of $2.5185 per share. The down-round provision expires on January 9, 2011. As of February 28, 2009, each share of Series B Preferred Stock is convertible into 117.65 shares of Palm’s common stock at the option of the holder, or a total of 38.2 million shares on an as-converted basis, reflecting a conversion price of $8.50 per share. As of February 28, 2009, each share of Series C Preferred Stock is convertible into 307.69 shares of Palm’s common stock at the option of the holder, or a total of 30.8 million shares on an as-converted basis, reflecting a conversion price of $3.25 per share. After the third anniversary of the issue date of the shares, or October 24, 2010 for Series B Preferred Stock and January 9, 2012 for Series C Preferred Stock, Palm may cause all of the Series B Preferred Stock and/or Series C Preferred Stock to be converted into Palm’s common stock if the average closing price per share of Palm’s common stock during the prior 30 consecutive trading days is at least 180% or 300%, respectively, of the conversion price in effect at that time, and the closing price per share of Palm’s common stock during at least 20 days of such period (including the last 15 trading days of such thirty-day period) is at least 180% or 300%, respectively, of the then applicable conversion price. No shares were converted during the three or nine months ended February 28, 2009.

Redemption: The Series B Preferred Stock and Series C Preferred Stock provide for the mandatory redemption of any outstanding shares on October 24, 2014, at the liquidation preference.

Other: The respective certificates of designations provide that the prior vote or written consent of the holders of Series B Preferred Stock and/or Series C Preferred Stock is required before Palm may engage in certain actions impacting the issued or authorized amounts or the rights, preferences, powers or privileges of the Series B Preferred Stock and/or Series C Preferred Stock, resulting in certain fundamental changes, and, under certain conditions, incurring debt which would cause the debt to EBITDA ratio to exceed 3.00 to 1.00.

Palm has agreed to provide the holders of Series B Preferred Stock and Series C Preferred Stock registration rights in certain circumstances.

Beneficial Conversion – Series B Preferred Stock: On October 24, 2007, just prior to the issuance of the Series B Preferred Stock, the closing price of Palm’s common stock, adjusted for the $9.00 per share distribution, was $10.18 per share, and the conversion price of the Series B Preferred Stock was $8.50 per share. Because the adjusted closing price of the common stock on October 24, 2007 was greater than the conversion price, $65.0 million of the proceeds were allocated to an embedded beneficial conversion feature of the Series B Preferred Stock, computed as the difference between the adjusted closing price of Palm’s common stock on October 24, 2007 and the conversion price of $8.50 per share multiplied by the number of shares of common stock into which the Series B Preferred Stock was convertible, or 38.2 million shares, plus the $0.8 million issuance costs paid to Elevation. The amount allocated to the beneficial conversion feature was recorded as a discount to the Series B Preferred Stock. The difference between book value and net cash proceeds of the Series B Preferred Stock is being accreted based on the effective yield method, with such accretion being charged against additional paid-in capital over 84 months, which represents the length of time between the issuance date of October 24, 2007 and the mandatory redemption date of October 14, 2014.

Beneficial Conversion – Series C Preferred Stock: On January 9, 2009, just prior to the issuance of the Series C Preferred Stock, Palm determined the effective conversion price of the Series C Preferred Stock was $4.27 per share, calculated as the amount of proceeds allocated to the Series C Preferred Stock divided by the number of shares of Palm common stock into which the Series C Preferred Stock was convertible, or 30.8 million shares, based on the contractual conversion price of $3.25 per share. Because the closing price of the common stock on January 9, 2009, or $5.96, was greater than this effective conversion price, $51.9 million of the proceeds were allocated to an embedded beneficial conversion feature of the Series C Preferred Stock, computed as the difference between the closing price on January 9, 2009 and the effective conversion price, or $4.27 per share, multiplied by the number of shares of common stock into which the Series C Preferred Stock was convertible. The amount allocated to the beneficial conversion feature was recorded as a discount to the Series C Preferred Stock. The difference between book value and net cash proceeds of the Series C Preferred Stock is being accreted based on the effective yield method, with such accretion being charged against additional paid-in capital over 70 months, which represents the length of time between the issuance date of January 9, 2009 and the mandatory redemption date of October 14, 2014.

No dividends were declared or were in arrears on the Series B Preferred Stock or Series C Preferred Stock as of February 28, 2009. However, the accretion of the discounts on the Series B Preferred Stock and Series C Preferred Stock due to the beneficial conversion feature and issuance costs is treated in the same manner as preferred dividends for the computation of earnings per common share. During the three and nine months ended February 28, 2009, the accretion of the Series B Preferred Stock was $2.4 million and $7.3 million, respectively. During the three and nine months ended February 28, 2008, the accretion of the Series B Preferred Stock was $2.4 million and $3.1 million, respectively. During both the three and nine months ended February 28, 2009, the accretion of the Series C Preferred Stock was $0.6 million.

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A summary of activity related to issuance and accretion of the Series B Preferred Stock and Series C Preferred Stock is as follows (in thousands):

	Series B Redeemable Convertible Preferred Stock			Series C Redeemable Convertible Preferred Stock
Balances, May 31, 2007	$	—		$	—
Gross cash proceeds from issuance of series B redeemable convertible preferred stock		325,000			—
Amount allocated to beneficial conversion feature		(65,035	)		—
Issuance costs		(9,784	)		—
Net proceeds at issuance of series B redeemable convertible preferred stock		250,181			—
Additional issuance costs		(26	)		—
Accretion of series B redeemable convertible preferred stock		5,516			—
Balances, May 31, 2008		255,671			—
Gross cash proceeds from issuance of series C units		—			100,000
Amount allocated to series C derivative		—			53,410
Amount allocated to detachable warrants		—			(21,966	)
Amount allocated to beneficial conversion feature		—			(51,941	)
Issuance costs		—			(1,598	)
Net proceeds at issuance of series C redeemable convertible preferred stock		—			77,905
Accretion of series B and series C redeemable convertible preferred stock		7,272			557
Balances, February 28, 2009	$	262,943		$	78,462

Detachable Warrants

As of February 28, 2009, the Detachable Warrants, which allow the holders to purchase 7.0 million shares of Palm’s common stock at an exercise price of $3.25 per share, were still outstanding and exercisable. The Detachable Warrants expire on October 24, 2014. The exercise price is entitled to customary anti-dilution adjustments, including for stock splits, dividends, distributions, rights issuances and certain tender offers or exchange offers. The Detachable Warrants also contain a “down-round provision” which would cause the exercise price to decrease, limited to a floor of $2.49 per share. Further, holders of the Detachable Warrants are prohibited from exercising the warrants if, after exercise, holders of the Series B Preferred Stock and Series C Preferred Stock control more than 39.9% of the collective voting interests of Palm common stock, on an as-converted basis. In accordance with the guidance of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the warrants are classified within equity as they may be settled in cash or shares at Palm’s election. At issuance, Palm estimated the fair value of the warrants using a Black-Scholes option valuation model with the following assumptions: contractual term of 5.8 years, an average risk-free interest rate of 1.7%, a dividend yield of 0%, and volatility of 71%, resulting in a per-common-share valuation of $4.38. At issuance, on a relative fair value basis, $22.0 million of the proceeds was allocated to the warrants, and included in stockholders’ deficit in the condensed consolidated balance sheet.

Series C Derivative

One of the provisions of the sale of the Series C Units is that Palm may elect, until March 31, 2009, to cause Elevation to sell up to 49,000 Series C Units, or 49% of Elevation’s initial $100.0 million investment, to other investors on the same or better terms than on which Elevation acquired the Series C Units, with Palm receiving any net gains realized upon such a sale, or the Transfer Right. Based on the guidance in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, Palm has determined that this Transfer Right represents a derivative, or the Series C Derivative, because it permits net settlement by providing Palm with the net gains realized upon the sale of the Series C Units. On January 9, 2009, the closing date of the transaction, using the closing price for Palm’s common stock of $5.96 per share on that date, Palm estimated the fair value of the Series C Derivative using a Black-Scholes option valuation model with the following assumptions: contractual term of 0.2 years, an average risk-free interest rate of 0.1%, a dividend yield of 0%, and volatility of 120%, resulting in a per-common-share valuation of $2.89, or a total value of $53.4 million. The Series C Derivative is subject to remeasurement at the close of each reporting period until its expiration on March 31, 2009 and is recorded as an asset in Palm’s condensed consolidated balance sheet. See Note 22 to the condensed consolidated financial statements.

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15. Commitments

Certain Palm facilities are leased under operating leases. Leases expire at various dates through May 2012.

In December 2006, Palm entered into a minimum purchase commitment obligation with Microsoft Licensing, GP over a two-year contract period. Under the terms of the agreement, Palm agreed to pay a minimum of $35.0 million through November 2008. In September 2007, the agreement was amended to include an additional minimum purchase commitment of $6.7 million. In August 2008, the agreement was again amended to include an additional minimum purchase commitment of $0.2 million. Upon the expiration of this agreement at the end of November 2008, Palm no longer has any related contractual obligations. In December 2008, Palm entered into a new purchase agreement with Microsoft, which expires at the end of November 2010 and does not specify a minimum purchase commitment obligation. As of February 28, 2009 and May 31, 2008, Palm had a remaining amount due under the original agreement of $0 and $15.1 million, respectively.

In May 2005, Palm acquired PalmSource’s 55% share of PTHC and rights to the brand name Palm. The rights to the brand had been co-owned by the two companies through PTHC since the October 2003 spin-off of PalmSource from Palm. Palm agreed to pay $30.0 million in installments through November 2008, and granted PalmSource certain rights to Palm trademarks for PalmSource and its licensees for a four-year transition period. The net present value of these payments, $27.2 million, was recorded as an intangible asset and is being amortized over 20 years using the effective yield method. The remaining amount due to PalmSource under this agreement was $0 and $7.5 million as of February 28, 2009 and May 31, 2008, respectively.

During fiscal year 2008, Palm entered into an agreement with Cisco Systems, Inc. to purchase system hardware to support its general infrastructure and one year of maintenance for a total of $3.7 million. Under the terms of the agreement, Palm agreed to make quarterly payments from September 2008 through December 2009. The net present value of these payments, $3.5 million, is being amortized using the effective yield method. As of February 28, 2009, Palm had made payments totaling $1.2 million under the agreement. The remaining amount due under the agreement was $2.5 million as of February 28, 2009 and was included in other accrued liabilities. The remaining amount due as of May 31, 2008 was $3.7 million.

During fiscal year 2007, Palm entered into a license agreement with Oracle Corporation to purchase software and one year of maintenance for a total of $3.3 million. Under the terms of the agreement, Palm agreed to make quarterly payments over a three-year period ending July 2009. The net present value of these payments, $2.9 million, is being amortized using the effective yield method. As of February 28, 2009, Palm had made payments totaling $2.7 million under the agreement. The remaining amount due under the agreement was $0.5 million as of February 28, 2009 and was included in other accrued liabilities. The remaining amount due as of May 31, 2008 was $1.4 million.

During February and October 2007, Palm acquired the assets of several businesses. Under the purchase agreements, Palm agreed to pay employee incentive compensation based upon continued employment with Palm that will be recognized as compensation expense over the service period of the applicable employees. As of February 28, 2009, Palm had made payments totaling $3.3 million under the purchase agreements. The remaining liability under these agreements was $0.5 million and $6.1 million as of February 28, 2009 and May 31, 2008, respectively.

In October 2007, Palm declared a $9.00 per share one-time cash distribution on all shares outstanding as of October 24, 2007, resulting in a total amount due to Palm stockholders of $949.7 million. At that time, $948.6 million of this distribution was paid in cash to eligible stockholders and the remaining $1.1 million was recorded as a distribution liability for holders of unvested restricted stock awards that were not eligible to receive a cash payment until their shares had vested. The distribution liability is being paid in cash as the related shares of restricted stock vest, ending in the fourth quarter of fiscal year 2010. As of February 28, 2009 and May 31, 2008, the remaining amount due to holders of unvested restricted stock, adjusted for cancellations, was $0.5 million and $0.7 million, respectively, of which $0.3 million and $0.4 million, respectively, was classified in other accrued liabilities in the condensed consolidated balance sheet and $0.2 million and $0.3 million, respectively, was classified within other non-current liabilities.

Palm accrues for royalty obligations to certain technology and patent holders based on (1) unit shipments of its smartphones and handheld computers, (2) a percentage of applicable revenue for the net sales of products using certain software technologies or (3) a fully paid-up license fee, all as determined in accordance with the applicable license agreements. Where agreements are not finalized, accrued royalty obligations represent management’s current best estimates using appropriate assumptions and projections based on negotiations with third party licensers. As of February 28, 2009 and May 31, 2008, Palm had estimated royalty obligations of $37.5 million and $34.5 million, respectively, which were reported in other accrued liabilities. While the amounts ultimately agreed upon may be more or less than the current accrual, management does not believe that finalization of the agreements would have had a material impact on the amounts reported for its financial position as of February 28, 2009 or on the results reported for the three months then ended; however, the effect of finalization of these agreements in the future may be significant to the period in which recorded.

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Palm utilizes contract manufacturers to build its products. These contract manufacturers acquire components and build products based on demand forecast information supplied by Palm, which typically covers a rolling 12-month period. Consistent with industry practice, Palm acquires inventories from such manufacturers through blanket purchase orders against which orders are applied based on projected demand information. Such purchase commitments typically cover Palm’s forecasted product requirements for periods ranging from 30 to 90 days. In certain instances, these agreements allow Palm the option to cancel, reschedule and/or adjust its requirements based on its business needs. In some instances Palm also makes commitments with component suppliers in order to secure availability of key components. Consequently, only a portion of Palm’s purchase commitments arising from these agreements may be non-cancelable and unconditional commitments. As of February 28, 2009 and May 31, 2008, Palm’s cancelable and non-cancelable commitments to third-party manufacturers and suppliers for their inventory on-hand and component commitments related to the manufacture of Palm products were $103.9 million and $234.1 million, respectively.

In accordance with Palm’s policy, Palm also accrues for any purchase commitments with third-party manufacturers that are determined to be in excess of anticipated demand based on forecasted product sales. As of February 28, 2009 and May 31, 2008, Palm had recorded $19.7 million and $5.4 million, respectively, in other accrued liabilities related to these commitments.

As of February 28, 2009 and May 31, 2008, Palm had $9.8 million and $8.6 million, respectively, in restricted investments, which are collateral for outstanding letters of credit.

Palm uses foreign exchange forward contracts to mitigate transaction gains and losses generated by certain foreign currency denominated monetary assets and liabilities, the result of which partially offsets its market exposure to fluctuations in foreign currencies. Changes in the fair value of these foreign exchange forward contracts are largely offset by re-measurement of the underlying assets and liabilities. According to Palm’s policy, these foreign exchange forward contracts have maturities of 35 days or less. Palm did not have any foreign exchange forward contracts outstanding as of February 28, 2009. As of May 31, 2008, Palm’s outstanding notional contract value, which approximates fair value, was $7.0 million which settled within 28 days. Palm does not enter into derivatives for speculative or trading purposes. See Note 21 to the condensed consolidated financial statements for further discussion of Palm’s derivative and hedging activity.

Under the indemnification provisions of Palm’s customer and certain of its supply agreements, Palm agrees to offer some level of indemnification protection against certain types of claims arising from Palm’s products and services (such as intellectual property infringement or personal injury or property damage caused by Palm’s products or by Palm’s negligence or misconduct).

Under the indemnification provisions with respect to representations and covenants made to PalmSource in connection with the Palm brand agreement and with respect to trademark infringement in the amended and restated trademark license agreement with PalmSource, Palm agreed to defend and indemnify PalmSource and its affiliates for losses incurred, up to $25.0 million under each agreement.

Palm defends and indemnifies its current and former directors and certain of its current and former officers from third-party claims. Certain costs incurred for providing such defense and indemnification may be recoverable under various insurance policies. Palm is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these exposures are not capped and due to the conditional nature of its obligations and the unique facts and circumstances involved in any situation that might arise.

Palm’s product warranty accrual reflects management’s best estimate of probable liability under its product warranties. Management determines the warranty liability based on historical rates of usage as a percentage of shipment levels and the expected repair cost per unit, service policies and its experience with products in production or distribution.

Changes in the product warranty accrual are (in thousands):

	Nine Months Ended February 28,
	2009			2008
Balance, beginning of period	$	40,185		$	41,087
Payments made		(46,922	)		(86,556	)
Change in liability for product sold during the period		47,371			71,593
Change in liability for pre-existing warranties		1,096			6,970
Balance, end of period	$	41,730		$	33,094

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16. Restructuring Charges

In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, restructuring costs are recorded as incurred. Restructuring charges for employee workforce reductions are recorded upon employee notification for employees whose required continuing service period is 60 days or less, and ratably over the employee’s continuing service period for employees whose required continuing service period is greater than 60 days. In conjunction with the Handspring acquisition, Palm accrued for restructuring costs in accordance with EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. Prior to calendar year 2003, in accordance with EITF Issue No. 94-3, Liability Recognition for Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring), Palm accrued for restructuring costs when it made a commitment to a firm exit plan that specifically identified all significant actions to be taken.

The restructuring actions initiated in the second quarter of fiscal year 2009 included charges of $10.9 million related to workforce reductions across all geographic regions, including $1.2 million related to stock-based compensation as a result of the acceleration of certain awards and $9.7 million for other severance, benefits and related costs due to the reduction of 190 regular employees across all geographic regions, and $2.5 million related to discontinued project and other costs. Palm took these restructuring actions to better align its cost structure with its then current revenue expectations. Additional restructuring charges related to these actions will be recorded during the fourth quarter of fiscal year 2009. These charges are comprised of additional costs related to workforce reductions, including benefits and related costs for employees whose continuing service is in excess of 60 days, and lease commitments for property and equipment disposed of or removed from service.

The third quarter of fiscal year 2008 restructuring actions included charges of $7.7 million related to workforce reductions across all geographic regions, primarily related to severance, benefits and related costs due to the reduction of 130 regular employees, and $7.0 million related to facilities and property and equipment. The facilities and property and equipment charge in fiscal year 2008 includes $4.5 million related to property and equipment disposed of or removed from service and other charges related to the closure of Palm’s retail stores and $2.5 million for lease commitments for facilities no longer in service. During the first quarter of fiscal year 2009, additional restructuring charges of $0.3 million related to workforce reductions, including severance benefits and related costs, were recorded, partially offset by adjustments of $0.1 million related to facilities and property and equipment as a result of more current information regarding lease closure costs. Palm took these restructuring actions to better align its cost structure with its then current revenue expectations.

The second quarter of fiscal year 2008 restructuring actions included project cancellation costs relating to the Foleo mobile companion product and discontinued development projects of $5.9 million. Adjustments of $0.1 million were recorded during the first half of fiscal year 2009 as a result of recovery on the disposition of unused components originally intended for the Foleo product. Restructuring charges were a result of Palm’s decision to focus its efforts on developing a single Palm software platform and to offer a consistent user experience centered on the new platform.

The first quarter of fiscal year 2008 restructuring actions included charges of $9.4 million related to workforce reductions, including $1.1 million related to stock-based compensation as a result of the acceleration of certain awards and $8.3 million for other severance, benefits and related costs, and $0.7 million relating to lease commitments for property and equipment disposed of or removed from service. Workforce reductions for the restructuring actions begun in the first quarter of fiscal year 2008 affected 120 regular employees primarily in the United States and were complete as of May 31, 2008. Palm took these restructuring actions to better align its cost structure with its then current revenue expectations. As of February 28, 2009, the balance consists of lease commitments, payable over two years, offset by estimated sublease proceeds of $0.5 million.

The fourth quarter of fiscal year 2001 restructuring action consists of facilities costs related to lease commitments for space no longer intended for use. During the year ended May 31, 2008, adjustments of $0.2 million were recorded as a result of more current information regarding future estimated sublease income. As of February 28, 2009, the balance consists of lease commitments, payable over three years, offset by estimated sublease proceeds of $8.5 million.

The restructuring actions recorded in connection with the Handspring acquisition included $3.7 million related to Handspring facilities not intended for use for Palm operations and therefore considered excess. During the year ended May 31, 2008, adjustments of $0.1 million were recorded and all actions were completed.

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Accrued liabilities related to restructuring actions consist of (in thousands):

	Q2 2009 Action						Q3 2008 Action						Q2 2008 Action			Q1 2008 Action						Q4 2001 Action			Action Recorded In Connection with the Handspring Acquisition
	Workforce Reduction Costs			Discontinued Project and Other Costs			Workforce Reduction Costs			Excess Facilities and Equipment Costs			Discontinued Project Costs			Workforce Reduction Costs			Excess Facilities and Equipment Costs			Excess Facilities Costs			Excess Facilities Costs			Total
Balance, May 31, 2007	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	5,092		$	314		$	5,406
Restructuring charges (adjustments)		—			—			7,723			6,958			5,928			9,400			684			(237	)		(103	)		30,353
Cash payments		—			—			(7,037	)		(2,019	)		(3,911	)		(8,309	)		(111	)		(917	)		(211	)		(22,515	)
Write-offs		—			—			—			(3,679	)		(313	)		(1,091	)		(103	)		—			—			(5,186	)
Balance, May 31, 2008		—			—			686			1,260			1,704			—			470			3,938			—			8,058
Restructuring charges (adjustments)		10,887			2,491			347			(140	)		(70	)		—			—			—			—			13,515
Cash payments		(8,021	)		—			(830	)		(1,090	)		(874	)		—			(100	)		(503	)		—			(11,418	)
Write-offs		(1,189	)		(1,489	)		—			—			—			—			(88	)		—			—			(2,766	)
Balance, February 28, 2009	$	1,677		$	1,002		$	203		$	30		$	760		$	—		$	282		$	3,435		$	—		$	7,389

17. Casualty Loss

During the third quarter of fiscal year 2009, certain of Palm’s smartphone products, with a recorded inventory value of $5.0 million, were stolen from one of Palm’s third-party-operated warehouses. As a result, Palm recorded a casualty loss for this amount in its results of operations for the three and nine months ended February 28, 2009. The loss is expected to be covered under Palm’s insurance policy.

18. Patent acquisition cost (refund)

During the first quarter of fiscal year 2008, Palm paid $5.0 million to acquire patents and patent applications. These patents and patent applications were acquired for strategic purposes in order to more effectively respond to intellectual property claims that may arise in the course of Palm’s business and, as of that date, were not acquired directly for the purpose of incorporating specific features into future products or for specific features in current products for which Palm currently pays or expects to pay royalties. Accordingly, the acquisition cost was expensed during the period of acquisition. During the first quarter of fiscal year 2009, Palm received a refund of $1.5 million as a result of a re-negotiation of the purchase price. This amount was recognized as a benefit to Palm’s operating results at the time of receipt.

19. Gain on Sale of Land

In August 2005, Palm entered into an agreement with a real-estate broker to market for sale the 39 acres of land owned by Palm in San Jose, California. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, Palm reclassified the land as held for sale at that time. During the first quarter of fiscal year 2008 Palm received proceeds from the sale of land of $64.5 million and recognized a gain on the sale, net of closing costs, of $4.4 million.

20. Litigation

Palm is a party to lawsuits in the normal course of its business. Litigation in general, and intellectual property litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Palm believes that it has defenses to the cases pending against it, including those set forth below, and is vigorously contesting each matter. Palm is not currently able to estimate, with reasonable certainty, the possible loss, or range of loss, if any, from the cases listed below, and accordingly no provision for any potential loss which may result from the resolution of these matters has been recorded in the accompanying condensed consolidated financial statements except with respect to those cases where preliminary settlement agreements have been reached. An

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unfavorable resolution of these lawsuits could materially adversely affect Palm’s business, results of operations or financial condition. (Although Palm was formerly known as palmOne, Inc. and is now Palm, Inc. once again and Handspring has been merged into Palm, the pleadings in the pending litigation continue to reference former company names, including Palm Computing, Inc., Palm, Inc., palmOne, Inc. and Handspring, Inc.).

In June 2001, the first of several putative stockholder class action lawsuits was filed in the United States District Court for the Southern District of New York against certain of the underwriters for Palm’s initial public offering, Palm and several of its former officers. The complaints, which have been consolidated under the caption In re Palm, Inc. Initial Public Offering Securities Litigation, Case No. 01 CV 5613, assert that the prospectus from Palm’s March 2, 2000 initial public offering failed to disclose certain alleged actions by the underwriters for the offering. The complaints allege claims against Palm and the officers under Sections 11 and 15 of the Securities Act of 1933, as amended. Certain of the complaints also allege claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, as amended. Similar complaints were filed against Handspring in August and September 2001 in regard to Handspring’s June 2000 initial public offering. Other actions have been filed making similar allegations regarding the initial public offerings of more than 300 other companies. An amended consolidated complaint was filed in April 2002. The claims against the individual defendants have been dismissed without prejudice pursuant to an agreement with plaintiffs. The Court denied Palm’s motion to dismiss. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including Palm and Handspring, was submitted to the Court for approval. On August 31, 2005, the Court preliminarily approved the settlement. In December 2006, the Appellate Court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have filed amended master allegations and amended complaints in the six focus cases. It is uncertain whether there will be any revised or future settlement.

In September and October 2005, five purported consumer class action lawsuits were filed against Palm, four in the U.S. District Court for the Northern District of California (Moya v. Palm, Berliner v. Palm, Loew v. Palm, and Geisen v. Palm) and one in the Superior Court of California for Santa Clara County (Palza v. Palm), on behalf of all purchasers of Palm Treo 600 and Treo 650 products. All five complaints allege in substance that Palm made false or misleading statements regarding the reliability of its Treo 600 and 650 products in violation of various California laws, that the products have certain alleged defects, and that Palm breached its warranty of these products. The complaints seek unspecified damages, restitution, disgorgement of profits and injunctive relief. In September 2005, a purported consumer class action lawsuit entitled Gans v. Palm was filed against Palm in the U.S. District Court for the Northern District of California on behalf of all purchasers of the Treo 650 product. The complaint alleges that, in violation of various California laws, Palm made false or misleading statements regarding automatic email delivery to the Treo 650 product. The complaint seeks unspecified damages, restitution, disgorgement of profits and injunctive relief. Palm removed the Palza case to the U.S. District Court for the Northern District of California. Subsequently, all six cases were consolidated before a single judge in that Court and the plaintiffs provided a consolidated, amended complaint. The parties have agreed to a tentative settlement. On January 7, 2008, the Court granted preliminary approval of a settlement of this action and Palm provided notice to the settlement class members. A hearing to determine final settlement approval was conducted on May 23, 2008 and on July 9, 2008 the Court issued an Order approving the settlement with respect to the class and dismissing claims of the settlement class with prejudice. The Court reserved ruling on the application of plaintiffs’ counsel for attorneys’ fees and incentive awards to the representative plaintiffs. Intervenors at the hearing filed an appeal of the Court’s ruling on August 11, 2008. On September 25, 2008, the appellate court dismissed it as being untimely and the District Court ruling therefore became final. The terms of the Order issued by the Court will result in a resolution not material to Palm’s financial position. If approved as requested, the terms of the proposed attorneys’ fees and incentive awards will result in a resolution not material to Palm’s financial position.

On November 6, 2006, NTP, Inc. filed suit against Palm in the United States District Court for the Eastern District of Virginia. In the lawsuit, entitled NTP, Inc. v. Palm, Inc., NTP alleges direct and indirect infringement of seven patents and seeks unspecified compensatory and treble damages and to enjoin Palm from infringing the patents in the future. On December 22, 2006, Palm responded to the complaint. Palm also moved to stay the litigation pending conclusion and any appeal of reexamination proceedings currently before the United States Patent and Trademark Office. On March 22, 2007 the Court granted Palm’s motion and ordered the case be stayed “…until the validity of the patents-in-suit is resolved at the Patent and Trademark Office and through any consequent appeals.”

On May 18, 2007, Intermec Inc. filed suit against Palm in the United States District Court for the District of Delaware. In the lawsuit, entitled Intermec Technologies Corp., Inc. v. Palm, Inc., Intermec alleges direct and indirect infringement of five patents and seeks unspecified compensatory and treble damages and to enjoin Palm from future infringement. In August 2007, Palm filed counterclaims against Intermec including allegations of infringement by Intermec of two Palm patents. Palm seeks compensatory damages and to permanently enjoin Intermec from future infringement. The case is in discovery.

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21. Derivative and Hedging Activities

Effective December 1, 2008, Palm adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures regarding derivative instruments and hedging activities. As of February 28, 2009, Palm had a Series C Derivative of $74.0 million and had no outstanding foreign exchange forward contracts. As of May 31, 2008, Palm had outstanding foreign exchange forward contracts with a notional value of $7.0 million.

Series C Derivative: As discussed in Note 14 to the condensed consolidated financial statements, the Series C Units sale contained a derivative in the form of the Transfer Right, which is intended to ensure that Palm stockholders would benefit if the closing price of Palm common stock were to increase in the near-term after Elevation’s investment in January 2009. Palm is not using the Series C Derivative for risk management purposes.

In accordance with SFAS No. 133, Palm remeasures its Series C Derivative at the close of each reporting period. As of February 28, 2009, Palm had not yet exercised its rights under the Transfer Right. Using the closing price for Palm’s common stock of $7.24 on that date resulted in an estimated fair value of the Series C Derivative of $74.0 million using the following assumptions: contractual term of 0.1 years, an average risk-free interest rate of 0.2%, a dividend yield of 0%, and volatility of 120%, resulting in a per-common share valuation of $4.00, which represents an increase during the quarter in the per-common share valuation of $1.11. As a result of this increase in the estimated fair value of the Series C Derivative, Palm recognized a gain of $20.6 million in its condensed consolidated statements of operations for the three and nine months ended February 28, 2009.

Palm did not have any liability derivatives as of February 28, 2009. A summary of fair value of Palm’s asset derivative as of February 28, 2009 is as follows (in thousands):

	Fair Value of Asset Derivative as of February 28, 2009
	Balance Sheet Location	Fair Value
Derivative not designated as hedging instrument under SFAS No. 133:
Series C derivative	Series C derivative	$	73,983

A summary of the effect of Palm’s asset derivative on the condensed consolidated statements of operations for the three and nine months ended February 28, 2009 is as follows (in thousands):

		Amount of Gain Recognized
Derivative Not Designated as Hedging Instruments under SFAS No. 133	Location of Gain Recognized in Results of Operations	Three Months Ended February 28, 2009		Nine Months Ended February 28, 2009
Series C derivative	Gain on series C derivative	$	20,573	$	20,573

Foreign Exchange Forward Contracts: Palm uses foreign exchange forward contracts to mitigate transaction gains and losses generated by certain foreign currency denominated monetary assets and liabilities, the result of which partially offsets its market exposure to fluctuations in foreign currencies. Changes in the fair value of these foreign exchange forward contracts are largely offset by re-measurement of the underlying assets and liabilities. Palm recorded a net gain (loss) of $0.6 million and $2.0 million for the three and nine months ended February 28, 2009, respectively, and $(0.6) million and $(0.3) million for the three and nine months ended February 28, 2008, respectively, from the revaluation of foreign denominated assets and liabilities, which is included in operating loss in the condensed consolidated statements of operations. Included in these amounts are Palm’s recognized net gains (losses) on its foreign exchange forward contracts of $0.4 million and $2.9 million for the three and nine months ended February 28, 2009, respectively, and $(0.8) million and $(2.1) million for the three and nine months ended February 28, 2008, respectively. Because of the short duration of these contracts in accordance with Palm’s policy, there is no impact to other comprehensive income (loss) for the current or prior-year periods.

22. Subsequent Event

On March 9, 2009, Palm issued an additional 26.6 million shares of common stock at a public offering price per share of $6.00, including 15.1 million shares as a result of the conversion of 49,000 shares of Series C Preferred Stock pursuant to the exercise of its Transfer Right. The related 49% of the Detachable Warrants to purchase 3.4 million shares of Palm common stock were canceled. At the public offering price per share of $6.00, Palm received cash proceeds of $103.6 million, net of the $49.0 million investment returned to Elevation and $7.0 million in underwriting discounts, commissions and estimated offering expenses to be paid by Palm. After the transaction, the amount of the carrying value

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of Series C Preferred Stock decreased by $38.4 million, or 49% of its allocated fair value immediately prior to conversion, which represents the percentage of shares of Series C Preferred Stock that were converted. Additional paid-in capital increased by $38.4 million related to the conversion of the Series C Preferred Stock and $58.3 million related to the issuance of 11.5 million additional shares at $6.00 per share partially offset by issuance costs of $7.0 million. Palm will record a loss on its Series C Derivative for the fourth quarter of fiscal year 2009, which represents the difference between the fair market value of the Series C Derivative at the end of the third quarter of fiscal year 2009 and the fair market value of the Series C Derivative realized at the time of the transaction. Additionally, Palm will recognize $10.6 million as accretion against net loss applicable to common shareholders during the fourth quarter of fiscal year 2009, which represents 49% of the amount previously recorded as a discount to the Series C Preferred Stock.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes to those financial statements included in this Form 10-Q. Our 52-53 week fiscal year ends on the Friday nearest to May 31, with each quarter ending on the Friday generally nearest August 31, November 30 and February 28. For presentation purposes, the periods have been presented as ending on February 28 and May 31, as applicable.

This quarterly report contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements concerning Palm’s expectations, beliefs and/or intentions regarding the following: mobile products and the mobile product market; our leadership position in mobile products; our revenues, cost of revenues, gross margins, operating income (loss), operating expenses, operating results and profitability; loss related to the Series C Derivative; accretion against net loss applicable to common shareholders; our corporate strategy; growth in the smartphone market; capitalizing on industry trends and dynamics; economic trends, market conditions and their effects on our business and on consumer and business purchasing patterns; our platform strategy; international, political and economic risk; our development and introduction of new products and services; the effect of acquisitions on the development of products; acceptance of our smartphone products; our ability to meet certification requirements; market demand for voice/data converged products and for our products; our ability to differentiate our products, deliver a range of product choices around open platforms and develop products to serve a broad range of customers and attract new customers; our ability to lead on design, ease-of-use and functionality; pricing and average selling prices for our products; the development and timing of launch of our new Palm Pre smartphone and our new Palm webOS platform and related software, and the introduction of other products based on the new Palm webOS platform; our plan to periodically provide new software free of charge, the accounting treatment for recognition of revenues and cost of revenues and the impact of that accounting treatment on cash flow; competition and our competitive advantages; our ability to build our brand and consumers’ awareness of our products; the resources that we and our competitors devote to development, promotion and sale of products; our expectations regarding our new and existing product lines; our product mix; our ability to broaden and expand our wireless carrier relationships; revenue and credit concentration with our largest customers; collectability of customer accounts; customer relationships; our ability to cause application providers to provide applications for our products; our ability to obtain components and elements of our technology from suppliers free from errors and defects; royalty obligations; inventory, channel inventory levels and inventory valuation; the possibility of defects in products and technologies we develop; price protection, rebates and returns; repair costs; product warranty accrual and liability; our effective tax rate and income tax expense (benefit); forecasted product and manufacturing requirements; seasonality in sales of our products; the adequacy of our properties, facilities and operating leases and our ability to secure additional space; our tax strategy; the deductibility of goodwill; realization and recoverability of our net deferred tax assets; the need to increase our deferred tax asset valuation allowance; utilization of our net operating loss and tax credit carryforwards; our belief that our cash, cash equivalents and short-term investments will be sufficient to satisfy our anticipated cash requirements; our liquidity, cash flow, cash position and ability to obtain additional funding; the use of any net proceeds from the sale of securities under our universal shelf registration statement; collectability, impairment charges and recovery in market value in connection with our investments in auction rate securities; the liquidity of, holding periods for and our ability and intent to hold our auction rate securities; the completion of restructuring actions and restructuring charges; compensation and other expense reductions; dividends; interest rates; the timing and amount of our cash generation and cash flows; declines in the handheld market and in our handheld business; our use of options, restricted stock and restricted stock units; unrecognized compensation cost under our stock plans; stock price volatility; option exercise behavior under our stock plans; vesting, terms and forfeiture of our equity awards; our stock-based compensation valuation models; our defenses to, and the effects and outcomes of, legal proceedings and litigation matters; provisions in our charter documents, Delaware law and a stockholders’ agreement and the potential effects of a stockholder rights plan; our relationship with Elevation Partners, L.P.; our debt obligations, the related interest expense for future periods and the effect of any non-compliance; potential unavailability of future borrowing, including under our existing credit facility; and the potential impact of our critical accounting policies and changes in financial accounting standards or practices. Actual results and events could differ materially from those contemplated by these forward-looking statements due to various risks and uncertainties, including those discussed in the “Risk Factors” section and elsewhere in this quarterly report. Palm undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

Overview and Executive Summary

Palm, Inc. is a provider of mobile products that enhance the lifestyles of individual users and business customers worldwide. We create thoughtfully integrated technologies that better enable people to stay connected with their family, friends and colleagues, access and share the information that matters to them most and manage their daily lives on the go. We offer Treo and Centro smartphones, handheld computers and accessories through wireless carriers and retail and business channels worldwide, as well as at Palm’s online store. In January 2009, we announced our new operating system, or OS, the Palm webOS mobile platform, and our Palm Pre smartphone, the first phone to be based on the Palm webOS platform. The Palm Pre is scheduled to be available in the United States during the first half of calendar year 2009.

Our objective is to be a leader in mobile lifestyle products for individual users and business customers. To achieve this, we focus on the following strategies: differentiate our products through innovative software, inspiring industrial design and the

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seamless integration of hardware, system software, applications and services to deliver a delightful mobile user experience; deliver a range of product choices around open platforms; focus on our core competencies by using a leveraged model to develop, manufacture, distribute and support our products; and build a brand synonymous with a mobile lifestyle. Management periodically reviews certain key business metrics in order to evaluate our strategy and operational efficiency, allocate resources and maximize the financial performance of our business. These key business metrics include the following:

Revenue—Management reviews many elements to understand our revenue stream. These elements include supply availability, unit shipments, average selling prices and channel inventory levels. Revenues are impacted by unit shipments, variations in average selling prices and, once the Palm Pre ships, the estimated economic life. Unit shipments are determined by supply availability, timing of wireless carrier certification, end user and channel demand, and channel inventory. We monitor average selling prices throughout the product life cycle, taking into account market demand and competition. To avoid empty shelves at retail store locations and to minimize product returns and obsolescence, we strive to maintain channel inventory levels within a desired range.

Margins—We review gross margin in conjunction with revenues to maximize operating performance. We strive to improve our gross margin through disciplined cost and product life-cycle management, supply/demand management and control of our warranty and technical support costs. To achieve desired operating margins, we also monitor our operating expenses closely to keep them in line with our projected revenue.

Cash flows—We strive to convert operating results to cash. To that end, we carefully manage our working capital requirements through balancing accounts receivable and inventory with accounts payable. We monitor our cash balances to maintain cash available to support our operating, investing and financing requirements.

We believe the mobile lifestyle solutions market dynamics are generally favorable to us. The high-speed wireless networks which enable true “always-on” connectivity are fueling the growth of the market for smartphone devices. With our computing heritage, we are able to work closely with wireless carriers to deploy advanced wireless data applications that take advantage of their wireless data networks.

The smartphone market is emerging and people are beginning to understand the personal and professional benefits of being able to access email or browse the web on a smartphone. We intend to lead on design, ease-of-use and functionality and serve a broad range of customers with products focused on their needs. We expect this market to expand and we are focusing our efforts in order to capitalize on this expansion.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in Palm’s condensed consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, these estimates and judgments are subject to change and the best estimates and judgments routinely require adjustment. The amounts of assets and liabilities reported in our balance sheets and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions which are used for, but not limited to, the accounting for rebates, price protection, product returns, allowance for doubtful accounts, warranty and technical service costs, royalty obligations, goodwill and intangible asset valuations, restructurings, inventory, stock-based compensation, impairment of non-current auction rate securities, series C derivative, and income taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of our condensed consolidated financial statements.

Revenue Recognition

Revenue is recognized when earned in accordance with applicable accounting standards and guidance, including Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition, and American Institute of Certified Public Accountants, or AICPA, Statement of Position, or SOP, No. 97-2, Software Revenue Recognition, as amended. We recognize revenues from sales of mobile products under the terms of the customer agreement upon transfer of title to the customer, net of estimated returns, provided that the sales price is fixed or determinable, collection is determined to be probable and no significant obligations remain. For one of our web sales distributors, we recognize revenue based on a sell-through method utilizing information provided by the distributor. Sales to resellers are subject to agreements allowing for limited rights of return and price protection. Accordingly, revenue is reduced for our estimates of liability related to these rights. The estimate for returns is recorded at the time the related sale is recognized and is adjusted periodically based upon historical rates of returns and other related factors. The reserves for rebates and price protection are recorded at the time these programs are offered in accordance with Emerging Issues Task Force, or EITF, Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products). Price protection is estimated based on specific programs, expected usage and historical experience. Rebates are estimated based on specific programs, actual wireless carrier purchase volumes and the expected percentage of customers that will redeem their rebates, which is estimated based on historical experience. Rebate estimates are refined over the program period as actual results are experienced. We have accrued rebate obligations of $58.0 million as of February 28, 2009 which were included in other accrued liabilities. Actual claims for returns, price protection and rebates may vary over time and could differ from our estimates.

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Revenue from software arrangements with end users of our devices is recognized upon delivery of the software, provided that collection is determined to be probable and no significant obligations remain. For arrangements with multiple elements, we allocate revenue to each element using the residual method. When all of the undelivered elements are software-related, this allocation is based on vendor specific objective evidence, or VSOE, of fair value of the undelivered items. VSOE is based on the price determined by management having the relevant authority when the element is not yet sold separately, but is expected to be sold in the marketplace within six months of the initial determination of the price by management. When the undelivered elements include non-software related items, this allocation is based on objective and reliable evidence of fair value, in accordance with EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. We defer the portion of the fee equal to the fair value of the undelivered elements until they are delivered.

We anticipate launching our Palm Pre with Palm webOS in the first half of calendar year 2009. We expect to periodically provide unspecified services and software free of charge to customers of Palm webOS products. Therefore, as required by generally accepted accounting principles, we will recognize Palm webOS product revenue on a subscription basis in accordance with SOP No. 97-2. Under the subscription accounting method, we will recognize revenues and related standard costs of revenues for our Palm webOS products on a straight-line basis over their currently estimated economic life. If the actual economic lives of our Palm webOS products are different than these estimates, we will revise the economic lives we are using to recognize revenues and related standard costs of revenues, which may result in a lack of comparability between products and/or periods. Certain administrative and other related period costs of revenues will be expensed as incurred. If we offer specified upgrade rights to our customers in connection with Palm webOS products for future delivery, we will defer applicable revenue until the future obligation is fulfilled, the right to the specified upgrade expires or VSOE is established.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts and an assessment of international, political and economic risk as well as the aging of the accounts receivable. If there is a change in a major customer’s creditworthiness or actual defaults differ from our historical experience, our actual results could differ from our estimates of recoverability.

Warranty Costs

We accrue for warranty costs based on historical rates of repair as a percentage of shipment levels and the expected repair cost per unit, service policies and our experience with products in production or distribution. If we experience claims or significant changes in costs of services, such as third-party vendor charges, materials or freight, which could be higher or lower than our historical experience, our cost of revenues could differ from our estimates.

Royalty Obligations

We accrue for royalty obligations to certain technology and patent holders based on (1) unit shipments of our smartphones and handheld computers, (2) a percentage of applicable revenue for the net sales of products using certain software technologies or (3) a fully paid-up license fee, all as determined in accordance with the applicable license agreements. Where agreements are not finalized, accrued royalty obligations represent management’s current best estimates using appropriate assumptions and projections based on negotiations with third party licensers. As of February 28, 2009, we had estimated royalty obligations of $37.5 million which were reported in other accrued liabilities. While the amounts ultimately agreed upon may be more or less than the current accrual, management does not believe that finalization of the agreements would have had a material impact on the amounts reported for our financial position as of February 28, 2009 or on the results reported for the three months then ended; however, the effect of finalization of these agreements in the future may be significant to the period in which recorded.

Fair Value Accounting

Effective June 1, 2008, we adopted Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standard, or SFAS, No. 157, Fair Value Measurements, to account for our financial assets and liabilities. SFAS No. 157 provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The standard establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

• Level 1 - Observable quoted prices for identical instruments in active markets;

• Level 2 - Observable quoted prices for similar instruments in active markets, observable quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; or

• Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security and generally includes money market funds and United States Treasury securities with quoted prices in active markets. The fair value of our Level 2 financial assets is based on observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency and generally includes United States government agency debt securities, corporate notes/bonds and our derivative related to the series C units (see Note 14 to the condensed consolidated financial statements for further information). Each unit, or the Series C Unit, consists of one share of our series C redeemable convertible preferred stock, or Series C Preferred Stock, and a warrant exercisable for the purchase of 70 shares of our common stock, or the Detachable Warrants. We did not have observable inputs for the valuation of our non-current auction rate securities, or ARS. As of February 28, 2009, the total amount of assets classified as Level 3 was $9.3 million, which represented 4% of the total amount of assets measured at fair value on a recurring basis, or $230.6 million. As of February 28, 2009, we did not have any liabilities that were measured at fair value on a recurring basis. Discussion of how we determined the fair value of our investments in non-current ARS may be found below.

In accordance with SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115¸ which we adopted as of June 1, 2008, we evaluated our existing eligible financial assets and liabilities and elected not to adopt the fair value option for any eligible items during the three or nine months ended February 28, 2009. However, because the SFAS No. 159 election is based on an instrument-by-instrument election at the time we first recognize an eligible item or enter into an eligible firm commitment, we may decide to exercise the option on new items when business reasons support doing so in the future.

Long-Lived Asset Impairment

Long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not ultimately be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its ultimate disposition.

Goodwill and Intangible Asset Impairment

We evaluate the recoverability of goodwill annually during the fourth quarter of the fiscal year, or more frequently if impairment indicators arise, as required under SFAS No. 142, Goodwill and Other Intangible Assets. Goodwill is reviewed for impairment by applying a fair-value-based test at the reporting unit level within our single reporting segment. A goodwill impairment loss would be recorded for any goodwill that is determined to be impaired. Under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, intangible assets are evaluated whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss would be recognized for an intangible asset to the extent that the asset’s carrying value is not recoverable and exceeds its fair value. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset, including disposition. Cash flow estimates used in evaluating for impairment represent management’s best estimates using appropriate assumptions and projections at the time.

Restructuring Costs

Effective for calendar year 2003, in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which supersedes EITF Issue No. 94-3, Liability Recognition for Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring), we record liabilities for costs associated with exit or disposal activities when the liability is incurred. Prior to calendar year 2003, in accordance with EITF Issue No. 94-3, we accrued for restructuring costs when we made a commitment to a firm exit plan that specifically identified all significant actions to be taken. We record initial restructuring charges based on assumptions and related estimates that we deem appropriate for the economic environment at the time these estimates are made. We reassess restructuring accruals on a quarterly basis to reflect changes in the costs of the restructuring activities, and we record new restructuring accruals as liabilities are incurred. Actual costs could differ from our estimates.

Inventory

Inventory purchases are based upon forecasts of future demand. We value our inventory at the lower of standard cost (which approximates first-in, first-out cost) or market. If we believe that demand no longer allows us to sell our inventory above cost or at all, we write down that inventory to market or write-off excess inventory levels. If customer demand subsequently differs from our forecasts, requirements for inventory write-offs could differ from our estimates.

Stock-Based Compensation

We account for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

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We rely primarily on the Black-Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan, or ESPP, shares. The determination of the fair value of stock-based payment awards on the date of grant using an option-valuation model is affected by our stock price as well as assumptions regarding a number of complex variables. These variables include our expected stock price volatility over the term of the awards, projected employee stock option exercise behaviors, expected risk-free interest rate and expected dividends.

We estimate the expected term of options granted based on historical time from vesting until exercise and the expected term of ESPP shares using the average life of the purchase periods under each offering. We estimate the volatility of our common stock based upon the implied volatility derived from the historical market prices of our traded options with similar terms. Our decision to use this measure of volatility was based upon the availability of actively traded options on our common stock and our assessment that this measure of volatility is more representative of future stock price trends than the historical volatility in our common stock. We base the risk-free interest rate for option valuation on Constant Maturity Treasury rates provided by the United States Treasury with remaining terms similar to the expected term of the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. In addition, SFAS No. 123(R) requires forfeitures of share-based awards to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation only for those awards that are expected to vest.

In accordance with SFAS No. 123(R), we determined the fair value of modifications made to stock options in September and October 2007 in connection with the recapitalization transaction using the Trinomial Lattice simulation model. We used the inputs and assumptions described above for volatility, risk-free interest rate and estimated dividends. We also incorporated an early exercise multiple of 1.95, the stock prices on the dates of modification (adjusted for the $9.00 per share distribution) and the strike prices of the affected awards (adjusted for the $9.00 per share distribution).

The Geometric Brownian Motion simulation model was utilized to determine the fair value of stock options, restricted stock units and restricted stock awards granted with vesting based on market conditions, or performance of Palm’s stock price, in connection with the recapitalization transaction in October 2007. This model was utilized in order to incorporate more complex variables than closed-form models such as the Black-Scholes option valuation model. We used the inputs and assumptions described above for volatility, risk-free interest rate and estimated dividends. We also incorporated the specific terms of the awards to simulate multiple stock price paths over the various vesting periods to determine the average net present value across the simulation trials. The Geometric Brownian Motion simulation model is based on trials simulating the achievement of the market conditions and calculating the net present value of the fair value over all of the trials.

There are significant differences among valuation models, and there is a possibility that we will adopt different valuation models in the future. This may result in a lack of consistency between periods and materially affect the fair value estimate of share-based payments. It may also result in a lack of comparability with other companies that use different models, methods and assumptions.

Non-Current Auction Rate Securities

We hold a variety of interest bearing ARS that represent investments in pools of assets, including preferred stock, collateralized debt obligations, credit linked notes and credit derivative products. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. Beginning in fiscal year 2008, uncertainties in the credit markets affected all of our holdings in ARS investments and auctions for our investments in these securities failed to settle on their respective settlement dates. Auctions for our investments in these securities have continued to fail during fiscal year 2009. Consequently, the investments are not currently liquid and we will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2017 to 2052.

Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process. While we continue to earn interest on most of our investments at the maximum contractual rate, all of our investments in ARS are not currently trading and therefore do not currently have a readily determinable market value. As of February 28, 2009, the par value of Palm’s investment in ARS was $74.7 million. The estimated fair value no longer approximates par value.

As of February 28, 2009, we used a discounted cash flow model to estimate the fair value of our investments in ARS which incorporated the total expected future cash flows of each security and an estimated market-required rate of return. Expected future cash flows were calculated using estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. Our most significant assumptions made in the present value calculations were the estimated weighted average lives for the collateral underlying each individual ARS and the estimated required rates of return used to discount the estimated future cash flows over the estimated life of each security, which considered both the credit quality for each individual ARS and the market liquidity for these investments. For the three and nine months ended February 28, 2009, using this

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assessment of fair value, we determined there was a further decline in the fair value of our ARS investments of $4.0 million and $20.6 million, respectively, all of which was recognized as a pre-tax other-than-temporary impairment charge. In addition, during the nine months ended February 28, 2009, due to the continued declines in fair value of our investments in ARS, we concluded that the impairment of each of these ARS investments was other-than-temporary and the associated unrealized losses of $12.5 million were recognized as additional pre-tax impairments of non-current ARS, with a corresponding decrease in accumulated other comprehensive loss. The primary cause of the decline in fair value of our non-current ARS was an increase in the estimated required rates of return (which considered both the credit quality and the market liquidity for these investments) used to discount the estimated future cash flows over the estimated life of each security.

We review our impairments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and related guidance issued by the FASB and the Securities and Exchange Commission, or SEC, in order to determine the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive loss component of stockholders’ equity (deficit) and does not affect net loss for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the condensed consolidated statement of operations and is a component of the net loss for the applicable accounting period. The primary differentiating factors we considered to classify our impairments between temporary and other-than-temporary impairments are the length of the time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting these securities, rates of default of the underlying assets, underlying collateral value, discount rates, liquidity and ongoing strength and quality of credit markets.

Series C Derivative

In January 2009, Elevation Partners, or Elevation, invested $100.0 million in Palm in exchange for 100,000 Series C Units. One of the provisions of this transaction is that we may elect, until March 31, 2009, to cause Elevation to sell up to 49,000 Series C Units, or 49% of Elevation’s initial $100.0 million investment, to other investors on the same or better terms than on which Elevation acquired the Series C Units, with Palm receiving any net gains realized upon such a sale, or the Transfer Right. Based on the guidance in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, we have determined that this Transfer Right represents a derivative, or the Series C Derivative, because it permits net settlement by providing us with the net gains realized upon the sale of the Series C Units. The Series C Derivative was recorded as an asset in our condensed consolidated balance sheet at fair value, with a corresponding increase to the value of our Series C Preferred Stock.

In accordance with SFAS No. 133, we remeasure our Series C Derivative at the close of each reporting period. To estimate the value of our Series C Derivative, we rely on the Black-Scholes option valuation model, as described above, to calculate a per-common-share fair value at the close of each reporting period. This fair value is multiplied by the number of shares of our common stock, on an as-converted and an as-exercised basis, which are affected by the Transfer Right, or 18.5 million shares, as of February 28, 2009, resulting in an estimated fair value of $74.0 million on that date. The assumptions used in the Black-Scholes option valuation model for valuing our Series C Derivative are consistent with those used for the options granted during the period. Because the determination of fair value on the date of measurement using an option valuation model is affected by our stock price as well as assumptions regarding a number of complex variables, the estimated fair value of this Series C Derivative may fluctuate.

Income Taxes

Our deferred tax assets are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. A valuation allowance reduces deferred tax assets to estimated realizable value, which assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the net carrying value. The four sources of taxable income to be considered in determining whether a valuation allowance is required include:

• Future reversals of existing taxable temporary differences (i.e., offset gross deferred tax assets against gross deferred tax liabilities);

• Future taxable income exclusive of reversing temporary differences and carryforwards;

• Taxable income in prior carryback years; and

• Tax planning strategies.

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Determining whether a valuation allowance for deferred tax assets is necessary requires an analysis of both positive and negative evidence regarding realization of the deferred tax assets. In general, positive evidence may include:

• A strong earnings history exclusive of the loss that created the deductible temporary differences, coupled with evidence indicating that the loss is the result of an aberration rather than a continuing condition;

• An excess of appreciated asset value over the tax basis of our net assets in an amount sufficient to realize the deferred tax asset; and

• Backlog that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures.

In general, negative evidence may include:

• A history of operating loss or tax credit carryforwards expiring unused;

• An expectation of being in a cumulative loss position in a future reporting period;

• The existence of cumulative losses in recent years;

• Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis; and

• A carryback or carryforward period that is so brief that it would limit the realization of tax benefits.

The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified and judgment must be used in considering the relative impact of positive and negative evidence. During the second quarter of fiscal year 2009, our operating results reflected a cumulative three-year loss after adjusting for the effect of the valuation of our investment in non-current auction rate securities and a one-time gain on the sale of our land. The cumulative three-year loss is considered significant negative evidence which is objective and verifiable. Additional negative evidence we considered at that time included the uncertainty regarding the magnitude and length of the current economic recession and the highly competitive nature of the smartphone and mobile phones market. Positive evidence that we considered in our assessment at that time included lengthy operating loss carryforward periods, a lack of unused expired operating loss carryforwards in our history and estimates of future taxable income. However, there is uncertainty as to our ability to meet our estimates of future taxable income in order to recover our deferred tax assets in the United States. After considering both the positive and negative evidence for second quarter of fiscal year 2009, we determined that it was no longer more-likely-than-not that we would realize the full value of our United States deferred tax assets. As a result, we established a valuation allowance against our deferred tax assets in the United States to reduce them to their estimated net realizable value with a corresponding non-cash charge of $407.4 million to the provision for income taxes, net of tax benefits generated during the second quarter of fiscal year 2009.

The valuation allowance is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance.

On June 1, 2007, we adopted FASB Financial Interpretation, or FIN, No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the implementation of FIN No. 48, we recognize the tax liability for uncertain income tax positions on the income tax return based on the two-step process prescribed in the interpretation. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors, including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit and new exposures. If we later determine that our exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and effect a related change in our tax provision during the period in which we make such determination.

Our key critical accounting policies are periodically reviewed with the Audit Committee of the Board of Directors.

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Results of Operations

Revenues

	Three Months Ended February 28,				Increase/ (Decrease)			Nine Months Ended February 28,				Increase/ (Decrease)
	2009		2008					2009		2008
	(dollars in thousands)
Revenues	$	90,624	$	312,144	$	(221,520	)	$	649,099	$	1,022,536	$	(373,437	)

We derive our revenues from sales of our smartphones, handheld computers, add-ons and accessories. Revenues for the three months ended February 28, 2009 decreased 71% from the three months ended February 28, 2008. Smartphone revenue was $77.5 million for the three months ended February 28, 2009 and decreased 72% from $275.4 million for the three months ended February 28, 2008. Handheld revenue was $13.1 million for the three months ended February 28, 2009 and decreased 64% from $36.7 million for the three months ended February 28, 2008. During the three months ended February 28, 2009, net device units shipped were 370,000 units at an average selling price of $240 per unit. During the three months ended February 28, 2008, net device units shipped were 1,024,000 units at an average selling price of $299 per unit. Of this 71% decrease in revenues, the lower unit shipments and decreased accessories sales resulted in a decrease of 52 percentage points and the decrease in average selling prices resulted in a decrease of 19 percentage points. The decrease in unit shipments is primarily due to a decrease in smartphone unit shipments as a result of reduced demand for our maturing legacy smartphone products, a challenging economic environment and a decline in traditional handheld unit shipments as a result of a market-wide decline in consumer demand for handheld products. The decrease in our average selling price is primarily the result of our efforts to drive sales of our legacy products through pricing actions and a reduction in the volume of certain of our Treo smartphone products, which carry higher average selling prices. We expect our handheld business to continue to decline through fiscal year 2009 and future years as a result of demand shifting to voice/data converged products and the maturity of our handheld products.

International revenues were 15% of worldwide revenues for the three months ended February 28, 2009, compared with 18% for the three months ended February 28, 2008.

Of the 71% decrease in worldwide revenues for the three months ended February 28, 2009 as compared to the three months ended February 28, 2008, 57 percentage points resulted from a decrease in United States revenues and 14 percentage points resulted from a decrease in international revenues. Average selling prices for our units decreased by 23% in the United States and 2% internationally during the three months ended February 28, 2009 as compared to the three months ended February 28, 2008. The decrease in average selling prices in the United States and internationally is primarily the result of our efforts to drive sales of our legacy products through pricing actions. Net device units shipped in the three months ended February 28, 2009 decreased 76% internationally and 61% in the United States compared to the year ago period. The decrease in net units sold internationally and in the United States is primarily due to a decrease in smartphone unit shipments as a result of reduced demand for our maturing legacy smartphone products, a challenging economic environment and a decline in traditional handheld units as a result of the declining handheld market.

Revenues for the nine months ended February 28, 2009 decreased 37% from the nine months ended February 28, 2008. Smartphone revenue was $582.3 million for the nine months ended February 28, 2009 and decreased 32% from $860.0 million for the nine months ended February 28, 2008. Handheld revenue was $66.8 million for the nine months ended February 28, 2009 and decreased 59% from $162.5 million for the nine months ended February 28, 2008. During the nine months ended February 28, 2009, net device units shipped were 2,370,000 units at an average selling price of $271 per unit. During the nine months ended February 28, 2008, net device units shipped were 3,181,000 units at an average selling price of $314 per unit. Of this 37% decrease in revenues, the lower unit shipments and decreased accessories sales resulted in a decrease of 23 percentage points and the decrease in average selling prices resulted in a decrease of 14 percentage points. The decrease in unit shipments is primarily due to a decrease in smartphone unit shipments as a result of reduced demand for our maturing legacy smartphone products, a challenging economic environment and a decline in traditional handheld unit shipments as a result of the declining handheld market. The decrease in our average selling price is primarily the result of our efforts to drive sales of our legacy products through pricing actions and a reduction in the volume of certain of our Treo smartphone products, which carry higher average selling prices.

International revenues were 15% of worldwide revenues for the nine months ended February 28, 2009, compared with 22% for the nine months ended February 28, 2008.

Of the 37% decrease in worldwide revenues for the nine months ended February 28, 2009 as compared to the nine months ended February 28, 2008, 24 percentage points resulted from a decrease in United States revenues and 13 percentage points resulted from a decrease in international revenues. Average selling prices for our units decreased by 16% in the United States

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and 4% internationally during the nine months ended February 28, 2009 as compared to the nine months ended February 28, 2008. The decrease in average selling price in the United States and internationally is primarily the result of our efforts to drive sales of our legacy products through pricing actions. Net device units shipped in the nine months ended February 28, 2009 decreased 54% internationally and 16% in the United States from the year-ago period. The decrease in net device units shipped internationally and in the United States is primarily due to a decline in traditional handheld unit sales coupled with a decrease in smartphone unit sales as a result of reduced demand for maturing smartphone products and a challenging economic environment.

We anticipate launching our Palm Pre with Palm webOS in the first half of calendar year 2009. We expect to periodically provide unspecified services and software free of charge to customers of Palm webOS products. Therefore, as required by generally accepted accounting principles, we will recognize Palm webOS product revenues and related standard costs of revenues on a subscription basis based on its estimated economic life. Certain administrative and other related period costs of revenues will be expensed as incurred. As a result of this, we expect that changes in our reported revenues will not correlate with changes in actual unit shipment levels and average selling prices. As a result, reported future quarterly revenues will be difficult to compare to historical quarterly revenues which do not include the impact of subscription accounting.

Cost of Revenues

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Cost of revenues	$	86,414		$	218,994		$	(132,580	)	$	509,407		$	695,197		$	(185,790	)
Percentage of revenues		95.4	%		70.2	%					78.5	%		68.0	%

Cost of revenues principally consists of material and transformation costs to manufacture our products, OS costs and other royalty expenses, warranty and technical support costs, freight, scrap and rework costs, the cost of excess or obsolete inventory and manufacturing overhead which includes manufacturing personnel related costs, depreciation and allocated information technology and facilities costs. Cost of revenues as a percentage of revenues increased by 25.2 percentage points to 95.4% for the three months ended February 28, 2009 from 70.2% for the three months ended February 28, 2008. Of the increase in cost of revenues as a percentage of revenues, 16.8 percentage points was primarily due to the decrease in the average selling price of our products due to our efforts to drive sales of legacy products through pricing actions. Approximately 7.2 percentage points resulted from costs for purchase commitments with third-party manufacturers and for excess and obsolete inventories which are no longer salable above cost or at all due to the current decline in demand and increased scrap and rework costs. As a percentage of revenues, we experienced an increase in manufacturing overhead of 3.5 percentage points, technical service costs of 3.0 percentage points and freight costs of 0.3 percentage points primarily due to the decrease in our revenues. These increased costs as a percentage of revenues were partially offset by a decrease in warranty costs of 7.0 percentage points for the three months ended February 28, 2009 primarily due to lower than anticipated repair volume and lower repair costs per unit resulting from cost reduction efforts.

Cost of revenues as a percentage of revenues increased by 10.5 percentage points to 78.5% for the nine months ended February 28, 2009 from 68.0% for the nine months ended February 28, 2008. Of the increase in cost of revenues as a percentage of revenues, 5.4 percentage points was primarily due to the decrease in the average selling price of our products due to our efforts to drive sales of legacy products through pricing actions. Approximately 3.5 percentage points resulted from costs for purchase commitments with third-party manufacturers and for excess and obsolete inventories which are no longer salable above cost or at all due to the current decline in demand. As a percentage of revenues, we experienced an increase in manufacturing overhead of 0.8 percentage points and freight costs of 0.4 percentage points primarily due to the decrease in our revenues.

We anticipate launching our Palm Pre with Palm webOS in the first half of calendar year 2009. We expect to periodically provide unspecified services and software free of charge to customers of Palm webOS products. Therefore, as required by generally accepted accounting principles, we will recognize Palm webOS product revenues and related standard costs of revenues on a subscription basis based on its estimated economic life. Certain administrative and other related period costs of revenues will be expensed as incurred. As a result of this, we expect that changes in our reported cost of revenues will not correlate with changes in actual unit shipment levels. As a result, reported future quarterly cost of revenues will be difficult to compare to historical quarterly cost of revenues which do not include the impact of subscription accounting.

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Sales and Marketing

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Sales and marketing	$	38,059		$	53,909		$	(15,850	)	$	140,748		$	175,570		$	(34,822	)
Percentage of revenues		42.0	%		17.3	%					21.7	%		17.2	%

Sales and marketing expenses consist principally of advertising and marketing programs, salaries and benefits for sales and marketing personnel, sales commissions, travel expenses and allocated information technology and facilities costs. Sales and marketing expenses for the three months ended February 28, 2009 decreased 29% from the three months ended February 28, 2008. The increase in sales and marketing expenses as a percentage of revenues is due to the decrease in our revenues. The decrease in sales and marketing expenses in absolute dollars is primarily due to the following factors. We experienced a decrease in our marketing development expenses with our carrier customers of $6.2 million as a result of lower smartphone revenue compared to the same period last year. Employee-related and travel expenses decreased $5.1 million resulting from a decrease in our average headcount of 80 employees during the three months ended February 28, 2009 as compared to the year ago period. In addition, allocated information technology and facilities costs also decreased by $2.2 million as a result of fewer software system implementations and associated depreciation. Advertising and product promotional programs decreased by $0.9 million as a result of fewer promotional units utilized to support our product launches partially offset by an increase in expense for public relations events as a result of the announcement of Palm webOS and Palm Pre. As a result of the closure of our retail stores during the third quarter of fiscal year 2008, we realized decreased operating costs of $0.7 million during the three months ended February 28, 2009 as compared to the year ago period. We experienced a decrease of $0.5 million in stock-based compensation as a result of lower weighted average balance of outstanding stock-based awards as a result of the decrease in our average headcount.

Sales and marketing expenses for the nine months ended February 28, 2009 decreased 20% from the nine months ended February 28, 2008. The increase in sales and marketing expenses as a percentage of revenues is due to the decrease in our revenues. The decrease in sales and marketing expenses in absolute dollars is primarily due to the following factors. Employee-related and travel expenses decreased $13.8 million resulting from a decrease in our average headcount of 80 employees during the nine months ended February 28, 2009 as compared to the year ago period. We experienced a decrease in our marketing development expenses with our carrier customers of $8.6 million as a result of lower smartphone revenue compared to the same period last year. As a result of the closure of our retail stores during the third quarter of fiscal year 2008, we realized decreased operating costs of $4.9 million for the nine months ended February 28, 2009 as compared to the year ago period. Allocated information technology and facilities costs decreased by $4.2 million as a result of fewer software system implementations and associated depreciation. Advertising and product promotional programs decreased by $0.7 million primarily as a result of fewer promotional units utilized to support our product launches partially offset by an increase in expense for public relations events as a result of the announcement of Palm webOS and Palm Pre. We experienced a decrease of $2.4 million in stock-based compensation as a result of charges taken in the year-ago period for the modifications made to certain stock option plans in connection with the recapitalization transaction with Elevation during October 2007 coupled with a lower weighted average balance of outstanding stock-based awards as a result of the decrease in our average headcount.

Research and Development

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Research and development	$	42,786		$	48,553		$	(5,767	)	$	139,317		$	154,739		$	(15,422	)
Percentage of revenues		47.2	%		15.6	%					21.5	%		15.1	%

Research and development expenses consist principally of employee-related costs, third-party development costs, program materials, depreciation and allocated information technology and facilities costs. Research and development expenses for the three months ended February 28, 2009 decreased 12% from the three months ended February 28, 2008. The increase in research and development expenses as a percentage of revenues is due to the decrease in our revenues. The decrease in research and development expenses in absolute dollars is primarily due to the following factors. Outsourced engineering, consulting and project material costs decreased $4.0 million over the same period last year due to a more focused engineering roadmap during the three months ended February 28, 2009. Additionally, employee-related and temporary staffing expenses decreased $1.4 million resulting from a decrease in our average headcount during the three months ended February 28, 2009 as compared to the year ago period.

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Research and development expenses for the nine months ended February 28, 2009 decreased 10% from the nine months ended February 28, 2008. The increase in research and development expenses as a percentage of revenues is due to the decrease in our revenues. The decrease in research and development expenses in absolute dollars is primarily due to the following factors. Outsourced engineering, consulting and project material costs decreased $19.4 million over the same period last year due to a more focused engineering roadmap during the nine months ended February 28, 2009 primarily driven by our effort to focus, beginning in the second quarter of fiscal year 2008, on developing a single Palm-based software platform. This decrease was partially offset by an increase in employee-related and temporary staffing expenses of $4.0 million primarily due to the recruiting and relocation of engineering personnel and their related employment costs coupled with higher average salary and variable compensation costs partially offset by a decrease in our average headcount of 20 employees for the nine months ended February 28, 2009 as compared to the year-ago period.

General and Administrative

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
General and administrative	$	14,000		$	14,414		$	(414	)	$	41,539		$	48,647		$	(7,108	)
Percentage of revenues		15.4	%		4.6	%					6.4	%		4.8	%

General and administrative expenses consist principally of employee-related costs, travel expenses and allocated information technology and facilities costs for finance, legal, human resources and executive functions, outside legal and accounting fees, provision for doubtful accounts and business insurance costs. General and administrative expenses for the three months ended February 28, 2009 decreased 3% from the three months ended February 28, 2008. The increase in general and administrative expenses as a percentage of revenues is due to the decrease in our revenues. The decrease in general and administrative expenses in absolute dollars is primarily due to the following factors. Employee and travel-related expenses decreased $1.1 million primarily due to a decrease in our average headcount of 20 employees for the three months ended February 28, 2009 as compared to the same period last year. Allocated information technology and facilities costs decreased by $0.4 million as a result of fewer software system implementations and associated depreciation. These decreases were partially offset by an increase in legal and professional costs of $1.0 million for the current period as compared to the year-ago period as a result of a legal settlement reached during the three months ended February 28, 2009. We also experienced an increase in our provision for doubtful accounts of $0.2 million as a result of the general increased credit risk. We experienced a decrease of $0.2 million in stock-based compensation as a result of our decreased average headcount as compared to the year-ago period.

General and administrative expenses for the nine months ended February 28, 2009 decreased 15% from the nine months ended February 28, 2008. The increase in general and administrative expenses as a percentage of revenues is due to the decrease in our revenues. The decrease in general and administrative expenses in absolute dollars is primarily due to the following factors. Employee and travel-related expenses decreased $1.4 million primarily due to a decrease in our average headcount of 20 employees for the nine months ended February 28, 2009 as compared to the same period last year. Legal and professional costs decreased by $0.8 million for the current period as compared to the year-ago period as a result of a decrease in costs related to our patent acquisition during the first quarter of fiscal year 2008, partially offset by a legal settlement reached during the nine months ended February 28, 2009. Allocated information technology and facilities costs decreased by $0.8 million as a result of fewer software system implementations and associated depreciation. These decreases were partially offset by an increase in our provision for doubtful accounts of $1.0 million as a result of the general increased credit risk. We experienced a decrease of $4.9 million in stock-based compensation as a result of charges taken in the year-ago period for the modifications made to certain stock option plans in connection with the recapitalization transaction with Elevation during October 2007.

Amortization of Intangible Assets

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Amortization of intangible assets	$	884		$	969		$	(85	)	$	2,650		$	2,892		$	(242	)
Percentage of revenues		1.0	%		0.3	%					0.4	%		0.3	%

The decrease in amortization of intangible assets in absolute dollars is due to our acquisition-related contracts and customer relationships intangible assets becoming fully amortized during the fourth quarter of fiscal year 2008. The increase in amortization of intangible assets as a percentage of revenues for the three and nine months ended February 28, 2009 as compared to the year-ago periods is due to the decrease in our revenues.

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Restructuring Charges

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Restructuring charges	$	5,692		$	12,305		$	(6,613	)	$	13,515		$	29,054		$	(15,539	)
Percentage of revenues		6.3	%		3.9	%					2.1	%		2.8	%

Restructuring charges relate to the implementation of a series of actions taken to streamline our business structure. Restructuring charges recorded during the nine months ended February 28, 2009 of $13.5 million consist of $13.4 million related to restructuring actions taken during the second quarter of fiscal year 2009 and $0.2 million related to restructuring actions taken during the third quarter of fiscal year 2008, partially offset by adjustments of $0.1 million related to restructuring actions taken during the second quarter of fiscal year 2008.

• The restructuring actions initiated in the second quarter of fiscal year 2009 included charges of $10.9 million related to workforce reductions across all geographic regions including $1.2 million related to stock-based compensation as a result of the acceleration of certain awards and $9.7 million for other severance, benefits and related costs due to the reduction of 190 regular employees. Of the total amount recorded for workforce reductions, $4.7 million was recorded during the three months ended February 28, 2009, which included $0.7 million related to stock-based compensation as a result of the acceleration of certain awards and $4.0 million for other severance, benefits and related costs. Project cancellation and other costs related to the actions initiated in the second quarter of fiscal year 2009 totaled $2.5 million, of which $1.0 million was recorded during the three months ended February 28, 2009. We took these restructuring actions to better align our cost structure with current revenue expectations.

Our second quarter of fiscal year 2009 restructuring actions are expected to be substantially completed by the second quarter of fiscal year 2010. When complete, these actions are expected to result in annual expense reductions of at least $20.0 million related to compensation reductions and facility leases, all of which are expected to have a positive impact on cash flows in future years. As of February 28, 2009, cash payments totaling $8.0 million and non-cash charges of $1.2 million related to stock-based compensation related to workforce reductions, and non-cash charges totaling $1.5 million related to canceled project and other costs, had been made related to these actions.

Additional restructuring charges related to these actions will be recorded during the fourth quarter of fiscal year 2009. These charges are estimated at $1.0 million to $3.0 million and are comprised of additional costs related to workforce reductions, including other severance, benefits and related costs for employees and lease commitments for property and equipment disposed of or removed from service during the fourth quarter of fiscal year 2009.

• The third quarter of fiscal year 2008 restructuring actions consisted of charges related to workforce reductions of $7.7 million, of which $7.0 million was recorded during the three months ended February 28, 2008 and $0.7 million was recorded during the last three months of fiscal year 2008. In addition, the actions consisted of charges related to excess facilities and property and equipment disposed of or removed from service of $7.0 million, of which $5.9 million was recorded during the three months ended February 28, 2008 and $1.1 million was recorded during the last three months of fiscal year 2008. During the first quarter of fiscal year 2009, additional restructuring charges of $0.3 million related to workforce reductions, including severance benefits and related costs, were recorded, partially offset by adjustments of $0.1 million related to facilities and property and equipment as a result of more current information regarding lease closure costs. The workforce reduction charges, which affected 130 regular employees across all geographic regions primarily related to severance, benefits and related costs of the affected employees. The facilities and property and equipment charge included $4.5 million related to property and equipment disposed of or removed from service and $2.5 million for lease commitments for facilities no longer in service. We took these restructuring actions to better align our cost structure with then current revenue expectations.

Our third quarter of fiscal year 2008 restructuring actions are substantially complete. When complete, these actions are expected to result in annual expense reductions of at least $15.2 million related to compensation reductions, all of which are expected to have a positive impact on cash flows in future years. As of February 28, 2009, cash payments totaling $7.9 million related to workforce reductions and cash payments and write-offs totaling $3.1 million and $3.7 million, respectively, related to facilities and property and equipment had been made related to these actions.

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• The second quarter of fiscal year 2008 restructuring actions consisted of charges of $5.9 million related to project cancellation costs for the Foleo mobile companion product and discontinued development projects, of which adjustments of $0.1 million and net charges of $5.9 million were recorded during the three and nine months ended February 28, 2008, respectively. Additional adjustments of $0.1 million were recorded during the first half of fiscal year 2009 as a result of recovery on the disposition of unused components originally intended for the Foleo product. Restructuring charges were a result of our decision to focus our efforts on developing a single Palm software platform and to offer a consistent user experience centered on the new platform.

Our second quarter of fiscal year 2008 restructuring actions are substantially complete. As of February 28, 2009, cash payments of $4.8 million and write-offs of $0.3 million had been made related to these actions.

• The first quarter of fiscal year 2008 restructuring actions consisted of charges related to workforce reductions of $9.4 million, of which adjustments of $0.5 million and net charges of $9.4 million were recorded during the three and nine months ended February 28, 2008, respectively. In addition, the actions consisted of charges related to excess facilities and property and equipment disposed of or removed from service of $0.7 million, of which charges of $0 and $0.8 million were recorded during the three and nine months ended February 28, 2008, respectively, partially offset by adjustments of $0.1 million recorded during the last three months of fiscal year 2008. The workforce reduction charges, which affected 120 regular employees primarily in the United States, included $1.1 million related to stock-based compensation as a result of the acceleration of certain awards and $8.3 million for other severance, benefits and related costs. The excess facilities and equipment costs were recognized for lease commitments. We took these restructuring actions to better align our cost structure with then current revenue expectations.

Our first quarter of fiscal year 2008 restructuring actions are complete except for remaining contractual payments for excess facilities, which are payable over two years, and are offset by estimated sublease proceeds of $0.5 million. These restructuring actions are expected to result in annual expense reductions of at least $15.0 million related to compensation reductions, all of which are expected to have a positive impact on cash flows in future years. As of February 28, 2009, cash payments totaling $8.3 million and non-cash charges of $1.1 million related to stock-based compensation, related to workforce reductions, and cash payments of $0.2 million and non-cash charges of $0.2 million, related to facilities and property and equipment had been made related to these actions.

Casualty Loss

	Three Months Ended February 28,						Increase/ (Decrease)		Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008					2009			2008
	(dollars in thousands)
Casualty loss	$	4,982		$	—		$	4,982	$	4,982		$	—		$	4,982
Percentage of revenues		5.5	%		—	%				0.8	%		—	%

During the third quarter of fiscal year 2009, certain of our smartphone products, with a recorded inventory value of $5.0 million, were stolen from one of our third-party-operated warehouses. As a result, we recorded a casualty loss for this amount in our results of operations for the three and nine months ended February 28, 2009. The loss is expected to be covered under our insurance policy. We are currently pursuing recovery of the loss. Any recoveries we receive in future periods will be recorded as a casualty recovery during the period in which we receive the proceeds.

Patent Acquisition Cost (Refund)

	Three Months Ended February 28,						Increase/ (Decrease)		Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008					2009			2008
	(dollars in thousands)
Patent acquisition cost (refund)	$	—		$	—		$	—	$	(1,537	)	$	5,000		$	(6,537	)
Percentage of revenues		—	%		—	%				(0.2	)%		0.5	%

During the first quarter of fiscal year 2008, we paid $5.0 million to acquire patents and patent applications. These patents and patent applications were acquired for strategic purposes in order to more effectively respond to intellectual property claims that may arise in the course of our business and, as of that date, were not acquired directly for the purpose of incorporating specific features into future products or for specific features in current products for which we currently pay or expect to pay royalties. Accordingly, the acquisition cost was expensed during the period of acquisition. During the first quarter of fiscal year 2009, we received a refund of $1.5 million as a result of a re-negotiation of the purchase price. This amount was recognized as a benefit to our operating results at the time of receipt.

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Gain on Sale of Land

	Three Months Ended February 28,						Increase/ (Decrease)		Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008					2009			2008
	(dollars in thousands)
Gain on sale of land	$	—		$	—		$	—	$	—		$	(4,446	)	$	4,446
Percentage of revenues		—	%		—	%				—	%		(0.4	)%

In August 2005, we entered into an agreement with a real estate broker to market for sale the 39 acres of land owned by Palm in San Jose, California. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we reclassified the land as held for sale at that time. During the first quarter of fiscal year 2008, we received proceeds from the sale of land of $64.5 million and recognized a gain on the sale, net of closing costs, of $4.4 million.

Impairment of Non-Current Auction-Rate Securities

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Impairment of non-current auction rate securities	$	(3,960	)	$	(25,482	)	$	(21,522	)	$	(33,178	)	$	(25,482	)	$	7,696
Percentage of revenues		(4.4	)%		(8.2	) %					(5.1	)%		(2.5	)%

Impairment of non-current auction rate securities for the three and nine months ended February 28, 2009 reflects impairment charges of $4.0 million and $33.2 million, respectively, recognized on our non-current ARS. Impairment of non-current auction rate securities for each of the three and nine months ended February 28, 2008 reflects an impairment charge of $25.5 million recognized on our non-current ARS. These non-current ARS are interest bearing and represent investments in pools of assets, including preferred stock, collateralized debt obligations, credit linked notes and credit derivative products. As of both February 28, 2009 and 2008, we used a discounted cash flow model to estimate the fair value of our investments in ARS which incorporated the total expected future cash flows of each security and an estimated market-required rate of return. Expected future cash flows were calculated using estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. For the three and nine months ended February 28, 2009, using this assessment of fair value, we determined there was a further decline in the fair value of our ARS investments of $4.0 million and $20.6 million, respectively, all of which was recognized as a pre-tax other-than-temporary impairment charge. In addition, during the nine months ended February 28, 2009, due to the continued declines in fair value of our investments in ARS, we concluded that the impairment of each of these ARS investments was other-than-temporary and the associated unrealized losses of $12.5 million were recognized as additional pre-tax impairments of non-current ARS, with a corresponding decrease in accumulated other comprehensive loss.

The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting these securities, rates of default of the underlying assets, underlying collateral value, discount rates, liquidity and ongoing strength and quality of credit markets.

If the current market conditions deteriorate further we may be required to record additional impairment charges in future quarters. We continue to monitor the market for ARS transactions and their impact, if any, on the fair value of our ARS investments.

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Interest (Expense)

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Interest (expense)	$	(5,941	)	$	(8,832	)	$	(2,891	)	$	(20,521	)	$	(13,022	)	$	7,499
Percentage of revenues		(6.6	)%		(2.8	)%					(3.2	)%		(1.3	)%

Interest (expense) during the three months ended February 28, 2009 decreased as a result of lower average interest rates and a lower average outstanding debt balance for the three months ended February 28, 2009 as compared to the year-ago period. Interest (expense) during the nine months ended February 28, 2009 increased as a result of the higher average outstanding debt balance as compared to the year ago period, due to the closing of the recapitalization transaction with Elevation during the second quarter of fiscal year 2008.

Interest Income

	Three Months Ended February 28,						Increase/ (Decrease)			Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008						2009			2008
	(dollars in thousands)
Interest income	$	1,039		$	3,877		$	(2,838	)	$	5,111		$	19,560		$	(14,449	)
Percentage of revenues		1.1	%		1.2	%					0.8	%		1.9	%

For the three and nine months ended February 28, 2009, the overall decrease in interest income, both in absolute dollars and as a percentage of revenues, is due to lower average cash, cash equivalents and short-term investment balances and less favorable interest rates as compared to the same period last year.

Gain on Series C Derivative

	Three Months Ended February 28,						Increase/ (Decrease)		Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008					2009			2008
	(dollars in thousands)
Gain on series C derivative	$	20,573		$	—		$	20,573	$	20,573		$	—		$	20,573
Percentage of revenues		22.7	%		—	%				3.2	%		—	%

In accordance with SFAS No. 133, we remeasure our Series C Derivative at the close of each reporting period. As of February 28, 2009, we had not yet exercised our rights under the Transfer Right. Using the closing price for our common stock of $7.24 on that date resulted in an estimated fair value of the Series C Derivative of $74.0 million using the following assumptions: contractual term of 0.1 years, an average risk-free interest rate of 0.2%, a dividend yield of 0%, and volatility of 120%, resulting in a per-common share valuation of $4.00, which represents an increase during the quarter in the per-common share valuation of $1.11. As a result of this increase in the estimated fair value of the Series C Derivative, we recognized a gain of $20.6 million in our condensed consolidated statements of operations for the three and nine months ended February 28, 2009.

Other Income (Expense), Net

	Three Months Ended February 28,						Increase/ (Decrease)		Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008					2009			2008
	(dollars in thousands)
Other income (expense), net	$	(3,895	)	$	(451	)	$	3,444	$	(4,708	)	$	(896	)	$	3,812
Percentage of revenues		(4.3	)%		(0.1	)%				(0.7	)%		(0.1	)%

Other income (expense), net for the three and nine months ended February 28, 2009 included $3.4 million in realized impairment charges related to our corporate debt securities classified within our short-term investments balance and bank and other miscellaneous charges partially offset by a gain of $0.1 million recognized on sales of short-term investments. Other income (expense), net for the three and nine months ended February 28, 2008 consisted of bank and other miscellaneous charges partially offset by net gains of less than $0.1 million and $0.4 million recognized on sales of short-term investments, respectively.

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Income Tax Provision (Benefit)

	Three Months Ended February 28,						Increase/ (Decrease)		Nine Months Ended February 28,						Increase/ (Decrease)
	2009			2008					2009			2008
	(dollars in thousands)
Income tax provision (benefit)	$	646		$	(13,224	)	$	13,870	$	406,425		$	(39,604	)	$	446,029
Percentage of revenues		0.7	%		(4.2	)%				62.6	%		(3.9	)%

During the second quarter of fiscal year 2009, we determined that a valuation allowance should be established against our deferred tax assets of $407.4 million, net of tax benefits generated during the second quarter of fiscal year 2009, as a result of our quarterly assessment for the three months then ended. This assessment considered both positive and negative evidence regarding the realization of the deferred tax assets. During the second quarter of fiscal year 2009, our operating results reflected a cumulative three-year loss after adjusting for the effect of the valuation of our investments in non-current auction rate securities and a one-time gain on the sale of land. The cumulative three-year loss is considered significant negative evidence which is objective and verifiable. Additional negative evidence we considered at that time included the uncertainty regarding the magnitude and length of the current economic recession and the highly competitive nature of the smartphone and mobile phones market. Positive evidence that we considered at that time included lengthy operating loss carryforward periods, a lack of unused expired operating loss carryforwards in our history and estimates of future taxable income. However, there is uncertainty as to our ability to meet our estimates of future taxable income in order to recover our deferred tax assets in the United States. After considering both the positive and negative evidence for the second quarter of fiscal year 2009, we determined that it was no longer more-likely-than-not that we would realize the full value of our United States deferred tax assets. As a result, we established a valuation allowance against our deferred tax assets in the United States to reduce them to their estimated net realizable value with a corresponding non-cash charge of $407.4 million to the provision for income taxes, net of tax benefits generated during the second quarter of fiscal year 2009. The tax provision recorded during the third quarter of fiscal year 2009 represents income taxes for state and foreign jurisdictions.

For the three and nine months ended February 28, 2008, Palm’s income tax benefit was $13.2 million and $39.6 million, respectively, which consisted of federal, state and foreign income taxes. The effective tax rates for the three and nine months ended February 28, 2008 were (19%) and (38%), respectively. The income tax benefit for the three months ended February 28, 2008 reflected the increase in our valuation allowance of $10.0 million related to non-deductible impairment charges of our non-current auction rate securities. The income tax benefit for the nine months ended February 28, 2008 reflected the recognition of previously unrecognized tax benefits of $16.9 million, which is primarily the result of evaluation of new facts, circumstances and information as of February 28, 2008, partially offset by the increase in our valuation allowance of $11.1 million.

Liquidity and Capital Resources

Cash and cash equivalents as of February 28, 2009 were $130.8 million, compared to $176.9 million as of May 31, 2008, a decrease of $46.1 million. We experienced a $116.1 million net decrease in cash and cash equivalents from operations resulting from our net loss of $640.7 million, which was partially offset by non-cash charges of $474.4 million and changes in assets and liabilities of $50.2 million. Our cash and cash equivalents decreased due to debt repayments of $12.5 million, purchases of property and equipment of $9.6 million, purchases of short-term investments of $61.5 million, purchases of restricted investments of $2.0 million and a payment of $0.3 million to holders of restricted stock awards that vested during the period. Fluctuations in exchange rates during the nine months ended February 28, 2009 for our foreign currency denominated assets and liabilities resulted in a decrease in cash flows of $3.0 million for the period. These decreases were partially offset by net proceeds of $99.2 million received from the issuance of our Series C Units to Elevation in January 2009, net sales of short-term investments of $52.2 million, proceeds received from the sale of restricted investments totaling $0.9 million and $6.6 million from stock-related activity as a result of the exercise of stock options and other equity awards.

Cash and cash equivalents as of February 28, 2008 were $262.7 million, compared to $128.1 million as of May 31, 2007, an increase of $134.6 million. For the nine months ended February 28, 2008, we experienced a $4.0 million net decrease in cash and cash equivalents from operations resulting from our net loss of $64.4 million, which was partially offset by non-cash charges of $46.3 million and changes in assets and liabilities of $14.1 million. Our cash and cash equivalents increased due to net sales of short-term investments of $334.7 million, net proceeds from the sale of land of $64.4 million, proceeds received from the sale of restricted investments and non-current auction rate securities totaling $0.4 million and $24.0 million from stock-related activity as a result of the exercise of stock options and other equity awards. These increases were partially offset by purchases of property and equipment of $19.6 million, the purchase of restricted investments of $9.0 million, payments for the acquisition of a business of $0.5 million, payments for the acquisition of intangible brand assets of $1.5 million and debt repayments of $1.8 million. Also, during the nine months ended February 28, 2008, we completed the recapitalization transaction with Elevation which resulted in net cash outflows of $252.5 million due to a $948.8 million one-time cash distribution partially funded by $696.3 million received from incurring new debt and the issuance of our series B redeemable convertible preferred stock, or Series B Preferred Stock.

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We hold a variety of interest bearing ARS that represent investments in pools of assets, including preferred stock, collateralized debt obligations, credit linked notes and credit derivative products. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. Beginning in fiscal year 2008, uncertainties in the credit markets affected all of our holdings in ARS investments and auctions for our investments in these securities failed to settle on their respective settlement dates. Auctions for our investments in these securities have continued to fail during fiscal year 2009. Consequently, the investments are not currently liquid and we will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2017 to 2052. All of the ARS investments were investment grade quality and were in compliance with our investment policy at the time of acquisition. During the first quarter of fiscal year 2009, one of our ARS investments was converted into a debt instrument and no longer is subject to auctions but has retained comparable contractual interest rates and payment dates. This change had no effect on the underlying collateral structure of our investment in the original security and we continue to classify this instrument in our non-current auction rate securities balance. During the third quarter of fiscal year 2009, the issuer of another of our ARS investments exercised an option to replace the collateral underlying our original investment with the issuer’s own preferred stock. Our investment in this security has retained comparable par value, interest rates, payment dates and auction cycles after the exchange. We currently classify all of these investments as non-current auction rate securities in our condensed consolidated balance sheet because of our continuing inability to determine when these investments will settle. We have also modified our current investment strategy and increased our investments in more liquid money market investments and United States Treasury securities.

Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process. While we continue to earn interest on most of our investments at the maximum contractual rate, all of our investments in ARS are not currently trading and therefore do not currently have a readily determinable market value. As of February 28, 2009, the par value of our investment in ARS was $74.7 million. The estimated fair value no longer approximates par value.

As of February 28, 2009, we used a discounted cash flow model to estimate the fair value of our investments in ARS which incorporated the total expected future cash flows of each security and an estimated market-required rate of return. Expected future cash flows were calculated using estimates for interest rates, timing and amount of cash flows and expected holding periods of the ARS. For the three and nine months ended February 28, 2009, using this assessment of fair value, we determined there was a further decline in the fair value of our ARS investments of $4.0 million and $20.6 million, respectively, all of which was recognized as a pre-tax other-than-temporary impairment charge. In addition, during the nine months ended February 28, 2009, due to the continued declines in fair value of our investments in ARS, we concluded that the impairment of each of these ARS investments was other-than-temporary and the associated unrealized losses of $12.5 million were recognized as additional pre-tax impairments of non-current ARS, with a corresponding decrease in accumulated other comprehensive loss. For the three and nine months ended February 28, 2008, using a consistent assessment of fair value, we determined there was a decline in the fair value of our ARS investments of $39.2 million, of which $13.7 million was deemed temporary and $25.5 million was recognized as a pre-tax other-than-temporary impairment charge.

We review our impairments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and related guidance issued by the FASB and SEC in order to determine the classification of the impairment as “temporary” or “other-than-temporary”. A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive loss component of stockholders’ equity (deficit) and does not affect net loss for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the condensed consolidated statement of operations and is a component of the net loss for the applicable accounting period. The primary differentiating factors we considered to classify our impairments between temporary and other-than-temporary impairments are the length of the time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting these securities, rates of default of the underlying assets, underlying collateral value, discount rates, liquidity and ongoing strength and quality of credit markets.

If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, we may be required to record additional impairment charges in future quarters. We continue to monitor the market for ARS transactions and their impact, if any, on the fair value of our ARS investments.

Our short-term investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and delivers an appropriate yield in relation to our investment guidelines and market conditions. We have decided to modify our current investment strategy by limiting our investments in ARS to our current holdings and increasing our investments in more liquid investments.

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We have experienced significant losses beginning in fiscal year 2008 through the nine months ended February 28, 2009, which are attributable to operations, restructurings and other charges such as the impairment of our investment in non-current ARS. We have managed our liquidity during this time through a series of cost reduction initiatives, an additional $100 million investment from Elevation and a modification to our investment strategy to favor more liquid money market investments and United States Treasury securities. The turmoil in the overall credit markets and the fact that the United States has entered into a recession have created a substantially more difficult business environment. Because our products compete for a share of consumer disposable income and business spending, our operating performance and our liquidity position were negatively affected by the current recessionary economic conditions and by other financial business factors, many of which are beyond our control. The economic conditions have generally worsened during the nine months ended February 28, 2009. We do not believe it is likely that these adverse economic conditions, and their effect on consumer and business purchasing patterns, will improve significantly in the near term. Our ability to maintain required liquidity levels will depend significantly on factors such as:

• the timely launch and commercial success of the Palm Pre and of future products based on our Palm webOS;

• the level of continuing sales of our Treo and Centro smartphones;

• the successful completion of Palm webOS and its subsequent acceptance by the developer community and by our customers; and

• our ability to manage operating expenses and capital spending.

We anticipate our balances of cash, cash equivalents and short-term investments of $219.4 million as of February 28, 2009 will satisfy our anticipated operating cash requirements and debt service or repayment obligations for at least the next 12 months. Although we believe that we can meet our liquidity needs for at least the next 12 months, we have had net losses since the beginning of fiscal year 2008 and our actual level of losses for the last four fiscal quarters were unanticipated 12 months ago which have resulted in decreases in our cash, cash equivalents and short-term investment balances during the last four quarters. We are experiencing reduced demand for our maturing legacy smartphone products and a challenging economic environment and we expect further declining revenues and continued margin pressure from our legacy product lines. Based on our current forecast, we do not anticipate any short-term or long-term cash deficiencies. If we fail to meet our operating forecast or market conditions negatively affect our cash flows, we may be required to seek additional funding. If we seek additional funding, adequate funds may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition.

Net accounts receivable was $52.7 million as of February 28, 2009, a decrease of $63.7 million, or 55%, from $116.4 million as of May 31, 2008. Days sales outstanding, or DSO, of receivables was 52 days and 35 days as of February 28, 2009 and May 31, 2008, respectively. The DSO increased 17 days primarily as a result of a change in the linearity in our revenues and customer payment patterns. We ended the third quarter of fiscal year 2009 with a cash conversion cycle of -33 days, a decrease of -27 days from -6 days as of May 31, 2008. The cash conversion cycle decreased 27 days primarily as a result of the change in our days payable outstanding as a result of the decrease in our cost of revenues as compared to the prior year. Net accounts receivable was $158.0 million as of February 28, 2008, a decrease of $46.3 million, or 23%, from $204.3 million as of May 31, 2007. DSO of receivables was 46 days as of both February 28, 2008 and May 31, 2007. We ended the third quarter of fiscal year 2008 with a cash conversion cycle of -4 days compared to -5 days as of May 31, 2007. The cash conversion cycle is the duration between the purchase of inventories and services and the collection of the cash for the sale of our products and is an annual metric on which we have focused as we continue to try to efficiently manage our assets.

In September 2006, our Board of Directors authorized a stock buyback program to repurchase up to $250.0 million of our common stock at our discretion, depending on market conditions, share price and other factors. The stock repurchase program is designed to return value to our stockholders and minimize dilution from stock issuance. During the three and nine months ended February 28, 2009 and the fiscal year ended May 31, 2008, we did not repurchase any shares of common stock through open market purchases. We currently do not have any plans to repurchase shares under this stock repurchase program during fiscal year 2009.

In October 2007, we entered into a credit agreement with JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc., or the Credit Agreement, which governs a senior secured term loan in the aggregate principal amount of $400.0 million, or the Term Loan, and a credit facility in the aggregate principal amount of $30.0 million, or the Revolver. Borrowings under the Credit Agreement bear interest at our election at one-, two-, three-, or six- month LIBOR plus 3.50%, or the Alternate Base Rate (higher of Prime Rate or Federal Funds Rate plus 0.50%) plus 2.50%. As of February 28, 2009, the interest rate for the Term Loan was based on one-month LIBOR plus 3.50%, or 3.98%. The interest rate may vary based on the market rates described above. In addition, we are required to pay a commitment fee of 0.50% per annum on the average daily unutilized

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portion of the Revolver. The Credit Agreement is secured by all of the capital stock of certain Palm subsidiaries (limited, in the case of foreign subsidiaries, to 65% of the capital stock of such subsidiaries) and substantially all of our present and future assets. Additionally, the Credit Agreement contains certain restrictions on the ability of Palm and its subsidiaries to engage in certain transactions as well as requirements to make certain prepayments of the Term Loan. See Note 13 of the condensed consolidated financial statements for a full description of the restrictions and requirements under the Credit Agreement. As of February 28, 2009, $395.0 million and $0 were outstanding under the Term Loan and Revolver, respectively. As of May 31, 2008, $398.0 million and $0 were outstanding under the Term Loan and Revolver, respectively.

Certain Palm facilities are leased under operating leases. Leases expire at various dates through May 2012.

In December 2006, we entered into a minimum purchase commitment obligation with Microsoft Licensing, GP over a two-year contract period. Under the terms of the agreement, we agreed to pay a minimum of $35.0 million through November 2008. In September 2007, the agreement was amended to include an additional minimum purchase commitment of $6.7 million. In August 2008, the agreement was again amended to include an additional minimum purchase commitment of $0.2 million. Upon the expiration of this agreement at the end of November 2008, we no longer have any related contractual obligations. In December 2008, we entered into a new purchase agreement with Microsoft, which expires at the end of November 2010 and does not specify a minimum purchase commitment obligation. As of February 28, 2009 and May 31, 2008, we had a remaining amount due under the original agreement of $0 and $15.1 million, respectively.

In May 2005, we acquired PalmSource’s 55% share of the Palm Trademark Holding Company, or PTHC, and rights to the brand name Palm. The rights to the brand had been co-owned by the two companies through PTHC since the October 2003 spin-off of PalmSource from Palm. We agreed to pay $30.0 million in installments through November 2008, and granted PalmSource certain rights to Palm trademarks for PalmSource and its licensees for a four-year transition period. The net present value of these payments, $27.2 million, was recorded as an intangible asset and is being amortized over 20 years using the effective yield method. The remaining amount due to PalmSource under this agreement was $0 and $7.5 million as of February 28, 2009 and May 31, 2008, respectively.

During fiscal year 2008, we entered into an agreement with Cisco Systems, Inc. to purchase system hardware to support our general infrastructure and one year of maintenance for a total of $3.7 million. Under the terms of the agreement, we agreed to make quarterly payments from September 2008 through December 2009. The net present value of these payments, $3.5 million, is being amortized using the effective yield method. As of February 28, 2009, we had made payments totaling $1.2 million under the agreement. The remaining amount due under the agreement was $2.5 million as of February 28, 2009 and was included in other accrued liabilities. The remaining amount due as of May 31, 2008 was $3.7 million.

During fiscal year 2007, we entered into a license agreement with Oracle Corporation to purchase software and one year of maintenance for a total of $3.3 million. Under the terms of the agreement, we agreed to make quarterly payments over a three-year period ending July 2009. The net present value of these payments, $2.9 million, is being amortized using the effective yield method. As of February 28, 2009, we had made payments totaling $2.7 million under the agreement. The remaining amount due under the agreement was $0.5 million as of February 28, 2009 and was included in other accrued liabilities. The remaining amount due as of May 31, 2008 was $1.4 million.

During February and October 2007, we acquired the assets of several businesses. Under the purchase agreements, we agreed to pay employee incentive compensation based upon continued employment with Palm that will be recognized as compensation expense over the service period of the applicable employees. As of February 28, 2009, we had made payments totaling $3.3 million under the purchase agreements. The remaining liability under these agreements was $0.5 million and $6.1 million as of February 28, 2009 and May 31, 2008, respectively.

In October 2007, we declared a $9.00 per share one-time cash distribution on all shares outstanding as of October 24, 2007, resulting in a total amount due to our stockholders of $949.7 million. At that time, $948.6 million of this distribution was paid in cash to eligible stockholders and the remaining $1.1 million was recorded as a distribution liability for holders of unvested restricted stock awards that were not eligible to receive a cash payment until their shares had vested. The distribution liability is being paid in cash as the related shares of restricted stock vest, ending in the fourth quarter of fiscal year 2010. As of February 28, 2009 and May 31, 2008, the remaining amount due to holders of unvested restricted stock, adjusted for cancellations, was $0.5 million and $0.7 million, respectively, of which $0.3 million and $0.4 million, respectively, was classified in other accrued liabilities in the condensed consolidated balance sheet and $0.2 million and $0.3 million, respectively, was classified within other non-current liabilities.

We accrue for royalty obligations to certain technology and patent holders based on (1) unit shipments of our smartphones and handheld computers, (2) a percentage of applicable revenue for the net sales of products using certain software technologies or (3) a fully paid-up license fee, all as determined in accordance with the applicable license agreements. Where agreements are not finalized, accrued royalty obligations represent management’s current best estimates using appropriate assumptions and projections based on negotiations with third party licensers. As of February 28, 2009 and May 31, 2008, we had estimated royalty obligations of $37.5 million and $34.5 million, respectively, which are reported in other accrued liabilities. While the amounts ultimately agreed upon may be more or less than the current accrual, management does not believe that finalization of

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the agreements would have had a material impact on the amounts reported for our financial position as of February 28, 2009 or on the results reported for the three months then ended; however, the effect of finalization of these agreements in the future may be significant to the period in which recorded.

We utilize contract manufacturers to build our products. These contract manufacturers acquire components and build products based on demand forecast information supplied by us, which typically covers a rolling 12-month period. Consistent with industry practice, we acquire inventories from such manufacturers through blanket purchase orders against which orders are applied based on projected demand information. Such purchase commitments typically cover our forecasted product requirements for periods ranging from 30 to 90 days. In certain instances, these agreements allow us the option to cancel, reschedule and/or adjust our requirements based on our business needs. In some instances we also make commitments with component suppliers in order to secure availability of key components. Consequently, only a portion of our purchase commitments arising from these agreements may be non-cancelable and unconditional commitments. As of February 28, 2009 and May 31, 2008, our cancelable and non-cancelable commitments to third-party manufacturers and suppliers for their inventory on-hand and component commitments related to the manufacture of our products were $103.9 million and $234.1 million, respectively.

In accordance with our policy, we also accrue for any purchase commitments with third-party manufacturers that are determined to be in excess of anticipated demand based on forecasted product sales. As of February 28, 2009 and May 31, 2008, we had recorded $19.7 million and $5.4 million, respectively, in other accrued liabilities related to these commitments.

As of February 28, 2009 and May 31, 2008, we had $9.8 million and $8.6 million, respectively, in restricted investments, which are collateral for outstanding letters of credit.

In November 2008, we renewed our universal shelf registration statement to give us flexibility to sell debt securities, common stock, preferred stock, depository shares, warrants and units in one or more offerings and in any combination thereof. The net proceeds from the sale of securities offered are intended for working capital and general corporate purposes including, but not limited to, funding our operations, purchasing capital equipment, funding potential acquisitions, repaying debt and repurchasing shares of our common stock. We may also invest the proceeds in certificates of deposit, U.S. government securities or certain other interest-bearing securities.

In October 2007, we sold an aggregate of 325,000 shares of our Series B Preferred Stock for an aggregate purchase price of $325.0 million to Elevation. In January 2009, we sold an aggregate of 100,000 Series C Units for $100.0 million to Elevation. For so long as Elevation holds any outstanding shares of Series B Preferred Stock or Series C Preferred Stock, we are generally not permitted, without obtaining the consent of holders representing at least a majority of the then outstanding shares of Series B Preferred Stock and Series C Preferred Stock, to create or issue any equity securities that rank senior to or on a parity with the Series B Preferred Stock and/or Series C Preferred Stock with respect to dividend rights or rights upon our liquidation. The Series B Preferred Stock and Series C Preferred Stock reflect a discount of $9.8 million and $1.6 million, respectively, related to issuance costs, resulting in net cash proceeds of $315.2 million and $98.4 million, respectively. Of the net cash proceeds received for Series B Preferred Stock, $250.2 million was allocated to Series B Preferred Stock, with the remaining $65.0 million allocated to additional paid-in capital as a result of the beneficial conversion feature. The net benefit received for the Series C Units consists of the $100.0 million gross cash proceeds and $53.4 million related to the Series C Derivative, of which $79.5 million and $22.0 million was allocated to Series C Preferred Stock and the Detachable Warrants, respectively, with the remaining $51.9 million allocated to additional paid-in capital as a result of the beneficial conversion feature. The Series B Preferred Stock and Series C Preferred Stock are classified as mezzanine equity due to redemption provisions which provide for mandatory redemption in October 2014 of any outstanding shares. As of February 28, 2009, the Series B Preferred Stock and Series C Preferred Stock are being accreted to their respective liquidation values of $325.0 million and $100.0 million using the effective yield method, with such accretion being charged against additional paid-in capital through October 2014. The accretion of the Series B Preferred Stock and Series C Preferred Stock will be included in our earnings (loss) per share calculation during this time.

In March 2009, we issued 26.6 million shares of common stock at a public offering price per share of $6.00, including 15.1 million shares as a result of the conversion of 49,000 shares of Series C Preferred Stock, or 49% of the initial investment by Elevation, pursuant to the exercise of our Transfer Right. The related Detachable Warrants to purchase 3.4 million shares of our common stock were canceled. As a result of this offering, we received cash proceeds of $103.6 million, net of the $49.0 million investment returned to Elevation and $7.0 million in underwriting discounts, commissions and estimated offering expenses to be paid by us.

We use foreign exchange forward contracts to mitigate transaction gains and losses generated by certain foreign currency denominated monetary assets and liabilities, the result of which partially offsets our market exposure to fluctuations in foreign currencies. Changes in the fair value of these foreign exchange forward contracts are largely offset by re-measurement of the underlying assets and liabilities. According to our policy, these foreign exchange forward contracts have maturities of 35 days or less. We did not have any foreign exchange forward contracts outstanding as of February 28, 2009. As of May 31, 2008, our outstanding notional contract value, which approximates fair value, was $7.0 million which settled within 28 days. We do not enter into derivatives for speculative or trading purposes.

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As of February 28, 2009 and May 31, 2008, we had $7.1 million and $6.1 million, respectively, of non-current tax liabilities in our condensed consolidated balance sheet for unrecognized tax positions. The periods in which we will reach cash settlement with the respective tax authorities cannot be reasonably estimated.

Effects of Recent Accounting Pronouncements

See Note 2 of the condensed consolidated financial statements for a full description of recent accounting pronouncements, including the respective expected dates of adoption and effects on results of operations and financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

Investments

We currently maintain an investment portfolio consisting mainly of cash equivalents and short-term investments. These available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase. The objectives of our investment activities are to maintain the safety of principal, assure sufficient liquidity and achieve appropriate returns. This is accomplished by investing in marketable investment grade securities and by limiting exposure to any one issuance or issuer, with the exception of United States government securities. We do not include derivative financial investments in our investment portfolio. Our cash and cash equivalents of $130.8 million and $176.9 million as of February 28, 2009 and May 31, 2008, respectively, are invested primarily in money market funds and an immediate and uniform increase in market interest rates of 100 basis points from levels at February 28, 2009 or May 31, 2008 would cause an immaterial decline in the fair value of our cash equivalents. As of February 28, 2009 and May 31, 2008, we had short-term investments of $88.6 million and $81.8 million, respectively. Our short-term investment portfolio primarily consists of highly liquid investments with original maturities at the date of purchase of greater than three months. These available-for-sale investments include government and domestic corporate debt securities and are subject to interest rate risk and will decrease in value if market interest rates increase. An immediate and uniform increase in market interest rates of 100 basis points from levels as of February 28, 2009 would cause a decline of less than 1%, or $0.7 million, in the fair market value of our short-term investment portfolio. A similar increase in market interest rates from levels as of May 31, 2008 would have resulted in a decline of less than 2%, or $1.2 million, in the fair market value of our short-term investment portfolio. We would expect our net loss or cash flows to be similarly affected, in absolute dollars, by such a change in market interest rates.

We hold a variety of interest bearing ARS that represent investments in pools of assets, including preferred stock, collateralized debt obligations, credit linked notes and credit derivative products. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. Beginning in fiscal year 2008, uncertainties in the credit markets affected all of our holdings in ARS investments and auctions for our investments in these securities failed to settle on their respective settlement dates. Auctions for our investments in these securities have continued to fail during fiscal year 2009. Consequently, the investments are not currently liquid and we will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2017 to 2052. We currently classify all of these investments as non-current auction rate securities in our condensed consolidated balance sheet because of our continuing inability to determine when these investments will settle. We have also modified our current investment strategy and increased our investments in more liquid money market investments and United States Treasury securities. As of February 28, 2009, we determined there was a total decline in the fair value of our ARS investments of $65.4 million, all of which has been recognized as a pre-tax other-than-temporary impairment charge. An immediate and uniform increase in market interest rates of 100 basis points from levels as of February 28, 2009 would cause an additional decline of 9%, or $0.9 million, in the fair market value of our investments in ARS. As of May 31, 2008, we determined there was a total decline in the fair value of our ARS investments of $44.7 million, of which $12.5 million was deemed temporary and $32.2 million was recognized as a pre-tax other-than-temporary impairment charge. An immediate and uniform increase in market interest rates of 100 basis points from levels as of May 31, 2008 would have caused an additional decline of 8%, or $2.4 million, in the fair market value of our investments in ARS.

Debt Obligation

We have an outstanding variable rate Term Loan totaling $395.0 million as of February 28, 2009 under our current Credit Agreement. We do not currently use derivatives to manage interest rate risk. As of February 28, 2009, our interest rate applicable to borrowings under the Credit Agreement was 3.98%. A hypothetical 100 basis point increase in this rate would have a resulting increase in interest expense of $0.1 million each year for every $10.0 million of outstanding borrowings under the Credit Agreement.

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Foreign Currency Exchange Risk

We denominate our sales to certain international customers in the Euro, in Pounds Sterling, in Brazilian Real and in Swiss Francs. Expenses and other transactions are also incurred in a variety of currencies. We hedge certain balance sheet exposures and intercompany balances against future movements in foreign currency exchange rates by using foreign exchange forward contracts. Gains and losses on the contracts are intended to offset foreign exchange gains or losses from the revaluation of assets and liabilities denominated in currencies other than the functional currency of the reporting entity. We recorded a net gain (loss) of $0.6 million and $2.0 million for the three and nine months ended February 28, 2009, respectively, and $(0.6) million and $(0.3) million for the three and nine months ended February 28, 2008, respectively, from the revaluation of our foreign denominated assets and liabilities, which is included in operating loss in our condensed consolidated statements of operations. According to our policy, our foreign exchange forward contracts have maturities of 35 days or less. Movements in currency exchange rates could cause variability in our revenues, expenses or interest and other income (expense). We did not have any foreign exchange forward contracts outstanding as of February 28, 2009. Our foreign exchange forward contracts outstanding as of May 31, 2008 had a notional contract value, which approximates fair value, in U.S. dollars of $7.0 million which settled within 28 days. We do not utilize derivative financial instruments for trading purposes.

Equity Price Risk

As of February 28, 2009, our Transfer Right represented a derivative in accordance with SFAS No. 133. This Series C Derivative has value based on the extent to which the closing price of our common stock is greater than the purchase price of the Series C Units paid by Elevation on January 9, 2009. In accordance with SFAS No. 133, we remeasure our Series C Derivative at the close of each reporting period. To estimate the value of our Series C Derivative, we rely on the Black-Scholes option valuation model (see the Critical Accounting Policies section, under the caption Stock-Based Compensation), to calculate a per-common-share value at the close of each reporting period. This fair value is multiplied by the number of shares of our common stock, on an as-converted and an as-exercised basis, which are affected by the Transfer Right, or 18.5 million shares, as of February 28, 2009, resulting in an estimated fair value of $74.0 million on that date. On March 9, 2009, we issued 26.6 million shares of common stock at a public offering price per share of $6.00, including 15.1 million shares as a result of the conversion of 49,000 shares of Series C Preferred Stock pursuant to the exercise of our Transfer Right. The related Detachable Warrants to purchase 3.4 million shares of our common stock were canceled. As a result of this exercise of our Transfer Right, we will record a loss on our Series C Derivative during the fourth quarter of fiscal year 2009, which represents the difference between the fair market value of the Series C Derivative at the end of the third quarter fiscal year 2009 and the fair market value of the Series C Derivative realized at the time of the transaction. This loss will offset the $20.6 million gain we recorded during the third quarter of fiscal year 2009.

As of February 28, 2009 we did not own any material equity investments in other entities. Therefore, we do not currently have any direct material risks related to equity prices of other entities.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Palm have been detected. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended) identified in connection with management’s evaluation that occurred during the third quarter of fiscal year 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth in Note 20 of the condensed consolidated financial statements of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

You should carefully consider the risks described below and the other information in this Form 10-Q. The business, results of operations or financial condition of Palm could be seriously harmed and the trading price of Palm common stock may decline due to any of these risks.

Risks Related to Our Business

If we do not successfully launch our Palm Pre and Palm webOS or fail to do so in a timely manner, or if the Palm Pre is not accepted by wireless carriers or end users, our business, results of operations and financial condition will be adversely affected.

In the first quarter of calendar year 2009, we announced our new OS, the Palm webOS mobile platform, and our Palm Pre, the first smartphone to be based on the new platform. Unlike the Palm OS and Windows Mobile OS, which are the operating systems in our existing products, the Palm webOS has not been commercially tested and we have not had the advantage of working with and refining the operating system over a long period of time.

We have announced that we expect the Palm Pre with Palm webOS to be completed in time to make the Palm Pre available in the United States in the first half of calendar year 2009. If we are unable to develop the Palm webOS or related software or introduce the Palm Pre in a timely manner, or if the Palm Pre is not accepted by Sprint or other wireless carrier customers or end users, our revenues, results of operations, financial condition, cash flows, reputation and ability to compete would also be adversely impacted.

Because the Palm Pre is our first product based on the Palm webOS and comes at a time when revenues from most of our legacy products are declining, the importance of the Palm Pre and Palm webOS to our business substantially magnifies the risks expressed throughout this “Risk Factors” section with respect to our products and our business. Some of these risks include:

• our ability to launch the Palm Pre and related services successfully and in a cost-effective and timely manner;

• our having sufficient working capital and other resources to support the Palm Pre and related services in the event that the Palm Pre is not launched on a timely basis;

• the effect of errors or defects in the Palm Pre or Palm webOS or any components, software applications or other elements of the Palm Pre or Palm webOS;

• the ability of the Palm Pre to compete with alternative products;

• our dependence on wireless carriers, particularly Sprint which initially will be the exclusive wireless carrier for the Palm Pre in the United States;

• certification of the Palm Pre by Sprint and other wireless carriers;

• our ability to accurately forecast demand for the Palm Pre;

• dependence on suppliers, including sole source suppliers, for components, software applications and other elements of the Palm Pre;

• dependence on a sole source provider for the Palm Pre in a new manufacturing relationship for Palm;

• acceptance of the Palm webOS by wireless carriers and end users;

• whether the third-party developer community will embrace Palm webOS and produce applications that integrate successfully with Palm webOS; and

• the potential for claims that the Palm Pre or Palm webOS infringe the intellectual property rights of third parties or are subject to conditions or restrictions under open source licenses.

These risks relating to the launch of our Palm Pre and Palm webOS products and services may adversely affect our results of operations and financial condition, including our revenues, liquidity, reputation and ability to compete.

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Current recessionary economic and financial market conditions as well as our continued investment in our corporate transformation, including the transition to the Palm webOS platform, have had and will continue to have a negative effect on our liquidity. We may need or find it advisable to seek additional funding which may not be available or which may result in substantial dilution to the value of our common stock. If we seek additional funding, adequate funds may not be available on favorable terms, or at all. Inadequate liquidity could adversely affect our business operations in the future.

We currently believe that we have sufficient cash, cash equivalents and short-term investments to meet our anticipated operating cash requirements and debt service or repayment obligations for at least the next 12 months. Although we believe that we can meet our liquidity needs for at least the next 12 months, we have had net losses since the beginning of fiscal year 2008 and our actual level of losses for the last four fiscal quarters were unanticipated 12 months ago which have resulted in decreases in our cash, cash equivalents and short-term investment balances during the last four quarters. Our cash, cash equivalents and short-term investments balance was $219.4 million at the end of the third quarter of fiscal year 2009, and our revenues for the third quarter of fiscal year 2009 were $90.6 million. The revenue decline in the third quarter of fiscal year 2009 versus our second quarter of fiscal year 2009 and third quarter of fiscal year 2008 are the result of reduced demand for our maturing legacy smartphone products, the challenging economic environment and later-than-expected shipments of the Treo Pro in the United States. We expect declining revenues and continued margin pressure from our legacy product lines in the fourth quarter of fiscal year 2009. Because our products compete for a share of consumer disposable income and business spending, our liquidity position and operating performance were negatively affected by the current recessionary economic conditions and by other financial business factors, many of which are beyond our control. The economic conditions have generally worsened during fiscal year 2009. We do not believe it is likely that these adverse economic conditions, and their effect on consumer and business purchasing patterns, will improve significantly in the near term.

We require substantial liquidity to continue spending to support product development, production and launches, including with respect to the Palm Pre and Palm webOS, to implement cost savings and restructuring plans, to meet scheduled debt and lease payment requirements and to run our regular business operations. If our liquidity continues to diminish, we may reach the point at which we operate at or close to the minimum cash levels necessary to support our current business operations, and we may be forced to further curtail spending, research and development activities, marketing activities and other programs that are important to the future success of our business. In addition, if our liquidity substantially decreases, it may affect our business relationships with our customers and/or our suppliers who may seek more restrictive payment terms, assurances regarding our ability to meet our obligations and to sustain regular business operations and other concessions. If this were to happen, our need for cash resources would be intensified.

Our ability to maintain required liquidity levels will depend significantly on factors such as:

• the timely launch and commercial success of the Palm Pre and of future products based on our Palm webOS;

• the level of continuing sales of our Treo and Centro smartphones;

• the successful completion of Palm webOS and its subsequent acceptance by the developer community and by our customers; and

• our ability to manage operating expenses and capital spending.

If revenues from our smartphones fail to meet expectations or we are unable to complete our new Palm webOS and manufacture and/or ship our Palm Pre smartphone products to our customers in a timely or acceptable manner and we are unable to maintain our required liquidity levels through other means, our business plans, results of operations and financial condition would be adversely impacted.

In these circumstances, we may find it necessary or advisable to seek additional funding. The current economic and financial market conditions and our corporate credit rating may make it difficult to obtain funding in the securities and credit markets as well as under our existing credit facilities. Moreover, if we are unable to timely introduce the Palm Pre, it may further complicate our ability to obtain such additional funding in an already difficult market. If we seek additional funding, adequate funds may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, or at all, we may be unable to adequately fund our business plans and it could have a negative effect on our business, results of operations and financial condition. In addition, if funds are available, the issuance of equity securities or securities convertible into equity could dilute the value of shares of our existing common stock and other equity securities and cause the market price of our common stock to fall. The issuance of additional debt or incurrence of borrowing could impose restrictive covenants in addition to those to which we are already subject under our existing credit facility, which could impair our ability to engage in certain business transactions.

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If we fail to develop and introduce new products and services successfully and in a cost-effective and timely manner, we will not be able to compete effectively and our ability to generate revenues will suffer.

We operate in a highly competitive, rapidly evolving environment, and our success depends on our ability to develop and introduce new products and services that our customers and end users choose to buy. If we are unsuccessful at developing and introducing new products and services, including the Palm Pre with Palm webOS, that are appealing to our customers and end users with acceptable quality, prices and terms, or if the effort of migrating from existing products and services to new products and services is considered to be excessive by end users, we will not be able to compete effectively and our ability to generate revenues will suffer. The development of new products and services is very difficult and requires high levels of innovation. The development process is also lengthy and costly. If we fail to accurately anticipate technological trends or our end users’ needs or preferences or are unable to complete the development of products and services in a cost-effective and timely fashion, we will be unable to introduce new products and services into the market or successfully compete with other providers. Even if we complete the development of our new products and services in a cost-effective and timely manner, they may not gain traction in the market at all or at anticipated levels.

As we introduce new or enhanced products, such as the Palm Pre, or integrate new technology into new or existing products, we face risks including, among other things, disruption in customers’ ordering patterns, excessive levels of existing product inventories, revenue deterioration in our existing product lines, as we are currently experiencing with our legacy smartphone products, insufficient supplies of new products to meet customers’ demand, possible product and technology defects and a potentially different sales and support environment. Premature announcements or leaks of new products, features or technologies may exacerbate some of these risks. Our failure to manage the transition to newer products or the integration of newer technology into new or existing products could adversely affect our business, results of operations and financial condition.

Our products may contain errors or defects, which could result in the rejection or return of our products, damage to our reputation, lost revenues, diverted development resources and increased service costs, penalties, duties to repair, warranty claims and litigation.

Our products are complex and must meet stringent user requirements. In addition, we warrant that our products will be free of defect for 90 to 365 days after the date of purchase, depending on the product. In Europe, we are required in some countries to provide a two-year warranty for certain defects. In addition, certain of our contracts with wireless carriers include epidemic failure clauses with low thresholds that we have in some instances exceeded. If invoked, these clauses may entitle the wireless carrier to return or obtain credits for products in inventory or to cancel outstanding purchase orders.

In addition, we must develop our hardware and software application products quickly to keep pace with the rapidly changing mobile-product market, and we have a history of frequently introducing new products. Products as sophisticated as ours are likely to contain undetected errors or defects, especially when first introduced or when new models or versions are released. Our products may not be free from errors or defects after commercial shipments have begun, which could result in the rejection of our products, damage claims, penalties, duties to repair, litigation and recalls and jeopardize our relationship with wireless carriers. End users may also reject or find issues with our products and have a right to return them even if the products are free from errors or defects. In either case, returns or quality issues could result in damage to our reputation, lost revenues, diverted development resources, increased customer service and support costs, additional contractual obligations to wireless carriers and warranty claims and litigation which could harm our business, results of operations and financial condition.

We have announced our new OS, Palm webOS, which will be available on the Palm Pre and future smartphones. We have not had the opportunity to work with or refine Palm webOS for a substantial period of time or to subject it to commercial testing. Given the nature of software, particularly software as complex as Palm webOS, we cannot be certain that Palm webOS will be free of significant software defects or bugs. Early detection of such defects or bugs by us could delay the launches of the Palm Pre and future Palm smartphone products, and detection of defects or bugs after such products have been launched could result in the rejection of our products, damage claims, litigation and recalls, jeopardize our relationship with wireless carriers and adversely affect our business, results of operations and financial condition.

If we are unable to compete effectively with existing or new competitors, we could experience price reductions, reduced demand for our products and services, reduced margins and loss of market share, and our business, results of operations and financial condition would be adversely affected.

The markets for our products are highly competitive, and we expect increased competition in the future, particularly as companies from established industry segments, such as mobile handset, personal computer and consumer electronics, enter these markets or increasingly expand and market their competitive product offerings or both.

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Some of our competitors or potential competitors possess capabilities developed over years of serving customers in their respective markets that might enable them to compete more effectively than we compete in certain segments. In addition, many of our competitors have significantly greater engineering, technical, manufacturing, sales, marketing and financial resources and capabilities than we have. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements, including introducing a greater number and variety of products than we can. They may also be in a better position financially or otherwise to acquire and integrate companies and technologies that enhance their competitive positions and limit our competitiveness. In addition, they may devote greater resources to the development, promotion and sale of their products than we do. They may have lower costs and be better able to withstand lower prices in order to gain market share at our expense. They may also be more diversified than we are and better able to leverage their other businesses, products and services to be able to accept lower returns in the smartphone market and gain market share. Finally, these competitors may bring with them customer loyalties, which may limit our ability to compete despite superior product offerings.

Our devices compete with a variety of mobile devices. Our principal competitors include: mobile handset and smartphone providers such as Apple, Asustek, High Tech Computer (or HTC), LG, Motorola, Nokia, Pantech, Personal Communications Devices (or PCD), Research in Motion (or RIM), Samsung and Sony-Ericsson; and computing device companies such as Acer, Hewlett-Packard and Mio Technology. In addition, our products compete for a share of disposable income and business spending on consumer electronic, telecommunications and computing products such as MP3 players, iPods, media/photo viewers, digital cameras, personal media players, digital storage devices, handheld gaming devices, GPS devices and other such devices.

Some of our competitors, such as Asustek and HTC, produce smartphones as wireless-carrier-branded devices in addition to their own branded devices. As technology advances, we also expect to compete with mobile phones without branded operating systems that synchronize with personal computers, as well as ultra-mobile personal computers and laptop computers with wide area network or data cards with VoIP, and WiFi phones with VoIP.

Some competitors sell or license server, desktop and/or laptop computing products, software and/or recurring services in addition to mobile products and may choose to market their mobile products at a discounted price or give them away for free with their other products or services, which could negatively affect our ability to compete.

A number of our competitors have longer and closer relationships with the senior management of business customers who decide which products and technologies will be deployed in their business. Many competitors have larger and more established sales forces calling on wireless carriers and business customers and therefore could contact a greater number of potential customers with more frequency. Consequently, these competitors could have a better competitive position than we have, which could result in wireless carriers and business customers deciding not to choose our products and services, which would adversely impact our revenues.

Successful new product introductions or enhancements by our competitors could cause intense price competition or make our products obsolete. To remain competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. We cannot be sure that we will have sufficient resources to make these investments or that we will be able to make the technological advances necessary to be competitive. Increased competition could result in price reductions, reduced demand for our products and services, increased expenses, reduced margins and loss of market share. Failure to compete successfully against current or future competitors could harm our business, results of operations and financial condition.

We are highly dependent on wireless carriers for the success of our smartphone products.

The success of our business strategy and our smartphone products is highly dependent on our ability to establish new relationships and build on our existing relationships with domestic and international wireless carriers. Wireless carriers control which products to certify on their networks, offer to their customers and promote through price subsidies and marketing campaigns. We cannot assure you that we will be successful in establishing new relationships, or maintaining or advancing existing relationships, with wireless carriers or that these wireless carriers will act in a manner that will promote the success of our smartphone products. Additional factors that are largely within the control of wireless carriers, but which are important to the success of our smartphone products, include:

• testing of our smartphone products on wireless carriers’ networks;

• quality and coverage area of wireless voice and data services offered by the wireless carriers;

• the degree to which wireless carriers facilitate the introduction of and actively market, advertise, promote, distribute and resell our smartphone products and the size of the subscriber base to which these efforts are directed;

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• the degree to which wireless carriers accurately forecast demand for our products and order appropriate quantities to satisfy that demand;

• the extent to which wireless carriers require specific hardware and software features on our smartphone products to be used on their networks;

• timely build-out of advanced wireless carrier networks that enhance the user experience for data-centric services through higher speed and “always on” functionality;

• contractual terms and conditions imposed on us by wireless carriers that, in some circumstances, limit our ability to make similar products available through competitive wireless carriers in some market segments for certain periods;

• wireless carriers’ pricing requirements and subsidy programs;

• products, including our competitors’ products, carried by wireless carriers; and

• pricing and other terms and conditions of voice and data rate plans that the wireless carriers offer for use with our smartphone products.

For example, flat data rate pricing plans offered by some wireless carriers may represent some risk to our relationship with such wireless carriers. While flat data pricing helps customer adoption of the data services offered by wireless carriers and therefore highlights the advantages of the data applications of our smartphone products, such plans may not allow our smartphones to contribute as much average revenue per user to wireless carriers as when they are priced by usage, and therefore reduces our differentiation from other, non-data devices in the view of the wireless carriers. In addition, if wireless carriers charge higher rates than consumers are willing to pay, the acceptance of our wireless solutions could be less than anticipated and our revenues and results of operations could be adversely affected.

Wireless carriers have substantial bargaining power as we enter into agreements with them. They may require contract terms that are difficult for us to satisfy and could result in higher costs to complete certification requirements and negatively impact our results of operations and financial condition. Moreover, we do not have agreements with some of the wireless carriers with whom we do business internationally and, in some cases, the agreements may be with third-party distributors and may not pass through rights to us or provide us with recourse or contact with the wireless carrier. The absence of agreements means that, with little or no notice, these wireless carriers could refuse to continue to purchase all or some of our products or change the terms under which they purchase our products. If these wireless carriers were to stop purchasing our products, we may be unable to replace the lost sales channel on a timely basis and our results of operations could be harmed.

In some cases, we may enter into exclusive relationships with wireless carriers to sell our products within a particular territory. In the case of the Palm Pre, Sprint will have exclusive distribution rights in the United States for a limited period of time. Although there are benefits from exclusive arrangements, such arrangements also limit our ability to make the products subject to the exclusivity period available through other wireless carriers during the exclusivity period, and may initially limit the sales of such products as a result.

Wireless carriers also significantly affect our ability to develop and launch products for use on their wireless networks. If we fail to address the needs of wireless carriers, identify new product and service opportunities or modify or improve our smartphone products in response to changes in technology, industry standards or wireless carrier requirements, our products could rapidly become less competitive or obsolete. If we fail to timely develop smartphone products that meet wireless carrier product planning cycles or fail to deliver sufficient quantities of products in a timely manner to wireless carriers, those wireless carriers may choose to emphasize similar products from our competitors and thereby reduce their focus on our products which would have a negative impact on our business, results of operations and financial condition.

Wireless carriers, who control most of the distribution and sale of and virtually all of the access for smartphone products, could commoditize smartphones, thereby reducing the average selling prices and margins for our smartphone products which would have a negative impact on our business, results of operations and financial condition. In addition, if wireless carriers move away from subsidizing the purchase of smartphone products, this could significantly reduce the potential sales or growth rate of sales of smartphone products. This could have an adverse impact on our business, revenues and results of operations.

We could be exposed to significant fluctuations in revenue for our smartphone products based on our strategic relationships with wireless carriers.

Because of their large sales channels, wireless carriers may purchase large quantities of our products prior to launch so that the products are widely available. Reorders of products may fluctuate quarter to quarter, depending on end-user demand and inventory levels required by the wireless carriers. As we develop new strategic relationships and launch new products with wireless carriers, our smartphone products-related revenue could be subject to significant fluctuation based on the timing of wireless carrier product launches, wireless carrier inventory requirements, marketing efforts and our ability to forecast and satisfy wireless carrier and end-user demand.

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Our operating results have been declining in recent quarters and are generally subject to fluctuations, and if we fail to meet the expectations of our investors, our stock price may decrease significantly.

Our operating results are difficult to forecast. Our future operating results may continue to decline or fluctuate significantly and may not meet the expectations of our investors. If this occurs, the price of our stock will likely decline. Many factors may cause further decline or fluctuations in our operating results including, but not limited to, the following:

• timely introduction and market acceptance of new products and services;

• loss or failure of wireless carriers or other key sales channel partners;

• quality issues with our products;

• competition from other smartphones or other devices;

• life cycles of our existing product lines;

• the liquidity and resources that we have to support our business;

• the effects of anticipated and actual introduction of new products and services on our existing product lines;

• changes in consumer, business and wireless carrier preferences for our products and services;

• failure to achieve product cost and operating expense targets;

• changes in and competition for consumer and business spending;

• failure by our third-party manufacturers or suppliers to meet our quantity and quality requirements for products or product components on time;

• failure to add or replace third-party manufacturers or suppliers in a timely manner;

• a diminished market presence and decline in sales outside of the United States;

• seasonality of demand for some of our products;

• changes in terms, pricing or promotional programs;

• variations in product costs or the mix of products sold;

• excess inventory or insufficient inventory to meet demand;

• growth, decline, volatility and changing market conditions in the markets we serve;

• litigation brought against us; and

• changes in general economic conditions and specific market conditions.

Any of the foregoing factors could have an adverse effect on our business, results of operations and financial condition.

We are dependent on a concentrated number of significant customers and the loss or credit failure of any of those customers could have an adverse effect on our business, results of operations and financial condition.

Our three largest customers represented 65% of our revenues during fiscal year 2008, 56% during fiscal year 2007 and 55% during fiscal year 2006. We determine our largest customers in terms of revenue to be those who represent 10% or more of our total revenues for the year. We expect this trend of revenue concentration with our largest customers, particularly with wireless carriers, to continue, and at times increase, primarily due to our launch of multiple smartphone products with Sprint. We expect in the near term to experience high levels of revenue concentration with Sprint. If any significant customer discontinues its relationship with us for any reason, or reduces or postpones current or expected purchases from us, it could have an adverse impact on our business, results of operations and financial condition. Our ability to find new or replace large customers is necessarily limited due to the limited number of wireless carriers in many territories, including the United States which is the country where we generate the majority of our revenues.

In addition, our largest customers in terms of outstanding customer accounts receivable balances accounted for 61% of our accounts receivable at the end of fiscal year 2008 compared to 63% at the end of fiscal year 2007 and 66% at the end of fiscal year 2006. We determine our largest customers in terms of outstanding customer accounts to be those who have outstanding customer accounts receivable balances at the period end of 10% or more of our total net accounts receivables. We expect this trend of significant credit concentration with our largest customers, particularly with wireless carriers, to continue, concentrating our bad debt risks. We routinely monitor the financial condition of our customers and review the credit history of each new customer.

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While we believe that our allowances for doubtful accounts adequately reflect the credit risk of our customers, as well as historical trends and other economic factors, we cannot assure you that such allowances will be accurate or sufficient. If any of our significant customers defaults on its account, or if we experience significant credit expense for any reason, it could have an adverse impact on our business, results of operations and financial condition.

If our products do not meet wireless carrier and governmental or regulatory certification or other requirements, we will not be able to compete effectively and our ability to generate revenues will suffer.

We are required to certify our products with governmental and regulatory agencies and with the wireless carriers for use on their networks and to meet other requirements. These processes can be time consuming, could delay the offering of our smartphone products on wireless carrier networks and could affect our ability to timely deliver products to customers. For example, the Treo Pro was shipped to Sprint in the United States later than expected due to delays in certifying the Treo Pro on Sprint’s network. Wireless carriers may choose to offer or consumers may choose to buy similar products from our competitors and thereby reduce their purchases of our products, which would have a negative impact on our smartphone products sales volumes, revenues and cost of revenues.

If we do not accurately forecast demand for our products, we could have costly excess production or inventories or we may not be able to secure sufficient or cost-effective quantities of our products or production materials and our revenues, gross profit and financial condition could be adversely impacted.

The demand for our products depends on many factors, including pricing and channel inventory levels, and is difficult to forecast due in part to variations in economic conditions, changes in consumer and business preferences, relatively short product life cycles, changes in competition, seasonality and reliance on key sales channel partners. It is particularly difficult to forecast demand by individual product. Significant unanticipated fluctuations in demand, the timing and disclosure of new product releases or the timing of key sales orders could result in costly excess production or inventories, liabilities for failure to achieve minimum purchase commitments or the inability to secure sufficient, cost-effective quantities of our products or production materials. This could adversely impact our revenues, gross profit and financial condition. For example, in fiscal year 2009, we experienced a decrease in forecasted product sales. As a result, we incurred a net charge to cost of revenues of $19.6 million for purchase commitments with third-party manufacturers in excess of anticipated demand.

We rely on third parties, some of which are our competitors, to design, manufacture, distribute, warehouse and support our products, and our reputation, revenues and results of operations could be adversely affected if these third parties fail to meet their performance obligations.

We outsource most of our hardware design and certain software development to third-party manufacturers, some of whom compete with us and some of whom have significant relationships with our competitors. We depend on their design expertise, and we rely on them to design our products at satisfactory quality levels. If our third-party manufacturers fail to provide quality hardware design or software development, our reputation and revenues could suffer. These third-party designers and manufacturers have access to our intellectual property which increases the risk of infringement or misappropriation of such intellectual property. In addition, these third parties may claim ownership rights in certain of the intellectual property developed for our products, which may limit our ability to have these products manufactured by others.

We outsource all of our manufacturing requirements to third-party manufacturers at their international facilities, which are located primarily in China, Taiwan and Brazil. In general our products are manufactured by sole source providers, and the Palm Pre will be manufactured by a new sole source provider with whom we are in the process of finalizing our arrangements. We depend on these third parties to produce a sufficient volume of our products in a timely fashion and at satisfactory quality levels. In addition, we generally rely on our third-party manufacturers to place orders with suppliers for the components they need to manufacture our products and to track appropriately the shipment and inventory of those components with our orders. If they fail to place timely and sufficient orders with suppliers and appropriately maintain component inventories or are unable to timely and cost-effectively change their orders based on our changing forecasts of demand, our revenues and cost of revenues could suffer. Significant unanticipated fluctuations in demand of our products could result in costly excess production of inventories or additional non-cancelable purchase commitments. Our reliance on third-party manufacturers in foreign countries exposes us to risks that are not in our control, including outbreaks of disease (such as an outbreak of bird flu), economic slowdowns, labor disruptions, trade restrictions, political conflicts and other events that could result in quarantines, shutdowns or closures of our third-party manufacturers or their suppliers. The cost, quality and availability of third-party manufacturing operations are essential to the successful production and sale of our products. If our third-party manufacturers fail to produce quality products on time and in sufficient quantities, our reputation, business and results of operations could suffer.

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These manufacturers could refuse to continue to manufacture all or some of the units of our devices that we require or change the terms under which they manufacture our devices. If these manufacturers were to stop manufacturing our devices, we may be unable to replace the lost manufacturing capacity on a timely basis and our results of operations could be harmed. If these manufacturers were to change the terms under which they manufacture for us, our manufacturing costs and cost of revenues could increase. While we may have contractual remedies under manufacturing agreements, our business and reputation could be harmed. Furthermore, these contractual remedies may be difficult to enforce against manufacturers located outside of the United States. In addition, many of our contractual relationships are with the manufacturers of our products, and not with component suppliers. In the absence of a contract with the manufacturer that requires it to obtain and pass through warranty and indemnity rights with respect to component suppliers, we may not have recourse to any third party in the event of a component failure.

We may choose or be compelled from time to time to transition to or add new third-party manufacturers. If we transition the manufacturing of any product to a new manufacturer, there is a risk of disruption in manufacturing and our revenues and results of operations could be adversely impacted. The learning curve and implementation associated with adding a new third-party manufacturer may adversely impact our revenues and results of operations.

We rely on third-party distribution and warehouse services providers to warehouse and distribute our products. Our contract warehouse facilities are physically separated from our contract manufacturing locations. This requires additional lead-time to deliver products to customers. If we are shipping products near the end of a fiscal quarter, this extra time could result in us not meeting anticipated shipment volumes for that quarter, which may negatively impact our revenues for that fiscal quarter. Any disruption of distribution facility services could have a negative impact on our revenues and results of operations.

As a result of economic conditions or other factors, our distribution and warehouse services providers may close or move their facilities with little notice to us, which could cause disruption in our ability to deliver products. With little or no notice, these distribution and warehouse services providers could refuse to continue to provide distribution and warehouse services for all or some of our devices, fail to provide the quality of services and security that we require or change the terms under which they provide such services. Any disruption of distribution and warehouse services could have a negative impact on our revenues and results of operations.

Changes in transportation schedules or the timing of deliveries due to shipping problems, wireless carrier financial difficulties, inaccurate forecasts of demand, acts of nature or other business interruptions could cause transportation delays and increase our costs for both receipt of inventory and shipment of products to our customers. If these types of disruptions occur, our reputation and results of operations could be adversely impacted.

We outsource most of the warranty support, product repair and technical support for our products to third-party providers, which are located around the world. We depend on their expertise, and we rely on them to provide satisfactory levels of service. If our third-party providers fail to provide consistent quality service in a timely manner and sustain customer satisfaction, our reputation and results of operations could suffer.

We depend on our suppliers, some of which are the sole source and some of which are our competitors, for certain components, software applications and elements of our technology, and our production or reputation could be harmed if these suppliers were unable or unwilling to meet our demand or technical requirements on a timely and/or a cost-effective basis.

Our products contain software and hardware, including liquid crystal displays, touch panels, memory chips, microprocessors, cameras, radios and batteries, which are procured from a variety of suppliers, including some who are our competitors. The cost, quality and availability of software and hardware are essential to the timely and successful development, production and sale of our device products. For example, components such as radio technologies and software such as email applications are critical to the functionality of our smartphones. Some components, such as liquid crystal displays and related integrated circuits, digital signal processors, microprocessors, radio frequency components and other discrete components, come from sole source suppliers. Alternative sources are not always readily available or may be prohibitively expensive. In addition, even when we have multiple qualified suppliers, we may compete with other purchasers for allocation of scarce components. Some components come from companies with whom we compete and some of our suppliers have significant relationships with our competitors. Our suppliers could refuse to continue to supply all or some of the components that we require for our devices or change the terms under which they supply such components. If suppliers are unable or unwilling to supply or meet our demand for components and if we are unable to obtain alternative sources or if the price for alternative sources is prohibitive, our ability to maintain timely and cost-effective production of our products will be harmed. If our suppliers were to change the terms under which they supply components for our products, our manufacturing costs and cost of revenues could increase. While we may have contractual remedies under supply or manufacturing agreements, our business and reputation could be harmed. Furthermore, these contractual remedies may be difficult to enforce against suppliers located outside the United States and we

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do not have direct, or in some cases even indirect, contractual relationships with some of the component suppliers for our devices. Shortages may affect the timing and volume of production for some of our products as well as increase our costs due to premium prices paid for those components and longer-term commitments to ensure availability of those components. Some of our suppliers may be capacity-constrained due to high industry demand for some components and relatively long lead times to expand capacity.

Our product strategy is substantially dependent on the operating systems that we include in our devices and those operating systems face significant competition and may not be preferred by our wireless carrier partners or end users.

We provide a choice of operating systems for our smartphones to provide a differentiated experience for our users. Our smartphones currently feature either the Palm OS or Windows Mobile OS. We have announced that we expect to launch the Palm Pre, our initial Palm webOS product, in the first half of calendar year 2009. We expect to use our Palm webOS in other future smartphones.

Our licenses to the Palm OS and Windows Mobile OS are subject to the terms of the agreements we have with ACCESS Systems Americas and Microsoft, respectively. Our business could be harmed if we were to breach the license agreements and cause our licensers to terminate our licenses. Furthermore, although ACCESS Systems and Microsoft offer some level of indemnification for damages arising from lawsuits involving their respective operating systems and from damages relating to intellectual property infringement caused by such operating systems, we could still be adversely affected by a determination adverse to our licensers, product changes that may be advisable or required due to such lawsuits or the failure of our licensers to indemnify us adequately.

There is significant competition from makers of smartphones that differentiate their products in part through alternative OS software. A number of competitors offer alternative Windows Mobile OS products. Google is heading a group that has introduced the Android OS for which our competitors are developing products. The LiMo Foundation is another consortium that is developing a Linux-based mobile operating system. Other competitors have or are developing proprietary operating systems, including Apple’s OS X, Nokia’s Symbian OS, RIM’s OS and various Linux-based operating systems. Still other competitors, such as Samsung and LG, are developing products that have a combination of keyboards, touchscreens and advanced media functionality that compete with smartphones like ours and that use proprietary and other alternative operating systems. These and other competitors could devote greater resources to the development and promotion of alternative operating systems and to the support of the third-party developer community, which could attract the attention of influential user segments and our existing and potential customers and end users. Moreover, some of our largest customers, including Verizon Wireless (a venture of Verizon Communications and Vodafone Group) and AT&T, have joined the consortiums developing or indicated their support for rival operating systems, including the LiMo Foundation and Android, respectively. Wireless carriers may demonstrate a preference for rival operating systems, thereby giving preference to our competitor’s products and making acceptance of our products more difficult among our key wireless carrier partners. In addition, this could require us to raise the performance and differentiation standards for the operating systems that we offer in order to remain competitive.

We cannot assure you that the operating systems we develop or license or our efforts to innovate using those operating systems will continue to draw the customer interest necessary to provide us with a level of competitive differentiation. If the use of the Palm OS, the Windows Mobile OS, Palm webOS or proprietary operating systems incorporating open technologies in our current or future products does not continue to be competitive, our revenues and results of operations could be adversely affected.

If we are unable to obtain key technologies from third parties on a timely basis and free from errors or defects, we may have to delay or cancel the release of certain products or features in our products or incur increased costs.

We license third-party software for use in our products, including the Palm OS and Windows Mobile OS. Our ability to release and sell our products, as well as our reputation, could be harmed if the third-party technologies are not delivered to us in a timely manner, on acceptable business terms or contain errors or defects that are not discovered and fixed prior to release of our products and we are unable to obtain alternative technologies on a timely and cost effective basis to use in our products. As a result, our product shipments could be delayed, our offering of features could be reduced or we may need to divert our development resources from other business objectives, any of which could adversely affect our reputation, business and results of operations.

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An injunction issued by the United States District Court, Central District, California, banning importation of certain chips, chipsets and software of Qualcomm Incorporated or other litigation between Qualcomm and Broadcom Corporation could hinder our ability to provide certain models of our smartphone products to our customers and to compete effectively, and could adversely affect our customer relationships, revenues, results of operations and financial condition.

Qualcomm and Broadcom are engaged in litigation in at least two United States District Courts regarding Qualcomm’s chipsets and software used in wireless handsets and related support services. In one action, Qualcomm was immediately enjoined from providing certain chipsets to customers and ordered not to provide other chipsets and/or related support services after January 31, 2009. Upon Qualcomm’s appeal the Federal Circuit Court of Appeals issued a ruling that, in relevant part, affirmed the injunction with respect to certain Qualcomm chipsets, including, but not limited to, those we currently use in our Centro CDMA EvDO smartphones. On September 23, 2008 the District Court clarified the injunction ruling, finding that products containing the infringing chipsets had to be imported into the United States before January 31, 2009. Accordingly, Qualcomm required Palm to import any affected CDMA EvDO Centro products and service components by that date, except for those intended for Verizon, a Broadcom licensee. The effect of such ban may have an adverse effect on Palm’s sales volumes, revenues and costs of revenues. In addition, there is no assurance the products imported by January 31, 2009 will be sold through or that Palm will have sufficient service stock to support customers going forward should service requests exceed that currently anticipated.

For Palm products affected by the injunction ruling other than our Centro CDMA EvDO smartphones, Qualcomm has provided alternative chipsets containing workarounds to avoid infringement of Broadcom’s patents but there is no assurance that, if challenged, the chipsets containing the workarounds will be found to be noninfringing. Implementing the substitute chipsets can also be time consuming, can delay the offering of our smartphone products on carrier networks and also affect our ability to deliver products to customers in a timely manner. As a result, carriers may choose to offer, or consumers may choose to buy, unaffected products from our competitors and thereby reduce their purchases of our products, causing a negative impact on our smartphone products sales volumes, revenues and cost of revenues.

The occurrence or perception of a breach of our security measures or privacy policies, or an inappropriate disclosure of confidential or personal information, could harm our business.

Our Palm webOS and related service offerings rely on the transmission of business-critical, proprietary and confidential information for customers and provide Palm with access to confidential or personal information and data. In addition, information stored in our smartphone products is subject to viruses and security breaches related to wireless data transmission. If the security measures that we or our business partners have implemented are breached or if there is an inappropriate disclosure of confidential or personal information or data, including as a result of a security breach relating to hardware or software, we could be exposed to litigation or regulatory action, possible liability and statutory sanctions. Even if we were not held liable, a security breach or inappropriate disclosure of confidential or personal information and/or data could harm our reputation, and even the perception of security vulnerabilities in our products could lead some customers to reduce or delay future purchases or to purchase competitive products or services. In addition, we may be required to invest additional resources to protect Palm against damages caused by these actual or perceived disruptions or security breaches in the future.

The collection, storage, transmission, use and distribution of user data and personal information could give rise to liabilities or additional costs of operation as a result of laws, governmental regulations and carrier and other customer requirements or differing views of personal privacy rights.

We will transmit and store a large volume of personal information in the course of supporting the Palm webOS products and related service offerings. This information is increasingly subject to legislation and regulations in numerous jurisdictions around the world. Government actions are typically intended to protect the privacy and security of personal information and its collection, storage, transmission in or from the governing jurisdiction, use and distribution.

We could be adversely affected if domestic or international legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business. If we are required to allocate significant resources to modify our Palm webOS service offerings to enable enhanced access to the personal information that we transmit and store, our results of operations and financial condition may be adversely affected.

In addition, because various foreign jurisdictions have different laws and regulations concerning the storage and transmission of personal information, we may face requirements that pose compliance challenges in new international markets that we seek to enter. Such variation could subject us to costs, liabilities or negative publicity that could impair our ability to expand our operations into some countries and therefore limit our future growth.

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Our carrier or other customers may impose different or additional requirements for the collection, processing, and transmittal of user data or personal information in connection with the Palm webOS product and service offerings. If we are required to allocate significant resources to modify our Palm webOS product and service offerings to meet such requirements, we may incur additional costs of operation to meet such requirements and our time to market with various product and service offerings may be adversely affected.

As privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities related to the privacy of personal information. These and other privacy concerns, including security breaches, could adversely impact our business, results of operations and financial condition.

If our Palm webOS service offerings do not scale as anticipated, or we are unable to grow data center capacity as needed, our business will be harmed.

Despite frequent testing of the scalability of our Palm webOS service offerings in a test environment, the ability of our Palm webOS service offerings to scale to support a substantial increase in the number of users in an actual commercial environment is unproven. If our Palm webOS service offerings do not efficiently and effectively scale to support and manage a substantial increase in the number of users while maintaining a high level of performance, our business will be seriously harmed. In addition if we are unable to secure data center space with appropriate power, cooling and bandwidth capacity, we may not be able to efficiently and effectively scale our business to manage the addition of any new wireless carrier customers, increases in subscriber growth or increases in data traffic.

The Palm webOS service offerings represent a new service to consumers that we have not provided before. We cannot assure you that we will be able to implement these new services and products successfully, in a timely manner, or at all. If we are unable to deliver this new service or product effectively, or in a way that satisfies our customers and end users, our business and results of operations may suffer. Even if we are able to deliver this new service or product effectively, its delivery may require more resources, both financial and otherwise, than originally anticipated, which could restrict our ability to develop new products and services and/or grow or maintain our business.

As a result of the Credit Agreement we entered into, we have a significant amount of debt. We may not be able to generate sufficient cash to service or repay all of our indebtedness, including the Term Loan, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our substantial indebtedness could adversely affect our business, results of operations and financial condition.

In October 2007, we entered into a Credit Agreement which governs a Term Loan and a Revolver. As a result of this Credit Agreement, we have significant indebtedness and substantial debt service requirements. Our ability to meet our payment and other obligations under our indebtedness depends on our ability to generate significant cash flows in the future. Our ability to generate cash is subject to our future operating performance and the demand for, and price levels of, our current and future products and services. However, our ability to generate cash is also subject to prevailing economic and competitive conditions and to general economic, financial, competitive, regulatory and other factors beyond our control. There is no assurance that our business will generate cash flows from operations. Given the uncertainty in the credit market, we may not be able to borrow under or otherwise utilize the Revolver if the lenders refuse or fail to satisfy their commitments under the Revolver. In addition, our Credit Agreement obligates us to meet certain conditions precedent before borrowings under the Revolver or issuances of letters of credit under the Credit Agreement are made and we may not be able to meet those conditions on the date of any requested borrowing or letter of credit issuance. Therefore, we cannot assure you that future borrowings will be available to us under the Revolver or any new credit facilities or otherwise, in an amount sufficient to enable us to meet our payment obligations under our indebtedness and to fund other liquidity needs, including operations. If our cash flows and capital resources are insufficient to fund our debt service or repayment obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital, restructure or refinance all or a portion of our indebtedness, including the Term Loan, or incur additional debt. There is no assurance that we would be able to take any of these actions on commercially reasonable terms or at all. There is also no assurance that these actions would be successful and permit us to meet our scheduled debt service or repayment obligations or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of such cash flow and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to realize and obtain proceeds from them adequate to meet our debt service and other obligations. The Credit Agreement governing the Term Loan and Revolver restricts our ability to dispose of assets and use the proceeds from the disposition.

If we cannot make scheduled payments on our debt, or if we otherwise breach the Credit Agreement or related agreements, we will be in default and, as a result:

• our debt holders could declare all outstanding principal and interest to be due and payable;

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• our debt holders could exercise their rights and remedies against the collateral securing their debt;

• we may trigger cross-acceleration and cross-default provisions under other agreements; and

• we could be forced into bankruptcy or liquidation.

Although covenants contained in the Credit Agreement governing the Term Loan and the Revolver will limit our ability and the ability of certain of our present and future subsidiaries to incur certain additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. In addition, the Credit Agreement will not prevent certain of our subsidiaries from incurring indebtedness. To the extent that we or our subsidiaries incur additional indebtedness, the related risks that we now face could intensify.

Our indebtedness may limit our ability to adjust to changing market conditions, place us at a competitive disadvantage compared to our competitors and adversely affect our business, results of operations and financial condition.

Restrictive covenants may adversely affect our operations.

The Credit Agreement governing the Term Loan and the Revolver contains covenants that may adversely affect our ability to, among other things, finance future operations or capital needs or engage in other business activities. Further, the Credit Agreement contains negative covenants limiting our ability and the ability of our subsidiaries, among other things, to incur debt, grant liens, make acquisitions, make certain restricted payments, make investments, sell assets and enter into sale and lease back transactions. Any additional debt we may incur in the future may subject us to further covenants. As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to finance future operations or capital needs or engage in other business activities.

Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us. Even if we were able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.

Our ability to comply with covenants contained in the Credit Agreement governing the Term Loan and Revolver and any agreements governing other indebtedness may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Our failure to comply with the covenants contained in any of the debt agreements described above, for any reason, in addition to other specified events, could result in a default under such debt agreements. In addition, if any such default is not cured or waived, the default could result in an acceleration of debt under the Credit Agreement and our other debt instruments that contain cross-acceleration or cross-default provisions, which could require us to repay or repurchase debt, together with accrued interest, prior to the date it otherwise is due and that could adversely affect our financial condition. Upon a default or cross-default, the collateral agent, at the direction of the lenders under the Credit Agreement could proceed against the collateral, which includes substantially all of our assets.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Under our Credit Agreement, our Term Loan and Revolver bear interest at variable rates and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the principal amount of such indebtedness remained the same. Interest on the Term Loan is based on LIBOR or the Alternate Base Rate (higher of Prime Rate or Federal Funds Effective Rate plus 0.50%). An increase in the interest rate payable on the Term Loan could have an adverse effect on our results of operations, financial condition and cash flows, and our ability to make payments on the Term Loan, particularly if the increase is substantial.

Third parties have claimed, and may claim in the future, that we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products regardless of whether these claims are successful.

In the course of our business, we frequently receive offers to license or claims of infringement of patents held by other parties. For example, as our focus has shifted to smartphone products, we have received, and expect to continue to receive communications from holders of patents related to mobile communication standards and other industry standards. We evaluate the validity and applicability of these patents and determine in each case whether we must negotiate licenses to incorporate or use implicated technologies in our products. Third parties may claim that our customers or we are directly or indirectly infringing on their intellectual property rights, and we may be found to directly or indirectly infringe on those intellectual property rights and may be required to pay significant damages and obligated either to refrain from the further sale of our products or to license the right to sell our products on an ongoing basis. Several lawsuits are currently pending against us

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involving such claims. We may be unaware of intellectual property rights of others that may cover some of our technology, products and services. We may not have direct contractual relationships with some of the component, software and applications providers for our products, and as a result, we may not have indemnification, warranties or other protection with respect to such components, software or applications. Furthermore, intellectual property claims against us or our suppliers may cause us or our customers to delay the introduction of or to stop using our devices or applications for our devices and, as a result, our revenue, business and results of operations may be adversely affected.

Any litigation regarding patents or other intellectual property could be costly and time consuming and could divert the attention of our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of litigation generally increase the risks associated with intellectual property litigation. Moreover, patent litigation has increased due to the increased numbers of cases asserted by intellectual property licensing entities as well as increasing competition and overlap of product functionality in our markets. Intellectual property licensing entities generally do not generate products or services. As a result, we cannot deter their infringement claims based on counterclaims that they infringe patents in our portfolio or by entering cross-licensing arrangements. Claims of intellectual property infringement may also require us to enter into costly royalty or license agreements or to indemnify our customers, licensees, original design manufacturers, or ODMs, and other third parties with whom we have relationships. However, we may not be able to obtain royalty or license agreements on terms acceptable to us or at all. We also may be subject to significant damages or injunctions against the development and sale of our products. These risks associated with patent litigation are exacerbated by the lack of a clear and consistent legal standard for assessing damages in such litigation.

Subscription accounting guidance applicable to our future Palm webOS products, including the Palm Pre, will result in a significant deferral of associated revenues and related standard costs of revenues.

As required by generally accepted accounting principles in the United States, we will account for the Palm webOS products using a subscription accounting model since we expect to periodically provide new software features free of charge to customers of our Palm webOS products. We will continue to account for our existing products and services in accordance with our current practices. Subscription accounting spreads the impact of the product’s contribution to our overall revenues and cost of revenues over the estimated economic life of the product, which is currently estimated at 24 months. As a result, only a small portion of the revenues and related standard costs of revenues associated with these products will be recognized at the time of shipment and most of the revenues and related standard costs of revenues associated with these products in a given quarter will result from the recognition of deferred revenues and deferred standard costs of revenues relating to these products sold during previous quarters. Certain administrative and other related period costs of revenues will continue to be expensed as incurred.

To the extent our product mix shifts toward a higher concentration of Palm webOS products, a larger portion of our revenues and cost of revenues will be deferred. Comparisons of these Palm webOS revenues and margins with those associated with our historical non-Palm webOS products or with the revenues of competitors that are not subject to subscription accounting may be unfavorable, could be misunderstood by investors and may adversely affect our stock price if investors believe we are not achieving certain financial performance targets. Our Palm webOS product revenues, gross profit and results of operations may continue to be lower than or difficult to compare to our competitors who do not use a subscription accounting model. A decline in sales of these products in any one quarter will not necessarily be fully reflected in the revenue in that quarter but will negatively affect our revenue in future quarters. In addition, we may be unable to timely adjust our cost structure to reflect the changes in revenues. Accordingly, the effect of significant downturns in sales and market acceptance of our products may not be fully reflected in our results of operations until future periods. Subscription accounting will also make it difficult for us to rapidly increase our revenue through additional sales of our Palm webOS products in any period, as revenue must be recognized over the applicable subscription term.

Our Palm webOS software platform incorporates open source software.

We incorporate open source software into our Palm webOS software platform and related applications and services, including certain open source code which is governed by the GNU General Public License (GPL), GNU Lesser General Public License (LGPL) and other open source licenses. There is very little case law interpreting the terms and conditions of many of these licenses, and there is a risk that these licenses could be construed in a manner that might impose unanticipated conditions or restrictions on our ability to commercialize our products as we intend. In such event, we could be required to seek licenses from third parties in order to continue offering our products, make certain portions of our proprietary code generally available in source code form (for example, proprietary code that links to certain open source code), re-engineer our products, discontinue the sale of our products if re-engineering cannot be accomplished on a cost-effective and timely basis, or become subject to other consequences, any of which could adversely affect our business, results of operations and financial condition.

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We are subject to general commercial litigation and other litigation claims as part of our operations, and we could suffer significant litigation expenses in defending these claims and could be subject to significant damage awards or other remedies.

In the course of our business, we receive consumer protection claims, general commercial claims related to the conduct of our business and the performance of our products and services, employment claims and other litigation claims. Litigation resulting from these claims could be costly and time-consuming and could divert the attention of management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of consumer, commercial, employment and other litigation increase these risks. We also may be subject to significant damages or equitable remedies regarding the development and sale of our products and operation of our business.

Our success largely depends on our ability to hire, retain, integrate and motivate sufficient numbers of qualified personnel, including senior management. Our strategy and our ability to innovate, design and produce new products, sell products, maintain operating margins and control expenses depend on key personnel that may be difficult to replace.

Our success depends on our ability to attract and retain highly skilled personnel, including senior management and international personnel. Our executive chairman, Jonathan Rubinstein, is particularly important to our ability to succeed. From time to time, we experience turnover in some of our senior management positions. We compensate our employees through a combination of salary, bonuses, benefits and equity compensation. Recruiting and retaining skilled personnel, including software and hardware engineers, is highly competitive, particularly in the San Francisco Bay Area where we are headquartered. If we fail to provide competitive compensation to our employees, it will be difficult to retain, hire and integrate qualified employees and contractors and we may not be able to maintain and expand our business. If we do not retain our senior managers or other key employees for any reason, we risk losing institutional knowledge and experience, expertise and other benefits of continuity and the ability to attract and retain other key employees. In addition, we must carefully balance the growth of our employee base with our current infrastructure, management resources and anticipated revenue growth. If we are unable to manage the growth of our employee base, particularly software and hardware engineers, we may fail to develop and introduce new products successfully and in a cost effective and timely manner. If our revenue growth or employee levels vary significantly, our results of operations and financial condition could be adversely affected. Volatility or lack of positive performance in our stock price may also affect our ability to retain key employees, many of whom have been granted stock options, other equity incentives or both. Palm’s practice has been to provide equity incentives to its employees through the use of stock options and other equity vehicles, but the number of shares available for new options and other forms of securities grants is limited. We may find it difficult to provide competitive stock option grants or other equity incentives and our ability to hire, retain and motivate key personnel may suffer.

Recently and in past years, we have initiated reductions in our workforce of both employees and contractors to align our employee base with our anticipated revenue base or areas of focus and we have seen some turnover in our workforce. These reductions have resulted in reallocations of duties, which could result in employee and contractor uncertainty. Reductions in our workforce could make it difficult to attract, motivate and retain employees and contractors, which could affect our ability to deliver our products in a timely fashion and adversely affect our business.

We rely on third parties to sell and distribute our products, and we rely on their information to manage our business. Disruption of our relationship with these channel partners, changes in their business practices, their failure to provide timely and accurate information or conflicts among our channels of distribution could adversely affect our business, results of operations and financial condition.

The wireless carriers, distributors, retailers and resellers who sell and distribute our products also sell products offered by our competitors. If our competitors offer our sales channel partners more favorable terms or have more products available to meet their needs or utilize the leverage of broader product lines sold through the channel, those wireless carriers, distributors, retailers and resellers may de-emphasize or decline to carry our products. In addition, certain of our sales channel partners could decide to de-emphasize the product categories that we offer in exchange for other product categories that they believe provide higher returns. If we are unable to maintain successful relationships with these sales channel partners or to expand our distribution channels, our business will suffer.

Because we sell our products primarily to wireless carriers, distributors, retailers and resellers, we are subject to many risks, including risks related to product returns, either through the exercise of contractual return rights or as a result of our strategic interest in assisting them in balancing inventories. In addition, these sales channel partners could modify their business practices, such as inventory levels, or seek to modify their contractual terms, such as return rights or payment terms. Unexpected changes in product return requests, inventory levels, payment terms or other practices by these sales channel partners could negatively impact our business, results of operations and financial condition.

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We rely on wireless carriers, distributors, retailers and resellers to provide us with timely and accurate information about their inventory levels as well as sell-through of products purchased from us. We use this information as one of the factors in our forecasting process to plan future production and sales levels, which in turn influences our financial forecasts. We also use this information as a factor in determining the levels of some of our financial reserves. If we do not receive this information on a timely and accurate basis, our results of operations and financial condition may be adversely impacted.

Distributors, retailers and traditional resellers experience competition from Internet-based resellers that distribute directly to end users, and there is also competition among Internet-based resellers. We also sell our products to end users from our Palm.com website. These varied sales channels could cause conflict among our channels of distribution, which could harm our business, revenues and results of operations.

We rely on third parties to manage and operate our e-commerce web store and related telesales call center and disruption to these sales channels could adversely affect our revenues and results of operations.

We outsource the operations of our e-commerce web store and related telesales call centers to third parties. We depend on their expertise and rely on them to provide satisfactory levels of service. If these third-party providers fail to provide consistent quality service in a timely manner and sustain customer satisfaction, our operations and revenues could suffer. If these third-parties were to stop providing these services, we may be unable to replace them on a timely basis and our results of operations could be harmed. In addition, if these third parties were to change the terms and conditions under which they provide these services, our selling costs could increase.

We use third parties to provide significant operational and administrative services, and our ability to satisfy our customers and operate our business could suffer if the level of services is interrupted or does not meet our requirements.

We use third parties, some of which are our competitors, to provide services such as data center operations, desktop computer support, facilities services and certain accounting services. Should any of these third parties fail to deliver an adequate level of service on a timely basis, our business could suffer. Some of our operations rely on electronic data systems interfaces with third parties or on the Internet to communicate information. Interruptions in the availability and functionality of systems interfaces or the Internet could adversely impact the operations of these systems and consequently our results of operations.

The market for our products is volatile, and changing market conditions, or failure to adjust to changing market conditions, may adversely affect our revenues, results of operations and financial condition, particularly given our size, limited resources and lack of diversification.

Our future revenues and our results of operations depend substantially on the commercial success of our smartphones, including our Palm Pre and other products that are under development. If revenues from our smartphones fail to meet expectations, our other revenue sources will likely not be able to compensate for this shortfall and our results of operations may suffer. For our fiscal quarter ended February 28, 2009, revenues from sales of smartphones and related products constituted more than 85% of our consolidated revenues. The downturn in general economic conditions and the substantial decline in the stock market have led to reduced demand for a variety of goods and services, including many technology products. Recessionary economic conditions have created a challenging environment in the smartphone market including declining average selling prices and increased competition. If we are unable to adequately respond to changes in demand for our products, our revenues and results of operations could be adversely affected. In addition, as our products and product categories mature and face greater competition, and if these recessionary economic conditions continue to decline, or fail to improve, we could see a further decrease in the overall demand for our products or we may experience pressure on our product pricing to preserve demand for our products, which would adversely affect our margins, results of operations and financial condition.

This reliance on the success of and trends in our industry is compounded by the size of our organization, our focus on smartphones and related products and services and the limited numbers of smartphones we currently have available. These factors also make us more dependent on investments of our limited resources. For example, we face many resource allocation decisions, such as: where to focus our research and development, geographic sales and marketing and partnering efforts; which aspects of our business to outsource; which operating systems and email solutions to support; and how to balance among our products. Given the size and undiversified nature of our organization, any error in investment strategy could harm our business, results of operations and financial condition.

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We are subject to increasingly stringent laws, standards and other regulatory requirements, and the costs of compliance or failure to comply may adversely impact our business, results of operations and financial condition.

We must comply with a variety of laws, standards and other requirements governing, among other things, health and safety, hazardous materials usage, packaging and environmental matters and our products must obtain regulatory approvals and satisfy other regulatory concerns in the various jurisdictions where they are manufactured and sold. Many of our products must meet standards governing, among other things, interference with other electronic equipment and human exposure to electromagnetic radiation. Failure to comply with such requirements can subject us to liability, additional costs and reputational harm and in severe cases prevent us from selling our products in certain jurisdictions. For example, we are subject to laws and regulations that restrict the use of lead and other hazardous substances and require us as producers of electrical and electronic equipment to assume responsibility for collecting, treating, recycling and disposing of our products when they have reached the end of their useful life. Failure to comply with these and other applicable environmental requirements can result in fines, civil or criminal sanctions and third-party claims. If products we sell in Europe are found to contain more than the permitted percentage of lead or other restricted substances, it is possible that we could be forced to recall the products, which could result in gaps in supply, substantial replacement costs, contract damage claims from customers, and reputational harm. We are now and expect in the future to become subject to additional laws, standards and other regulatory requirements in the United States, China, Europe and other parts of the world.

As a result of these varying and developing requirements throughout the world, we are now facing increasingly complex procurement and design challenges, which, among other things, require us to incur additional costs identifying suppliers and contract manufacturers who can provide, and otherwise obtain, compliant materials, parts and end products and re-designing our products so that they comply with these and the many other requirements applicable to them. We cannot assure you that our costs of complying with and our liabilities arising from current and future health and safety, environmental and other laws, standards and regulatory requirements will not adversely affect our business, results of operations or financial condition.

Allegations of health risks associated with electromagnetic fields and wireless communications devices, and the lawsuits and publicity relating to them, regardless of merit, could adversely impact our business, results of operations and financial condition.

There has been public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and to radio signals from the use of mobile devices. Government agencies, international health organizations and other scientific bodies are currently conducting research into these issues. In addition, other mobile device companies have been named in individual plaintiff and class action lawsuits alleging that radio emissions from mobile phones have caused or contributed to brain tumors and that the use of mobile phones poses a health risk. While there has been significant scientific research by various independent research bodies that has indicated that exposure to electromagnetic fields or to radio signals, at levels within the limits prescribed by public health authority standards and recommendations, present no adverse effect to human health, we cannot assure you that other studies will not suggest or identify a link between electromagnetic fields or radio signals and adverse health effects or that we will not be the subject of future lawsuits relating to this issue. Adverse factual developments or lawsuits against us, or even the perceived risk of adverse health effects from smartphones or other handheld devices, could adversely impact sales, subject us to costly litigation, or harm our reputation, business, results of operations and financial condition.

If third parties infringe our intellectual property or if we are unable to secure and protect our intellectual property, we may expend significant resources enforcing our rights or suffer competitive injury.

Our success depends in large part on our proprietary technology and other intellectual property rights. We have a significant investment in the rights to the Palm brand and related trademarks and will continue to invest in that brand and in our patent portfolio.

We rely on a combination of patents, copyrights, trademarks and trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. Our intellectual property, particularly our patents, may not provide us a significant competitive advantage. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.

Our pending patent and trademark applications for registration may not be allowed, or others may challenge the validity or scope of our patents or trademarks, including patent or trademark applications or registrations. Even if our patents or trademark registrations are issued and maintained, these patents or trademarks may not be of adequate scope or benefit to us or may be held invalid and unenforceable against third parties.

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We may be required to spend significant resources to monitor and police our intellectual property rights. Effective policing of the unauthorized use of our products or intellectual property is difficult and litigation may be necessary in the future to enforce our intellectual property rights. Intellectual property litigation is not only expensive, but time-consuming, regardless of the merits of any claim, and could divert attention of our management from operating our business and harm our reputation among developer communities. Despite our efforts, we may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable, unenforceable or limited in some foreign countries, which could make it easier for competitors to capture market share.

In the past, there have been leaks of proprietary information associated with our intellectual property. We have implemented a security plan to reduce the risk of future leaks of proprietary information; however, we cannot assure you that the security plan will be able to prevent the risk of all leaks of proprietary information. In addition, we may not be successful in preventing those who have obtained our proprietary information through past leaks from using our technology to produce competing products or in preventing future leaks of proprietary information.

Despite our efforts to protect our proprietary rights, existing laws, contractual provisions and remedies afford only limited protection. Intellectual property lawsuits are subject to inherent uncertainties due to, among other things, the complexity of the technical issues involved, and we cannot assure you that we will be successful in asserting intellectual property claims. Attempts may be made to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Accordingly, we cannot assure you that we will be able to protect our proprietary rights against unauthorized third-party copying or use. The unauthorized use of our technology or of our proprietary information by competitors could have an adverse effect on our ability to sell our products.

We do business in countries whose laws may not provide protection of our intellectual property rights to the same extent as the laws of the United States, which may make it more difficult for us to protect our intellectual property.

We have customers and relationships with suppliers and ODMs in many countries around the world. However, many of these countries do not address to the same extent as the United States misappropriation of intellectual property or deter others from developing similar, competing technologies or intellectual property. Effective protection of patents, copyrights, trademarks, trade secrets and other intellectual property may be unavailable or limited in some foreign countries. As a result, we may not be able to effectively prevent competitors in these regions from infringing our intellectual property rights, which would reduce our competitive advantage and ability to compete in those regions and negatively impact our business.

Our future results could be harmed by economic, political, regulatory and other risks associated with international sales and operations.

Because we sell our products worldwide and most of the facilities where our devices are manufactured, distributed and supported are located outside the United States, our business is subject to risks associated with doing business internationally, such as:

• injunctions against import by the International Trade Commission;

• changes in foreign currency exchange rates;

• changes in a specific country’s or region’s political or economic conditions, particularly in emerging markets;

• changes in international relations;

• trade protection measures and import or export licensing requirements;

• changes in or interpretation of tax laws;

• compliance with a wide variety of laws and regulations which may have civil and/or criminal consequences for us and our officers and directors who we indemnify;

• difficulty in managing widespread sales operations; and

• difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs.

In addition, we are subject to changes in demand for our products resulting from exchange rate fluctuations that make our products relatively more or less expensive in international markets. If exchange rate fluctuations occur, our business and results of operations could be harmed by decreases in demand for our products or reductions in margins.

While we sell our products worldwide, we have limited experience with sales and marketing in some countries. There can be no assurance that we will be able to market and sell our products in all of our targeted international markets. If our international efforts are not successful, our business growth and results of operations could be harmed.

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We may be required to record impairment charges in future quarters as a result of the decline in value of our investments in auction rate securities.

We hold a variety of interest bearing ARS that represent investments in pools of assets, including preferred stock, collateralized debt obligations, credit linked notes and credit derivative products. At the time of acquisition, these ARS investments were intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or gain immediate liquidity by selling such interests at par. Beginning in fiscal year 2008, uncertainties in the credit markets affected all of our holdings in ARS investments and auctions for our investments in these securities failed to settle on their respective settlement dates. Auctions for our investments in these securities have continued to fail during fiscal year 2009. Consequently, the investments are not currently liquid and we will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. We may decide to hold these investments for a long time or to sell them at a substantial discount if we need liquidity. Maturity dates for these ARS investments range from 2017 to 2052.

The valuation of our investment portfolio, including our investment in ARS, is subject to uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities as well as to the underlying assets supporting these securities, rates of default of the underlying assets, underlying collateral value, discount rates, liquidity and ongoing strength and quality of credit markets. Due to continued deterioration during fiscal year 2009, we expect to record additional ARS impairment charges in the fourth quarter and to record additional impairment charges in future quarters.

Our ability to utilize our net operating losses may be limited if cumulative changes in ownership of Palm exceed 50%.

We have substantial U.S. federal income tax net operating loss carryforwards. If over a rolling three-year period, the cumulative change in our ownership exceeds 50%, our ability to utilize our net operating losses to offset future taxable income may be limited. We have exceeded this 50% cumulative change threshold in the period from our initial public offering in 2000. While no prior occurrence had a material adverse effect on our ability to use our net operating losses, exceeding the 50% cumulative change threshold during a time when our capitalization is low could have a more substantive effect. We have not yet determined the amount of the cumulative change in our ownership resulting from our recent offering or certain other transactions. The effect of such transactions on our cumulative change in ownership may limit or otherwise negatively affect the benefits of engaging in financing and other transactions in the future. Furthermore, it is possible that transactions in our stock that may not be within our control may cause us to exceed the 50% cumulative change threshold and may impose a limitation on the utilization of our net operating losses in the future. In the event the usage of these net operating losses is subject to limitation and we are profitable, our future cash flows could be adversely impacted due to our increased tax liability.

We are subject to audit by the Internal Revenue Service and other taxing authorities. Any assessment arising from an audit and the cost of any related dispute could adversely affect our results of operations and financial condition.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions and to review or audit by the Internal Revenue Service and state, local and foreign tax authorities. While we strongly believe our tax positions are compliant with applicable tax laws and regulations, our positions could be subject to dispute by the taxing authorities. Any such dispute could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations.

We may pursue strategic acquisitions and investments which could have an adverse impact on our business if they are unsuccessful.

We have made acquisitions in the past and will continue to evaluate other acquisition opportunities that could provide us with additional product or service offerings or with additional industry expertise, assets and capabilities. Acquisitions could result in difficulties integrating acquired operations, products, technology, internal controls, personnel and management teams and result in the diversion of capital and management’s attention away from other business issues and opportunities. If we fail to successfully integrate acquisitions, including timely integration of internal controls to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, our business could be harmed. In addition, our acquisitions may not be successful in achieving our desired strategic objectives, which would also cause our business to suffer. Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as acquired in-process research and development, impairment of goodwill or the recording of stock-based compensation. In addition, from time to time we make strategic venture investments in other companies that provide products and services that are complementary to ours. If these investments are unsuccessful, this could have an adverse impact on our results of operations and financial condition.

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Business interruptions could adversely affect our business.

Our operations and those of our suppliers and customers are vulnerable to interruption by fire, hurricanes, earthquake, power loss, telecommunications failure, computer viruses, computer hackers, terrorist attacks, wars, military activity, labor disruptions, health epidemics and other natural disasters and events beyond our control. For example, a significant part of our third-party manufacturing is based in Taiwan, an area that has experienced earthquakes and is considered seismically active. In addition, the business interruption insurance we carry may not cover, in some instances, or be sufficient to compensate us fully for losses or damages—including, for example, loss of market share and diminution of our brand, reputation and customer loyalty—that may occur as a result of such events. Any such losses or damages incurred by us could have an adverse effect on our business.

Wars, terrorist attacks or other threats beyond our control could negatively impact consumer confidence, which could harm our operating results.

Wars, terrorist attacks or other threats beyond our control could have an adverse impact on the United States and world economy in general, and consumer confidence and spending in particular, which could harm our business, results of operations and financial condition.

Risks Related to the Securities Markets and Ownership of Our Common and Preferred Stock

Our common stock price may be subject to significant fluctuations and volatility.

The market price of our common stock has been subject to significant fluctuations since the date of our initial public offering. Since the beginning of fiscal year 2009, our closing stock price has ranged from $1.42 on December 5, 2008 to $8.98 on February 12, 2009. These fluctuations could continue. Among the factors that could affect our stock price are:

• the anticipated and actual results of new product introductions;

• quarterly variations in our operating results;

• conditions affecting our wireless carrier customers, ODMs and suppliers;

• litigation or threats of litigation;

• changes in revenues or earnings estimates or publication of research reports by analysts;

• speculation in the press or investment community;

• strategic actions by us, our customers, our suppliers or our competitors, such as new product announcements, acquisitions or restructurings;

• actions by institutional stockholders or financial analysts;

• general market conditions; and

• domestic and international economic factors unrelated to our performance.

The stock markets in general, and the markets for high technology stocks in particular, have experienced high volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.

Elevation Partners may exercise significant influence over Palm.

As of February 28, 2009, the Series B Preferred Stock and Series C Preferred Stock owned by Elevation and its affiliates are convertible into 38% of our outstanding common stock on an as-converted basis and vote on an as-converted basis with our common stock on all matters other than the election of those directors elected solely by the holders of our common stock. Additionally, Elevation and its affiliates hold warrants to purchase an additional 7.0 million shares of Palm common stock, which, if converted, would bring their ownership percentage to 41% as of February 28, 2009. On March 9, 2009, we exercised our Transfer Right, which resulted in the conversion of 49,000 Series C Units into 15.1 million shares of our common stock and warrants to purchase 3.4 million shares of our common stock. The warrants were delivered to us for cancellation and the shares of common stock were sold to other investors, along with 11.5 million additional shares of our common stock. Elevation used the return of its initial $49.0 million investment from the sale of the 49,000 Series C Units to re-purchase 8.2 million of the newly issued shares at the public offering per share price of $6.00. On an as-converted and an as-exercised basis, the ownership percentage of Elevation and its affiliates after the consummation of this transaction was 34.3%. The voting rights of Elevation and its affiliates on an as-converted basis are capped at 39.9% of the outstanding common stock and Elevation and its affiliates are prohibited from converting their Series B Preferred Stock and Series C Preferred Stock to the

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extent such conversion would cause the 39.9% voting limitation to be exceeded. Notwithstanding these voting and conversion limitations, Elevation has the ability to significantly influence the outcome of any matter submitted for the vote of Palm stockholders. Elevation may have interests that diverge from, or even conflict with, those of Palm or its stockholders.

Subject to certain exceptions, Elevation has the right under the terms of an amended and restated stockholders’ agreement between Palm and Elevation, or the Amended and Restated Stockholders’ Agreement, to maintain its ownership interest in Palm.

In addition, the terms of the Series B Preferred Stock and Series C Preferred Stock and the Amended and Restated Stockholders’ Agreement provide that Elevation has the right to designate a percentage of Palm’s board of directors proportional to Elevation’s ownership position in Palm. Currently, Elevation has the right to designate, and has designated, three of the members of our nine-member board as holders of the Series B Preferred Stock and Series C Preferred Stock.

Certain elements of our relationship with Elevation Partners and our executive officers may discourage other parties from trying to acquire Palm.

The ownership position and governance rights of Elevation could discourage a third party from proposing a change of control or other strategic transaction concerning Palm. Of the nine members of our board of directors, three are Elevation designees and two members are executive officers of Palm. These governance arrangements may discourage a third party from pursuing such transactions with Palm. Also, employment arrangements with our executive officers provide for termination benefits, including acceleration of the vesting of certain equity awards if they terminate their employment for good reason or are terminated without cause following a change of control or within three months prior to a change of control of Palm. Further, in connection with certain change of control transactions in which Elevation maintains a beneficial ownership percentage of at least 7.5% of the surviving entity, they are entitled to retain a seat on the board of directors of the surviving entity. As a result of these factors, our common stock could trade at prices that do not reflect a “takeover premium” to the same extent as do the stocks of similarly situated companies that do not have a stockholder with an ownership interest as large as Elevation’s ownership interest.

We may not have the ability to finance the mandatory repurchase offer pursuant to the terms of the Series B Preferred Stock and/or the Series C Preferred Stock.

If certain change of control transactions occur, we will be required to make an offer to repurchase up to all of the then outstanding shares of Series B Preferred Stock and, subject to consent from the lenders under the Credit Agreement, Series C Preferred Stock, at the option and election of the holders thereof. We will have the option to pay the repurchase price in cash or, subject to certain conditions, publicly traded shares of the acquiring entity in the change of control transaction. The cash repurchase price per share is 101% of the purchase price plus accrued and unpaid dividends. The repurchase price per share, if paid in publicly traded shares of the acquiring entity, is 105% of the purchase price plus accrued and unpaid dividends. Our failure to pay the repurchase price in respect of all tendered shares for any reason, including the absence of funds legally available for such payment, would require us to pay conditional dividends, which represent a cash dividend at an annual rate equal to the prime rate of JPMorgan Chase Bank N.A. plus 4%, on each share of Series B Preferred Stock and Series C Preferred Stock. Conditional dividends will accrue and cumulate until the date on which we pay the entire repurchase price, and will be payable quarterly. For so long as conditional dividends are accruing, neither we nor any of our subsidiaries may declare or pay any dividends on our common stock, or repurchase or redeem any shares of our common stock. This may adversely affect the rights of our existing stockholders and the market price of our common stock. These repurchase requirements may also delay or make it more difficult for others to obtain control of us.

Provisions in our charter documents and Delaware law and our adoption of a stockholder rights plan may delay or prevent acquisition of us, which could decrease the value of shares of our common stock.

Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions include a classified Board of Directors and limitations on actions by our stockholders by written consent. Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock (including Series B Preferred Stock and Series C Preferred Stock outstanding on an as-converted basis). In addition, our Board of Directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Although we believe these provisions provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if the offer may be considered beneficial by some stockholders.

68

Our Board of Directors adopted a stockholder rights plan, pursuant to which we declared and paid a dividend of one right for each share of common stock outstanding as of November 6, 2000. Unless redeemed by us prior to the time the rights are exercised, upon the occurrence of certain events, the rights will entitle the holders to receive upon exercise of the rights shares of our common stock, or shares of common stock of an acquiring entity, having a value equal to twice the then-current exercise price of the right. The issuance of the rights could have the effect of delaying or preventing a change in control of us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities

The following table summarizes employee stock repurchase activity for the three months ended February 28, 2009:

	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan (2)	Average Price Paid Per Share		Approximate Dollar Value of Shares that May Yet be Purchased under the Plan (2)
December 1, 2008—December 31, 2008	4,467	$	2.30	—	$	—	$	219,037,247
January 1, 2009—January 31, 2009	—		—	—		—	$	219,037,247
February 1, 2009—February 28, 2009	—		—	—		—	$	219,037,247
	4,467			—

(1) During the three months ended February 28, 2009, Palm repurchased 4,467 shares of common stock at an average price of $2.30 per share. Repurchased shares represent shares of Palm common stock that employees deliver back to Palm to satisfy tax-withholding obligations at the settlement of restricted stock vesting and/or the forfeiture of restricted shares upon the termination of an employee. As of February 28, 2009, a total of 266,000 restricted shares may still be repurchased.

(2) In September 2006, Palm’s Board of Directors authorized a stock buyback program for Palm to repurchase up to $250.0 million of its common stock. The program does not have a specified expiration date. During the three months ended February 28, 2009, no shares were repurchased under the stock buyback program. As of February 28, 2009, $219.0 million remains available for future repurchase.

69

Item 6. Exhibits

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
2.1	Master Separation and Distribution Agreement between 3Com and the registrant effective as of December 13, 1999, as amended.	S-1/A	333-92657	2.1	1/28/00
2.2	Tax Sharing Agreement between 3Com and the registrant.	10-Q	000-29597	2.7	4/10/00
2.3	Indemnification and Insurance Matters Agreement between 3Com and the registrant.	10-Q	000-29597	2.11	4/10/00
2.4	Form of Non-U.S. Plan.	S-1	333-92657	2.12	12/13/99
2.5	Agreement and Plan of Reorganization between the registrant, Peace Separation Corporation, Harmony Acquisition Corporation and Handspring, Inc., dated June 4, 2003.	8-K	000-29597	2.1	6/6/03
2.6	Amended and Restated Master Separation Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.14	8/18/03
2.7	Amended and Restated Indemnification and Insurance Matters Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.17	8/18/03
2.8	Amended and Restated Tax Sharing Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.23	8/18/03
2.9	Master Patent Ownership and License Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.30	8/18/03
2.10	Xerox Litigation Agreement between the registrant and PalmSource, Inc., as amended.	10-K/A	000-29597	2.34	9/26/03
3.1	Amended and Restated Certificate of Incorporation.	10-Q	000-29597	3.1	10/11/02
3.2	Amended and Restated Bylaws.	8-K	000-29597	3.2	10/30/07
3.3	Certificate of Amendment of Certificate of Incorporation.	8-K	000-29597	3.3	10/30/07
3.4	Certificate of Designation of Series A Participating Preferred Stock.	8-K	000-29597	3.1	11/22/00
3.5	Certificate of Amendment to Certificate of Designation of Series B Convertible Preferred Stock.					X
3.6	Certificate of Designation of Series C Convertible Preferred Stock.					X
4.1	Reference is made to Exhibits 3.1, 3.2, 3.4 and 3.5 hereof.	N/A	N/A	N/A	N/A	N/A
4.2	Specimen Stock Certificate.	10-K	000-29597	4.2	7/29/05
4.3	Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A. (formerly Fleet National Bank), as amended.	8-K	000-29597	4.1	11/22/00
4.4	5% Convertible Subordinated Note, dated as of November 4, 2003.	10-Q	000-29597	4.4	4/6/04
4.5	Amendment to Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A.	8-A/A	000-29597	4.2	11/18/04
4.6	Certificate of Ownership and Merger Merging Palm, Inc. into palmOne, Inc.	10-K	000-29597	4.6	7/29/05
4.7	Amendment No. 2 to Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A.	8-K	000-29597	4.1	6/5/07
4.8	Amendment No. 3 to Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A.	8-A12G/A	000-29597	4.4	10/30/07

70

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
4.9	Amendment No. 4 to Preferred Stock Rights Agreement between the registrant and Computershare Trust Company, N.A., dated as of December 22, 2008.	8-A12G/A	000-29597	4.5	1/2/09
4.10	Amendment No. 5 to Preferred Stock Rights Agreement between the registrant and Computershare Trust Company, N.A., dated as of December 22, 2008.	8-A12G/A	000-29597	4.6	1/13/09
10.1*	Form of Stock Option Agreement under 1999 Stock Plan.	S-1/A	333-92657	10.2	1/28/00
10.2*	Amended and Restated 1999 Employee Stock Purchase Plan.	S-8	000-29597	10.2	11/18/04
10.3*	Form of 1999 Employee Stock Purchase Plan Agreements.	S-1/A	333-92657	10.4	1/28/00
10.4*	Amended and Restated 1999 Director Option Plan.	S-8	333-47126	10.5	10/2/00
10.5*	Form of 1999 Director Option Plan Agreements.	S-1/A	333-92657	10.6	1/28/00
10.6	Form of Indemnification Agreement entered into by the registrant with each of its directors and executive officers.	S-1/A	333-92657	10.8	1/28/00
10.7*	Form of Management Retention Agreement.	S-1/A	333-92657	10.14	2/28/00
10.8*	Form of Severance Agreement for Executive Officers.	10-Q	000-29597	10.44	10/11/02
10.9*	Amended and Restated 2001 Stock Option Plan for Non-Employee Directors.	10-Q	000-29597	10.13	10/5/06
10.10*	Handspring, Inc. 1998 Equity Incentive Plan, as amended.	S-8	333-110055	10.1	10/29/03
10.11*	Handspring, Inc. 1999 Executive Equity Incentive Plan, as amended.	S-8	333-110055	10.2	10/29/03
10.12*	Handspring, Inc. 2000 Equity Incentive Plan, as amended.	S-8	333-110055	10.3	10/29/03
10.13	Amendment No. 3 to the Loan and Security Agreement between the registrant and Silicon Valley Bank.	10-Q	000-29597	10.29	4/5/05
10.14	Sub-Lease between the registrant and Philips Electronics North America Corporation.	10-Q	000-29597	10.30	4/5/05
10.15	Offer Letter from the registrant to Andrew J. Brown dated as of December 13, 2004.	10-Q	000-29597	10.31	4/5/05
10.16	Loan Modification Agreement between the registrant and Silicon Valley Bank.	10-K	000-29597	10.25	7/29/05
10.17	Second Amended and Restated Software License Agreement between the registrant and PalmSource, Inc., PalmSource Overseas Limited and palmOne Ireland Investment, dated May 23, 2005.	8-K	000-29597	10.2	7/28/05
10.18	Purchase Agreement between the registrant, PalmSource, Inc. and Palm Trademark Holding Company, LLC, dated May 23, 2005.	8-K	000-29597	10.1	5/27/05
10.19	Purchase and Sale Agreement and Escrow Instructions between the registrant and Hunter/Storm, LLC, dated February 2, 2006.	10-Q	000-29597	10.25	4/11/06
10.20	First Amendment of Purchase and Sale Agreement and Escrow Instructions, dated March 13, 2006.	10-Q	000-29597	10.27	4/11/06
10.21	Second Amendment of Purchase and Sale Agreement and Escrow Instructions, dated April 3, 2006.	10-Q	000-29597	10.28	4/11/06
10.22	Patent License and Settlement Agreement between the registrant and Xerox Corporation, dated June 27, 2006.	10-K	000-29597	10.29	7/28/06

71

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
10.23*	Form of Performance Share Agreement for Directors under 1999 Stock Plan.	8-K	000-29597	10.1	10/12/06
10.24*	Form of Performance Share Agreement for U.S. Grantees under 1999 Stock Plan.	10-Q	000-29597	10.31	1/9/07
10.25**	2006 Software License Agreement between the registrant and ACCESS Systems Americas, Inc., dated December 5, 2006.	8-K	000-29597	10.1	4/4/07
10.26	Amendment No. 1 to Master Patent Ownership and License Agreement between the registrant and ACCESS Systems Americas, Inc., dated December 5, 2006.	8-K	000-29597	10.2	4/4/07
10.27	Preferred Stock Purchase Agreement and Agreement and Plan of Merger by and among the registrant, Elevation Partners, L.P. and Passport Merger Corporation, dated June 1, 2007.	8-K	000-29597	2.1	6/5/07
10.28	Amended and Restated Registration Rights Agreement among the registrant, Elevation Partners, L.P. and Elevation Employee Side Fund, LLC, dated as of January 9, 2009.					X
10.29	Amended and Restated Stockholders’ Agreement among the registrant, Elevation Partners, L.P. and Elevation Employee Side Fund, LLC, dated as of January 9, 2009.					X
10.30	Offer Letter from the registrant to Jonathan Rubinstein, dated as of June 1, 2007.	10-Q	000-29597	10.34	1/9/08
10.31	Offer Letter Amendment between the registrant and Jonathan Rubinstein, dated as of October 29, 2007.	10-Q	000-29597	10.35	1/9/08
10.32*	Employment Agreement between the registrant and Jonathan Rubinstein, dated as of June 1, 2007 (effective as of October 24, 2007).	10-Q	000-29597	10.36	1/9/08
10.33*	Management Retention Agreement between the registrant and Jonathan Rubinstein, dated as of June 1, 2007 (effective as of October 24, 2007).	10-Q	000-29597	10.37	1/9/08
10.34*	Severance Agreement between the registrant and Jonathan Rubinstein, dated as of June 1, 2007 (effective as of October 24, 2007).	10-Q	000-29597	10.38	1/9/08
10.35*	Inducement Option Agreement between the registrant and Jonathan Rubinstein.	S-8	333-148528	10.3	1/8/08
10.36*	Inducement Restricted Stock Unit Agreement between the registrant and Jonathan Rubinstein.	S-8	333-148528	10.4	1/8/08
10.37*	Form of Restricted Stock Purchase Agreement for US Grantees under 1999 Stock Plan.	10-Q	000-29597	10.41	1/9/08
10.38	Credit Agreement among the registrant, the lenders party thereto, JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc., dated as of October 24, 2007.	10-Q	000-29597	10.42	1/9/08
10.39*	Form of Stock Purchase Right Agreement under 1999 Stock Plan.	10-Q	000-29597	10.43	4/7/08
10.40	Amendment No. 1 to Option Agreements between the registrant and C. John Hartnett, dated as of October 30, 2008.	10-Q	000-29597	10.40	1/6/09
10.41	Offer Letter from the registrant to Douglas C. Jeffries, dated as of December 10, 2008.	10-Q	000-29597	10.41	1/6/09
10.42	Amendment No. 1 to Option Agreements between the registrant and Andrew J. Brown, dated as of December 16, 2008.	10-Q	000-29597	10.42	1/6/09

72

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
10.43*	Form of Amended and Restated Severance Agreement.	10-Q	000-29597	10.43	1/6/09
10.44*	Form of Amended and Restated Management Retention Agreement.	10-Q	000-29597	10.44	1/6/09
10.45	Securities Purchase Agreement between Elevation Partners, L.P. and the registrant, dated as of December 22, 2008.	10-Q	000-29597	10.45	1/6/09
10.46	Tranche B Term Note, dated as of January 5, 2009.					X
10.47	Revolving Note, dated as of January 5, 2009.					X
10.48	Form of Warrant for the Purchase of Shares of Common Stock of the registrant.					X
10.49*	Amendment No. 2 to the 2001 Stock Option Plan for Non-Employee Directors, dated as of February 2, 2009.					X
10.50	Amendment No. 1 to Option Agreements between the registrant and Donna L. Dubinsky, dated as of February 2, 2009.					X
10.51	Amendment No. 1 to the Amended and Restated Registration Rights Agreement among the registrant, Elevation Partners, L.P. and Elevation Employee Side Fund, LLC, dated as of March 17, 2009.					X
31.1	Rule 13a-14(a)/15d—14(a) Certification of Chief Executive Officer.					X
31.2	Rule 13a-14(a)/15d—14(a) Certification of Chief Financial Officer.					X
32.1	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.					X

* Indicates a management contract or compensatory plan, contract arrangement in which any Director or Executive Officer participates.

** Confidential treatment granted on portions of this exhibit.

73

Signatures

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

	Palm, Inc.
	(Registrant)
Date: April 3, 2009	By:	/s/    DOUGLAS C. JEFFRIES
		Douglas C. Jeffries
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

74

EXHIBIT INDEX

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
2.1	Master Separation and Distribution Agreement between 3Com and the registrant effective as of December 13, 1999, as amended.	S-1/A	333-92657	2.1	1/28/00
2.2	Tax Sharing Agreement between 3Com and the registrant.	10-Q	000-29597	2.7	4/10/00
2.3	Indemnification and Insurance Matters Agreement between 3Com and the registrant.	10-Q	000-29597	2.11	4/10/00
2.4	Form of Non-U.S. Plan.	S-1	333-92657	2.12	12/13/99
2.5	Agreement and Plan of Reorganization between the registrant, Peace Separation Corporation, Harmony Acquisition Corporation and Handspring, Inc., dated June 4, 2003.	8-K	000-29597	2.1	6/6/03
2.6	Amended and Restated Master Separation Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.14	8/18/03
2.7	Amended and Restated Indemnification and Insurance Matters Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.17	8/18/03
2.8	Amended and Restated Tax Sharing Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.23	8/18/03
2.9	Master Patent Ownership and License Agreement between the registrant and PalmSource, Inc.	S-4/A	333-106829	2.30	8/18/03
2.10	Xerox Litigation Agreement between the registrant and PalmSource, Inc., as amended.	10-K/A	000-29597	2.34	9/26/03
3.1	Amended and Restated Certificate of Incorporation.	10-Q	000-29597	3.1	10/11/02
3.2	Amended and Restated Bylaws.	8-K	000-29597	3.2	10/30/07
3.3	Certificate of Amendment of Certificate of Incorporation.	8-K	000-29597	3.3	10/30/07
3.4	Certificate of Designation of Series A Participating Preferred Stock.	8-K	000-29597	3.1	11/22/00
3.5	Certificate of Amendment to Certificate of Designation of Series B Convertible Preferred Stock.					X
3.6	Certificate of Designation of Series C Convertible Preferred Stock.					X
4.1	Reference is made to Exhibits 3.1, 3.2, 3.4 and 3.5 hereof.	N/A	N/A	N/A	N/A	N/A
4.2	Specimen Stock Certificate.	10-K	000-29597	4.2	7/29/05
4.3	Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A. (formerly Fleet National Bank), as amended.	8-K	000-29597	4.1	11/22/00
4.4	5% Convertible Subordinated Note, dated as of November 4, 2003.	10-Q	000-29597	4.4	4/6/04
4.5	Amendment to Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A.	8-A/A	000-29597	4.2	11/18/04
4.6	Certificate of Ownership and Merger Merging Palm, Inc. into palmOne, Inc.	10-K	000-29597	4.6	7/29/05
4.7	Amendment No. 2 to Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A.	8-K	000-29597	4.1	6/5/07
4.8	Amendment No. 3 to Preferred Stock Rights Agreement between the registrant and EquiServe Trust Company, N.A.	8-A12G/A	000-29597	4.4	10/30/07

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
4.9	Amendment No. 4 to Preferred Stock Rights Agreement between the registrant and Computershare Trust Company, N.A., dated as of December 22, 2008.	8-A12G/A	000-29597	4.5	1/2/09
4.10	Amendment No. 5 to Preferred Stock Rights Agreement between the registrant and Computershare Trust Company, N.A., dated as of December 22, 2008.	8-A12G/A	000-29597	4.6	1/13/09
10.1*	Form of Stock Option Agreement under 1999 Stock Plan.	S-1/A	333-92657	10.2	1/28/00
10.2*	Amended and Restated 1999 Employee Stock Purchase Plan.	S-8	000-29597	10.2	11/18/04
10.3*	Form of 1999 Employee Stock Purchase Plan Agreements.	S-1/A	333-92657	10.4	1/28/00
10.4*	Amended and Restated 1999 Director Option Plan.	S-8	333-47126	10.5	10/2/00
10.5*	Form of 1999 Director Option Plan Agreements.	S-1/A	333-92657	10.6	1/28/00
10.6	Form of Indemnification Agreement entered into by the registrant with each of its directors and executive officers.	S-1/A	333-92657	10.8	1/28/00
10.7*	Form of Management Retention Agreement.	S-1/A	333-92657	10.14	2/28/00
10.8*	Form of Severance Agreement for Executive Officers.	10-Q	000-29597	10.44	10/11/02
10.9*	Amended and Restated 2001 Stock Option Plan for Non-Employee Directors.	10-Q	000-29597	10.13	10/5/06
10.10*	Handspring, Inc. 1998 Equity Incentive Plan, as amended.	S-8	333-110055	10.1	10/29/03
10.11*	Handspring, Inc. 1999 Executive Equity Incentive Plan, as amended.	S-8	333-110055	10.2	10/29/03
10.12*	Handspring, Inc. 2000 Equity Incentive Plan, as amended.	S-8	333-110055	10.3	10/29/03
10.13	Amendment No. 3 to the Loan and Security Agreement between the registrant and Silicon Valley Bank.	10-Q	000-29597	10.29	4/5/05
10.14	Sub-Lease between the registrant and Philips Electronics North America Corporation.	10-Q	000-29597	10.30	4/5/05
10.15	Offer Letter from the registrant to Andrew J. Brown dated as of December 13, 2004.	10-Q	000-29597	10.31	4/5/05
10.16	Loan Modification Agreement between the registrant and Silicon Valley Bank.	10-K	000-29597	10.25	7/29/05
10.17	Second Amended and Restated Software License Agreement between the registrant and PalmSource, Inc., PalmSource Overseas Limited and palmOne Ireland Investment, dated May 23, 2005.	8-K	000-29597	10.2	7/28/05
10.18	Purchase Agreement between the registrant, PalmSource, Inc. and Palm Trademark Holding Company, LLC, dated May 23, 2005.	8-K	000-29597	10.1	5/27/05
10.19	Purchase and Sale Agreement and Escrow Instructions between the registrant and Hunter/Storm, LLC, dated February 2, 2006.	10-Q	000-29597	10.25	4/11/06
10.20	First Amendment of Purchase and Sale Agreement and Escrow Instructions, dated March 13, 2006.	10-Q	000-29597	10.27	4/11/06
10.21	Second Amendment of Purchase and Sale Agreement and Escrow Instructions, dated April 3, 2006.	10-Q	000-29597	10.28	4/11/06
10.22	Patent License and Settlement Agreement between the registrant and Xerox Corporation, dated June 27, 2006.	10-K	000-29597	10.29	7/28/06

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
10.23*	Form of Performance Share Agreement for Directors under 1999 Stock Plan.	8-K	000-29597	10.1	10/12/06
10.24*	Form of Performance Share Agreement for U.S. Grantees under 1999 Stock Plan.	10-Q	000-29597	10.31	1/9/07
10.25**	2006 Software License Agreement between the registrant and ACCESS Systems Americas, Inc., dated December 5, 2006.	8-K	000-29597	10.1	4/4/07
10.26	Amendment No. 1 to Master Patent Ownership and License Agreement between the registrant and ACCESS Systems Americas, Inc., dated December 5, 2006.	8-K	000-29597	10.2	4/4/07
10.27	Preferred Stock Purchase Agreement and Agreement and Plan of Merger by and among the registrant, Elevation Partners, L.P. and Passport Merger Corporation, dated June 1, 2007.	8-K	000-29597	2.1	6/5/07
10.28	Amended and Restated Registration Rights Agreement among the registrant, Elevation Partners, L.P. and Elevation Employee Side Fund, LLC, dated as of January 9, 2009.					X
10.29	Amended and Restated Stockholders’ Agreement among the registrant, Elevation Partners, L.P. and Elevation Employee Side Fund, LLC, dated as of January 9, 2009.					X
10.30	Offer Letter from the registrant to Jonathan Rubinstein, dated as of June 1, 2007.	10-Q	000-29597	10.34	1/9/08
10.31	Offer Letter Amendment between the registrant and Jonathan Rubinstein, dated as of October 29, 2007.	10-Q	000-29597	10.35	1/9/08
10.32*	Employment Agreement between the registrant and Jonathan Rubinstein, dated as of June 1, 2007 (effective as of October 24, 2007).	10-Q	000-29597	10.36	1/9/08
10.33*	Management Retention Agreement between the registrant and Jonathan Rubinstein, dated as of June 1, 2007 (effective as of October 24, 2007).	10-Q	000-29597	10.37	1/9/08
10.34*	Severance Agreement between the registrant and Jonathan Rubinstein, dated as of June 1, 2007 (effective as of October 24, 2007).	10-Q	000-29597	10.38	1/9/08
10.35*	Inducement Option Agreement between the registrant and Jonathan Rubinstein.	S-8	333-148528	10.3	1/8/08
10.36*	Inducement Restricted Stock Unit Agreement between the registrant and Jonathan Rubinstein.	S-8	333-148528	10.4	1/8/08
10.37*	Form of Restricted Stock Purchase Agreement for US Grantees under 1999 Stock Plan.	10-Q	000-29597	10.41	1/9/08
10.38	Credit Agreement among the registrant, the lenders party thereto, JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc., dated as of October 24, 2007.	10-Q	000-29597	10.42	1/9/08
10.39*	Form of Stock Purchase Right Agreement under 1999 Stock Plan.	10-Q	000-29597	10.43	4/7/08
10.40	Amendment No. 1 to Option Agreements between the registrant and C. John Hartnett, dated as of October 30, 2008.	10-Q	000-29597	10.40	1/6/09
10.41	Offer Letter from the registrant to Douglas C. Jeffries, dated as of December 10, 2008.	10-Q	000-29597	10.41	1/6/09
10.42	Amendment No. 1 to Option Agreements between the registrant and Andrew J. Brown, dated as of December 16, 2008.	10-Q	000-29597	10.42	1/6/09

		Incorporated by Reference				Filed Herewith
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
10.43*	Form of Amended and Restated Severance Agreement.	10-Q	000-29597	10.43	1/6/09
10.44*	Form of Amended and Restated Management Retention Agreement.	10-Q	000-29597	10.44	1/6/09
10.45	Securities Purchase Agreement between Elevation Partners, L.P. and the registrant, dated as of December 22, 2008.	10-Q	000-29597	10.45	1/6/09
10.46	Tranche B Term Note, dated as of January 5, 2009.					X
10.47	Revolving Note, dated as of January 5, 2009.					X
10.48	Form of Warrant for the Purchase of Shares of Common Stock of the registrant.					X
10.49*	Amendment No. 2 to the 2001 Stock Option Plan for Non-Employee Directors, dated as of February 2, 2009.					X
10.50	Amendment No. 1 to Option Agreements between the registrant and Donna L. Dubinsky, dated as of February 2, 2009.					X
10.51	Amendment No. 1 to the Amended and Restated Registration Rights Agreement among the registrant, Elevation Partners, L.P. and Elevation Employee Side Fund, LLC, dated as of March 17, 2009.					X
31.1	Rule 13a-14(a)/15d—14(a) Certification of Chief Executive Officer.					X
31.2	Rule 13a-14(a)/15d—14(a) Certification of Chief Financial Officer.					X
32.1	Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.					X

* Indicates a management contract or compensatory plan, contract arrangement in which any Director or Executive Officer participates.

** Confidential treatment granted on portions of this exhibit.

EX-3.5

Exhibit 3.5

CERTIFICATE OF AMENDMENT TO

CERTIFICATE OF DESIGNATION

OF SERIES B CONVERTIBLE PREFERRED STOCK

OF

PALM, INC.

Palm, Inc. (the “Company”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), hereby certifies, pursuant to Section 242 of the DGCL, that the following resolutions were duly adopted by its Board of Directors (the “Board”) on January 9, 2009:

WHEREAS, the Company’s Restated Certificate of Incorporation (the “Certificate of Incorporation”), authorizes 125,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), issuable from time to time in one or more series;

WHEREAS, the Certificate of Incorporation authorizes the Board to provide by resolution for the issuance of the shares of Preferred Stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof;

WHEREAS, on June 1, 2007, the Board resolved to authorize and establish the Series B Preferred Stock (as defined below) and adopted a Certificate of Designation of Series B Convertible Preferred Stock (the “Original Certificate of Designation”) setting forth the powers, designations, preferences and rights and the qualifications, limitations and restrictions thereof;

WHEREAS, on October 23, 2007, the Original Certificate of Designation was filed with the Secretary of State of the State of Delaware; and

WHEREAS, in connection with the designation and issuance of the Series C Preferred Stock (as defined below), the Board, with the consent of the holders of Series B Preferred Stock, resolved to amend and restate the Original Certificate of Designation (such amended and restated Certificate of Designation, the “Amended and Restated Certificate of Designation”) to conform certain powers and rights and qualifications, limitations and restrictions of the Series B Preferred Stock to the Series C Preferred Stock and to otherwise set forth the powers, designations, preferences and rights and the qualifications, limitations and restrictions of the Series B Preferred Stock, all as set forth herein.

NOW, THEREFORE, BE IT RESOLVED, that the Original Certificate of Designation be amended and restated in its entirety as follows:

SECTION 1. Number; Designation; Rank.

(a) This series of convertible participating Preferred Stock is designated as the “Series B Convertible Preferred Stock” (the “Series B Preferred Stock”). The number of shares constituting the Series B Preferred Stock is 325,000 shares, par value $0.001 per share.

(b) The Series B Preferred Stock ranks, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company:

(i) senior in preference and priority to the common stock of the Company, par value $0.001 per share (the “Common Stock”), the series of Preferred Stock of the Company that is designated as “Series A Participating Preferred Stock”, par value $0.001 per share (the “Series A Preferred Stock”) and each other class or series of Equity Security (as defined in SECTION 8(t)) of the Company the terms of which do not expressly provide that it ranks senior in preference or priority to or on parity, without preference or priority, with the Series B Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company (collectively with the Common Stock, the “Junior Securities”);

(ii) on parity, without preference and priority, with the series of Preferred Stock of the Company that is designated as “Series C Convertible Preferred Stock”, par value $0.001 per share (the “Series C Preferred Stock”) and each other class or series of Equity Security of the Company, the terms of which expressly provide that it will rank on parity, without preference or priority, with the Series B Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company (collectively, the “Parity Securities”), and

(iii) junior in preference and priority to each other class or series of Equity Security of the Company the terms of which expressly provide that it will rank senior in preference or priority to the Series B Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company (collectively, the “Senior Securities”).

SECTION 2. Dividends.

(a) Participating Dividends. Each holder of issued and outstanding Series B Preferred Stock will be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends for each share of Series B Preferred Stock, dividends of the same type as any dividends or other distribution, whether in cash, in kind or in other property, payable or to be made on outstanding shares of Common Stock (or Reference Property, to the extent applicable), in an amount equal to the amount of such dividends or other distribution as would be made on the largest number of shares of Common Stock (or Reference Property, to the extent applicable) into which such share of Series B Preferred Stock could be converted on the applicable record date for such dividends or other distribution on the Common Stock (or Reference Property, to the extent applicable), assuming such converted shares of Common Stock (or Reference Property, to the extent applicable) were outstanding on the applicable record date for such dividend or other distribution and without giving effect to the limitations set forth in SECTION 5(b) (the “Participating Dividends”); provided, however, that notwithstanding the above, the holders of Series B Preferred Stock shall not be entitled to receive any dividends or distributions for which an adjustment to the Conversion Price shall be made pursuant to SECTION 5(f)(i)(A) (and such dividends or distributions that are not payable to the holders of Series B Preferred Stock as a result of this proviso shall not be deemed to be Participating Dividends); provided, further, however, that notwithstanding the above, the holders of Series B Preferred Stock shall not be entitled to receive any dividends or distributions of Rights if, following the occurrence of a Distribution Date in respect of such Rights, an adjustment to the Conversion Price would be made pursuant to SECTION 5(f)(ii)

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(assuming, for purposes of this SECTION 2(a), that the holder of such shares of Series B Preferred Stock were not an Acquiring Person or an Affiliate (as defined in the Company Rights Plan or its comparable term/provision under any successor, substitute or additional shareholder rights plan) or an Associate (as defined in the Company Rights Plan or its comparable term/provision under any successor, substitute or additional shareholder rights plan) of such Acquiring Person)(and such dividends or distributions that are not payable to the holders of Series B Preferred Stock as a result of this proviso shall not be deemed to be Participating Dividends).

(i) Participating Dividends are payable at the same time as and when such dividend or other distribution on Common Stock (or Reference Property, to the extent applicable) is paid to the holders of Common Stock (or Reference Property, to the extent applicable); provided, however, that no such dividend or distribution on Common Stock (or Reference Property, to the extent applicable) shall be made unless and until the Participating Dividends are paid (or are concurrently being paid) pursuant to this SECTION 2(a)(i).

(b) Conditional Dividends. Following the occurrence of a Triggering Event (as defined below), and for so long as such Triggering Event continues, each holder of issued and outstanding Series B Preferred Stock will be entitled to receive, out of funds legally available for the payment of dividends for each share of Series B Preferred Stock, with respect to each dividend period, dividends at a rate per annum equal to the Conditional Rate multiplied by the sum of (A) $1,000 per share (the “Original Purchase Price”) plus (B) any accrued and unpaid dividends that are payable on such share of Series B Preferred Stock, in each case as adjusted for any stock dividends, splits, combinations and similar events (the “Conditional Dividends” and, together with the Participating Dividends and Unpaid Conditional Dividends, the “Dividends”). Any Conditional Dividends payable pursuant to this SECTION 2(b) shall be in addition to any Participating Dividends payable pursuant to SECTION 2(a) hereof. In addition, the right of the holders of the Series B Preferred Stock to receive the Conditional Dividend is in addition to, and not in lieu of, any remedies such holders may have at law or equity.

(i) Conditional Dividends will accrue and cumulate from the date on which a Triggering Event occurs, and are payable quarterly in arrears on the last day of each March, June, September and December, or, if such date is not a Business Day, the succeeding Business Day (each such day, a “Conditional Dividend Payment Date”) until such date as the Triggering Event is no longer continuing; provided, however, that if Conditional Dividends remain unpaid after a Triggering Event is no longer continuing, dividends will accrue and cumulate in an amount equal to (such dividends, “Unpaid Conditional Dividends”) the product of (A) (x) the amount of unpaid Conditional Dividends plus (y) the amount of unpaid Unpaid Conditional Dividends and (B) the Conditional Rate. Any Unpaid Conditional Dividends payable pursuant to this SECTION 2(b)(i) shall be in addition to any Participating Dividends payable pursuant to SECTION 2(a) hereof. In addition, the right of the holders of the Series B Preferred Stock to receive the Unpaid Conditional Dividends is in addition to, and not in lieu of, any remedies such holders may have at law or equity.

(ii) The amount of Conditional Dividends and Unpaid Conditional Dividends payable for each full quarterly dividend period will be computed by dividing the annual rate by four. The amount of Conditional Dividends and Unpaid Conditional Dividends payable for any dividend period shorter or longer than a full quarterly dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day months.

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(iii) Conditional Dividends and Unpaid Conditional Dividends will be paid to the holders of record of Series B Preferred Stock as they appear in the records of the Company at the close of business on the 15th day of the calendar month in which the applicable Conditional Dividend Payment Date falls if in March, June, September or December (or on the 15th day of the calendar month prior to the month the Conditional Dividend Payment Date falls if the Conditional Dividend Payment Date falls in April, July, October or January) or on such other date designated by the Board for the payment of Conditional Dividends (and/or Unpaid Conditional Dividends, as the case may be) that is not more than 60 days or less than 10 days prior to such Conditional Dividend Payment Date. Any payment of a Conditional Dividend or Unpaid Conditional Dividend will first be credited against the earliest accumulated but unpaid Conditional Dividend or Unpaid Conditional Dividend due with respect to such share that remains payable.

(iv) Conditional Dividends and Unpaid Conditional Dividends are payable only in cash. Conditional Dividends and Unpaid Conditional Dividends will accrue and cumulate whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of Conditional Dividends or Unpaid Conditional Dividends and whether or not Conditional Dividends or Unpaid Conditional Dividends are declared. Conditional Dividends and Unpaid Conditional Dividends will accumulate and compound quarterly to the extent they are not paid when due.

(v) While a Triggering Event has occurred and is continuing, neither the Company nor any of its subsidiaries may (A) declare, pay or set aside for payment any dividends or distributions on any Junior Securities of the Company, (B) repurchase, redeem or otherwise acquire any Junior Securities of the Company or (C) make any loan or other advance to any direct or indirect owner of a majority of the Common Stock (or Reference Property, to the extent applicable) or any subsidiary of any such owner.

(vi) Neither the Company nor any of its subsidiaries may (A) declare, pay or set aside for payment any dividends or distributions on any Junior Securities of the Company or (B) repurchase, redeem or otherwise acquire any Junior Securities of the Company, unless in each case the Company has sufficient lawful funds immediately following such action such that the Company would be legally permitted to redeem in full (x) the Series B Preferred Stock for the Regular Liquidation Preference and (y) the Series C Preferred Stock for the Regular Liquidation Preference (as defined in the Certificate of Designation of the Series C Preferred Stock). Notwithstanding anything in this Agreement to the contrary, so long as any shares of Investor Preferred Stock are outstanding and the Elevation Beneficial Ownership Percentage exceeds 30%, neither the Company nor any of its subsidiaries may exercise any optional redemption with respect to any preferred stock that constitutes Junior Securities of the Company if, at the time of such optional redemption, the Company could not have incurred additional Indebtedness pursuant to SECTION 4(f) equal in amount to the optional redemption price of the preferred stock being redeemed; provided, however, that the Company or any of its subsidiaries may exercise any such optional redemption with the prior vote or written consent of holders representing at least a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock, voting together as a separate class.

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(vii) Each of the following shall constitute a “Triggering Event” for the purposes hereof:

(A) a failure by the Company to pay any Mandatory Redemption Price on the Mandatory Redemption Date or the Optional Redemption Price on the Optional Redemption Date for any reason, including the absence of funds legally available for such payment;

(B) a failure by the Company to deliver the Fundamental Change Notice to the holders of shares of Series B Preferred Stock pursuant to SECTION 7(a)(iii) hereof within the time period provided therein or to pay the Repurchase Price in respect of all shares of Series B Preferred Stock on the Repurchase Date pursuant to SECTION 7 for any reason, including the absence of funds legally available for such payment;

(C) a failure by the Company to deliver any cash and shares of Common Stock (or Reference Property, to the extent applicable), when such cash and shares of Common Stock (or Reference Property, to the extent applicable), if any, are required to be delivered upon conversion of the Series B Preferred Stock pursuant to SECTION 5 hereof, where the Company does not remedy such default within ten (10) days after the date such cash and shares of Common Stock (or Reference Property, to the extent applicable), if any, are required to be delivered;

(D) a failure to pay any Participating Dividends on any date dividends or other distributions on Common Stock (or Reference Property, to the extent applicable) are paid; and

(E) for so long as the Board Representation Entitlement is one or more Preferred Directors, a material violation by the Company of any term of or condition set forth in this Amended and Restated Certificate of Designation other than those referenced in the preceding clauses (A) through (D), where the Company does not cure such violation within thirty (30) days after the receipt of written notice from Elevation of such breach (it being understood that this clause (E) shall no longer apply from and after the date on which the Board Representation Entitlement is zero (0) Preferred Directors).

(c) If Dividends are not paid in full or a sum sufficient for such full payment is not so set apart upon the Series B Preferred Stock, all Dividends declared upon the Series B Preferred Stock and all dividends declared on any Parity Securities shall be declared pro rata so that the amount of Dividends declared per share of the Series B Preferred Stock and dividends declared per share of such Parity Securities shall in all cases bear to each other the same ratio that accrued and unpaid Dividends per share on the Series B Preferred Stock and accrued and unpaid dividends per share of such Parity Securities bear to each other.

(d) The Company shall take all actions necessary or advisable under the DGCL to permit the payment of Dividends to the holders of Series B Preferred Stock. Holders of Series B Preferred Stock are not entitled to any dividend, whether payable in cash, in kind or other property, in excess of the Dividends as provided in this SECTION 2.

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SECTION 3. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, each share of Series B Preferred Stock entitles the holder thereof to receive and to be paid out of the assets of the Company available for distribution, before any distribution or payment may be made to a holder of any Junior Securities, an amount in cash per share equal to the greater of: (i) the sum of (A) the Original Purchase Price per share plus (B) all accrued and unpaid Dividends, if any, on such share of Series B Preferred Stock, in each case as adjusted for any stock dividends, splits, combinations and similar events (such sum, as adjusted, the “Regular Liquidation Preference”), and (ii) an amount equal to the amount the holders of Series B Preferred Stock would have received per share of Series B Preferred Stock upon liquidation, dissolution or winding up of the Company had such holders converted their shares of Series B Preferred Stock into shares of Common Stock (or Reference Property, to the extent applicable) immediately prior thereto (the “Participating Liquidation Preference,” and such greater amount, the “Liquidation Preference”).

(b) If upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution are insufficient to pay the holders of Series B Preferred Stock the full Liquidation Preference and the holders of all Parity Securities the full liquidation preferences to which they are entitled, the holders of Series B Preferred Stock and such Parity Securities will share ratably in any such distribution of the assets of the Company in proportion to the full respective amounts to which they are entitled.

(c) After payment to the holders of Series B Preferred Stock of the full Liquidation Preference to which they are entitled, the holders of Series B Preferred Stock as such will have no right or claim to any of the assets of the Company.

(d) The value of any property not consisting of cash that is distributed by the Company to the holders of the Series B Preferred Stock will equal the Fair Market Value thereof on the date of distribution.

(e) For the purposes of this SECTION 3, a Fundamental Change (in and of itself) shall be deemed not to be a liquidation, dissolution or winding-up of the Company subject to this SECTION 3 (it being understood that an actual liquidation, dissolution or winding up of the Company in connection with a Fundamental Change will be subject to this SECTION 3).

SECTION 4. Voting Rights; Board Representation.

(a) The holders of Series B Preferred Stock are entitled to vote on all matters on which the holders of Common Stock are entitled to vote, and except as otherwise provided herein or by law, the holders of Series B Preferred Stock will vote together with the holders of Series C Preferred Stock and Common Stock as a single class. Each holder of Series B Preferred Stock is entitled to a number of votes equal to the number of shares of Common Stock into which all of the outstanding shares of Series B Preferred Stock held by such holder on the record date for any such

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vote are convertible as of such record date; provided, however, that in any vote of the holders of the Series B Preferred Stock, Series C Preferred Stock, Common Stock and any other securities that constitute Voting Stock (as defined in the Stockholders’ Agreement) voting together as a single class to the extent that the voting power of a holder together with its Affiliates would exceed 39.9% (the “Maximum Voting Percentage”) of the Maximum Voting Power of the Company, then the aggregate number of votes entitled to be cast by such holder and its Affiliates with respect to the Series B Preferred Stock held by such holder and its Affiliates will be reduced to that number (not less than zero) that results in the aggregate voting power of such holder and its Affiliates being equal to the Maximum Voting Percentage of the Maximum Voting Power of the Company. For purposes of this Amended and Restated Certificate of Designation, “Maximum Voting Power” means, at the time of determination of the Maximum Voting Power, the total number of votes which may be cast by all capital stock on a matter subject to the vote of the Common Stock, Series B Preferred Stock, Series C Preferred Stock and any other securities that constitute Voting Stock (as defined in the Stockholders’ Agreement) voting together as a single class and after giving effect to any limitation on voting power set forth in this Amended and Restated Certificate of Designation or the Certificate of Designation of the Series C Preferred Stock and the certificate of designation or other similar document governing Voting Stock.

(b) Notwithstanding SECTION 4(a) hereof:

(i) The holders of Series B Preferred Stock and the holders of the Series C Preferred Stock will vote together as a single class for the election of Preferred Directors, if any, but are not entitled to vote, either as a separate class or together with the holders of Common Stock as a single class, for the election of directors other than Preferred Directors.

(ii) Following a Fundamental Change (a “Non-Constituent Issuer Fundamental Change”) pursuant to which the Series B Preferred Stock is converted, or convertible, into a security of an entity other than (x) the Company or (y) the surviving entity of a merger or consolidation to which the Company is a constituent party, the Series B Preferred Stock (or the security into which it is converted (the “Conversion Security”)) shall not entitle the holder thereof to vote on any matters other than those set forth in SECTION 4(c)(i), (ii), (iii) and (iv) (but only to the extent clause (iv) relates to clauses (i), (ii) and (iii)) below and such other matters (if any) as shall be required by law. For purposes of clarity, to the extent that the Conversion Security does not entitle the holders thereof to vote on any matters other than those set forth in SECTION 4(c)(i), (ii), (iii) and (iv) (but only to the extent clause (iv) relates to clauses (i), (ii) and (iii)) below and such other matters (if any) as shall be required by law, the conversion of the Series B Preferred Stock into the Conversion Security shall not be deemed to be an amendment, repeal, alteration, addition, deletion or other change to the powers, preferences, rights or privileges of the Series B Preferred Stock in a manner adverse to the holders thereof.

(c) So long as any shares of Series B Preferred Stock are outstanding, the Company may not take any of the following actions (including by means of merger, consolidation, reorganization, recapitalization or otherwise) without the prior vote or written consent of holders representing at least a majority of the then-outstanding shares of Series B Preferred Stock, voting together as a separate class:

(i) any increase or decrease in the authorized amount of shares of Series B Preferred Stock, except for the cancellation and retirement of shares set forth in SECTION 9(a);

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(ii) any issuance of additional shares of Series B Preferred Stock after the Series B Original Issuance Date;

(iii) any amendment, repeal, alteration, addition, deletion or other change to the powers, preferences, rights or privileges of the Series B Preferred Stock in a manner adverse to the holders thereof (whether by Board resolution, amendment to the Certificate of Incorporation or Bylaws, merger, consolidation or otherwise); and

(iv) agree to do any of the foregoing actions set forth in clause (c)(i) through (c)(iii), unless such agreement expressly provides that the Company’s obligation to undertake any of the foregoing is subject to the prior approval of holders of Series B Preferred Stock;

provided, that if after the Series B Original Issuance Date there is a change in the applicable rules of the Exchange on which the Common Stock is listed at the time such change becomes effective that would cause the Common Stock to be delisted by such Exchange as a result of the terms of this clause (c), the voting rights of the holders of the Series B Preferred Stock set forth in this clause (c) shall thereafter be limited to the extent required by such changed rules for the Common Stock to continue to be listed on such Exchange.

Without expanding the scope of the foregoing voting rights of Series B Preferred Stock, it is understood that in the context of a Fundamental Change, so long as immediately following such Fundamental Change:

(i) the Series B Preferred Stock (or any preferred security into which the Series B Preferred Stock is converted in such Fundamental Change as contemplated by clause (ii)(B) below) is convertible into the kind and amount of shares of capital stock, other securities or other property receivable upon such Fundamental Change by a holder of a number of shares of Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of such shares of Series B Preferred Stock in accordance with SECTION 5(e); and

(ii) the Series B Preferred Stock either:

(A) remains outstanding with the same powers, preferences, rights and privileges set forth in this Amended and Restated Certificate of Designation, or

(B) is exchanged for preferred securities of the Survivor of a Fundamental Change, which preferred securities have the same powers, preferences, rights and privileges (other than those that by their terms automatically terminate or otherwise are altered following such a Fundamental Change pursuant to the terms of this Amended and Restated Certificate of Designation) as the Series B Preferred Stock (“New Preferred Stock”), provided that to the extent that SECTION 4(g) would no longer be applicable following the consummation of such Fundamental Change as a result of

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the proviso to SECTION 4(g) below, the New Preferred Stock need not be senior in preference or priority to or on parity, without preference or priority, with other preferred securities of such Survivor of a Fundamental Change with respect to dividend rights or rights upon liquidation, dissolution or winding up of such entity; and, provided further, that such exchange does not result in income tax consequences generally to U.S. individual holders of the Series B Preferred Stock that are more severe than the income tax consequences such holders would have suffered if such holders had been holders of Common Stock and been treated as such in the Fundamental Change; and

(iii) in connection with such Fundamental Change, no action takes place that would otherwise require the approval of the holders of the Series B Preferred Stock pursuant to this SECTION 4(c), the Series B Preferred Stock shall not have any vote or consent as a separate class with respect to such Fundamental Change.

(d) Right to Designate/Elect Preferred Directors. From and after the Series C Original Issuance Date, the holders of shares of Series B Preferred Stock, voting together with the holders of shares of Series C Preferred Stock (collectively, the “Investor Preferred Stock”) as a separate class by a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock as of any applicable record date, shall have the exclusive right to elect a total number of directors (such persons, the “Preferred Directors”), to the Board equal to the Board Representation Entitlement. If the holders of Investor Preferred Stock fail to elect a number of Preferred Directors sufficient to fill the Board Representation Entitlement, then any directorship not so filled shall remain vacant until such time as the holders of Investor Preferred Stock fill such directorship by vote or by written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Company other than the holders of Investor Preferred Stock. In addition, upon the occurrence of an increase in the authorized number of directors then constituting the Board that results in an increase of the Board Representation Entitlement to a number greater than the number of Preferred Directors then serving on the Board, the authorized number of Preferred Directors on the Board shall be increased immediately so that the total authorized number of Preferred Directors is equal to the Board Representation Entitlement at such time.

(i) Term of Office. Unless a Preferred Director’s term of office shall have terminated prior to such time pursuant to SECTION 4(d)(ii), (iii), (iv), (v), (vi) or (vii) below, such Preferred Director designated or elected pursuant to this SECTION 4 shall serve until the next special or annual meeting of stockholders of the Company called for the purpose of electing Preferred Directors at which such Preferred Director is up for election or at any special meeting of the holders of Investor Preferred Stock, as the case may be, for the purpose of removing Preferred Directors, or until his or her successor shall be duly elected.

(ii) Removal and Vacancies. So long as the Board Representation Entitlement is equal to at least one (1), a majority of the directors may call, and upon the written request of holders of record of 50% of the then outstanding shares of Investor Preferred Stock

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(determined on the basis of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock), addressed to the Secretary of the Company at the principal office of the Company, shall call, a special meeting of the holders of shares of Investor Preferred Stock, for the sole purpose of filling any vacancy caused by the resignation, death or removal of a Preferred Director (but only to the extent required to maintain the then applicable Board Representation Entitlement), or to remove from office a Preferred Director with or without cause. Such meeting shall be held as soon as reasonably practicable after delivery of such request to the Secretary, at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders. Subject to SECTION 4(d)(iii), (iv), (v), (vi) or (vii) below, only the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock, voting together as a single class, are entitled to fill any vacancy caused by the resignation, death or removal of a Preferred Director (but only to the extent required to maintain the then applicable Board Representation Entitlement), and only the holders of Investor Preferred Stock are entitled to remove from office a Preferred Director without cause. Any Preferred Director may be removed from office (A) with or without cause by holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock or (B) only for cause by the holders of a majority of the then-outstanding shares of Common Stock, provided that in such case the holders of Investor Preferred Stock shall not be entitled to vote on an as-converted basis with the Common Stock with respect to such removal for cause.

(iii) Change Following Uncured Share Ownership Reduction. Upon the occurrence of an Uncured Share Ownership Reduction, following the expiration of the applicable Share Ownership Reduction Cure Period (assuming an Uncured Share Ownership Reduction still exists), the number of Preferred Directors on the Board (but not the number of directors constituting the whole Board) shall be reduced immediately so that the total number of Preferred Directors after the occurrence of an Uncured Share Ownership Reduction is equal to the Board Representation Entitlement at such time. To effect such reduction, the term of office of the requisite number of Preferred Directors shall immediately end, such person(s) shall cease to be director(s), and neither the remaining Preferred Directors nor the holders of shares of Investor Preferred Stock shall have any right to elect or appoint a Preferred Director to replace such director. To the extent that there is more than one Preferred Director on the Board immediately prior to the Uncured Share Ownership Reduction, the holders of a majority of shares of Common Stock issuable upon the conversion of the then-outstanding shares of Investor Preferred Stock shall have the right to designate which of the Preferred Directors’ terms shall end pursuant to this SECTION 4(d)(iii); provided, that if holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock fail to designate in advance which of the Preferred Directors’ terms shall end, the directors (other than Preferred Directors) shall then be entitled to make such designation.

(iv) Change Following Board Size Decrease. Upon the occurrence of a decrease in the authorized number of directors then constituting the Board that, as a result thereof results in a reduction of the Board Representation Entitlement to less than the then authorized number of Preferred Directors (a “Board Size Decrease”), the number of Preferred Directors on the Board shall be reduced immediately so that the total number of Preferred Directors is equal to the Board Representation Entitlement at such time; provided, that if the Board Size Decrease goes into effect during a Share Ownership Reduction Cure Period, then such reduction shall not take effect

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until the expiration of such Share Ownership Reduction Cure Period, provided that upon such expiration, the Board Representation Entitlement is less than the then authorized number of Preferred Directors. To effect such reduction, the term of office of that number of Preferred Directors required to reduce the number of Preferred Directors to the new Board Representation Entitlement shall immediately end, such person(s) shall cease to be director(s), and neither the remaining Preferred Directors nor the holders of shares of Investor Preferred Stock shall have any right to elect or appoint a Preferred Director to replace such director at such time. To the extent that there is more than one Preferred Director on the Board immediately prior to the Board Size Decrease, the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock shall have the right to designate which of the Preferred Directors’ terms shall end pursuant to this SECTION 4(d)(iv); provided, that if holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock fail to designate in advance which of the Preferred Directors’ terms shall end, the directors (other than Preferred Directors) shall then be entitled to make such designation.

(v) Loss of Preferred Directors on a Non-Constituent Issuer Fundamental Change. Upon the occurrence of a Non-Constituent Issuer Fundamental Change, the terms of office of all Preferred Directors shall immediately end, such persons shall cease to be directors, and the holders of shares of Investor Preferred Stock shall not have any right to elect or appoint Preferred Directors to replace the directors whose terms of office shall have ended.

(vi) Loss of Preferred Director on a Fundamental Change Other than a Non-Constituent Issuer Fundamental Change. Upon the occurrence of a Fundamental Change other than a Non-Constituent Issuer Fundamental Change, if the Board Representation Entitlement is at least one (1) Preferred Director at such time, the terms of office of all but one (1) Preferred Directors shall immediately end, such persons shall cease to be directors (notwithstanding the proviso in SECTION 4(d)(vi) below), and neither the remaining Preferred Director nor the holders of shares of Investor Preferred Stock shall have any right to elect or appoint Preferred Directors to replace the directors whose terms of office shall have ended pursuant to this SECTION 4(d)(vi). To the extent that there is more than one Preferred Director on the Board immediately prior to such Fundamental Change, the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock shall have the right to designate which of the Preferred Directors’ terms shall end pursuant to this SECTION 4(d)(vi); provided, that if the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock fail to designate in advance which of the Preferred Directors’ terms shall end, the directors (other than Preferred Directors) shall then be entitled to make such designation.

(vii) Loss of Board Representation Entitlement. From and after the first time that the Investor Stockholders (including, for this purpose, their Permitted Transferees) in the aggregate cease to (A) Beneficially Own or (B) have all Economic Rights and Voting Rights with respect to a number of shares of Investor Preferred Stock that if then converted would be convertible into a number of shares of Common Stock that is greater than or equal to 50% of the shares of Common Stock issuable upon conversion of 325,000 shares of Series B Preferred Stock (regardless of whether any such shares of Series B Preferred Stock are then outstanding) based on the

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conversion prices that are (or would be) in effect at the time of such calculation (including, for purposes of this calculation, shares of Investor Preferred Stock pledged pursuant to a bona fide pledge, but not a foreclosure thereon, but excluding, for purposes of this calculation, shares subject to Shared Beneficial Ownership with any Person other than another Investor Stockholder or a Permitted Transferee), then the holders of Investor Preferred Stock shall cease to have any rights under this SECTION 4(d) (including, without limitation, the right to vote to fill any vacancies of Preferred Directors); provided, however, that if, immediately following such time, the Investor Stockholders continue to benefit from the contractual rights set forth in Section 2.1 of the Stockholders Agreement (Board Representation), each Preferred Director serving on the Board at such time (the “Transition Time”) shall continue as a director, but not as a Preferred Director (other than with respect to SECTION 4(d)(iii), pursuant to which such director shall not continue as a director if the conditions therein for the elimination of such director’s seat are met), until the next special or annual meeting of stockholders of the Company called for the purpose of electing directors, or until his or her successor shall be elected. From and after the Transition Time, the holders of shares of Investor Preferred Stock shall not have any right, voting as a separate class, to elect or appoint a Preferred Director to replace such director.

(viii) Filling Vacancy Upon Cessation of Preferred Director. Any vacancy resulting from the cessation of the term of office of a Preferred Director pursuant to SECTION 4(d)(iii), (v), (vi) or (vii) may be filled by either (A) the Board or (B) the holders of Common Stock generally, and not the holders of Investor Preferred Stock voting as a separate class, in accordance with the Certificate of Incorporation, the Bylaws of the Company and applicable law.

(e) Exchange Compliance. Notwithstanding the foregoing, the rights of the holders of the Series B Preferred Stock set forth in SECTION 4(a) to vote as a single class with the Common Stock shall be subject to applicable rules of the Exchange on which the Company is then listed to the extent required such that the Common Stock shall continue to be listed on such Exchange, including, without limitation, compliance by the Company with Rule 4351 of Nasdaq (or any successor thereto) insofar as it may be applied in the event that the Conversion Price is determined to be less than the “market value” as defined in such rules, and such rights to vote with the Common Stock shall be accordingly reduced or otherwise modified to the minimum extent required to comply with such rules. For the avoidance of doubt, in no event shall this SECTION 4(e) operate to reduce the number of Preferred Directors to be designated pursuant to SECTION 4(d), and it shall be the obligation of the Company to ensure that the membership of the Board satisfies the applicable rules of the Exchange on which the Company is then listed, including without limitation Rule 4350(c) of Nasdaq, without any reduction in the number of Preferred Directors pursuant to SECTION 4(d).

(f) Approval Rights over Debt Incurrence. So long as any shares of Investor Preferred Stock are outstanding and the Elevation Beneficial Ownership Percentage exceeds 30%, the Company may not and will cause its subsidiaries to not, without the prior vote or written consent of holders representing at least a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock, voting together as a separate class, incur Indebtedness; provided, however, that the Company and its subsidiaries may incur Indebtedness if, after giving effect to the incurrence of such Indebtedness, the Total Leverage Ratio would be equal to or less than 3.00 to 1.00. Notwithstanding the foregoing, the Company and its subsidiaries may:

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(i) incur Indebtedness under the revolving portion of the Credit Agreement or any Successor Credit Agreement so long as the maximum principal amount that may be incurred under the revolving portion of any such Successor Credit Agreement does not exceed the maximum principal amount that may be drawn down under the revolving portion of the Credit Agreement; and

(ii) extend, renew, replace or refinance any Indebtedness existing as of November 30, 2008 provided that such extending, renewal, replacement or refinancing Indebtedness shall not be in a principal amount that exceeds the principal amount of the Indebtedness being extended, renewed, replaced or refinanced (plus any capitalized or “PIK” interest accruing for a period of six months, any redemption premium payable by the terms of such Indebtedness thereon and other reasonable amounts paid, and reasonable fees and expenses incurred, in connection with such extension, renewal, replacement or refinancing).

For purposes of this SECTION 4(f), the following defined terms shall have the following meanings:

“Consolidated EBITDA” means Consolidated EBITDA as such term is defined in the Credit Agreement.

“Credit Agreement” means that certain Credit Agreement dated as of October 24, 2007 among the Company, as Borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and Morgan Stanley Senior Funding, Inc., as Syndication Agent, as in effect on December 21, 2008 and without giving effect to any amendments, supplements or other modifications thereof after December 21, 2008.

“Indebtedness” means, with respect to any person, without duplication, all obligations of such person for borrowed money, all obligations of such person evidenced by bonds, debentures, notes or similar instruments or letters of credit, all capital lease obligations, all guarantees by such person of indebtedness of other persons, all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien or encumbrance on any property or rights of such person, all obligations, contingent or otherwise, of such person as an account party in respect of letters of credit, letters of guaranty and in respect of bankers’ acceptances and all obligations to redeem or repurchase preferred stock of the Company prior to the Seventh Anniversary (as defined below).

“Successor Credit Agreement” means any successor to, substitute for or replacement of the Credit Agreement.

“Total Leverage Ratio” means, on any date, the ratio of Indebtedness as of such date to Consolidated EBITDA for the period of four consecutive fiscal quarters of the Company ended on such date (or, if such date is not the last day of a fiscal quarter, ended on the last day of the fiscal quarter of the Company most-recently ended prior to such date).

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(g) Approval Rights over Senior and Parity Security Issuances. So long as any shares of Investor Preferred Stock are outstanding, the Company may not (including by means of merger, consolidation, reorganization, recapitalization or otherwise) without the prior vote or written consent of holders representing at least a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock, voting together as a separate class, authorize (and if authorized, increase the authorized amount), create or issue (including by way of reclassification or otherwise) any Senior Securities or Parity Securities; provided, however, that this SECTION 4(g) shall not apply following a Fundamental Change (i) if the issuer of the Investor Preferred Stock following such Fundamental Change is a public company whose common stock (or American Depositary Shares (“ADSs”) or American Depositary Receipts (“ADRs”) in respect of such ADSs) is traded on an Exchange and (ii) if following such Fundamental Change the shares of capital stock entitled to vote generally in the election of directors and the Investor Preferred Stock (treated on an as-converted basis) immediately prior to such transaction (or series of related transactions) are converted into and/or continue to represent (on an as-converted basis in the case of the Investor Preferred Stock and treating any ADSs or ADRs as if they were the underlying shares to which they relate), in the aggregate, less than 40% of the total voting power of all shares of capital stock that are entitled to vote generally in the election of directors of the entity surviving or resulting from such transaction (or ultimate parent thereof).

SECTION 5. Conversion.

Each share of Series B Preferred Stock is convertible into shares of Common Stock (or Reference Property, to the extent applicable) as provided in this SECTION 5.

(a) Conversion at the Option of Holders of Series B Preferred Stock. Subject to SECTION 5(b) hereof, each holder of Series B Preferred Stock is entitled to convert, at any time and from time to time, at the option and election of such holder, any or all shares of outstanding Series B Preferred Stock held by such holder into a number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Reference Property, to the extent applicable) equal to the amount (the “Conversion Amount”) determined by dividing (i) the Regular Liquidation Preference for each share of Series B Preferred Stock to be converted by such holder by (ii) the Conversion Price in effect at the time of conversion. The “Conversion Price” initially is $8.50, as adjusted from time to time as provided in SECTION 5(f). In order to convert shares of Series B Preferred Stock into shares of Common Stock (or Reference Property, to the extent applicable), the holder must surrender the certificates representing such shares of Series B Preferred Stock, accompanied by transfer instruments reasonably satisfactory to the Company, free of any adverse interest or liens at the office of the Company’s transfer agent for the Series B Preferred Stock (or at the principal office of the Company, if the Company serves as its own transfer agent), together with written notice that such holder elects to convert all or such number of shares represented by such certificates as specified therein. With respect to a conversion pursuant to this SECTION 5(a), the date of receipt of such certificates, together with such notice, by the transfer agent or the Company will be the date of conversion (the “Conversion Date”).

(b) Limitations on Conversion. Notwithstanding SECTION 5(a), the Company shall not effect any conversion of the Series B Preferred Stock or otherwise issue shares of Common Stock pursuant to SECTION 5(a) hereof, and no holder of Series B Preferred Stock will be permitted to convert shares of Series B Preferred Stock into shares of Common Stock to the extent that the holder exercising such conversion right (together with such holder’s Affiliates) would (immediately

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after giving effect to such conversion and after giving effect to any limitation on voting power set forth in this Amended and Restated Certificate of Designation or the Certificate of Designation of the Series C Preferred Stock) Beneficially Own outstanding shares of Investor Preferred Stock and Common Stock and any other securities that constitute Voting Stock (as defined in the Stockholders’ Agreement) representing in the aggregate more than the Maximum Voting Percentage of the Maximum Voting Power of the Company. For purposes of the foregoing sentence, the number of shares of Common Stock Beneficially Owned by a holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock with respect to which a conversion notice has been given, but shall exclude the number of shares of Common Stock which would be issuable upon conversion of the remaining, unconverted portion of the Series B Preferred Stock or the Series C Preferred Stock Beneficially Owned by such holder or any of its Affiliates and shall also exclude any shares of Common Stock which would be issuable upon exercise of any warrants Beneficially Owned by such holder or any of its Affiliates. Upon the written request of the holder, the Company shall within one (1) Business Day confirm in writing to any holder the number of shares of Common Stock then-outstanding. Under no circumstance will any holder be entitled to receive cash for any shares of Series C Preferred Stock not convertible solely as a result of the limitations set forth in this SECTION 5(b). Anything in this SECTION 5(b) to the contrary notwithstanding, but subject to the terms and conditions of the Stockholder’s Agreement, the provisions of this SECTION 5(b) will not apply to any conversion of the Series B Preferred Stock in connection with a substantially concurrent sale of the Common Stock issuable upon conversion to a person who is not an Affiliate of the converting holder.

(c) Conversion at the Option of the Company. On and after the three-year anniversary of the Series B Original Issuance Date, at the Company’s option and election, in whole but not in part, all shares of Series B Preferred Stock may be converted automatically into a number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Reference Property, to the extent applicable) equal to the Conversion Amount on the date of written notice by the Company to the holders of Series B Preferred Stock notifying such holders of the conversion contemplated by this SECTION 5(c), which conversion shall occur on the date specified in such notice, not less than 10 nor more than 30 days following the date of such notice (which shall be the Conversion Date in respect of a conversion pursuant to this SECTION 5(c), provided that such notice may be delivered by the Company only if (i) (A) the average closing price per share of the Common Stock on the Exchange on which shares of the Common Stock are then listed during the 30 consecutive trading days ending on the trading day immediately preceding the Business Day on which such notice is delivered and (B) the closing price per share of the Common Stock on the Exchange on which shares of the Common Stock are then listed for at least twenty (20) of such thirty (30) consecutive trading days (including the last fifteen (15) trading days of such thirty (30) day period) is at least 180% of the Conversion Price then in effect, and (ii) all requisite arrangements with the Company’s transfer agent, the Exchange on which shares of the Common Stock are then listed, and any other requisite securities intermediary (including The Depository Trust Company and Cede & Co., if applicable) to permit the immediate trading of such shares of Common Stock on the Conversion Date shall have been completed. Once delivered, such notice shall be irrevocable, unless the Company obtains the written consent of the holders representing a majority of the outstanding shares of Series B Preferred Stock. Notwithstanding the foregoing, the holders of Series B Preferred Stock shall continue to have the right to convert their shares of Series B Preferred Stock

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pursuant to SECTION 5(a) until and through the Conversion Date contemplated in this SECTION 5(c) and if such shares of Series B Preferred Stock are converted pursuant to SECTION 5(a) such shares shall no longer be converted pursuant to this SECTION 5(c) and the Company’s notice delivered to the holders pursuant to this SECTION 5(c) shall automatically terminate with respect to such shares converted pursuant to SECTION 5(a). The limitations on conversion set forth in SECTION 5(b) shall not apply to any exercise of the Company’s conversion right pursuant to this SECTION 5(c).

(d) Fractional Shares. No fractional shares of Common Stock (or Reference Property, to the extent applicable) will be issued upon conversion of the Series B Preferred Stock. In lieu of fractional shares, the Company shall pay cash equal to such fractional amount multiplied by the Fair Market Value of Common Stock as of the Conversion Date. If more than one share of Series B Preferred Stock is being converted at one time by the same holder, then the number of full shares issuable upon conversion will be calculated on the basis of the aggregate number of shares of Series B Preferred Stock converted by such holder at such time.

(e) Mechanics of Conversion.

(i) As soon as practicable after the Conversion Date (and in any event within three Business Days), the Company shall promptly issue and deliver to such holder a certificate for the number of shares of Common Stock (or Reference Property, to the extent applicable) to which such holder is entitled, together with a check or cash for payment of fractional shares, if any, in exchange for the certificates formerly representing shares of Series B Preferred Stock. Such conversion will be deemed to have been made on the Conversion Date, and the person (as defined in SECTION 8) entitled to receive the shares of Common Stock (or Reference Property, to the extent applicable) issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock (or Reference Property, to the extent applicable) on such Conversion Date. In case fewer than all the shares represented by any such certificate are to be converted, a new certificate shall be issued representing the unconverted shares without cost to the holder thereof, except for any documentary, stamp or similar issue or transfer tax due because any certificates for shares of Common Stock (or Reference Property, to the extent applicable) or Series B Preferred Stock are issued in a name other than the name of the converting holder. The Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of Common Stock (or Reference Property, to the extent applicable) upon conversion or due upon the issuance of a new certificate for any shares of Series B Preferred Stock not converted other than any such tax due because shares of Common Stock (or Reference Property, to the extent applicable) or a certificate for shares of Series B Preferred Stock are issued in a name other than the name of the converting holder.

(ii) The Company shall at all times reserve and keep available, free from any preemptive rights, out of its treasury or authorized but unissued shares of Common Stock (or Reference Property, to the extent applicable) (or a combination of both) for the purpose of effecting the conversion of the Series B Preferred Stock the full number of shares of Common Stock (or Reference Property, to the extent applicable) deliverable upon the conversion of all outstanding Series B Preferred Stock (as may be adjusted from time to time pursuant to the terms of this SECTION 5 and assuming for the purposes of this calculation that all outstanding shares of Series B Preferred Stock are held by one holder), and the Company shall take all actions to amend its

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Certificate of Incorporation to increase the authorized amount of Common Stock (or Reference Property, to the extent applicable) if necessary therefor. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of the Series B Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock (or Reference Property, to the extent applicable) at such adjusted Conversion Price.

(iii) From and after the Conversion Date, the shares of Series B Preferred Stock to be converted on such Conversion Date will no longer be deemed to be outstanding; and all rights of the holder thereof as a holder of Series B Preferred Stock (except the right to receive from the Company the Common Stock (or Reference Property, to the extent applicable) upon conversion) shall cease and terminate with respect to such shares; provided, that in the event that a share of Series B Preferred Stock is not converted due to a default by the Company or because the Company is otherwise unable to issue the requisite shares of Common Stock (or Reference Property, to the extent applicable), such share of Series B Preferred Stock will remain outstanding and will be entitled to all of the rights as provided herein. Any shares of Series B Preferred Stock that have been converted will, after such conversion, be deemed cancelled and retired and, following the filing of any certificate required by the DGCL, have the status of authorized but unissued Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board.

(iv) If the conversion is in connection with any sale, transfer or other disposition of the Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of the Series B Preferred Stock, the conversion may, at the option of any holder tendering any share of Series B Preferred Stock for conversion, be conditioned upon the closing of the sale, transfer or the disposition of shares of Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of Series B Preferred Stock with the underwriter, transferee or other acquirer in such sale, transfer or disposition, in which event such conversion of such shares of Series B Preferred Stock shall not be deemed to have occurred until immediately prior to the closing of such sale, transfer or other disposition.

(v) The Company shall comply with all federal and state laws, rules and regulations and applicable rules and regulations of the Exchange on which shares of the Common Stock (or Reference Property, to the extent applicable) are then listed. If any shares of Common Stock (or Reference Property, to the extent applicable) to be reserved for the purpose of conversion of shares of Series B Preferred Stock require registration with or approval of any person or group (as defined in SECTION 8) under any federal or state law or the rules and regulations of the Exchange on which shares of the Common Stock (or Reference Property, to the extent applicable) are then listed before such shares may be validly issued or delivered upon conversion, then the Company will, as expeditiously as possible, use its reasonable best efforts to secure such registration or approval, as the case may be. So long as any Common Stock (or Reference Property, to the extent applicable) into which the shares of Series B Preferred Stock are then convertible is then listed on an Exchange, the Company will list and keep listed on such Exchange, upon official notice of issuance, all shares of such Common Stock (or Reference Property, to the extent applicable) issuable upon conversion.

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(vi) All shares of Common Stock (or Reference Property, to the extent applicable) issued upon conversion of the shares of Series B Preferred Stock will, upon issuance by the Company, be duly and validly issued, fully paid and nonassessable, not issued in violation of any preemptive rights arising under law or contract and free from all taxes, liens and charges with respect to the issuance thereof, and the Company shall take no action which will cause a contrary result.

(vii) If, prior to both (x) a Rights Plan Triggering Event and (y) a Distribution Date, shares of Series B Preferred Stock are converted into Common Stock (or Reference Property, to the extent applicable), upon the conversion of such shares of Series B Preferred Stock, the shares of Common Stock (or Reference Property, to the extent applicable) issued in respect thereof shall be issued with the same Rights, if any, attached thereto as are attached to the then-outstanding shares of Common Stock (or Reference Property, to the extent applicable). If, prior to a Rights Plan Triggering Event, but following the occurrence of a Distribution Date and prior to the expiration or redemption of the Rights, shares of Series B Preferred Stock are converted into Common Stock (or Reference Property, to the extent applicable), upon the conversion of such shares of Series B Preferred Stock, the holders of such Common Stock shall receive the number of Rights which would have been attached to such Common Stock assuming the Distribution Date had not occurred prior to such conversion.

(f) Adjustments to Conversion Price.

(i) Adjustment for Change in Capital Stock.

(A) If the Company shall, at any time and from time to time while any of the Series B Preferred Stock is outstanding, issue a dividend or make a distribution on its Common Stock (or Reference Property, to the extent applicable) payable in shares of its Common Stock (or Reference Property, to the extent applicable) to all holders of its Common Stock (or Reference Property, to the extent applicable), then the Conversion Price at the opening of business on the Ex-Dividend Date for such dividend or distribution will be adjusted by multiplying such Conversion Price by a fraction:

(1) the numerator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding such Ex-Dividend Date; and

(2) the denominator of which shall be the sum of the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding the Ex-Dividend Date for such dividend or distribution, plus the total number of shares of Common Stock (or Reference Property, to the extent applicable) constituting such dividend or other distribution.

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If any dividend or distribution of the type described in this SECTION 5(f)(i)(A) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. Except as set forth in the preceding sentence, in no event shall the Conversion Price be increased pursuant to this SECTION 5(f)(i)(A).

(B) If the Company shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, subdivide or reclassify its outstanding shares of Common Stock (or Reference Property, to the extent applicable) into a greater number of shares of Common Stock (or Reference Property, to the extent applicable), then the Conversion Price in effect at the opening of business on the day upon which such subdivision becomes effective shall be proportionately decreased, and conversely, if the Company shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, combine or reclassify its outstanding shares of Common Stock (or Reference Property, to the extent applicable) into a smaller number of shares of Common Stock (or Reference Property, to the extent applicable), then the Conversion Price in effect at the opening of business on the day upon which such combination or reclassification becomes effective shall be proportionately increased. In each such case, the Conversion Price shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately prior to such subdivision or combination and the denominator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately after giving effect to such subdivision, combination or reclassification. Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day upon which such subdivision, combination or reclassification becomes effective.

(ii) Adjustment for Rights Issued under Rights Plan. If at any time and from time to time while any shares of Series B Preferred Stock are outstanding there shall occur a Rights Plan Triggering Event, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the Rights Triggering Date by a fraction:

(A) the numerator of which shall be the sum of (1) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding the Rights Triggering Date, plus (2) (x) the aggregate Exercise Price (as defined in the Company Rights Plan or its comparable term/provision under any successor, substitute or additional shareholder rights plan) payable to the Company, assuming that all Rights then-outstanding that are capable of being exercised are immediately exercised following the Rights Plan Triggering Event, divided by (y) the Current Market Price; and

(B) the denominator of which shall be the sum of (1) the number of shares of Common Stock outstanding at the close of business on the Business Day immediately preceding the Rights Triggering Date, plus (2) the aggregate number of shares of Common Stock (or Reference Property, to the extent applicable) into which the Rights

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then-outstanding are exercisable for (immediately following such Rights Plan Triggering Event) (such number of shares of Common Stock, the “Underlying Common Stock Amount”);

Such adjustment shall become effective immediately after the opening of business on the Rights Triggering Date;

To the extent that shares of Common Stock (or Reference Property, to the extent applicable) are not delivered pursuant to such Rights prior to the expiration or termination of any Rights (other than as a result of the repurchase of those Rights by the Company), upon expiration or termination of such Rights (“Expired Rights”) the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the occurrence of a Rights Plan Triggering Event been made without taking into account such Expired Rights. Except as set forth in this paragraph, in no event shall the Conversion Price be increased pursuant to this SECTION 5(f)(ii).

Notwithstanding the foregoing, the Conversion Price as adjusted pursuant to this SECTION 5(f)(ii) shall not apply to any shares of Series B Preferred Stock Beneficially Owned by a Person who is an Acquiring Person, and, with respect to such shares, the Conversion Price shall be the Conversion Price in effect immediately prior to the Rights Triggering Date.

(iii) Adjustment for Certain Tender Offers or Exchange Offers. In case the Company or any of its subsidiaries shall, at any time or from time to time, while any of the Series B Preferred Stock is outstanding, distribute cash or other consideration in respect of a tender offer or an exchange offer (that is treated as a “tender offer” under U.S. federal securities laws) made by the Company or any subsidiary for all or any portion of the Common Stock (or Reference Property, to the extent applicable), where the sum of the aggregate amount of such cash distributed and the aggregate Fair Market Value as of the Expiration Date (as defined below), of such other consideration distributed (such sum, the “Aggregate Amount”) expressed as an amount per share of Common Stock (or Reference Property, to the extent applicable) validly tendered or exchanged, and not withdrawn, pursuant to such tender offer or exchange offer as of the Expiration Time (as defined below) (such tendered or exchanged shares of Common Stock (or Reference Property, to the extent applicable), the “Purchased Shares”) exceeds the Closing Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the last date (such last date, the “Expiration Date”) on which tenders or exchanges could have been made pursuant to such tender offer or exchange offer (as the same may be amended through the Expiration Date), then, and in each case, immediately after the close of business on such date, the Conversion Price shall be decreased so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Trading Day immediately following the Expiration Date by a fraction:

(A) the numerator of which shall be equal to the product of (A) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding as of the Expiration Time (including all Purchased Shares) and (B) the Closing Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the Expiration Date; and

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(B) the denominator of which is equal to the sum of (A) the Aggregate Amount and (B) the product of (I) an amount equal to (1) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding as of the last time (the “Expiration Time”) at which tenders or exchanges could have been made pursuant to such tender offer or exchange offer less (2) the Purchased Shares and (II) the Closing Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the Expiration Date.

An adjustment, if any, to the Conversion Price pursuant to this SECTION 5(f)(iii) shall become effective immediately prior to the opening of business on the second Trading Day immediately following the Expiration Date. In the event that the Company or a subsidiary is obligated to purchase shares of Common Stock (and Reference Property, to the extent applicable) pursuant to any such tender offer or exchange offer, but the Company or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer or exchange offer had not been made. Except as set forth in the preceding sentence, if the application of this SECTION 5(f)(iii) to any tender offer or exchange offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer or exchange offer under this SECTION 5(f)(iii).

(iv) Disposition Events.

(A) If any of the following events (any such event, a “Disposition Event”) occurs:

(1) any reclassification or exchange of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); or

(2) any merger, consolidation or other combination to which the Company is a constituent party;

in each case, as a result of which the holders of Common Stock shall be entitled to receive cash, securities or other property for their shares of Common Stock, the Company or the surviving entity of the merger, consolidation or other combination shall provide that the Series B Preferred Stock converted following the effective date of any Disposition Event, shall be calculated based on the kind and amount of cash, securities or other property (collectively, “Reference Property”) received upon the occurrence of such Disposition Event by a holder of Common Stock holding, immediately prior to the transaction, a number of shares of Common Stock equal to the Conversion Amount immediately prior to such Disposition Event; provided that if the Disposition Event provides the holders of Common Stock with the right to receive more than a single type of consideration determined based in part upon any form of stockholder election, the Reference Property shall be comprised of the weighted average of the types and amounts of consideration received by the holders of the Common Stock. The Company may not cause, or agree to cause, a

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Disposition Event to occur, unless the issuer of any securities or other property into which the Series B Preferred Stock becomes convertible agrees, for the express benefit of the holders of record of Series B Preferred Stock (including making them beneficiaries of such agreement), to issue such securities or property.

(B) The above provisions of this SECTION 5(f)(iv) shall similarly apply to successive Disposition Events. If this SECTION 5(f)(iv) applies to any event or occurrence, neither SECTION 5(f)(i) nor SECTION 5(f)(iii) shall apply; provided, however, that this SECTION 5(f)(iv) shall not apply to any stock split or combination to which SECTION 5(f)(i) is applicable or to a liquidation, dissolution or winding up to which SECTION 3 applies. To the extent that equity securities of a company are received by the holders of Common Stock of the Company in connection with a Disposition Event, the portion of the Series B Preferred Stock which will be convertible into such equity securities will continue to be subject to the anti-dilution adjustments set forth in this SECTION 5(f).

(v) Minimum Adjustment. Notwithstanding the foregoing, the Conversion Price will not be reduced if the amount of such reduction would be an amount less than $0.01, but any such amount will be carried forward and reduction with respect thereto will be made at the time that such amount, together with any subsequent amounts so carried forward, aggregates to $0.01 or more.

(vi) Limitation on Adjustment; When No Adjustment Required.

(A) No adjustment need be made for the issuance of Common Stock (and Reference Property, to the extent applicable) or any securities convertible into or exchangeable for Common Stock (and Reference Property, to the extent applicable) or carrying the right to purchase Common Stock (and Reference Property, to the extent applicable) or any such security except to the extent explicitly required herein.

(B) No adjustment need be made for rights to purchase Common Stock (or Reference Property, to the extent applicable) pursuant to a Company plan for reinvestment of dividends or interest.

(C) No adjustment need be made for a change in the par value or no par value of the Common Stock (or Reference Property, to the extent applicable).

(D) To the extent the Series B Preferred Stock becomes convertible pursuant to this SECTION 5 into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

(vii) Rules of Calculation; Treasury Stock. All calculations will be made to the nearest one-hundredth of a cent or to the nearest one-ten thousandth of a share. Except as explicitly provided herein, the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding will be calculated on the basis of the number of issued and outstanding shares of Common Stock (or Reference Property, to the extent applicable), not including shares held in the treasury of the Company. The Company shall not pay any dividend on or make any distribution to shares of Common Stock (or Reference Property, to the extent applicable) held in treasury.

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(viii) Waiver. Notwithstanding the foregoing, the Conversion Price will not be reduced if the Company receives, prior to the effective time of the adjustment to the Conversion Price, written notice from the holders representing at least a majority of the then outstanding shares of Series B Preferred Stock, voting together as a separate class, that no adjustment is to be made as the result of a particular issuance of Common Stock (or Reference Property, to the extent applicable) or other dividend or other distribution on shares of Common Stock. This waiver will be limited in scope and will not be valid for any issuance of Common Stock (or Reference Property, to the extent applicable) or other dividend or other distribution on shares of Common Stock (or Reference Property, to the extent applicable) not specifically provided for in such notice.

(ix) Tax Adjustment. Anything in this SECTION 5 notwithstanding, the Company shall be entitled to make such downward adjustments in the Conversion Price, in addition to those required by this SECTION 5, as the Board in its sole discretion shall determine to be advisable in order that any event treated for federal income tax purposes as a dividend or stock split will not be taxable to the holders of Common Stock (or Reference Property, to the extent applicable).

(x) Par Value. Anything in this SECTION 5 notwithstanding, no adjustment to the Conversion Price shall reduce the Conversion Price below the then par value per share of Common Stock (or Reference Property, to the extent applicable), and any such purported adjustment shall instead reduce the Conversion Price to such par value.

(xi) No Duplication. If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described in this SECTION 5 in a manner such that such adjustments are duplicative, only one adjustment shall be made.

(g) Notice of Record Date. In the event of:

(i) any stock split or combination of the outstanding shares of Common Stock (or Reference Property, to the extent applicable);

(ii) any declaration or making of a dividend or other distribution to holders of Common Stock (or Reference Property, to the extent applicable) in Additional Shares of Common Stock, any other capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness);

(iii) any reclassification or change to which SECTION 5(f)(i)(B) applies;

(iv) the dissolution, liquidation or winding up of the Company; or

(v) any other event constituting a Fundamental Change of the type described in clause (i) of the definition thereof in SECTION 8(y);

then the Company shall file with its corporate records and mail to the holders of the Series B Preferred Stock at their last addresses as shown on the records of the Company, at least 10 days prior

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to the record date specified in (A) below or 10 days prior to the date specified in (B) below, a notice stating:

(A) the record date of such stock split, combination, dividend or other distribution, or, if a record is not to be taken, the date as of which the holders of Common Stock (or Reference Property, to the extent applicable) of record to be entitled to such stock split, combination, dividend or other distribution are to be determined, or

(B) the date on which such reclassification, change, dissolution, liquidation, winding up or other event constituting a Fundamental Change of the type described in clause (i) of the definition thereof in SECTION 8(y), is estimated to become effective, and the date as of which it is expected that holders of Common Stock (or Reference Property, to the extent applicable) of record will be entitled to exchange their shares of Common Stock (or Reference Property, to the extent applicable) for the capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) deliverable upon such reclassification, change, liquidation, dissolution, winding up or other Fundamental Change.

Disclosures made by the Company in any filings required to be made under the Exchange Act shall be deemed to satisfy the notice requirements set forth in this SECTION 5(g).

(h) Certificate of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this SECTION 5, the Company at its expense shall promptly as reasonably practicable compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred Stock a certificate, signed by an officer of the Company, setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based and shall file a copy of such certificate with its corporate records. The Company shall, upon the reasonable written request of any holder of Series B Preferred Stock, furnish to such holder a similar certificate setting forth (i) the calculation of such adjustments and readjustments in reasonable detail, (ii) the Conversion Price then in effect, and (iii) the number of shares of Common Stock (or Reference Property, to the extent applicable) and the amount, if any, of capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) which then would be received upon the conversion of Series B Preferred Stock.

SECTION 6. Redemption.

Each share of Series B Preferred Stock is redeemable as provided in this SECTION 6.

(a) Mandatory Redemption.

(i) On October 24, 2014 (the “Seventh Anniversary”), or, if not a Business Day, the first Business Day thereafter, the Company shall redeem (subject to the legal availability of funds therefor) all, but not less than all, of the outstanding shares of Series B Preferred Stock at a redemption price per share equal to the Regular Liquidation Preference (the “Mandatory Redemption Price”). To the extent that the Company has insufficient funds to redeem all of the

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outstanding shares of Series B Preferred Stock, the Company shall use available funds to redeem a pro rata portion of the Series B Preferred Stock held by each holder thereof; provided, however, that the failure to redeem all the Series B Preferred Stock on the Mandatory Redemption Date shall continue to constitute a Triggering Event.

(ii) The “Mandatory Redemption Date” shall be the same date as the Seventh Anniversary or, if not a Business Day, the first Business Day thereafter. The Company shall deliver a notice of redemption not less than 10 nor more than 60 days prior to the Mandatory Redemption Date, addressed to the holders of record of the Series B Preferred Stock as they appear in the records of the Company as of the date of such notice. Each notice must state the following: (A) the Mandatory Redemption Date; (B) the Mandatory Redemption Price as of the scheduled Mandatory Redemption Date (it being understood that the actual Mandatory Redemption Price will be determined as of the actual Mandatory Redemption Date); (C) the name of the redemption agent to whom, and the address of the place to where, the Series B Preferred Stock are to be surrendered for payment of the Mandatory Redemption Price; and (D) that Conditional Dividends, if any, on the shares to be redeemed will cease to accrue on such Mandatory Redemption Date, provided that the Mandatory Redemption Price and the Dividends accrued through the day immediately preceding the Mandatory Redemption Date shall have been paid on the Mandatory Redemption Date.

(b) Optional Redemption upon Certain Fundamental Changes.

(i) In connection with a Fundamental Change of the type described in clause (i) of the definition of “Fundamental Change” in SECTION 8(y) (a “Triggering Fundamental Change”) where as a result of such transaction the Series B Preferred Stock become convertible solely into cash (the amount of such cash with respect to each share of Series B Preferred Stock, the “Fundamental Change Price”), the Company, at its option and election, may redeem (out of funds legally available therefor) all, but not less than all, of the outstanding shares of Series B Preferred Stock at a Redemption Price equal to 101% of the Regular Liquidation Preference (the “Optional Redemption Price” and collectively with the Mandatory Redemption Price, the “Redemption Price”); provided, that the consummation of such redemption and the payment of the Optional Redemption Price shall be subject to the consummation of the Triggering Fundamental Change.

(ii) If the Company elects to redeem the Series B Preferred Stock pursuant to SECTION 6(b)(i), the “Optional Redemption Date” shall be the date on which the Triggering Fundamental Change is consummated. The Company shall deliver a notice of redemption not less than 10 nor more than 30 Business Days prior to the Optional Redemption Date, addressed to the holders of record of the Series B Preferred Stock as they appear in the records of the Company as of the date of such notice. Each notice must state the following: (A) the expected Optional Redemption Date; (B) the Optional Redemption Price as of the expected Optional Redemption Date (it being understood that the actual Optional Redemption Price will be determined as of the actual Optional Redemption Date); (C) the Fundamental Change Price as of the expected Optional Redemption Date; (D) the name of the redemption agent to whom, and the address of the place to where, the Series B Preferred Stock are to be surrendered for payment of the Optional Redemption Price; (E) that Conditional Dividends, if any, on the shares to be redeemed will cease to accrue on such Optional Redemption Date provided that the Optional Redemption Price and Dividends accrued through the day immediately preceding the Optional Redemption Date shall have been paid on the

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Optional Redemption Date; and (F) that the consummation of the redemption and the payment of the Optional Redemption Price shall be subject to the consummation of the Triggering Fundamental Change. Each holder shall have the right, exercisable upon notice to the Company at any time prior to the Optional Redemption Date, to elect to convert the Series B Preferred Stock and receive the Fundamental Change Price in lieu of the Optional Redemption Price with respect to each share of Series B Preferred Stock held by such holder to the extent such Triggering Fundamental Change is consummated.

(c) Mechanics of Redemption.

(i) Unless waived in writing by the holders representing a majority of the outstanding shares of Series B Preferred Stock, on or prior to the Mandatory Redemption Date or Optional Redemption Date, as applicable, the Company shall deposit with a redemption agent in trust, upon delivery of the Company’s redemption notice pursuant to SECTION 6(a) or SECTION 6(b), funds consisting of cash or cash equivalents sufficient to pay the Mandatory Redemption Price on the Mandatory Redemption Date or the Optional Redemption Price on the Optional Redemption Date, as the case may be. The redemption agent must be a bank or trust company in good standing, organized under the laws of the United States of America or any jurisdiction thereof. The deposit in trust with the redemption agent shall be irrevocable as of the Mandatory Redemption Date or Optional Redemption Date, as applicable (such date, the “Irrevocable Date”), except that the Company shall be entitled to receive from the redemption agent (i) the applicable Redemption Price with respect to shares of Series B Preferred Stock that are no longer to be redeemed, whether by conversion or otherwise; and (ii) the interest or other earnings, if any, earned on any such deposit. The holders of the shares redeemed shall have no claim to such interest or other earnings, and any funds so deposited with the redemption agent and unclaimed by the holders of the Series B Preferred Stock entitled thereto at the expiration of one year from the Mandatory Redemption Date or Optional Redemption Date, as the case may be, shall be repaid, together with any interest or other earnings thereon, to the Company, and after any such repayment, the holders of the shares entitled to the funds so returned to the Company shall look only to the Company for such payment, without interest. Notwithstanding the deposit of such funds, the Company shall remain liable for the payment of the applicable Redemption Price to the extent such Redemption Price is not paid as provided herein.

(ii) The redemption agent on behalf of the Company shall pay the applicable Redemption Price on the Mandatory Redemption Date or Optional Redemption Date, as the case may be, upon surrender of the certificates representing the shares of Series B Preferred Stock to be redeemed (properly endorsed or assigned for transfer, if the Company shall so require and letters of transmittal and instructions therefor on reasonable terms are included in the notice sent by the Company); provided that if such certificates are lost, stolen or destroyed, the Company may require such holder to indemnify the Company, in a reasonable amount and in a reasonable manner, and post a customary bond in respect of such indemnity, prior to paying such Redemption Price.

(iii) From and after the Irrevocable Date, shares of Series B Preferred Stock to be redeemed on the Mandatory Redemption Date or Optional Redemption Date, as the case may be, will no longer be deemed to be outstanding; and all powers, designations, preferences and other rights of the holder thereof as a holder of Series B Preferred Stock (except the right to receive

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from the Company the applicable Redemption Price) shall cease and terminate with respect to such shares; provided that in the event that a share of Series B Preferred Stock is not redeemed due to a default in payment by the Company or because the Company is otherwise unable to pay the applicable Redemption Price in cash in full, such share of Series B Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights (including but not limited to the accrual and payment of dividends and the conversion rights) as provided herein.

(iv) Notwithstanding anything in this SECTION 6 to the contrary, each holder shall retain the right to convert shares of Series B Preferred Stock to be redeemed at any time on or prior to the Mandatory Redemption Date or Optional Redemption Date, as the case may be; provided, however, that any shares of Series B Preferred Stock converted prior to the Mandatory Redemption Date or Optional Redemption Date, as the case may be, shall not be redeemed pursuant to this SECTION 6.

(v) Any redemption of the Series B Preferred Stock pursuant to this SECTION 6 (such redemption, the “Redemption”) shall be payable out of any cash legally available therefor, and if there is not a sufficient amount of cash available, then out of the remaining assets of the Company legally available therefor (valued at the fair market value thereof on the date of payment, as determined by the Board). At the time of the Redemption, the Company shall take all actions required or permitted under Delaware law to permit the redemption of the Series B Convertible Preferred Stock, including, without limitation, through the revaluation of its assets in accordance with Delaware law, to make funds legally available for such redemption.

SECTION 7. Fundamental Change.

(a) Offer to Repurchase.

(i) In connection with any Fundamental Change other than a Fundamental Change in which Elevation or any of its Affiliates is the acquiror or is otherwise a constituent party (or Affiliate thereof) to the transaction that results in such Fundamental Change, the Company shall, or shall cause the Survivor of a Fundamental Change (such Survivor of a Fundamental Change, the “Acquirer”) to, make an offer to repurchase, at the option and election of the holder thereof, each share of Series B Preferred Stock then-outstanding (the “Fundamental Change Offer”) at a purchase price per share (such amount being the “Repurchase Price”) (x) in cash equal to 101% of the Regular Liquidation Preference or, (y) at the sole election of the Company (the “Company Election”), subject to the conditions set forth in SECTION 7(a)(ii) below, a number of shares of common stock (or ADSs or ADRs in respect of such ADSs), which are publicly tradable and listed on an Exchange at the time of receipt, of the Acquirer or any direct or indirect parent thereof (such shares of common stock, “Acquirer Stock”, and the issuer of such shares, the “Successor Public Company”) with an aggregate market value (equal on a per share or per ADS/ADR basis to the closing sale price for such security on the principal Exchange on which such security is traded, on the trading day immediately preceding the issuance of such common stock or ADSs/ADRs to the relevant holders of Series B Preferred Stock) equal to 105% of the Regular Liquidation Preference. The Company Election must be made in the Fundamental Change Notice delivered pursuant to SECTION 7(a)(iii) and shall become irrevocable from the date thereof unless otherwise consented to by the holders of a majority of the Series B Preferred Stock.

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(ii) The Company’s right to elect to pay the Repurchase Price with Acquirer Stock is subject to the following conditions:

(A) the issuance of the Acquirer Stock shall have been registered under the Securities Act;

(B) Rule 145 promulgated under the Securities Act shall permit the sale of such Acquirer Stock by the holder thereof (and any of its Affiliates) within a period of three months immediately following the Repurchase Date;

(C) the Acquirer Stock (or ADSs representing the Acquirer Stock, or ADRs in respect thereof) issued to the holders of Series B Preferred Stock shall be listed on an Exchange;

(D) the aggregate number of shares of Acquirer Stock issuable to any record holder of Series B Preferred Stock and such holder’s Affiliates (including shares issuable in respect of both Series B Preferred Stock and Series C Preferred Stock) shall not exceed the lesser of the number of shares equal to (x) 4.9% of all then-outstanding shares of Acquirer Stock (based on the number of outstanding shares of Acquirer Stock set forth in Acquirer’s most recently available filing with the Securities and Exchange Commission) and (y) three (3) times the average daily trading volume of Acquirer Stock (or American Depositary Shares representing the Acquirer Stock, or American Depositary Receipts in respect thereof) on an Exchange for the four (4) weeks immediately preceding the Repurchase Date.

(iii) The “Repurchase Date” shall be the date on which the Fundamental Change is consummated (provided that in the case of a Fundamental Change described in clause (ii) of the definition thereof, the Repurchase Date shall be a date no later than 20 days following the date of the first public announcement of such Fundamental Change having occurred (including, for these purposes, the filing of a Schedule 13D pursuant to the Exchange Act)). As soon as practicable after the announcement of such transaction or execution of such agreement providing for such Fundamental Change, the Company shall commence the Fundamental Change Offer by delivering a notice (the “Fundamental Change Notice”), not less than 10 nor more than 60 days prior to the expected Repurchase Date, addressed to the holders of record of the Series B Preferred Stock as they appear in the records of the Company as of the date of announcement of such transaction or execution of such agreement providing for such Fundamental Change. Each notice must state that: (A) the Fundamental Change Offer may be accepted by delivery of a written revocable notice specifying the number of shares to be repurchased; (B) the expected Repurchase Price as of the expected Repurchase Date (it being understood that the actual Repurchase Price will be determined as of the actual Repurchase Date); (C) the name of the paying agent to whom, and the address of the place to where, the Series B Preferred Stock are to be surrendered for payment of the Repurchase Price; (D) any shares of Series B Preferred Stock not tendered for payment shall continue to be outstanding and holders thereof shall remain entitled to, among other things, the payment of dividends thereon and exercise their conversion rights (whether on the date of consummation of the

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Fundamental Change or otherwise), (E) the consummation of the Fundamental Change Offer and the payment of the Repurchase Price shall be subject to the consummation of the Fundamental Change, and the Fundamental Change Offer shall not be consummated in the event the Company elects to effect a conversion pursuant to SECTION 5(c), and (F) the circumstances and material facts regarding such Fundamental Change. If the Fundamental Change is not consummated, the Fundamental Change Offer shall be automatically withdrawn.

(iv) Notwithstanding this SECTION 7, the Fundamental Change Offer shall be subject to, and be made in compliance with, Regulation 14E under the Exchange Act and any other federal and state securities laws, as applicable, including any applicable time periods. The Company shall notify the holders Series B Preferred Stock of the results of the Fundamental Change Offer on or as soon as practicable after the Repurchase Date.

(b) Mechanics of Repurchase.

(i) Unless waived by the holders representing a majority of the outstanding shares of Series B Preferred Stock, the Company shall deposit with a paying agent in trust by the Repurchase Date), funds consisting of cash or cash equivalents sufficient to pay the cash portion of the Repurchase Price on the Repurchase Date. The paying agent must be a bank or trust company in good standing, organized under the laws of the United States of America or any jurisdiction thereof. The deposit in trust with the paying agent shall be irrevocable as of the Repurchase Date, except that the Company shall be entitled to receive from the paying agent (A) Repurchase Prices with respect to shares of Series B Preferred Stock that are no longer to be repurchased, whether by conversion, withdrawal of an election or tender or otherwise and (B) the interest or other earnings, if any, earned on any such deposit. The holders of the shares repurchased shall have no claim to such interest or other earnings, and any funds so deposited with the paying agent and unclaimed by the holders of the Series B Preferred Stock entitled thereto at the expiration of one year from the Repurchase Date shall be repaid, together with any interest or other earnings thereon, to the Company, and after any such repayment, the holders of the shares entitled to the funds so returned to the Company shall look only to the Company for such payment, without interest. Notwithstanding the deposit of such funds, the Company shall remain liable for the payment of the Repurchase Price to the extent such Repurchase Price is not paid as provided herein.

(ii) The paying agent on behalf of the Company shall pay the Repurchase Price on the Repurchase Date upon surrender of the certificates representing the shares of Series B Preferred Stock to be repurchased (properly endorsed or assigned for transfer, if the Company shall so require and letters of transmittal and instructions therefor on reasonable terms are included in the notice sent by the Company); provided that if such certificates are lost, stolen or destroyed, the Company may require such holder to indemnify the Company, and post a customary bond in respect of such indemnity, in a reasonable amount and in a reasonable manner, prior to paying such Repurchase Price.

(iii) In case fewer than all the shares represented by any such certificate are to be repurchased, a new certificate shall be issued representing the unrepurchased shares without cost to the holder thereof, except for any documentary, stamp or similar issue or transfer tax due because any certificate for shares Series B Preferred Stock are issued in a name other than the name

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of the selling holder. The Company shall pay any documentary, stamp or similar issue or transfer tax due upon the issuance of a new certificate for any shares of Series B Preferred Stock not repurchased other man any such tax due because a certificate for shares Series B Preferred Stock is issued in a name other than the name of the selling holder.

(iv) Subject to clause (vi) below, from and after the Repurchase Date, shares of the Series B Preferred Stock to be repurchased on such Repurchase Date will no longer be deemed to be outstanding; and all powers, designations, preferences and other rights of the holder thereof as a holder of Series B Preferred Stock (except the right to receive from the Company the Repurchase Price) shall cease and terminate with respect to such shares; provided that in the event that a share of Series B Preferred Stock is not repurchased due to a default in payment by the Company or because the Company is otherwise unable to pay the Repurchase Price in full, such share of Series B Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights (including but not limited to the payment of dividends and the conversion rights) as provided herein.

(v) Notwithstanding anything in this SECTION 7 to the contrary, each holder shall retain the right to (A) convert shares of Series B Preferred Stock to be repurchased at any time on or prior to the Repurchase Date or (B) withdraw an election to have such shares repurchased or any tender of such shares in the Fundamental Change Offer on or prior to the Repurchase Date; provided, however, that, where a holder of Series B Preferred Stock exercises its rights under (A) or (B) above, the shares of Series B Preferred Stock of such holder shall not be repurchased pursuant to this SECTION 7.

(vi) The Company shall not be required to make a Fundamental Change Offer if an Affiliate in control of the Company makes the Fundamental Change Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this SECTION 7 and purchases all shares of Series B Preferred Stock validly tendered and not withdrawn under such Fundamental Change Offer; provided, that if an Affiliate in control of the Company makes such repurchase, the shares of Series B Preferred Stock so purchased shall remain outstanding in the hands of such Affiliate.

(vii) The Company may not enter into any agreement providing for a Fundamental Change unless the Acquirer agrees to cause the Company to make the repurchases contemplated in this SECTION 7 and agrees, for the benefit of the holders of record of the Series B Preferred Stock (including making them beneficiaries of such agreement), that to the extent the Company is not legally able to repurchase the Series B Preferred Stock, the Acquirer will purchase the Series B Preferred Stock.

(viii) Any repurchase of the Series B Preferred Stock pursuant to this SECTION 7 shall be payable out of any cash legally available therefor, and if there is not a sufficient amount of cash available, then out of the remaining assets of the Company legally available therefor (valued at the fair market value thereof on the date of payment, as determined by the Board). The Company shall take all actions required or permitted under Delaware law to permit the repurchase of the Series B Preferred Stock, including, without limitation, through the revaluation of its assets in accordance with Delaware law, to make funds legally available for such repurchase.

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SECTION 8. Additional Definitions. For purposes of these resolutions, the following terms shall have the following meanings:

(a) “Acquiring Person” shall have the meaning given thereto in the Company Rights Plan (or its comparable term/provision under any successor, substitute or additional shareholder rights plan).

(b) “Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person, for so long as such Person remains so associated to the specified Person. Notwithstanding the foregoing, (i) the Company, its subsidiaries and its other controlled Affiliates shall not be considered Affiliates of any Investor Stockholder or their Permitted Transferees, (ii) the portfolio companies in which the Investor Stockholders, any other Elevation Entities or any other Elevation Partners’ investment fund that is Controlled by or under common Control with an Elevation Entity have directly or indirectly made a debt or equity investment shall not be considered Affiliates of the Investor Stockholders or their Permitted Transferees if the Investor Stockholders, alone, or together with their Permitted Transferees, (x) in the aggregate Beneficially Own securities that would comprise (upon conversion, exchange or exercise of any rights, options, warrants or similar securities, if applicable) less than 50% of the Maximum Voting Power of such portfolio company and (y) do not constitute, nor do they have the contractual or other legal right to elect, a majority of the members of the board or other governing body of such portfolio company, unless such portfolio company has received Confidential Information, directly or indirectly, or has been provided assistance with respect to the acquisition, holding, voting or disposition of capital stock from an Investor Stockholder or any of its Affiliates or has otherwise acted in concert with an Investor Stockholder or any of its Affiliates with respect to the acquisition, holding, voting or disposition of capital stock and (iii) a corporation or other entity (a “Specified Entity”) with respect to which (x) none of the Investor Stockholders or Elevation Entities has directly or indirectly made a debt or equity investment and (y) none of the Investor Stockholders, alone or together with their Permitted Transferees, constitute, or have the contractual or other legal right to elect, a majority of the members of the board or other governing body of such Specified Entity (and which otherwise is not controlled by an Elevation Entity), but which is an Affiliate of an individual who would be considered a controlling Affiliate of an Elevation Entity, will not be considered an Affiliate of the Investor Stockholders or their Permitted Transferees unless such Specified Entity has received Confidential Information, directly or indirectly or has been provided assistance with respect to the acquisition, holding, voting or disposition of capital stock from an Investor Stockholder or any of its Affiliates or has otherwise acted in concert with an Investor Stockholder or any of its Affiliates with respect to the acquisition, holding, voting or disposition of capital stock. For avoidance of doubt, Permitted Transferees shall be deemed to be Affiliates of the Investor Stockholders.

(c) “Beneficial Owner”, “Beneficially Own” and “Beneficial Ownership” have the meaning given such term in Rule 13d-3 under the Exchange Act, and a person’s beneficial ownership of securities will be calculated in accordance with the provisions of such Rule; provided, however, that (i) a person will be deemed to be the beneficial owner of any security which may be acquired by such person whether within 60 days or thereafter, upon the conversion, exchange or exercise of any rights, options, warrants or similar securities to subscribe for, purchase or otherwise

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acquire (x) capital stock of any person or (y) debt or other evidences of indebtedness, capital stock or other securities directly or indirectly convertible into or exercisable or exchangeable for such capital stock of such person and (ii) a person shall be deemed to be the beneficial owner of any securities with which a person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of such securities.

(d) “Board Representation Entitlement” means a number of Preferred Directors (rounded to the nearest whole number) equal to the product of (x) the total number of members then comprising the full Board (including the Preferred Directors) and (y) the lesser of (1) 39.9% and (2) the Elevation Beneficial Ownership Percentage; provided, however, that, notwithstanding the foregoing, (A) from and after the first time that the Investor Stockholders (including, for this purpose, their Permitted Transferees) in the aggregate cease to (x) Beneficially Own and (y) have all Economic Rights and Voting Rights with respect to a number of shares of Investor Preferred Stock that if then converted would be convertible into a number of shares of Common Stock that is greater than or equal to 50% of the shares of Common Stock issuable upon conversion of 325,000 shares of Series B Preferred Stock (regardless of whether any such shares of Series B Preferred Stock are then outstanding) based on the conversion prices that are (or would be) in effect at the time of such calculation (including, for purposes of this calculation, shares of Investor Preferred Stock pledged pursuant to a bona fide pledge, but not a foreclosure thereon, but excluding, for purposes of this calculation, shares subject to Shared Beneficial Ownership with any Person other than another Investor Stockholder or a Permitted Transferee), the Board Representation Entitlement shall be zero (0) Preferred Directors, (B) from and after the occurrence of a Non-Constituent Issuer Fundamental Change, the Board Representation Entitlement shall be zero (0) Preferred Directors and (C) from and after the occurrence of a Fundamental Change described in clause (i) of the definition thereof other than a Non-Constituent Issuer Fundamental Change, the Board Representation Entitlement shall be no more than one (1) Preferred Director; provided, further, that no reduction in the Board Representation Entitlement resulting from a decrease in the Elevation Beneficial Ownership Percentage shall occur until the expiration of any applicable Share Ownership Reduction Cure Period.

(e) “Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or obligated to close.

(f) “capital stock” means any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, partnership interests (whether general or limited) or equivalent ownership interests in or issued by such person, and with respect to the Company includes, without limitation, any and all shares of Common Stock and the Preferred Stock.

(g) “Certificate of Designation of the Series C Preferred Stock” means the Certificate of Designation with respect to the Series C Preferred Stock, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof.

(h) “Closing Price” of the Common Stock (or Reference Property, to the extent applicable) on any date means the closing sale price per share (or if no closing sale price is reported,

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the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. securities exchange on which the Common Stock (or Reference Property, to the extent applicable) is listed or admitted for trading or, if the Common Stock (or Reference Property, to the extent applicable) is not listed or admitted for trading on a U.S. national or regional securities exchange, as reported on the quotation system on which such security is quoted. If the Common Stock (or Reference Property, to the extent applicable) is not listed or admitted for trading on a United States national or regional securities exchange and not reported on a quotation system on the relevant date, the “closing price” will be the last quoted bid price for the Common Stock (or Reference Property, to the extent applicable) in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization. If the Common Stock (or Reference Property, to the extent applicable) is not so quoted, the last reported sale price will be the average of the mid-point of the last bid and ask prices for the Common Stock (or Reference Property, to the extent applicable) on the relevant date from each of at least three nationally recognized investment banking firms selected by the Company for this purpose.

(i) “Company Rights Plan” means that certain Preferred Stock Rights Agreement, dated as of September 25, 2000, as amended, between the Company and Computershare Trust Company of New York, as successor to Equiserve Trust Company, N.A. and Fleet National Bank.

(j) “Control” and “Controlled by” have the meaning set forth in Rule 12b-2 of the Exchange Act.

(k) “Conditional Rate” means an annual rate equal to the prime rate of JPMorgan Chase Bank N.A. on the Conditional Dividend Payment Date plus 4%.

(l) “Confidential Information” shall have the meaning set forth in the Stockholders’ Agreement.

(m) “Conversion Shares” shall have the meaning set forth in the Stockholders’ Agreement.

(n) “Current Market Price” shall mean the average of the closing prices per share of Common Stock for each of the five consecutive trading days ending on the trading day immediately preceding a Rights Triggering Date.

(o) “Distribution Date” shall have the meaning given thereto in the Company Rights Plan (or its comparable term/provision under any successor, substitute or additional shareholder rights plan).

(p) “Economic Rights” means the right to the full pecuniary interest (which may be subject to a bona fide pledge, but not a foreclosure thereon) in the Series B Preferred Stock and/or the Series C Preferred Stock, as applicable, including, without limitation, the right to receive dividends and distributions, proceeds upon liquidation and receive the proceeds of, disposition or conversion of such Series B Preferred Stock or Series C Preferred Stock. For the avoidance of doubt, any contractual encumbrance resulting from a bona fide incurrence of indebtedness for money

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borrowed (including an obligation to repay such indebtedness with the proceeds of any Transfer of, or dividend or distribution on, any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares) not incurred in violation of Section 3.1 of the Stockholders’ Agreement shall not be deemed to be a Transfer, loss or reduction in the Economic Rights associated with such shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares, as the case may be.

(q) “Elevation” means Elevation Partners, L.P.

(r) “Elevation Beneficial Ownership Percentage” means, at any time, the quotient of (a) the aggregate number of shares of Common Stock Beneficially Owned, but excluding Shared Beneficial Ownership of Common Stock, by the Investor Stockholders divided by (b) the sum of (i) the total number of shares of Common Stock outstanding at such time plus (ii) the number of shares of Common Stock into which the outstanding shares of Series B Preferred Stock and Series C Preferred Stock are entitled to convert at such time plus (iii) the number of shares of Common Stock issuable upon the exercise of Warrants (as defined in the Securities Purchase Agreement) plus (iv) the number of shares of Common Stock issuable upon the conversion, exchange or issuance of any Equity Securities of the Company sold in any Offering described in clause (ii) of the definition of Offering. For purposes hereof, if a Share Ownership Reduction Cure Period shall have ever taken place (on one or more occasions), and at the end of such Shares Ownership Reduction Cure Period there is a reduction in the number of Preferred Directors pursuant to SECTION 4(d)(iii) of this Amended and Restated Certificate of Designation, then the Elevation Beneficial Ownership Percentage shall be deemed at any point in time thereafter to be no greater than the lowest Elevation Beneficial Ownership Percentage that shall have existed at the end of any such Share Ownership Reduction Cure Period.

(s) “Elevation Entity” shall have the meaning set forth in the Stockholders’ Agreement.

(t) “Equity Securities” means (x) any shares of capital stock of the Company, (y) any rights, options, warrants or similar securities to subscribe for, purchase or otherwise acquire any shares of capital stock of the Company, and (z) capital stock or other equity securities directly or indirectly convertible into or exercisable or exchangeable for any shares of capital stock of the Company, excluding, for all purposes, any debt, including, without limitation, any debt convertible into any of the foregoing described in clauses (x) through (z).

(u) “Exchange” means Nasdaq or the New York Stock Exchange, as the case may be.

(v) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(w) “Ex-Dividend Date” means, with respect to any issuance or distribution, the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such issuance or distribution.

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(x) “Fair Market Value” of Common Stock or any other security or property means the fair market value thereof as determined in good faith by the Board, which determination must be set forth in a written resolution of the Board, in accordance with the following rules:

(i) for Common Stock or other security traded or quoted on an Exchange, the Fair Market Value will be the average of the closing prices of such security on such Exchange over a ten (10) consecutive trading day period, ending on the trading day immediately prior to the date of determination;

(ii) for any security that is not so traded or quoted, the Fair Market Value shall be determined: (x) mutually by the Board and the holders of at least a majority of the then-outstanding shares of Series B Preferred Stock, or (y) by a nationally recognized investment bank, appraisal or accounting firm (whose fees and expenses will be paid by the Company) selected by mutual agreement between the Board and the holders representing a majority of the then outstanding shares of Series B Preferred Stock; or

(iii) for any other property, the Fair Market Value shall be determined by the Board in good faith assuming a willing buyer and a willing seller in an arms’-length transaction; provided that if holders representing a majority of the then-outstanding shares of Series B Preferred Stock object to a determination of the Board made pursuant to this clause (iii), the Fair Market Value of such property shall be as determined by nationally recognized investment bank, appraisal or accounting firm (whose fees and expenses will be paid by the Company) selected by mutual agreement between the Board and such holders.

(y) “Fundamental Change” means the occurrence of any of the following:

(i) any merger, consolidation, stock or asset purchase, recapitalization or other business combination transaction (or series of related transactions) as a result of which the shares of capital stock of the Company entitled to vote generally in the election of directors and the Series B Preferred Stock and the Series C Preferred Stock (treated on an as-converted basis) immediately prior to such transaction (or series of related transactions) are converted into and/or continue to represent (on an as-converted basis in the case of the Series B Preferred Stock and the Series C Preferred Stock), in the aggregate, less than 50% of the total voting power of all shares of capital stock that are entitled to vote generally in the election of directors of the entity surviving or resulting from such transaction (or ultimate parent thereof);

(ii) any person or group, together with any Affiliates thereof (other than any Investor Stockholder, as defined in the Stockholders Agreement, or any of their respective Affiliates), has, directly or indirectly, become the Beneficial Owner of more than 50% of the total voting power of all shares of capital stock of the Company that are entitled to vote generally in the election of directors;

(iii) the sale, transfer or disposition, including but not limited to any spin-off or in-kind distribution (a “Divestiture”), by the Company or by one or more of its subsidiaries of all or substantially all of the assets, business or securities of the Company (on a consolidated basis) to any person or group (other than the Company or its wholly-owned subsidiaries); provided that a

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Fundamental Change shall not include a spin-off or similar in-kind distribution to the stockholders of the Company in which the holders of Series B Preferred Stock and Series C Preferred Stock are entitled to such distribution as Dividends without other adjustment to the Conversion Price if the rights of the holders of Series B Preferred Stock and Series C Preferred Stock pursuant to this Amended and Restated Certificate of Designation, the Certificate of Designation of the Series C Preferred Stock and the Stockholders’ Agreement are preserved after giving effect to such spin-off or in-kind distribution.

(z) “group” has the meaning assigned to such term in Section 13(d)(3) of the Exchange Act.

(aa) “hereof”; “herein” and “hereunder” and words of similar import refer to these resolutions as a whole and not merely to any particular clause, provision, section or subsection.

(bb) “Investor Stockholder” shall have the meaning ascribed thereto in the Stockholders’ Agreement.

(cc) “Market Disruption Event” means the occurrence or existence for more than one half hour period in the aggregate on any scheduled Trading Day for the Common Stock (or Reference Property, to the extent applicable) of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Nasdaq National Market or otherwise) in the Common Stock (or Reference Property, to the extent applicable) or in any options, contracts or future contracts relating to the Common Stock (or Reference Property, to the extent applicable), and such suspension or limitation occurs or exists at any time before 1:00 p.m. (New York City time) on such day.

(dd) “Nasdaq” means The NASDAQ Stock Market.

(ee) “Offering” shall have the meanings ascribed thereto in the Stockholders’ Agreement.

(ff) “person” means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government, any agency or political subdivisions thereof or other “person” as contemplated by Section 13(d) of the Exchange Act.

(gg) “Permitted Transferee” shall have the meaning set forth in the Stockholders’ Agreement.

(hh) “Right to Vote” means the right to direct the voting of the Series B Preferred Stock with respect to any matter for which the Series B Preferred Stock is entitled to vote.

(ii) “Rights” shall have the meaning given thereto in the Company Rights Plan (or the comparable right under any successor, substitute or additional shareholder rights plan).

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(jj) “Rights Plan Triggering Event” shall have the meaning given thereto in the Company Rights Plan (or its comparable term/provision under any successor, substitute or additional shareholder rights plan).

(kk) “Rights Triggering Date” means the date on which a Rights Plan Triggering Event occurs.

(ll) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(mm) “Securities Purchase Agreement” means that certain Securities Purchase Agreement dated December 22, 2008 between the Company and Elevation.

(nn) “Series B Original Issuance Date” means the date on which the first share of Series B Preferred Stock was issued.

(oo) “Series C Original Issuance Date” means the date on which the first share of Series C Preferred Stock was issued.

(pp) “Shared Beneficial Ownership” means Beneficial Ownership in which (a) voting power is shared with another Person, except in the case of the Investor Stockholders and their Permitted Transferees, to the extent that such shared voting power is shared only with another Investor Stockholder or Permitted Transferee and/or (b) the Investor Stockholders and/or their Permitted Transferees have effected a Transfer to a Person other than a Permitted Transferee, provided that any contractual encumbrance resulting from a bona fide incurrence of indebtedness for money borrowed (including an obligation to repay such indebtedness with the proceeds of any Transfer of, or dividend or distribution on, any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares) not incurred in violation of Section 3.1 of the Stockholders’ Agreement shall not be deemed to be a Transfer, loss or reduction in the Beneficial Ownership associated with such shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares, as the case may be.

(qq) “Share Ownership Reduction Cure Period” means the period commencing on the date the Company provides the Company Notice (as defined in the Stockholders’ Agreement) and ending on the date 60 days thereafter.

(rr) “Stockholders’ Agreement” means the Amended and Restated Stockholders Agreement, dated the Series C Original Issuance Date, by and among the Company and the Investor Stockholders, as it may be amended from time to time in accordance with the terms thereof.

(ss) “Survivor of Fundamental Change” means the issuer of the securities received by the holders of Common Stock (or Reference Property, to the extent applicable) (in their capacities as such) upon the consummation of a Fundamental Change, to the extent the holders of Common Stock (or Reference Property, to the extent applicable) receive other securities in exchange, conversion or substitution of their Common Stock (or Reference Property, to the extent applicable) in the transaction that resulted in such Fundamental Change.

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(tt) “Total Current Voting Power” shall have the meaning set forth in the Stockholders’ Agreement.

(uu) “Trading Day” means any day on which (i) there is no Market Disruption Event and (ii) Nasdaq or, if the Common Stock (or Reference Property, to the extent applicable) is not listed on Nasdaq, the principal national securities exchange on which the Common Stock (or Reference Property, to the extent applicable) is listed, is open for trading or, if the Common Stock (or Reference Property, to the extent applicable) is not so listed, admitted for trading or quoted, any Business Day. A Trading Day only includes those days that have a scheduled closing time of 4:00 p.m. (New York City time) or the then standard closing time for regular trading on the relevant exchange or trading system.

(vv) “Transfer” means, directly or indirectly, to sell, transfer, assign, pledge (other than a bona fide pledge not in violation of Section 3.1(b) of the Stockholders’ Agreement (but not a foreclosure thereon)), encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge (other than a bona fide pledge not in violation of Section 3.1(b) of the Stockholders’ Agreement (but not a foreclosure thereon)), encumbrance, hypothecation or similar disposition of, any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares beneficially owned by a person or any interest (including any Economic Rights or Voting Rights or creation of Shared Beneficial Ownership) in any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares beneficially owned by a Person.

(ww) “Uncured Share Ownership Reduction” means a decrease, for any reason, in the Elevation Beneficial Ownership Percentage that results in a reduction in the number of Directors that constitutes the Board Representation Entitlement; provided, however that if, during an applicable Share Ownership Reduction Cure Period, the Elevation Beneficial Ownership Percentage (as determined pursuant to the definition thereof in SECTION 8(r), including the last sentence thereof) is increased to, and maintained at, the minimum Elevation Beneficial Ownership Percentage necessary to avoid a reduction in the number of Directors that constitutes the Board Representation Entitlement as of immediately prior to such decrease, then such decrease in the Elevation Beneficial Ownership Percentage shall not be an Uncured Share Ownership Reduction (it being understood that any subsequent decrease in Elevation Beneficial Ownership Percentage that results in a reduction in the number of Directors that constitutes the Board Representation Director Entitlement may again qualify as an Uncured Share Ownership Reduction).

(xx) “Voting Rights” shall mean the power to vote or direct the voting of any security (subject to any bona fide pledge, but not foreclosure thereon).

(yy) Each of the following terms is defined in the Section set forth opposite such term:

Term	Section
Acquirer	SECTION 7(a)(i)
Acquirer Stock	SECTION 7(a)(i)
ADR	SECTION 4(g)

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Term	Section
ADS	SECTION 4(g)
Aggregate Amount	SECTION 5(f)(iii)
Amended and Restated Certificate of Designation	Recital
Board	Recital
Board Size Decrease	SECTION 4(d)(iv)
Certificate of Incorporation	Recital
Common Stock	SECTION 1(b)(i)
Company	Recital
Company Election	SECTION 7(a)(i)
Conditional Dividend Payment Date	SECTION 2(b)(i)
Conditional Dividends	SECTION 2(b)
Consolidated EBITDA	SECTION 4(f)
Conversion Amount	SECTION 5(a)
Conversion Date	SECTION 5(a)
Conversion Price	SECTION 5(a)
Conversion Security	SECTION 4(b)(ii)
Credit Agreement	SECTION 4(f)
DGCL	Recital
Disposition Event	SECTION 5(f)(iv)(A)
Dividends	SECTION 2(b)
Expiration Date	SECTION 5(f)(iii)
Expired Rights	SECTION 5(f)(ii)
Fundamental Change Notice	SECTION 7(a)(iii)
Fundamental Change Offer	SECTION 7(a)(i)
Fundamental Change Price	SECTION 6(b)(i)
Indebtedness	SECTION 4(f)
Investor Preferred Stock	SECTION 4(d)
Irrevocable Date	SECTION 6(c)(i)
Junior Securities	SECTION 1(b)(i)
Liquidation Preference	SECTION 3(a)
Mandatory Redemption Date	SECTION 6(a)(ii)
Mandatory Redemption Price	SECTION 6(a)(i)
Maximum Voting Percentage	SECTION 4(a)
Maximum Voting Power	SECTION 4(a)
New Preferred Stock	SECTION 4(c)
Non-Constituent Issuer Fundamental Change	SECTION 4(b)(ii)
Optional Redemption Date	SECTION 6(b)(ii)
Optional Redemption Price	SECTION 6(b)(i)
Original Certificate of Designation	Recital
Original Purchase Price	SECTION 2(b)
Parity Securities	SECTION 1(b)(ii)
Participating Dividends	SECTION 2(a)
Participating Liquidation Preference	SECTION 3(a)
Preferred Directors	SECTION 4(d)

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Term	Section
Preferred Stock	Recital
Purchased Shares	SECTION 5(f)(iii)
Redemption	SECTION 6(c)(v)
Redemption Price	SECTION 6(b)(i)
Reference Property	SECTION 5(f)(iv)(A)(2)
Regular Liquidation Preference	SECTION 3(a)
Repurchase Date	SECTION 7(a)(iii)
Repurchase Price	SECTION 7(a)(i)
Senior Securities	SECTION 1(b)(iii)
Series A Preferred Stock	SECTION 1(b)(i)
Series B Preferred Stock	SECTION 1(a)
Series C Preferred Stock	SECTION 1(b)(ii)
Seventh Anniversary	SECTION 6(a)(i)
Successor Credit Agreement	SECTION 4(f)
Successor Public Company	SECTION 7(a)(i)
Total Leverage Ratio	SECTION 4(f)
Transition Time	SECTION 4(d)(vii)
Triggering Event	SECTION 2(b)(vii)
Triggering Fundamental Change	SECTION 6(b)(i)
Underlying Common Stock Amount	SECTION 5(f)(ii)
Unpaid Conditional Dividends	SECTION 2(b)(i)

SECTION 9. Miscellaneous. For purposes of these resolutions, the following provisions shall apply:

(a) Status of Cancelled Shares. Shares of Series B Preferred Stock which have been converted, redeemed, repurchased or otherwise cancelled shall be retired and, following the filing of any certificate required by the DGCL, have the status of authorized and unissued shares of Preferred Stock, without designation as to series until such shares are once more, subject to SECTION 4, designated as part of a particular Series by the Board.

(b) Severability. If any right, preference or limitation of the Preferred Stock set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other rights, preferences and limitations set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

(c) Headings. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

[Rest of page intentionally left blank.]

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IN WITNESS WHEREOF, the Company has caused this Amended and Restated Certificate of Designation to be executed by a duly authorized officer of the Company as of January 12, 2009.

PALM, INC.
By:	/s/    Edward T. Colligan
Name:	Edward T. Colligan
Title:	President and CEO

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EX-3.6

Exhibit 3.6

CERTIFICATE OF DESIGNATION

OF SERIES C CONVERTIBLE PREFERRED STOCK

OF

PALM, INC.

Palm, Inc. (the “Company”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), hereby certifies, pursuant to Section 151 of the DGCL, that the following resolutions were duly adopted by its Board of Directors (the “Board”) on December 21, 2008:

WHEREAS, the Company’s Restated Certificate of Incorporation (the “Certificate of Incorporation”), authorizes 125,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), issuable from time to time in one or more series; and

WHEREAS, the Certificate of Incorporation authorizes the Board to provide by resolution for the issuance of the shares of Preferred Stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions thereof;

NOW, THEREFORE, BE IT RESOLVED, that a series of Preferred Stock with the powers, designations, preferences and rights and the qualifications, limitations and restrictions thereof, as provided herein is hereby authorized and established as follows:

SECTION 1. Number; Designation; Rank.

(a) This series of convertible participating Preferred Stock is designated as the “Series C Convertible Preferred Stock” (the “Series C Preferred Stock”). The number of shares constituting the Series C Preferred Stock is 100,000 shares, par value $0.001 per share.

(b) The Series C Preferred Stock ranks, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company:

(i) senior in preference and priority to the common stock of the Company, par value $0.001 per share (the “Common Stock”), the series of Preferred Stock of the Company that is designated as “Series A Participating Preferred Stock”, par value $0.001 per share (the “Series A Preferred Stock”) and each other class or series of Equity Security (as defined in SECTION 8(t)) of the Company the terms of which do not expressly provide that it ranks senior in preference or priority to or on parity, without preference or priority, with the Series C Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company (collectively with the Common Stock, the “Junior Securities”);

(ii) on parity, without preference and priority, with the series of Preferred Stock of the Company that is designated as “Series B Convertible Preferred Stock”, par value $0.001

per share (the “Series B Preferred Stock”) and each other class or series of Equity Security of the Company, the terms of which expressly provide that it will rank on parity, without preference or priority, with the Series C Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company (collectively, the “Parity Securities”), and

(iii) junior in preference and priority to each other class or series of Equity Security of the Company the terms of which expressly provide that it will rank senior in preference or priority to the Series C Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company (collectively, the “Senior Securities”).

SECTION 2. Dividends.

(a) Participating Dividends. Each holder of issued and outstanding Series C Preferred Stock will be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends for each share of Series C Preferred Stock, dividends of the same type as any dividends or other distribution, whether in cash, in kind or in other property, payable or to be made on outstanding shares of Common Stock (or Reference Property, to the extent applicable), in an amount equal to the amount of such dividends or other distribution as would be made on the largest number of shares of Common Stock (or Reference Property, to the extent applicable) into which such share of Series C Preferred Stock could be converted on the applicable record date for such dividends or other distribution on the Common Stock (or Reference Property, to the extent applicable), assuming such converted shares of Common Stock (or Reference Property, to the extent applicable) were outstanding on the applicable record date for such dividend or other distribution and without giving effect to the limitations set forth in SECTION 5(b) (the “Participating Dividends”); provided, however, that notwithstanding the above, the holders of Series C Preferred Stock shall not be entitled to receive any dividends or distributions for which an adjustment to the Conversion Price shall be made pursuant to SECTION 5(f)(i)(A) (and such dividends or distributions that are not payable to the holders of Series C Preferred Stock as a result of this proviso shall not be deemed to be Participating Dividends); provided, further, however, that notwithstanding the above, the holders of Series C Preferred Stock shall not be entitled to receive any dividends or distributions of Rights if, following the occurrence of a Distribution Date in respect of such Rights, an adjustment to the Conversion Price would be made pursuant to SECTION 5(f)(ii) (assuming, for purposes of this SECTION 2(a), that the holder of such shares of Series C Preferred Stock were not an Acquiring Person or an Affiliate (as defined in the Company Rights Plan or its comparable term/provision under any successor, substitute or additional shareholder rights plan) or an Associate (as defined in the Company Rights Plan or its comparable term/provision under any successor, substitute or additional shareholder rights plan) of such Acquiring Person)(and such dividends or distributions that are not payable to the holders of Series C Preferred Stock as a result of this proviso shall not be deemed to be Participating Dividends).

(i) Participating Dividends are payable at the same time as and when such dividend or other distribution on Common Stock (or Reference Property, to the extent applicable) is paid to the holders of Common Stock (or Reference Property, to the extent applicable); provided, however, that no such dividend or distribution on Common Stock (or Reference Property, to the extent applicable) shall be made unless and until the Participating Dividends are paid (or are concurrently being paid) pursuant to this SECTION 2(a)(i).

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(b) Conditional Dividends. Following the occurrence of a Triggering Event (as defined below), and for so long as such Triggering Event continues, each holder of issued and outstanding Series C Preferred Stock will be entitled to receive, out of funds legally available for the payment of dividends for each share of Series C Preferred Stock, with respect to each dividend period, dividends at a rate per annum equal to the Conditional Rate multiplied by the sum of (A) $1,000 per share (the “Original Liquidation Amount”) plus (B) any accrued and unpaid dividends that are payable on such share of Series C Preferred Stock, in each case as adjusted for any stock dividends, splits, combinations and similar events (the “Conditional Dividends” and, together with the Participating Dividends and Unpaid Conditional Dividends, the “Dividends”). Any Conditional Dividends payable pursuant to this SECTION 2(b) shall be in addition to any Participating Dividends payable pursuant to SECTION 2(a) hereof. In addition, the right of the holders of the Series C Preferred Stock to receive the Conditional Dividend is in addition to, and not in lieu of, any remedies such holders may have at law or equity.

(i) Conditional Dividends will accrue and cumulate from the date on which a Triggering Event occurs, and are payable quarterly in arrears on the last day of each March, June, September and December, or, if such date is not a Business Day, the succeeding Business Day (each such day, a “Conditional Dividend Payment Date”) until such date as the Triggering Event is no longer continuing; provided, however, that if Conditional Dividends remain unpaid after a Triggering Event is no longer continuing, dividends will accrue and cumulate in an amount equal to (such dividends, “Unpaid Conditional Dividends”) the product of (A) (x) the amount of unpaid Conditional Dividends plus (y) the amount of unpaid Unpaid Conditional Dividends and (B) the Conditional Rate. Any Unpaid Conditional Dividends payable pursuant to this SECTION 2(b)(i) shall be in addition to any Participating Dividends payable pursuant to SECTION 2(a) hereof. In addition, the right of the holders of the Series C Preferred Stock to receive the Unpaid Conditional Dividends is in addition to, and not in lieu of, any remedies such holders may have at law or equity.

(ii) The amount of Conditional Dividends and Unpaid Conditional Dividends payable for each full quarterly dividend period will be computed by dividing the annual rate by four. The amount of Conditional Dividends and Unpaid Conditional Dividends payable for any dividend period shorter or longer than a full quarterly dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day months.

(iii) Conditional Dividends and Unpaid Conditional Dividends will be paid to the holders of record of Series C Preferred Stock as they appear in the records of the Company at the close of business on the 15th day of the calendar month in which the applicable Conditional Dividend Payment Date falls if in March, June, September or December (or on the 15th day of the calendar month prior to the month the Conditional Dividend Payment Date falls if the Conditional Dividend Payment Date falls in April, July, October or January) or on such other date designated by the Board for the payment of Conditional Dividends (and/or Unpaid Conditional Dividends, as the case may be) that is not more than 60 days or less than 10 days prior to such Conditional Dividend Payment Date. Any payment of a Conditional Dividend or Unpaid Conditional Dividend will first be credited against the earliest accumulated but unpaid Conditional Dividend or Unpaid Conditional Dividend due with respect to such share that remains payable.

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(iv) Conditional Dividends and Unpaid Conditional Dividends are payable only in cash. Conditional Dividends and Unpaid Conditional Dividends will accrue and cumulate whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of Conditional Dividends or Unpaid Conditional Dividends and whether or not Conditional Dividends or Unpaid Conditional Dividends are declared. Conditional Dividends and Unpaid Conditional Dividends will accumulate and compound quarterly to the extent they are not paid when due.

(v) While a Triggering Event has occurred and is continuing, neither the Company nor any of its subsidiaries may (A) declare, pay or set aside for payment any dividends or distributions on any Junior Securities of the Company, (B) repurchase, redeem or otherwise acquire any Junior Securities of the Company or (C) make any loan or other advance to any direct or indirect owner of a majority of the Common Stock (or Reference Property, to the extent applicable) or any subsidiary of any such owner.

(vi) Neither the Company nor any of its subsidiaries may (A) declare, pay or set aside for payment any dividends or distributions on any Junior Securities of the Company or (B) repurchase, redeem or otherwise acquire any Junior Securities of the Company, unless in each case the Company has sufficient lawful funds immediately following such action such that the Company would be legally permitted to redeem in full (x) the Series C Preferred Stock for the Regular Liquidation Preference and (y) the Series B Preferred Stock for the Regular Liquidation Preference (as defined in the Certificate of Designation of the Series B Preferred Stock). Notwithstanding anything in this Agreement to the contrary, so long as any shares of Investor Preferred Stock are outstanding and the Elevation Beneficial Ownership Percentage exceeds 30%, neither the Company nor any of its subsidiaries may exercise any optional redemption with respect to any preferred stock that constitutes Junior Securities of the Company if, at the time of such optional redemption, the Company could not have incurred additional Indebtedness pursuant to SECTION 4(f) equal in amount to the optional redemption price of the preferred stock being redeemed; provided, however, that the Company or any of its subsidiaries may exercise any such optional redemption with the prior vote or written consent of holders representing at least a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock, voting together as a separate class.

(vii) Each of the following shall constitute a “Triggering Event” for the purposes hereof:

(A) a failure by the Company to pay any Mandatory Redemption Price on the Mandatory Redemption Date or the Optional Redemption Price on the Optional Redemption Date for any reason, including the absence of funds legally available for such payment;

(B) a failure by the Company to deliver the Fundamental Change Notice to the holders of shares of Series C Preferred Stock pursuant to SECTION 7(a)(iii) hereof within the time period provided therein or to pay the Repurchase Price in respect of all shares of Series C Preferred Stock on the Repurchase Date pursuant to SECTION 7 for any reason, including the absence of funds legally available for such payment;

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(C) a failure by the Company to deliver any cash and shares of Common Stock (or Reference Property, to the extent applicable), when such cash and shares of Common Stock (or Reference Property, to the extent applicable), if any, are required to be delivered upon conversion of the Series C Preferred Stock pursuant to SECTION 5 hereof, where the Company does not remedy such default within ten (10) days after the date such cash and shares of Common Stock (or Reference Property, to the extent applicable), if any, are required to be delivered;

(D) a failure to pay any Participating Dividends on any date dividends or other distributions on Common Stock (or Reference Property, to the extent applicable) are paid; and

(E) for so long as the Board Representation Entitlement is one or more Preferred Directors, a material violation by the Company of any term of or condition set forth in this Certificate of Designation other than those referenced in the preceding clauses (A) through (D), where the Company does not cure such violation within thirty (30) days after the receipt of written notice from Elevation of such breach (it being understood that this clause (E) shall no longer apply from and after the date on which the Board Representation Entitlement is zero (0) Preferred Directors).

(c) If Dividends are not paid in full or a sum sufficient for such full payment is not so set apart upon the Series C Preferred Stock, all Dividends declared upon the Series C Preferred Stock and all dividends declared on any Parity Securities shall be declared pro rata so that the amount of Dividends declared per share of the Series C Preferred Stock and dividends declared per share of such Parity Securities shall in all cases bear to each other the same ratio that accrued and unpaid Dividends per share on the Series C Preferred Stock and accrued and unpaid dividends per share of such Parity Securities bear to each other.

(d) The Company shall take all actions necessary or advisable under the DGCL to permit the payment of Dividends to the holders of Series C Preferred Stock. Holders of Series C Preferred Stock are not entitled to any dividend, whether payable in cash, in kind or other property, in excess of the Dividends as provided in this SECTION 2.

SECTION 3. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, each share of Series C Preferred Stock entitles the holder thereof to receive and to be paid out of the assets of the Company available for distribution, before any distribution or payment may be made to a holder of any Junior Securities, an amount in cash per share equal to the greater of: (i) the sum of (A) the Original Liquidation Amount per share plus (B) all accrued and unpaid Dividends, if any, on such share of Series C Preferred Stock, in each case as adjusted for any stock dividends, splits, combinations and similar events (such sum, as adjusted, the “Regular Liquidation Preference”), and (ii) an amount equal to the amount the holders of Series C Preferred Stock would have received per share of Series C Preferred Stock upon liquidation, dissolution or winding up of the Company had such holders converted their shares of Series C Preferred Stock into shares of Common Stock (or Reference Property, to the extent applicable) immediately prior thereto (the “Participating Liquidation Preference,” and such greater amount, the “Liquidation Preference”).

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(b) If upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution are insufficient to pay the holders of Series C Preferred Stock the full Liquidation Preference and the holders of all Parity Securities the full liquidation preferences to which they are entitled, the holders of Series C Preferred Stock and such Parity Securities will share ratably in any such distribution of the assets of the Company in proportion to the full respective amounts to which they are entitled.

(c) After payment to the holders of Series C Preferred Stock of the full Liquidation Preference to which they are entitled, the holders of Series C Preferred Stock as such will have no right or claim to any of the assets of the Company.

(d) The value of any property not consisting of cash that is distributed by the Company to the holders of the Series C Preferred Stock will equal the Fair Market Value thereof on the date of distribution.

(e) For the purposes of this SECTION 3, a Fundamental Change (in and of itself) shall be deemed not to be a liquidation, dissolution or winding-up of the Company subject to this SECTION 3 (it being understood that an actual liquidation, dissolution or winding up of the Company in connection with a Fundamental Change will be subject to this SECTION 3).

SECTION 4. Voting Rights; Board Representation.

(a) The holders of Series C Preferred Stock are entitled to vote on all matters on which the holders of Common Stock are entitled to vote, and except as otherwise provided herein or by law, the holders of Series C Preferred Stock will vote together with the holders of Series B Preferred Stock and Common Stock as a single class. Each holder of Series C Preferred Stock is entitled to a number of votes equal to the number of shares of Common Stock into which all of the outstanding shares of Series C Preferred Stock held by such holder on the record date for any such vote are convertible as of such record date; provided, however, that in any vote of the holders of the Series B Preferred Stock, Series C Preferred Stock, Common Stock and any other securities that constitute Voting Stock (as defined in the Stockholders’ Agreement) voting together as a single class to the extent that the voting power of a holder together with its Affiliates would exceed 39.9% (the “Maximum Voting Percentage”) of the Maximum Voting Power of the Company, then the aggregate number of votes entitled to be cast by such holder and its Affiliates with respect to the Series C Preferred Stock held by such holder and its Affiliates will be reduced to that number (not less than zero) that results in the aggregate voting power of such holder and its Affiliates being equal to the Maximum Voting Percentage of the Maximum Voting Power of the Company. For purposes of this Certificate of Designation, “Maximum Voting Power” means, at the time of determination of the Maximum Voting Power, the total number of votes which may be cast by all capital stock on a matter subject to the vote of the Common Stock, Series B Preferred Stock, Series C Preferred Stock and any other securities that constitute Voting Stock (as defined in the Stockholders’ Agreement) voting together as a single class and after giving effect to any limitation on voting power set forth in this Certificate of Designation or the Certificate of Designation of the Series B Preferred Stock and the certificate of designation or other similar document governing Voting Stock.

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(b) Notwithstanding SECTION 4(a) hereof:

(i) The holders of Series C Preferred Stock and the holders of the Series B Preferred Stock will vote together as a single class for the election of Preferred Directors, if any, but are not entitled to vote, either as a separate class or together with the holders of Common Stock as a single class, for the election of directors other than Preferred Directors.

(ii) Following a Fundamental Change (a “Non-Constituent Issuer Fundamental Change”) pursuant to which the Series C Preferred Stock is converted, or convertible, into a security of an entity other than (x) the Company or (y) the surviving entity of a merger or consolidation to which the Company is a constituent party, the Series C Preferred Stock (or the security into which it is converted (the “Conversion Security”)) shall not entitle the holder thereof to vote on any matters other than those set forth in SECTION 4(c)(i), (ii), (iii) and (v) (but only to the extent clause (v) relates to clauses (i), (ii) and (iii)) below and such other matters (if any) as shall be required by law. For purposes of clarity, to the extent that the Conversion Security does not entitle the holders thereof to vote on any matters other than those set forth in SECTION 4(c)(i), (ii), (iii) and (v) (but only to the extent clause (v) relates to clauses (i), (ii) and (iii)) below and such other matters (if any) as shall be required by law, the conversion of the Series C Preferred Stock into the Conversion Security shall not be deemed to be an amendment, repeal, alteration, addition, deletion or other change to the powers, preferences, rights or privileges of the Series C Preferred Stock in a manner adverse to the holders thereof.

(c) So long as any shares of Series C Preferred Stock are outstanding, the Company may not take any of the following actions (including by means of merger, consolidation, reorganization, recapitalization or otherwise) without the prior vote or written consent of holders representing at least (x) a majority of the then-outstanding shares of Series C Preferred Stock, voting together as a separate class, and (y) solely in the case of clause (iii) below, so long as Elevation and its Affiliates hold in the aggregate not less than 40% of the then outstanding shares of Series C Preferred Stock, a majority of the then-outstanding shares of Series C Preferred Stock held by Elevation and its Affiliates:

(i) any increase or decrease in the authorized amount of shares of Series C Preferred Stock, except for the cancellation and retirement of shares set forth in SECTION 9(a);

(ii) any issuance of additional shares of Series C Preferred Stock after the Original Issuance Date;

(iii) any amendment, repeal, alteration, addition, deletion or other change to the powers, preferences, rights or privileges of the Series C Preferred Stock in a manner adverse to the holders thereof (whether by Board resolution, amendment to the Certificate of Incorporation or Bylaws, merger, consolidation or otherwise);

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(iv) the consummation of any merger, consolidation or other transaction to which the Company or any of its subsidiaries is a party in connection with, or that would result in, a Fundamental Change or the Company seeking or obtaining any consent, waiver or amendment to the Credit Agreement (as defined in SECTION 4(f)) in connection with or following a Fundamental Change, in each case unless either (A) the condition set forth in clause (i) or (ii) of SECTION 7(b) has been satisfied or (B) either (x) upon consummation of such Fundamental Change the holders of Series C Preferred Stock would be entitled to receive for each share of Series C Preferred Stock cash equal to or greater than the Repurchase Price or (y) the provisions of SECTION 7(b) are not applicable to such Fundamental Change as a result of the proviso to SECTION 7(b); and

(v) agree to do any of the foregoing actions set forth in clause (c)(i) through (c)(iv), unless such agreement expressly provides that the Company’s obligation to undertake any of the foregoing is subject to the prior approval of holders of Series C Preferred Stock;

provided, that if after the Original Issuance Date there is a change in the applicable rules of the Exchange on which the Common Stock is listed at the time such change becomes effective that would cause the Common Stock to be delisted by such Exchange as a result of the terms of this clause (c), the voting rights of the holders of the Series C Preferred Stock set forth in this clause (c) shall thereafter be limited to the extent required by such changed rules for the Common Stock to continue to be listed on such Exchange.

Without expanding the scope of the foregoing voting rights of Series C Preferred Stock, it is understood that in the context of a Fundamental Change, so long as immediately following such Fundamental Change:

(i) the Series C Preferred Stock (or any preferred security into which the Series C Preferred Stock is converted in such Fundamental Change as contemplated by clause (ii)(B) below) is convertible into the kind and amount of shares of capital stock, other securities or other property receivable upon such Fundamental Change by a holder of a number of shares of Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of such shares of Series C Preferred Stock in accordance with SECTION 5(e); and

(ii) the Series C Preferred Stock either:

(A) remains outstanding with the same powers, preferences, rights and privileges set forth in this Certificate of Designation, or

(B) is exchanged for preferred securities of the Survivor of a Fundamental Change, which preferred securities have the same powers, preferences, rights and privileges (other than those that by their terms automatically terminate or otherwise are altered following such a Fundamental Change pursuant to the terms of this Certificate of Designation) as the Series C Preferred Stock (“New Preferred Stock”), provided that to the extent that SECTION 4(g) would no longer be applicable following the consummation of such Fundamental Change as a result of the proviso to SECTION 4(g) below, the New Preferred Stock need not be senior in preference or priority to or

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on parity, without preference or priority, with other preferred securities of such Survivor of a Fundamental Change with respect to dividend rights or rights upon liquidation, dissolution or winding up of such entity; and, provided further, that such exchange does not result in income tax consequences generally to U.S. individual holders of the Series C Preferred Stock that are more severe than the income tax consequences such holders would have suffered if such holders had been holders of Common Stock and been treated as such in the Fundamental Change; and

(iii) in connection with such Fundamental Change, no action takes place that would otherwise require the approval of the holders of the Series C Preferred Stock pursuant to this SECTION 4(c), the Series C Preferred Stock shall not have any vote or consent as a separate class with respect to such Fundamental Change.

(d) Right to Designate/Elect Preferred Directors. From and after the Original Issuance Date, the holders of shares of Series C Preferred Stock, voting together with the holders of shares of Series B Preferred Stock (collectively, the “Investor Preferred Stock”) as a separate class by a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock as of any applicable record date, shall have the exclusive right to elect a total number of directors (such persons, the “Preferred Directors”), to the Board equal to the Board Representation Entitlement. If the holders of Investor Preferred Stock fail to elect a number of Preferred Directors sufficient to fill the Board Representation Entitlement, then any directorship not so filled shall remain vacant until such time as the holders of Investor Preferred Stock fill such directorship by vote or by written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Company other than the holders of Investor Preferred Stock. In addition, upon the occurrence of an increase in the authorized number of directors then constituting the Board that results in an increase of the Board Representation Entitlement to a number greater than the number of Preferred Directors then serving on the Board, the authorized number of Preferred Directors on the Board shall be increased immediately so that the total authorized number of Preferred Directors is equal to the Board Representation Entitlement at such time.

(i) Term of Office. Unless a Preferred Director’s term of office shall have terminated prior to such time pursuant to SECTION 4(d)(ii), (iii), (iv), (v), (vi) or (vii) below, such Preferred Director designated or elected pursuant to this SECTION 4 shall serve until the next special or annual meeting of stockholders of the Company called for the purpose of electing Preferred Directors at which such Preferred Director is up for election or at any special meeting of the holders of Investor Preferred Stock, as the case may be, for the purpose of removing Preferred Directors, or until his or her successor shall be duly elected.

(ii) Removal and Vacancies. So long as the Board Representation Entitlement is equal to at least one (1), a majority of the directors may call, and upon the written request of holders of record of 50% of the then outstanding shares of Investor Preferred Stock (determined on the basis of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock), addressed to the Secretary of the Company at the principal office of the Company, shall call, a special meeting of the holders of shares of Investor

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Preferred Stock, for the sole purpose of filling any vacancy caused by the resignation, death or removal of a Preferred Director (but only to the extent required to maintain the then applicable Board Representation Entitlement), or to remove from office a Preferred Director with or without cause. Such meeting shall be held as soon as reasonably practicable after delivery of such request to the Secretary, at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders. Subject to SECTION 4(d)(iii), (iv), (v), (vi) or (vii) below, only the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock, voting together as a single class, are entitled to fill any vacancy caused by the resignation, death or removal of a Preferred Director (but only to the extent required to maintain the then applicable Board Representation Entitlement), and only the holders of Investor Preferred Stock are entitled to remove from office a Preferred Director without cause. Any Preferred Director may be removed from office (A) with or without cause by holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock or (B) only for cause by the holders of a majority of the then-outstanding shares of Common Stock, provided that in such case the holders of Investor Preferred Stock shall not be entitled to vote on an as-converted basis with the Common Stock with respect to such removal for cause.

(iii) Change Following Uncured Share Ownership Reduction. Upon the occurrence of an Uncured Share Ownership Reduction, following the expiration of the applicable Share Ownership Reduction Cure Period (assuming an Uncured Share Ownership Reduction still exists), the number of Preferred Directors on the Board (but not the number of directors constituting the whole Board) shall be reduced immediately so that the total number of Preferred Directors after the occurrence of an Uncured Share Ownership Reduction is equal to the Board Representation Entitlement at such time. To effect such reduction, the term of office of the requisite number of Preferred Directors shall immediately end, such person(s) shall cease to be director(s), and neither the remaining Preferred Directors nor the holders of shares of Investor Preferred Stock shall have any right to elect or appoint a Preferred Director to replace such director. To the extent that there is more than one Preferred Director on the Board immediately prior to the Uncured Share Ownership Reduction, the holders of a majority of shares of Common Stock issuable upon the conversion of the then-outstanding shares of Investor Preferred Stock shall have the right to designate which of the Preferred Directors’ terms shall end pursuant to this SECTION 4(d)(iii); provided, that if holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock fail to designate in advance which of the Preferred Directors’ terms shall end, the directors (other than Preferred Directors) shall then be entitled to make such designation.

(iv) Change Following Board Size Decrease. Upon the occurrence of a decrease in the authorized number of directors then constituting the Board that, as a result thereof results in a reduction of the Board Representation Entitlement to less than the then authorized number of Preferred Directors (a “Board Size Decrease”), the number of Preferred Directors on the Board shall be reduced immediately so that the total number of Preferred Directors is equal to the Board Representation Entitlement at such time; provided, that if the Board Size Decrease goes into effect during a Share Ownership Reduction Cure Period, then such reduction shall not take effect until the expiration of such Share Ownership Reduction Cure Period, provided that upon such expiration, the Board Representation Entitlement is less than the then authorized number of Preferred Directors. To effect such reduction, the term of office of that number of Preferred

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Directors required to reduce the number of Preferred Directors to the new Board Representation Entitlement shall immediately end, such person(s) shall cease to be director(s), and neither the remaining Preferred Directors nor the holders of shares of Investor Preferred Stock shall have any right to elect or appoint a Preferred Director to replace such director at such time. To the extent that there is more than one Preferred Director on the Board immediately prior to the Board Size Decrease, the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock shall have the right to designate which of the Preferred Directors’ terms shall end pursuant to this SECTION 4(d)(iv); provided, that if holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock fail to designate in advance which of the Preferred Directors’ terms shall end, the directors (other than Preferred Directors) shall then be entitled to make such designation.

(v) Loss of Preferred Directors on a Non-Constituent Issuer Fundamental Change. Upon the occurrence of a Non-Constituent Issuer Fundamental Change, the terms of office of all Preferred Directors shall immediately end, such persons shall cease to be directors, and the holders of shares of Investor Preferred Stock shall not have any right to elect or appoint Preferred Directors to replace the directors whose terms of office shall have ended.

(vi) Loss of Preferred Director on a Fundamental Change Other than a Non-Constituent Issuer Fundamental Change. Upon the occurrence of a Fundamental Change other than a Non-Constituent Issuer Fundamental Change, if the Board Representation Entitlement is at least one (1) Preferred Director at such time, the terms of office of all but one (1) Preferred Directors shall immediately end, such persons shall cease to be directors (notwithstanding the proviso in SECTION 4(d)(vi) below), and neither the remaining Preferred Director nor the holders of shares of Investor Preferred Stock shall have any right to elect or appoint Preferred Directors to replace the directors whose terms of office shall have ended pursuant to this SECTION 4(d)(vi). To the extent that there is more than one Preferred Director on the Board immediately prior to such Fundamental Change, the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock shall have the right to designate which of the Preferred Directors’ terms shall end pursuant to this SECTION 4(d)(vi); provided, that if the holders of a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock fail to designate in advance which of the Preferred Directors’ terms shall end, the directors (other than Preferred Directors) shall then be entitled to make such designation.

(vii) Loss of Board Representation Entitlement. From and after the first time that the Investor Stockholders (including, for this purpose, their Permitted Transferees) in the aggregate cease to (A) Beneficially Own or (B) have all Economic Rights and Voting Rights with respect to a number of shares of Investor Preferred Stock that if then converted would be convertible into a number of shares of Common Stock that is greater than or equal to 50% of the shares of Common Stock issuable upon conversion of 325,000 shares of Series B Preferred Stock (regardless of whether any such shares of Series B Preferred Stock are then outstanding) based on the conversion prices that are (or would be) in effect at the time of such calculation (including, for purposes of this calculation, shares of Investor Preferred Stock pledged pursuant to a bona fide pledge, but not a foreclosure thereon, but excluding, for purposes of this calculation, shares subject

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to Shared Beneficial Ownership with any Person other than another Investor Stockholder or a Permitted Transferee), then the holders of Investor Preferred Stock shall cease to have any rights under this SECTION 4(d) (including, without limitation, the right to vote to fill any vacancies of Preferred Directors); provided, however, that if, immediately following such time, the Investor Stockholders continue to benefit from the contractual rights set forth in Section 2.1 of the Stockholders Agreement (Board Representation), each Preferred Director serving on the Board at such time (the “Transition Time”) shall continue as a director, but not as a Preferred Director (other than with respect to SECTION 4(d)(iii), pursuant to which such director shall not continue as a director if the conditions therein for the elimination of such director’s seat are met), until the next special or annual meeting of stockholders of the Company called for the purpose of electing directors, or until his or her successor shall be elected. From and after the Transition Time, the holders of shares of Investor Preferred Stock shall not have any right, voting as a separate class, to elect or appoint a Preferred Director to replace such director.

(viii) Filling Vacancy Upon Cessation of Preferred Director. Any vacancy resulting from the cessation of the term of office of a Preferred Director pursuant to SECTION 4(d)(iii), (v), (vi) or (vii) may be filled by either (A) the Board or (B) the holders of Common Stock generally, and not the holders of Investor Preferred Stock voting as a separate class, in accordance with the Certificate of Incorporation, the Bylaws of the Company and applicable law.

(e) Exchange Compliance. Notwithstanding the foregoing, the rights of the holders of the Series C Preferred Stock set forth in SECTION 4(a) to vote as a single class with the Common Stock shall be subject to applicable rules of the Exchange on which the Company is then listed to the extent required such that the Common Stock shall continue to be listed on such Exchange, including, without limitation, compliance by the Company with Rule 4351 of Nasdaq (or any successor thereto) insofar as it may be applied in the event that the Conversion Price is determined to be less than the “market value” as defined in such rules, and such rights to vote with the Common Stock shall be accordingly reduced or otherwise modified to the minimum extent required to comply with such rules. For the avoidance of doubt, in no event shall this SECTION 4(e) operate to reduce the number of Preferred Directors to be designated pursuant to SECTION 4(d), and it shall be the obligation of the Company to ensure that the membership of the Board satisfies the applicable rules of the Exchange on which the Company is then listed, including without limitation Rule 4350(c) of Nasdaq, without any reduction in the number of Preferred Directors pursuant to SECTION 4(d).

(f) Approval Rights over Debt Incurrence. So long as any shares of Investor Preferred Stock are outstanding and the Elevation Beneficial Ownership Percentage exceeds 30%, the Company may not and will cause its subsidiaries to not, without the prior vote or written consent of holders representing at least a majority of the shares of Common Stock issuable upon conversion of the then-outstanding shares of Investor Preferred Stock, voting together as a separate class, incur Indebtedness; provided, however, that the Company and its subsidiaries may incur Indebtedness if, after giving effect to the incurrence of such Indebtedness, the Total Leverage Ratio would be equal to or less than 3.00 to 1.00. Notwithstanding the foregoing, the Company and its subsidiaries may:

(i) incur Indebtedness under the revolving portion of the Credit Agreement or any Successor Credit Agreement so long as the maximum principal amount that may

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be incurred under the revolving portion of any such Successor Credit Agreement does not exceed the maximum principal amount that may be drawn down under the revolving portion of the Credit Agreement; and

(ii) extend, renew, replace or refinance any Indebtedness existing as of November 30, 2008 provided that such extending, renewal, replacement or refinancing Indebtedness shall not be in a principal amount that exceeds the principal amount of the Indebtedness being extended, renewed, replaced or refinanced (plus any capitalized or “PIK” interest accruing for a period of six months, any redemption premium payable by the terms of such Indebtedness thereon and other reasonable amounts paid, and reasonable fees and expenses incurred, in connection with such extension, renewal, replacement or refinancing).

For purposes of this SECTION 4(f), the following defined terms shall have the following meanings:

“Consolidated EBITDA” means Consolidated EBITDA as such term is defined in the Credit Agreement.

“Credit Agreement” means that certain Credit Agreement dated as of October 24, 2007 among the Company, as Borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and Morgan Stanley Senior Funding, Inc., as Syndication Agent, as in effect on December 21, 2008 and without giving effect to any amendments, supplements or other modifications thereof after December 21, 2008.

“Indebtedness” means, with respect to any person, without duplication, all obligations of such person for borrowed money, all obligations of such person evidenced by bonds, debentures, notes or similar instruments or letters of credit, all capital lease obligations, all guarantees by such person of indebtedness of other persons, all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien or encumbrance on any property or rights of such person, all obligations, contingent or otherwise, of such person as an account party in respect of letters of credit, letters of guaranty and in respect of bankers’ acceptances and all obligations to redeem or repurchase preferred stock of the Company prior to the Maturity Date.

“Successor Credit Agreement” means any successor to, substitute for or replacement of the Credit Agreement.

“Total Leverage Ratio” means, on any date, the ratio of Indebtedness as of such date to Consolidated EBITDA for the period of four consecutive fiscal quarters of the Company ended on such date (or, if such date is not the last day of a fiscal quarter, ended on the last day of the fiscal quarter of the Company most-recently ended prior to such date).

(g) Approval Rights over Senior and Parity Security Issuances. So long as any shares of Investor Preferred Stock are outstanding, the Company may not (including by means of merger, consolidation, reorganization, recapitalization or otherwise) without the prior vote or written consent of holders representing at least a majority of the shares of Common Stock issuable upon conversion

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of the then-outstanding shares of Investor Preferred Stock, voting together as a separate class, authorize (and if authorized, increase the authorized amount), create or issue (including by way of reclassification or otherwise) any Senior Securities or Parity Securities; provided, however, that this SECTION 4(g) shall not apply following a Fundamental Change (i) if the issuer of the Investor Preferred Stock following such Fundamental Change is a public company whose common stock (or American Depositary Shares (“ADSs”) or American Depositary Receipts (“ADRs”) in respect of such ADSs) is traded on an Exchange and (ii) if following such Fundamental Change the shares of capital stock entitled to vote generally in the election of directors and the Investor Preferred Stock (treated on an as-converted basis) immediately prior to such transaction (or series of related transactions) are converted into and/or continue to represent (on an as-converted basis in the case of the Investor Preferred Stock and treating any ADSs or ADRs as if they were the underlying shares to which they relate), in the aggregate, less than 40% of the total voting power of all shares of capital stock that are entitled to vote generally in the election of directors of the entity surviving or resulting from such transaction (or ultimate parent thereof).

SECTION 5. Conversion.

Each share of Series C Preferred Stock is convertible into shares of Common Stock (or Reference Property, to the extent applicable) as provided in this SECTION 5.

(a) Conversion at the Option of Holders of Series C Preferred Stock. Subject to SECTION 5(b) hereof, each holder of Series C Preferred Stock is entitled to convert, at any time and from time to time after the 16^th day following the Original Issuance Date, at the option and election of such holder, any or all shares of outstanding Series C Preferred Stock held by such holder into a number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Reference Property, to the extent applicable) equal to the amount (the “Conversion Amount”) determined by dividing (i) the Regular Liquidation Preference for each share of Series C Preferred Stock to be converted by such holder by (ii) the Conversion Price in effect at the time of conversion. The “Conversion Price” initially is $3.25, as adjusted from time to time as provided in SECTION 5(f). In order to convert shares of Series C Preferred Stock into shares of Common Stock (or Reference Property, to the extent applicable), the holder must surrender the certificates representing such shares of Series C Preferred Stock, accompanied by transfer instruments reasonably satisfactory to the Company, free of any adverse interest or liens at the office of the Company’s transfer agent for the Series C Preferred Stock (or at the principal office of the Company, if the Company serves as its own transfer agent), together with written notice that such holder elects to convert all or such number of shares represented by such certificates as specified therein. With respect to a conversion pursuant to this SECTION 5(a), the date of receipt of such certificates, together with such notice, by the transfer agent or the Company will be the date of conversion (the “Conversion Date”).

(b) Limitations on Conversion. Notwithstanding SECTION 5(a), the Company shall not effect any conversion of the Series C Preferred Stock or otherwise issue shares of Common Stock pursuant to SECTION 5(a) hereof, and no holder of Series C Preferred Stock will be permitted to convert shares of Series C Preferred Stock into shares of Common Stock to the extent that the holder exercising such conversion right (together with such holder’s Affiliates) would (immediately after giving effect to such conversion and after giving effect to any limitation on voting power set forth in this Certificate of Designation or the Certificate of Designation of the Series B Preferred

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Stock) Beneficially Own outstanding shares of Investor Preferred Stock and Common Stock and any other securities that constitute Voting Stock (as defined in the Stockholders’ Agreement) representing in the aggregate more than the Maximum Voting Percentage of the Maximum Voting Power of the Company. For purposes of the foregoing sentence, the number of shares of Common Stock Beneficially Owned by a holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series C Preferred Stock with respect to which a conversion notice has been given, but shall exclude the number of shares of Common Stock which would be issuable upon conversion of the remaining, unconverted portion of the Series C Preferred Stock or the Series B Preferred Stock Beneficially Owned by such holder or any of its Affiliates and shall also exclude any shares of Common Stock which would be issuable upon exercise of any warrants Beneficially Owned by such holder or any of its Affiliates. Upon the written request of the holder, the Company shall within one (1) Business Day confirm in writing to any holder the number of shares of Common Stock then-outstanding. Under no circumstance will any holder be entitled to receive cash for any shares of Series C Preferred Stock not convertible solely as a result of the limitations set forth in this SECTION 5(b). Anything in this SECTION 5(b) to the contrary notwithstanding, but subject to the terms and conditions of the Stockholder’s Agreement, the provisions of this SECTION 5(b) will not apply to any conversion of the Series C Preferred Stock in connection with a substantially concurrent sale of the Common Stock issuable upon conversion to a person who is not an Affiliate of the converting holder.

(c) Conversion at the Option of the Company. On and after the three-year anniversary of the Original Issuance Date, at the Company’s option and election, in whole but not in part, all shares of Series C Preferred Stock may be converted automatically into a number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Reference Property, to the extent applicable) equal to the Conversion Amount on the date of written notice by the Company to the holders of Series C Preferred Stock notifying such holders of the conversion contemplated by this SECTION 5(c), which conversion shall occur on the date specified in such notice, not less than 10 nor more than 30 days following the date of such notice (which shall be the Conversion Date in respect of a conversion pursuant to this SECTION 5(c), provided that such notice may be delivered by the Company only if (i) (A) the average closing price per share of the Common Stock on the Exchange on which shares of the Common Stock are then listed during the 30 consecutive trading days ending on the trading day immediately preceding the Business Day on which such notice is delivered and (B) the closing price per share of the Common Stock on the Exchange on which shares of the Common Stock are then listed for at least twenty (20) of such thirty (30) consecutive trading days (including the last fifteen (15) trading days of such thirty (30) day period) is at least 300% of the Conversion Price then in effect, and (ii) all requisite arrangements with the Company’s transfer agent, the Exchange on which shares of the Common Stock are then listed, and any other requisite securities intermediary (including The Depository Trust Company and Cede & Co., if applicable) to permit the immediate trading of such shares of Common Stock on the Conversion Date shall have been completed. Once delivered, such notice shall be irrevocable, unless the Company obtains the written consent of the holders representing a majority of the outstanding shares of Series C Preferred Stock. Notwithstanding the foregoing, the holders of Series C Preferred Stock shall continue to have the right to convert their shares of Series C Preferred Stock pursuant to SECTION 5(a) until and through the Conversion Date contemplated in this SECTION 5(c) and if such shares of Series C Preferred Stock are converted pursuant to SECTION 5(a) such shares shall no longer be converted pursuant to this SECTION 5(c) and the Company’s

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notice delivered to the holders pursuant to this SECTION 5(c) shall automatically terminate with respect to such shares converted pursuant to SECTION 5(a). The limitations on conversion set forth in SECTION 5(b) shall not apply to any exercise of the Company’s conversion right pursuant to this SECTION 5(c).

(d) Fractional Shares. No fractional shares of Common Stock (or Reference Property, to the extent applicable) will be issued upon conversion of the Series C Preferred Stock. In lieu of fractional shares, the Company shall pay cash equal to such fractional amount multiplied by the Fair Market Value of Common Stock as of the Conversion Date. If more than one share of Series C Preferred Stock is being converted at one time by the same holder, then the number of full shares issuable upon conversion will be calculated on the basis of the aggregate number of shares of Series C Preferred Stock converted by such holder at such time.

(e) Mechanics of Conversion.

(i) As soon as practicable after the Conversion Date (and in any event within three Business Days), the Company shall promptly issue and deliver to such holder a certificate for the number of shares of Common Stock (or Reference Property, to the extent applicable) to which such holder is entitled, together with a check or cash for payment of fractional shares, if any, in exchange for the certificates formerly representing shares of Series C Preferred Stock. Such conversion will be deemed to have been made on the Conversion Date, and the person (as defined in SECTION 8) entitled to receive the shares of Common Stock (or Reference Property, to the extent applicable) issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock (or Reference Property, to the extent applicable) on such Conversion Date. In case fewer than all the shares represented by any such certificate are to be converted, a new certificate shall be issued representing the unconverted shares without cost to the holder thereof, except for any documentary, stamp or similar issue or transfer tax due because any certificates for shares of Common Stock (or Reference Property, to the extent applicable) or Series C Preferred Stock are issued in a name other than the name of the converting holder. The Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of Common Stock (or Reference Property, to the extent applicable) upon conversion or due upon the issuance of a new certificate for any shares of Series C Preferred Stock not converted other than any such tax due because shares of Common Stock (or Reference Property, to the extent applicable) or a certificate for shares of Series C Preferred Stock are issued in a name other than the name of the converting holder.

(ii) The Company shall at all times reserve and keep available, free from any preemptive rights, out of its treasury or authorized but unissued shares of Common Stock (or Reference Property, to the extent applicable) (or a combination of both) for the purpose of effecting the conversion of the Series C Preferred Stock the full number of shares of Common Stock (or Reference Property, to the extent applicable) deliverable upon the conversion of all outstanding Series C Preferred Stock (as may be adjusted from time to time pursuant to the terms of this SECTION 5 and assuming for the purposes of this calculation that all outstanding shares of Series C Preferred Stock are held by one holder), and the Company shall take all actions to amend its Certificate of Incorporation to increase the authorized amount of Common Stock (or Reference Property, to the extent applicable) if necessary therefor. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of

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Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of the Series C Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock (or Reference Property, to the extent applicable) at such adjusted Conversion Price.

(iii) From and after the Conversion Date, the shares of Series C Preferred Stock to be converted on such Conversion Date will no longer be deemed to be outstanding; and all rights of the holder thereof as a holder of Series C Preferred Stock (except the right to receive from the Company the Common Stock (or Reference Property, to the extent applicable) upon conversion) shall cease and terminate with respect to such shares; provided, that in the event that a share of Series C Preferred Stock is not converted due to a default by the Company or because the Company is otherwise unable to issue the requisite shares of Common Stock (or Reference Property, to the extent applicable), such share of Series C Preferred Stock will remain outstanding and will be entitled to all of the rights as provided herein. Any shares of Series C Preferred Stock that have been converted will, after such conversion, be deemed cancelled and retired and, following the filing of any certificate required by the DGCL, have the status of authorized but unissued Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board.

(iv) If the conversion is in connection with any sale, transfer or other disposition of the Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of the Series C Preferred Stock, the conversion may, at the option of any holder tendering any share of Series C Preferred Stock for conversion, be conditioned upon the closing of the sale, transfer or the disposition of shares of Common Stock (or Reference Property, to the extent applicable) issuable upon conversion of Series C Preferred Stock with the underwriter, transferee or other acquirer in such sale, transfer or disposition, in which event such conversion of such shares of Series C Preferred Stock shall not be deemed to have occurred until immediately prior to the closing of such sale, transfer or other disposition.

(v) The Company shall comply with all federal and state laws, rules and regulations and applicable rules and regulations of the Exchange on which shares of the Common Stock (or Reference Property, to the extent applicable) are then listed. If any shares of Common Stock (or Reference Property, to the extent applicable) to be reserved for the purpose of conversion of shares of Series C Preferred Stock require registration with or approval of any person or group (as defined in SECTION 8) under any federal or state law or the rules and regulations of the Exchange on which shares of the Common Stock (or Reference Property, to the extent applicable) are then listed before such shares may be validly issued or delivered upon conversion, then the Company will, as expeditiously as possible, use its reasonable best efforts to secure such registration or approval, as the case may be. So long as any Common Stock (or Reference Property, to the extent applicable) into which the shares of Series C Preferred Stock are then convertible is then listed on an Exchange, the Company will list and keep listed on such Exchange, upon official notice of issuance, all shares of such Common Stock (or Reference Property, to the extent applicable) issuable upon conversion.

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(vi) All shares of Common Stock (or Reference Property, to the extent applicable) issued upon conversion of the shares of Series C Preferred Stock will, upon issuance by the Company, be duly and validly issued, fully paid and nonassessable, not issued in violation of any preemptive rights arising under law or contract and free from all taxes, liens and charges with respect to the issuance thereof, and the Company shall take no action which will cause a contrary result.

(vii) If, prior to both (x) a Rights Plan Triggering Event and (y) a Distribution Date, shares of Series C Preferred Stock are converted into Common Stock (or Reference Property, to the extent applicable), upon the conversion of such shares of Series C Preferred Stock, the shares of Common Stock (or Reference Property, to the extent applicable) issued in respect thereof shall be issued with the same Rights, if any, attached thereto as are attached to the then-outstanding shares of Common Stock (or Reference Property, to the extent applicable). If, prior to a Rights Plan Triggering Event, but following the occurrence of a Distribution Date and prior to the expiration or redemption of the Rights, shares of Series C Preferred Stock are converted into Common Stock (or Reference Property, to the extent applicable), upon the conversion of such shares of Series C Preferred Stock, the holders of such Common Stock shall receive the number of Rights which would have been attached to such Common Stock assuming the Distribution Date had not occurred prior to such conversion.

(f) Adjustments to Conversion Price.

(i) Adjustment for Change in Capital Stock.

(A) If the Company shall, at any time and from time to time while any of the Series C Preferred Stock is outstanding, issue a dividend or make a distribution on its Common Stock (or Reference Property, to the extent applicable) payable in shares of its Common Stock (or Reference Property, to the extent applicable) to all holders of its Common Stock (or Reference Property, to the extent applicable), then the Conversion Price at the opening of business on the Ex-Dividend Date for such dividend or distribution will be adjusted by multiplying such Conversion Price by a fraction:

(1) the numerator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding such Ex-Dividend Date; and

(2) the denominator of which shall be the sum of the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding the Ex-Dividend Date for such dividend or distribution, plus the total number of shares of Common Stock (or Reference Property, to the extent applicable) constituting such dividend or other distribution.

If any dividend or distribution of the type described in this SECTION 5(f)(i)(A) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price

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which would then be in effect if such dividend or distribution had not been declared. Except as set forth in the preceding sentence, in no event shall the Conversion Price be increased pursuant to this SECTION 5(f)(i)(A).

(B) If the Company shall, at any time or from time to time while any of the Series C Preferred Stock is outstanding, subdivide or reclassify its outstanding shares of Common Stock (or Reference Property, to the extent applicable) into a greater number of shares of Common Stock (or Reference Property, to the extent applicable), then the Conversion Price in effect at the opening of business on the day upon which such subdivision becomes effective shall be proportionately decreased, and conversely, if the Company shall, at any time or from time to time while any of the Series C Preferred Stock is outstanding, combine or reclassify its outstanding shares of Common Stock (or Reference Property, to the extent applicable) into a smaller number of shares of Common Stock (or Reference Property, to the extent applicable), then the Conversion Price in effect at the opening of business on the day upon which such combination or reclassification becomes effective shall be proportionately increased. In each such case, the Conversion Price shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately prior to such subdivision or combination and the denominator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately after giving effect to such subdivision, combination or reclassification. Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day upon which such subdivision, combination or reclassification becomes effective.

(ii) Adjustment for Rights Issued under Rights Plan. If at any time and from time to time while any shares of Series C Preferred Stock are outstanding there shall occur a Rights Plan Triggering Event, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the Rights Triggering Date by a fraction:

(A) the numerator of which shall be the sum of (1) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding the Rights Triggering Date, plus (2) (x) the aggregate Exercise Price (as defined in the Company Rights Plan or its comparable term/provision under any successor, substitute or additional shareholder rights plan) payable to the Company, assuming that all Rights then-outstanding that are capable of being exercised are immediately exercised following the Rights Plan Triggering Event, divided by (y) the Current Market Price; and

(B) the denominator of which shall be the sum of (1) the number of shares of Common Stock outstanding at the close of business on the Business Day immediately preceding the Rights Triggering Date, plus (2) the aggregate number of shares of Common Stock (or Reference Property, to the extent applicable) into which the Rights then-outstanding are exercisable for (immediately following such Rights Plan Triggering Event) (such number of shares of Common Stock, the “Underlying Common Stock Amount”);

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Such adjustment shall become effective immediately after the opening of business on the Rights Triggering Date;

To the extent that shares of Common Stock (or Reference Property, to the extent applicable) are not delivered pursuant to such Rights prior to the expiration or termination of any Rights (other than as a result of the repurchase of those Rights by the Company), upon expiration or termination of such Rights (“Expired Rights”) the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the occurrence of a Rights Plan Triggering Event been made without taking into account such Expired Rights. Except as set forth in this paragraph, in no event shall the Conversion Price be increased pursuant to this SECTION 5(f)(ii).

Notwithstanding the foregoing, the Conversion Price as adjusted pursuant to this SECTION 5(f)(ii) shall not apply to any shares of Series C Preferred Stock Beneficially Owned by a Person who is an Acquiring Person, and, with respect to such shares, the Conversion Price shall be the Conversion Price in effect immediately prior to the Rights Triggering Date.

(iii) Adjustment for Certain Tender Offers or Exchange Offers. In case the Company or any of its subsidiaries shall, at any time or from time to time, while any of the Series C Preferred Stock is outstanding, distribute cash or other consideration in respect of a tender offer or an exchange offer (that is treated as a “tender offer” under U.S. federal securities laws) made by the Company or any subsidiary for all or any portion of the Common Stock (or Reference Property, to the extent applicable), where the sum of the aggregate amount of such cash distributed and the aggregate Fair Market Value as of the Expiration Date (as defined below), of such other consideration distributed (such sum, the “Aggregate Amount”) expressed as an amount per share of Common Stock (or Reference Property, to the extent applicable) validly tendered or exchanged, and not withdrawn, pursuant to such tender offer or exchange offer as of the Expiration Time (as defined below) (such tendered or exchanged shares of Common Stock (or Reference Property, to the extent applicable), the “Purchased Shares”) exceeds the Closing Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the last date (such last date, the “Expiration Date”) on which tenders or exchanges could have been made pursuant to such tender offer or exchange offer (as the same may be amended through the Expiration Date), then, and in each case, immediately after the close of business on such date, the Conversion Price shall be decreased so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Trading Day immediately following the Expiration Date by a fraction:

(A) the numerator of which shall be equal to the product of (A) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding as of the Expiration Time (including all Purchased Shares) and (B) the Closing Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the Expiration Date; and

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(B) the denominator of which is equal to the sum of (A) the Aggregate Amount and (B) the product of (I) an amount equal to (1) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding as of the last time (the “Expiration Time”) at which tenders or exchanges could have been made pursuant to such tender offer or exchange offer less (2) the Purchased Shares and (II) the Closing Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the Expiration Date.

An adjustment, if any, to the Conversion Price pursuant to this SECTION 5(f)(iii) shall become effective immediately prior to the opening of business on the second Trading Day immediately following the Expiration Date. In the event that the Company or a subsidiary is obligated to purchase shares of Common Stock (and Reference Property, to the extent applicable) pursuant to any such tender offer or exchange offer, but the Company or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer or exchange offer had not been made. Except as set forth in the preceding sentence, if the application of this SECTION 5(f)(iii) to any tender offer or exchange offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer or exchange offer under this SECTION 5(f)(iii).

(iv) Adjustments for Issuances of Additional Shares of Common Stock.

(A) Definitions. For purposes of this SECTION 5(f)(iv), the following definitions apply:

(1) “Convertible Securities” means any debt or other evidences of indebtedness, capital stock, rights, options, warrants or other securities directly or indirectly convertible into or exercisable or exchangeable for Common Stock (including Reference Property, if applicable).

(2) “Additional Shares of Common Stock” means any shares of Common Stock issued (whether from the Company’s treasury or authorized and unissued shares of capital stock) or, as provided in SECTION 5(f)(iv)(B) below, deemed to be issued by the Company after the Original Issuance Date; provided that, notwithstanding anything to the contrary contained herein, Additional Shares of Common Stock shall not include issuances of Common Stock (including any deemed issuance pursuant to SECTION 5(f)(iv)(B)) which are (1) pursuant to employee benefit plans and compensation related arrangements approved by the board of directors of the Company (including any duly authorized committee or delegee thereof) or (2) to Elevation or any of its Affiliates pursuant to the exercise of their respective preemptive rights.

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(3) “Measurement Date” means, with respect to a transaction, the public announcement of such transaction (or, if no such public announcement is made, the date of issuance).

(B) Deemed Issuances of Additional Shares of Common Stock. The maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise, conversion or exchange of Convertible Securities will be deemed to be Additional Shares of Common Stock issued as of the time of the issuance of such Convertible Securities; provided, however, that:

(1) No adjustment in the Conversion Price will be made upon the subsequent issuance of shares of Common Stock upon the exercise, conversion or exchange of such Convertible Securities;

(2) To the extent that Additional Shares of Common Stock are not issued pursuant to any such Convertible Security upon the expiration or termination of an unissued, unexercised, unconverted or unexchanged Convertible Security, the Conversion Price will be readjusted to the Conversion Price that would have been in effect had such Convertible Security (to the extent outstanding immediately prior to such expiration or termination) never been issued; and

(3) In the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Convertible Security, excluding a change resulting from any transaction giving rise to an adjustment pursuant to SECTION 5(f)(i)(B), but including periodic or scheduled accretions or adjustments to a Convertible Security, interest and dividends paid in kind, repricings of the exercise or conversion price of such Convertible Securities or otherwise, the Conversion Price then in effect will be readjusted to the Conversion Price that would have been in effect if, on the date of issuance, such Convertible Security were exercisable, convertible or exchangeable for such changed number of shares of Common Stock.

(C) Determination of Consideration. The Fair Market Value of the consideration received by the Company for the issue of any Additional Shares of Common Stock will be computed as follows:

(1) Cash and Property. Aggregate consideration consisting of cash and other property will: (x) insofar as it consists of cash, be computed at the aggregate of cash received by the Company, excluding amounts paid or payable for accrued interest or accrued dividends; (y) insofar as it consists of property other than cash, be computed at the Fair Market Value thereof on the Measurement Date; and (3) insofar as it consists of both cash and other property, be the proportion of such consideration so received.

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(2) Convertible Securities. The aggregate consideration per share received by the Company for Convertible Securities will be determined by dividing: (x) the total amount, if any, received or receivable by the Company as consideration for the issuance of such Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the full and complete exercise, conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the full and complete exercise, conversion or exchange of such Convertible Securities.

(D) In the event the Company shall, at any time and from time to time during the period ending on the second anniversary of the Original Issuance Date while any of the Series C Preferred Stock is outstanding, issue or sell Additional Shares of Common Stock (or Reference Property, to the extent applicable) for a consideration per share, as determined by such consideration’s Fair Market Value in accordance with SECTION 5(f)(iv)(C), less than the Conversion Price in effect immediately prior to such issuance (a “Below Conversion Price Issuance”), then if the aggregate Fair Market Value of the aggregate consideration received by the Company in respect of any such single or series of related Below Conversion Price Issuances is greater than $30,000,000, the Conversion Price in effect immediately after such Below Conversion Price Issuance shall be reduced to the Fair Market Value of the consideration per share received by the Company in respect of such Below Conversion Price Issuance or, in the case of a series of Below Conversion Price Issuances, the lowest Fair Market Value of consideration per share received in any such Below Conversion Price Issuance.

(E) Except in the case of Below Conversion Price Issuances giving rise to an adjustment pursuant to SECTION 5(f)(iv)(D), in the event the Company shall, at any time and from time to time while any of the Series C Preferred Stock is outstanding, issue or sell Additional Shares of Common Stock (or Reference Property, to the extent applicable), in a Below Conversion Price Issuance, the Conversion Price in effect immediately after such Below Conversion Price Issuance shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such Below Conversion Price Issuance by a fraction:

(1) the numerator of which shall be the sum of (a) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately prior to such Below Conversion Price Issuance (on a fully diluted basis based on the treasury method) (such number of shares of Common Stock, the “Number of Fully Diluted Shares of Common Stock”); plus (b) (x) the Fair Market Value of the aggregate consideration received by the Company in respect of such Below Conversion Price Issuance, divided by (y) the Conversion Price in effect immediately prior to such Below Conversion Price Issuance; and

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(2) the denominator of which shall be the sum of (a) the Number of Fully Diluted Shares of Common Stock, plus (b) the number of such Additional Shares of Common Stock issued in such Below Conversion Price Issuance.

(F) Any adjustment made pursuant to this SECTION 5(f)(iv) shall become effective immediately upon the date of such Below Conversion Price Issuance.

(G) Notwithstanding the foregoing, in no event shall any adjustment pursuant to this SECTION 5(f)(iv) cause the Conversion Price to be less than $2.5185 (the “Floor Price”), provided that such Floor Price shall be adjusted in the same manner as the Conversion Price to reflect any adjustments made in accordance with this SECTION 5(f) (other than adjustments pursuant to this SECTION 5(f)(iv)).

(v) Disposition Events.

(A) If any of the following events (any such event, a “Disposition Event”) occurs:

(1) any reclassification or exchange of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); or

(2) any merger, consolidation or other combination to which the Company is a constituent party;

in each case, as a result of which the holders of Common Stock shall be entitled to receive cash, securities or other property for their shares of Common Stock, the Company or the surviving entity of the merger, consolidation or other combination shall provide that the Series C Preferred Stock converted following the effective date of any Disposition Event, shall be calculated based on the kind and amount of cash, securities or other property (collectively, “Reference Property”) received upon the occurrence of such Disposition Event by a holder of Common Stock holding, immediately prior to the transaction, a number of shares of Common Stock equal to the Conversion Amount immediately prior to such Disposition Event; provided that if the Disposition Event provides the holders of Common Stock with the right to receive more than a single type of consideration determined based in part upon any form of stockholder election, the Reference Property shall be comprised of the weighted average of the types and amounts of consideration received by the holders of the Common Stock. The Company may not cause, or agree to cause, a Disposition Event to occur, unless the issuer of any securities or other property into which the Series C Preferred Stock becomes convertible agrees, for the express benefit of the holders of record of Series C Preferred Stock (including making them beneficiaries of such agreement), to issue such securities or property.

(B) The above provisions of this SECTION 5(f)(v) shall similarly apply to successive Disposition Events. If this SECTION 5(f)(v) applies to any event or occurrence, neither SECTION 5(f)(i) nor SECTION 5(f)(iii) shall apply; provided,

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however, that this SECTION 5(f)(v) shall not apply to any stock split or combination to which SECTION 5(f)(i) is applicable or to a liquidation, dissolution or winding up to which SECTION 3 applies. To the extent that equity securities of a company are received by the holders of Common Stock of the Company in connection with a Disposition Event, the portion of the Series C Preferred Stock which will be convertible into such equity securities will continue to be subject to the anti-dilution adjustments set forth in this SECTION 5(f).

(vi) Minimum Adjustment. Notwithstanding the foregoing, the Conversion Price will not be reduced if the amount of such reduction would be an amount less than $0.01, but any such amount will be carried forward and reduction with respect thereto will be made at the time that such amount, together with any subsequent amounts so carried forward, aggregates to $0.01 or more.

(vii) Limitation on Adjustment; When No Adjustment Required.

(A) No adjustment need be made for the issuance of Common Stock (and Reference Property, to the extent applicable) or any securities convertible into or exchangeable for Common Stock (and Reference Property, to the extent applicable) or carrying the right to purchase Common Stock (and Reference Property, to the extent applicable) or any such security except to the extent explicitly required herein.

(B) No adjustment need be made for rights to purchase Common Stock (or Reference Property, to the extent applicable) pursuant to a Company plan for reinvestment of dividends or interest.

(C) No adjustment need be made for a change in the par value or no par value of the Common Stock (or Reference Property, to the extent applicable).

(D) To the extent the Series C Preferred Stock becomes convertible pursuant to this SECTION 5 into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

(viii) Rules of Calculation; Treasury Stock. All calculations will be made to the nearest one-hundredth of a cent or to the nearest one-ten thousandth of a share. Except as explicitly provided herein, the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding will be calculated on the basis of the number of issued and outstanding shares of Common Stock (or Reference Property, to the extent applicable), not including shares held in the treasury of the Company. The Company shall not pay any dividend on or make any distribution to shares of Common Stock (or Reference Property, to the extent applicable) held in treasury.

(ix) Waiver. Notwithstanding the foregoing, the Conversion Price will not be reduced if the Company receives, prior to the effective time of the adjustment to the Conversion Price, written notice from the holders representing at least a majority of the then-outstanding shares of Series C Preferred Stock, voting together as a separate class, that no adjustment is to be made as the result of a particular issuance of Common Stock (or Reference Property, to the extent applicable)

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or other dividend or other distribution on shares of Common Stock. This waiver will be limited in scope and will not be valid for any issuance of Common Stock (or Reference Property, to the extent applicable) or other dividend or other distribution on shares of Common Stock (or Reference Property, to the extent applicable) not specifically provided for in such notice.

(x) Tax Adjustment. Anything in this SECTION 5 notwithstanding, the Company shall be entitled to make such downward adjustments in the Conversion Price, in addition to those required by this SECTION 5, as the Board in its sole discretion shall determine to be advisable in order that any event treated for federal income tax purposes as a dividend or stock split will not be taxable to the holders of Common Stock (or Reference Property, to the extent applicable).

(xi) Par Value. Anything in this SECTION 5 notwithstanding, no adjustment to the Conversion Price shall reduce the Conversion Price below the then par value per share of Common Stock (or Reference Property, to the extent applicable), and any such purported adjustment shall instead reduce the Conversion Price to such par value.

(xii) No Duplication. If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described in this SECTION 5 in a manner such that such adjustments are duplicative, only one adjustment shall be made.

(g) Notice of Record Date. In the event of:

(i) any stock split or combination of the outstanding shares of Common Stock (or Reference Property, to the extent applicable);

(ii) any declaration or making of a dividend or other distribution to holders of Common Stock (or Reference Property, to the extent applicable) in Additional Shares of Common Stock, any other capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness);

(iii) any reclassification or change to which SECTION 5(f)(i)(B) applies;

(iv) the dissolution, liquidation or winding up of the Company; or

(v) any other event constituting a Fundamental Change of the type described in clause (i) of the definition thereof in SECTION 8(y);

then the Company shall file with its corporate records and mail to the holders of the Series C Preferred Stock at their last addresses as shown on the records of the Company, at least 10 days prior to the record date specified in (A) below or 10 days prior to the date specified in (B) below, a notice stating:

(A) the record date of such stock split, combination, dividend or other distribution, or, if a record is not to be taken, the date as of which the holders of Common Stock (or Reference Property, to the extent applicable) of record to be entitled to such stock split, combination, dividend or other distribution are to be determined, or

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(B) the date on which such reclassification, change, dissolution, liquidation, winding up or other event constituting a Fundamental Change of the type described in clause (i) of the definition thereof in SECTION 8(y), is estimated to become effective, and the date as of which it is expected that holders of Common Stock (or Reference Property, to the extent applicable) of record will be entitled to exchange their shares of Common Stock (or Reference Property, to the extent applicable) for the capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) deliverable upon such reclassification, change, liquidation, dissolution, winding up or other Fundamental Change.

Disclosures made by the Company in any filings required to be made under the Exchange Act shall be deemed to satisfy the notice requirements set forth in this SECTION 5(g).

(h) Certificate of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this SECTION 5, the Company at its expense shall promptly as reasonably practicable compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series C Preferred Stock a certificate, signed by an officer of the Company, setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based and shall file a copy of such certificate with its corporate records. The Company shall, upon the reasonable written request of any holder of Series C Preferred Stock, furnish to such holder a similar certificate setting forth (i) the calculation of such adjustments and readjustments in reasonable detail, (ii) the Conversion Price then in effect, and (iii) the number of shares of Common Stock (or Reference Property, to the extent applicable) and the amount, if any, of capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) which then would be received upon the conversion of Series C Preferred Stock.

SECTION 6. Redemption.

Each share of Series C Preferred Stock is redeemable as provided in this SECTION 6.

(a) Mandatory Redemption.

(i) On October 24, 2014 (the “Maturity Date”), or, if not a Business Day, the first Business Day thereafter, the Company shall redeem (subject to the legal availability of funds therefor) all, but not less than all, of the outstanding shares of Series C Preferred Stock at a redemption price per share equal to the Regular Liquidation Preference (the “Mandatory Redemption Price”). To the extent that the Company has insufficient funds to redeem all of the outstanding shares of Series C Preferred Stock, the Company shall use available funds to redeem a pro rata portion of the Series C Preferred Stock held by each holder thereof; provided, however, that the failure to redeem all the Series C Preferred Stock on the Mandatory Redemption Date shall continue to constitute a Triggering Event.

(ii) The “Mandatory Redemption Date” shall be the same date as the Maturity Date or, if not a Business Day, the first Business Day thereafter. The Company shall deliver a notice of redemption not less than 10 nor more than 60 days prior to the Mandatory

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Redemption Date, addressed to the holders of record of the Series C Preferred Stock as they appear in the records of the Company as of the date of such notice. Each notice must state the following: (A) the Mandatory Redemption Date; (B) the Mandatory Redemption Price as of the scheduled Mandatory Redemption Date (it being understood that the actual Mandatory Redemption Price will be determined as of the actual Mandatory Redemption Date); (C) the name of the redemption agent to whom, and the address of the place to where, the Series C Preferred Stock are to be surrendered for payment of the Mandatory Redemption Price; and (D) that Conditional Dividends, if any, on the shares to be redeemed will cease to accrue on such Mandatory Redemption Date, provided that the Mandatory Redemption Price and the Dividends accrued through the day immediately preceding the Mandatory Redemption Date shall have been paid on the Mandatory Redemption Date.

(b) Optional Redemption upon Certain Fundamental Changes.

(i) In connection with a Fundamental Change of the type described in clause (i) of the definition of “Fundamental Change” in SECTION 8(y) (a “Triggering Fundamental Change”) where as a result of such transaction the Series C Preferred Stock become convertible solely into cash (the amount of such cash with respect to each share of Series C Preferred Stock, the “Fundamental Change Price”), the Company, at its option and election, may redeem (out of funds legally available therefor) all, but not less than all, of the outstanding shares of Series C Preferred Stock at a Redemption Price equal to 101% of the Regular Liquidation Preference (the “Optional Redemption Price” and collectively with the Mandatory Redemption Price, the “Redemption Price”); provided, that the consummation of such redemption and the payment of the Optional Redemption Price shall be subject to the consummation of the Triggering Fundamental Change.

(ii) If the Company elects to redeem the Series C Preferred Stock pursuant to SECTION 6(b)(i), the “Optional Redemption Date” shall be the date on which the Triggering Fundamental Change is consummated. The Company shall deliver a notice of redemption not less than 10 nor more than 30 Business Days prior to the Optional Redemption Date, addressed to the holders of record of the Series C Preferred Stock as they appear in the records of the Company as of the date of such notice. Each notice must state the following: (A) the expected Optional Redemption Date; (B) the Optional Redemption Price as of the expected Optional Redemption Date (it being understood that the actual Optional Redemption Price will be determined as of the actual Optional Redemption Date); (C) the Fundamental Change Price as of the expected Optional Redemption Date; (D) the name of the redemption agent to whom, and the address of the place to where, the Series C Preferred Stock are to be surrendered for payment of the Optional Redemption Price; (E) that Conditional Dividends, if any, on the shares to be redeemed will cease to accrue on such Optional Redemption Date provided that the Optional Redemption Price and Dividends accrued through the day immediately preceding the Optional Redemption Date shall have been paid on the Optional Redemption Date; and (F) that the consummation of the redemption and the payment of the Optional Redemption Price shall be subject to the consummation of the Triggering Fundamental Change. Each holder shall have the right, exercisable upon notice to the Company at any time prior to the Optional Redemption Date, to elect to convert the Series C Preferred Stock and receive the Fundamental Change Price in lieu of the Optional Redemption Price with respect to each share of Series C Preferred Stock held by such holder to the extent such Triggering Fundamental Change is consummated.

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(c) Mechanics of Redemption.

(i) Unless waived in writing by the holders representing a majority of the outstanding shares of Series C Preferred Stock, on or prior to the Mandatory Redemption Date or Optional Redemption Date, as applicable, the Company shall deposit with a redemption agent in trust, upon delivery of the Company’s redemption notice pursuant to SECTION 6(a) or SECTION 6(b), funds consisting of cash or cash equivalents sufficient to pay the Mandatory Redemption Price on the Mandatory Redemption Date or the Optional Redemption Price on the Optional Redemption Date, as the case may be. The redemption agent must be a bank or trust company in good standing, organized under the laws of the United States of America or any jurisdiction thereof. The deposit in trust with the redemption agent shall be irrevocable as of the Mandatory Redemption Date or Optional Redemption Date, as applicable (such date, the “Irrevocable Date”), except that the Company shall be entitled to receive from the redemption agent (i) the applicable Redemption Price with respect to shares of Series C Preferred Stock that are no longer to be redeemed, whether by conversion or otherwise; and (ii) the interest or other earnings, if any, earned on any such deposit. The holders of the shares redeemed shall have no claim to such interest or other earnings, and any funds so deposited with the redemption agent and unclaimed by the holders of the Series C Preferred Stock entitled thereto at the expiration of one year from the Mandatory Redemption Date or Optional Redemption Date, as the case may be, shall be repaid, together with any interest or other earnings thereon, to the Company, and after any such repayment, the holders of the shares entitled to the funds so returned to the Company shall look only to the Company for such payment, without interest. Notwithstanding the deposit of such funds, the Company shall remain liable for the payment of the applicable Redemption Price to the extent such Redemption Price is not paid as provided herein.

(ii) The redemption agent on behalf of the Company shall pay the applicable Redemption Price on the Mandatory Redemption Date or Optional Redemption Date, as the case may be, upon surrender of the certificates representing the shares of Series C Preferred Stock to be redeemed (properly endorsed or assigned for transfer, if the Company shall so require and letters of transmittal and instructions therefor on reasonable terms are included in the notice sent by the Company); provided that if such certificates are lost, stolen or destroyed, the Company may require such holder to indemnify the Company, in a reasonable amount and in a reasonable manner, and post a customary bond in respect of such indemnity, prior to paying such Redemption Price.

(iii) From and after the Irrevocable Date, shares of Series C Preferred Stock to be redeemed on the Mandatory Redemption Date or Optional Redemption Date, as the case may be, will no longer be deemed to be outstanding; and all powers, designations, preferences and other rights of the holder thereof as a holder of Series C Preferred Stock (except the right to receive from the Company the applicable Redemption Price) shall cease and terminate with respect to such shares; provided that in the event that a share of Series C Preferred Stock is not redeemed due to a default in payment by the Company or because the Company is otherwise unable to pay the applicable Redemption Price in cash in full, such share of Series C Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights (including but not limited to the accrual and payment of dividends and the conversion rights) as provided herein.

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(iv) Notwithstanding anything in this SECTION 6 to the contrary, each holder shall retain the right to convert shares of Series C Preferred Stock to be redeemed at any time on or prior to the Mandatory Redemption Date or Optional Redemption Date, as the case may be; provided, however, that any shares of Series C Preferred Stock converted prior to the Mandatory Redemption Date or Optional Redemption Date, as the case may be, shall not be redeemed pursuant to this SECTION 6.

(v) Any redemption of the Series C Preferred Stock pursuant to this SECTION 6 (such redemption, the “Redemption”) shall be payable out of any cash legally available therefor, and if there is not a sufficient amount of cash available, then out of the remaining assets of the Company legally available therefor (valued at the fair market value thereof on the date of payment, as determined by the Board). At the time of the Redemption, the Company shall take all actions required or permitted under Delaware law to permit the redemption of the Series C Convertible Preferred Stock, including, without limitation, through the revaluation of its assets in accordance with Delaware law, to make funds legally available for such redemption.

SECTION 7. Fundamental Change.

(a) Offer to Repurchase.

(i) Subject to SECTION 7(b), in connection with any Fundamental Change other than a Fundamental Change in which Elevation or any of its Affiliates is the acquiror or is otherwise a constituent party (or Affiliate thereof) to the transaction that results in such Fundamental Change, the Company shall, or shall cause the Survivor of a Fundamental Change (such Survivor of a Fundamental Change, the “Acquirer”) to, make an offer to repurchase, at the option and election of the holder thereof, each share of Series C Preferred Stock then-outstanding (the “Fundamental Change Offer”) at a purchase price per share (such amount being the “Repurchase Price”) (x) in cash equal to 101% of the Regular Liquidation Preference or, (y) at the sole election of the Company (the “Company Election”), subject to the conditions set forth in SECTION 7(a)(ii) below, a number of shares of common stock (or ADSs or ADRs in respect of such ADSs), which are publicly tradable and listed on an Exchange at the time of receipt, of the Acquirer or any direct or indirect parent thereof (such shares of common stock, “Acquirer Stock”, and the issuer of such shares, the “Successor Public Company”) with an aggregate market value (equal on a per share or per ADS/ADR basis to the closing sale price for such security on the principal Exchange on which such security is traded, on the trading day immediately preceding the issuance of such common stock or ADSs/ADRs to the relevant holders of Series C Preferred Stock) equal to 105% of the Regular Liquidation Preference. The Company Election must be made in the Fundamental Change Notice delivered pursuant to SECTION 7(a)(iii) and shall become irrevocable from the date thereof unless otherwise consented to by the holders of a majority of the Series C Preferred Stock.

(ii) The Company’s right to elect to pay the Repurchase Price with Acquirer Stock is subject to the following conditions:

(A) the issuance of the Acquirer Stock shall have been registered under the Securities Act;

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(B) Rule 145 promulgated under the Securities Act shall permit the sale of such Acquirer Stock by the holder thereof (and any of its Affiliates) within a period of three months immediately following the Repurchase Date;

(C) the Acquirer Stock (or ADSs representing the Acquirer Stock, or ADRs in respect thereof) issued to the holders of Series C Preferred Stock shall be listed on an Exchange;

(D) the aggregate number of shares of Acquirer Stock issuable to any record holder of Series C Preferred Stock and such holder’s Affiliates (including shares issuable in respect of both Series B Preferred Stock and Series C Preferred Stock) shall not exceed the lesser of the number of shares equal to (x) 4.9% of all then-outstanding shares of Acquirer Stock (based on the number of outstanding shares of Acquirer Stock set forth in Acquirer’s most recently available filing with the Securities and Exchange Commission) and (y) three (3) times the average daily trading volume of Acquirer Stock (or American Depositary Shares representing the Acquirer Stock, or American Depositary Receipts in respect thereof) on an Exchange for the four (4) weeks immediately preceding the Repurchase Date.

(iii) The “Repurchase Date” shall be the date on which the Fundamental Change is consummated (provided that in the case of a Fundamental Change described in clause (ii) of the definition thereof, the Repurchase Date shall be a date no later than 20 days following the date of the first public announcement of such Fundamental Change having occurred (including, for these purposes, the filing of a Schedule 13D pursuant to the Exchange Act)). As soon as practicable after the announcement of such transaction or execution of such agreement providing for such Fundamental Change, the Company shall commence the Fundamental Change Offer by delivering a notice (the “Fundamental Change Notice”), not less than 10 nor more than 60 days prior to the expected Repurchase Date, addressed to the holders of record of the Series C Preferred Stock as they appear in the records of the Company as of the date of announcement of such transaction or execution of such agreement providing for such Fundamental Change. Each notice must state that: (A) the Fundamental Change Offer may be accepted by delivery of a written revocable notice specifying the number of shares to be repurchased; (B) the expected Repurchase Price as of the expected Repurchase Date (it being understood that the actual Repurchase Price will be determined as of the actual Repurchase Date); (C) the name of the paying agent to whom, and the address of the place to where, the Series C Preferred Stock are to be surrendered for payment of the Repurchase Price; (D) any shares of Series C Preferred Stock not tendered for payment shall continue to be outstanding and holders thereof shall remain entitled to, among other things, the payment of dividends thereon and exercise their conversion rights (whether on the date of consummation of the Fundamental Change or otherwise), (E) the consummation of the Fundamental Change Offer and the payment of the Repurchase Price shall be subject to the consummation of the Fundamental Change, and the Fundamental Change Offer shall not be consummated in the event the Company elects to effect a conversion pursuant to SECTION 5(c), and (F) the circumstances and material facts regarding such Fundamental Change. If the Fundamental Change is not consummated, the Fundamental Change Offer shall be automatically withdrawn.

(iv) Notwithstanding this SECTION 7, the Fundamental Change Offer shall be subject to, and be made in compliance with, Regulation 14E under the Exchange Act and

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any other federal and state securities laws, as applicable, including any applicable time periods. The Company shall notify the holders Series C Preferred Stock of the results of the Fundamental Change Offer on or as soon as practicable after the Repurchase Date.

(b) Effectiveness of SECTION 7. Notwithstanding anything contained herein to the contrary, this SECTION 7 shall be void and of no effect, the Company shall have no obligation (contingent or otherwise) under this SECTION 7 and no Fundamental Change Offer or repurchase pursuant to this SECTION 7 may be made by the Company pursuant to this SECTION 7 unless and until (i) the Company has received a consent to the existence of this provision and the obligations of the Company hereunder from the appropriate parties to the Credit Agreement (as defined in SECTION 4(f)) or any successor to, substitute for or replacement of the Credit Agreement (as defined in SECTION 4(f)) or (ii) all obligations and commitments under the Credit Agreement (as defined in SECTION 4(f)) or any such successor, substitute or replacement have expired or been terminated, provided that the provisions of this SECTION 7(b) shall not be applicable to any Fundamental Change in which the Company has elected to pay the Repurchase Price with Acquirer Stock in accordance with SECTION 7(a). The Company shall have no obligation pursuant to this Certificate of Designation or any other agreement or commitment to seek such consent.

(c) Mechanics of Repurchase.

(i) Unless waived by the holders representing a majority of the outstanding shares of Series C Preferred Stock, the Company shall deposit with a paying agent in trust by the Repurchase Date), funds consisting of cash or cash equivalents sufficient to pay the cash portion of the Repurchase Price on the Repurchase Date. The paying agent must be a bank or trust company in good standing, organized under the laws of the United States of America or any jurisdiction thereof. The deposit in trust with the paying agent shall be irrevocable as of the Repurchase Date, except that the Company shall be entitled to receive from the paying agent (A) Repurchase Prices with respect to shares of Series C Preferred Stock that are no longer to be repurchased, whether by conversion, withdrawal of an election or tender or otherwise and (B) the interest or other earnings, if any, earned on any such deposit. The holders of the shares repurchased shall have no claim to such interest or other earnings, and any funds so deposited with the paying agent and unclaimed by the holders of the Series C Preferred Stock entitled thereto at the expiration of one year from the Repurchase Date shall be repaid, together with any interest or other earnings thereon, to the Company, and after any such repayment, the holders of the shares entitled to the funds so returned to the Company shall look only to the Company for such payment, without interest. Notwithstanding the deposit of such funds, the Company shall remain liable for the payment of the Repurchase Price to the extent such Repurchase Price is not paid as provided herein.

(ii) The paying agent on behalf of the Company shall pay the Repurchase Price on the Repurchase Date upon surrender of the certificates representing the shares of Series C Preferred Stock to be repurchased (properly endorsed or assigned for transfer, if the Company shall so require and letters of transmittal and instructions therefor on reasonable terms are included in the notice sent by the Company); provided that if such certificates are lost, stolen or destroyed, the Company may require such holder to indemnify the Company, and post a customary bond in respect of such indemnity, in a reasonable amount and in a reasonable manner, prior to paying such Repurchase Price.

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(iii) In case fewer than all the shares represented by any such certificate are to be repurchased, a new certificate shall be issued representing the unrepurchased shares without cost to the holder thereof, except for any documentary, stamp or similar issue or transfer tax due because any certificate for shares Series C Preferred Stock are issued in a name other than the name of the selling holder. The Company shall pay any documentary, stamp or similar issue or transfer tax due upon the issuance of a new certificate for any shares of Series C Preferred Stock not repurchased other man any such tax due because a certificate for shares Series C Preferred Stock is issued in a name other than the name of the selling holder.

(iv) Subject to clause (vi) below, from and after the Repurchase Date, shares of the Series C Preferred Stock to be repurchased on such Repurchase Date will no longer be deemed to be outstanding; and all powers, designations, preferences and other rights of the holder thereof as a holder of Series C Preferred Stock (except the right to receive from the Company the Repurchase Price) shall cease and terminate with respect to such shares; provided that in the event that a share of Series C Preferred Stock is not repurchased due to a default in payment by the Company or because the Company is otherwise unable to pay the Repurchase Price in full, such share of Series C Preferred Stock will remain outstanding and will be entitled to all of the powers, designations, preferences and other rights (including but not limited to the payment of dividends and the conversion rights) as provided herein.

(v) Notwithstanding anything in this SECTION 7 to the contrary, each holder shall retain the right to (A) convert shares of Series C Preferred Stock to be repurchased at any time on or prior to the Repurchase Date or (B) withdraw an election to have such shares repurchased or any tender of such shares in the Fundamental Change Offer on or prior to the Repurchase Date; provided, however, that, where a holder of Series C Preferred Stock exercises its rights under (A) or (B) above, the shares of Series C Preferred Stock of such holder shall not be repurchased pursuant to this SECTION 7.

(vi) The Company shall not be required to make a Fundamental Change Offer if an Affiliate in control of the Company makes the Fundamental Change Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this SECTION 7 and purchases all shares of Series C Preferred Stock validly tendered and not withdrawn under such Fundamental Change Offer; provided, that if an Affiliate in control of the Company makes such repurchase, the shares of Series C Preferred Stock so purchased shall remain outstanding in the hands of such Affiliate.

(vii) The Company may not enter into any agreement providing for a Fundamental Change unless the Acquirer agrees to cause the Company to make the repurchases contemplated in this SECTION 7 and agrees, for the benefit of the holders of record of the Series C Preferred Stock (including making them beneficiaries of such agreement), that to the extent the Company is not legally able to repurchase the Series C Preferred Stock, the Acquirer will purchase the Series C Preferred Stock.

(viii) Any repurchase of the Series C Preferred Stock pursuant to this SECTION 7 shall be payable out of any cash legally available therefor, and if there is not a sufficient amount of cash available, then out of the remaining assets of the Company legally available therefor

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(valued at the fair market value thereof on the date of payment, as determined by the Board). The Company shall take all actions required or permitted under Delaware law to permit the repurchase of the Series C Preferred Stock, including, without limitation, through the revaluation of its assets in accordance with Delaware law, to make funds legally available for such repurchase.

SECTION 8. Additional Definitions. For purposes of these resolutions, the following terms shall have the following meanings:

(a) “Acquiring Person” shall have the meaning given thereto in the Company Rights Plan (or its comparable term/provision under any successor, substitute or additional shareholder rights plan).

(b) “Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person, for so long as such Person remains so associated to the specified Person. Notwithstanding the foregoing, (i) the Company, its subsidiaries and its other controlled Affiliates shall not be considered Affiliates of any Investor Stockholder or their Permitted Transferees, (ii) the portfolio companies in which the Investor Stockholders, any other Elevation Entities or any other Elevation Partners’ investment fund that is Controlled by or under common Control with an Elevation Entity have directly or indirectly made a debt or equity investment shall not be considered Affiliates of the Investor Stockholders or their Permitted Transferees if the Investor Stockholders, alone, or together with their Permitted Transferees, (x) in the aggregate Beneficially Own securities that would comprise (upon conversion, exchange or exercise of any rights, options, warrants or similar securities, if applicable) less than 50% of the Maximum Voting Power of such portfolio company and (y) do not constitute, nor do they have the contractual or other legal right to elect, a majority of the members of the board or other governing body of such portfolio company, unless such portfolio company has received Confidential Information, directly or indirectly, or has been provided assistance with respect to the acquisition, holding, voting or disposition of capital stock from an Investor Stockholder or any of its Affiliates or has otherwise acted in concert with an Investor Stockholder or any of its Affiliates with respect to the acquisition, holding, voting or disposition of capital stock and (iii) a corporation or other entity (a “Specified Entity”) with respect to which (x) none of the Investor Stockholders or Elevation Entities has directly or indirectly made a debt or equity investment and (y) none of the Investor Stockholders, alone or together with their Permitted Transferees, constitute, or have the contractual or other legal right to elect, a majority of the members of the board or other governing body of such Specified Entity (and which otherwise is not controlled by an Elevation Entity), but which is an Affiliate of an individual who would be considered a controlling Affiliate of an Elevation Entity, will not be considered an Affiliate of the Investor Stockholders or their Permitted Transferees unless such Specified Entity has received Confidential Information, directly or indirectly or has been provided assistance with respect to the acquisition, holding, voting or disposition of capital stock from an Investor Stockholder or any of its Affiliates or has otherwise acted in concert with an Investor Stockholder or any of its Affiliates with respect to the acquisition, holding, voting or disposition of capital stock. For avoidance of doubt, Permitted Transferees shall be deemed to be Affiliates of the Investor Stockholders.

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(c) “Beneficial Owner”, “Beneficially Own” and “Beneficial Ownership” have the meaning given such term in Rule 13d-3 under the Exchange Act, and a person’s beneficial ownership of securities will be calculated in accordance with the provisions of such Rule; provided, however, that (i) a person will be deemed to be the beneficial owner of any security which may be acquired by such person whether within 60 days or thereafter, upon the conversion, exchange or exercise of any rights, options, warrants or similar securities to subscribe for, purchase or otherwise acquire (x) capital stock of any person or (y) debt or other evidences of indebtedness, capital stock or other securities directly or indirectly convertible into or exercisable or exchangeable for such capital stock of such person and (ii) a person shall be deemed to be the beneficial owner of any securities with which a person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of such securities.

(d) “Board Representation Entitlement” means a number of Preferred Directors (rounded to the nearest whole number) equal to the product of (x) the total number of members then comprising the full Board (including the Preferred Directors) and (y) the lesser of (1) 39.9% and (2) the Elevation Beneficial Ownership Percentage; provided, however, that, notwithstanding the foregoing, (A) from and after the first time that the Investor Stockholders (including, for this purpose, their Permitted Transferees) in the aggregate cease to (x) Beneficially Own and (y) have all Economic Rights and Voting Rights with respect to a number of shares of Investor Preferred Stock that if then converted would be convertible into a number of shares of Common Stock that is greater than or equal to 50% of the shares of Common Stock issuable upon conversion of 325,000 shares of Series B Preferred Stock (regardless of whether any such shares of Series B Preferred Stock are then outstanding) based on the conversion prices that are (or would be) in effect at the time of such calculation (including, for purposes of this calculation, shares of Investor Preferred Stock pledged pursuant to a bona fide pledge, but not a foreclosure thereon, but excluding, for purposes of this calculation, shares subject to Shared Beneficial Ownership with any Person other than another Investor Stockholder or a Permitted Transferee), the Board Representation Entitlement shall be zero (0) Preferred Directors, (B) from and after the occurrence of a Non-Constituent Issuer Fundamental Change, the Board Representation Entitlement shall be zero (0) Preferred Directors and (C) from and after the occurrence of a Fundamental Change described in clause (i) of the definition thereof other than a Non-Constituent Issuer Fundamental Change, the Board Representation Entitlement shall be no more than one (1) Preferred Director; provided, further, that no reduction in the Board Representation Entitlement resulting from a decrease in the Elevation Beneficial Ownership Percentage shall occur until the expiration of any applicable Share Ownership Reduction Cure Period.

(e) “Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or obligated to close.

(f) “capital stock” means any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, partnership interests (whether general or limited) or equivalent ownership interests in or issued by such person, and with respect to the Company includes, without limitation, any and all shares of Common Stock and the Preferred Stock.

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(g) “Certificate of Designation of the Series B Preferred Stock” means the Certificate of Designation with respect to the Series B Preferred Stock, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof.

(h) “Closing Price” of the Common Stock (or Reference Property, to the extent applicable) on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. securities exchange on which the Common Stock (or Reference Property, to the extent applicable) is listed or admitted for trading or, if the Common Stock (or Reference Property, to the extent applicable) is not listed or admitted for trading on a U.S. national or regional securities exchange, as reported on the quotation system on which such security is quoted. If the Common Stock (or Reference Property, to the extent applicable) is not listed or admitted for trading on a United States national or regional securities exchange and not reported on a quotation system on the relevant date, the “closing price” will be the last quoted bid price for the Common Stock (or Reference Property, to the extent applicable) in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization. If the Common Stock (or Reference Property, to the extent applicable) is not so quoted, the last reported sale price will be the average of the mid-point of the last bid and ask prices for the Common Stock (or Reference Property, to the extent applicable) on the relevant date from each of at least three nationally recognized investment banking firms selected by the Company for this purpose.

(i) “Company Rights Plan” means that certain Preferred Stock Rights Agreement, dated as of September 25, 2000, as amended, between the Company and Computershare Trust Company of New York, as successor to Equiserve Trust Company, N.A. and Fleet National Bank.

(j) “Control” and “Controlled by” have the meaning set forth in Rule 12b-2 of the Exchange Act.

(k) “Conditional Rate” means an annual rate equal to the prime rate of JPMorgan Chase Bank N.A. on the Conditional Dividend Payment Date plus 4%.

(l) “Confidential Information” shall have the meaning set forth in the Stockholders’ Agreement.

(m) “Conversion Shares” shall have the meaning set forth in the Stockholders’ Agreement.

(n) “Current Market Price” shall mean the average of the closing prices per share of Common Stock for each of the five consecutive trading days ending on the trading day immediately preceding a Rights Triggering Date.

(o) “Distribution Date” shall have the meaning given thereto in the Company Rights Plan (or its comparable term/provision under any successor, substitute or additional shareholder rights plan).

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(p) “Economic Rights” means the right to the full pecuniary interest (which may be subject to a bona fide pledge, but not a foreclosure thereon) in the Series B Preferred Stock and/or the Series C Preferred Stock, as applicable, including, without limitation, the right to receive dividends and distributions, proceeds upon liquidation and receive the proceeds of, disposition or conversion of such Series B Preferred Stock or Series C Preferred Stock. For the avoidance of doubt, any contractual encumbrance resulting from a bona fide incurrence of indebtedness for money borrowed (including an obligation to repay such indebtedness with the proceeds of any Transfer of, or dividend or distribution on, any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares) not incurred in violation of Section 3.1 of the Stockholders’ Agreement shall not be deemed to be a Transfer, loss or reduction in the Economic Rights associated with such shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares, as the case may be.

(q) “Elevation” means Elevation Partners, L.P.

(r) “Elevation Beneficial Ownership Percentage” means, at any time, the quotient of (a) the aggregate number of shares of Common Stock Beneficially Owned, but excluding Shared Beneficial Ownership of Common Stock, by the Investor Stockholders divided by (b) the sum of (i) the total number of shares of Common Stock outstanding at such time plus (ii) the number of shares of Common Stock into which the outstanding shares of Series B Preferred Stock and Series C Preferred Stock are entitled to convert at such time plus (iii) the number of shares of Common Stock issuable upon the exercise of Warrants (as defined in the Securities Purchase Agreement) plus (iv) the number of shares of Common Stock issuable upon the conversion, exchange or issuance of any Equity Securities of the Company sold in any Offering described in clause (ii) of the definition of Offering. For purposes hereof, if a Share Ownership Reduction Cure Period shall have ever taken place (on one or more occasions), and at the end of such Shares Ownership Reduction Cure Period there is a reduction in the number of Preferred Directors pursuant to SECTION 4(d)(iii) of this Certificate of Designation, then the Elevation Beneficial Ownership Percentage shall be deemed at any point in time thereafter to be no greater than the lowest Elevation Beneficial Ownership Percentage that shall have existed at the end of any such Share Ownership Reduction Cure Period.

(s) “Elevation Entity” shall have the meaning set forth in the Stockholders’ Agreement.

(t) “Equity Securities” means (x) any shares of capital stock of the Company, (y) any rights, options, warrants or similar securities to subscribe for, purchase or otherwise acquire any shares of capital stock of the Company, and (z) capital stock or other equity securities directly or indirectly convertible into or exercisable or exchangeable for any shares of capital stock of the Company, excluding, for all purposes, any debt, including, without limitation, any debt convertible into any of the foregoing described in clauses (x) through (z).

(u) “Exchange” means Nasdaq or the New York Stock Exchange, as the case may be.

(v) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

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(w) “Ex-Dividend Date” means, with respect to any issuance or distribution, the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such issuance or distribution.

(x) “Fair Market Value” of Common Stock or any other security or property means the fair market value thereof as determined in good faith by the Board, which determination must be set forth in a written resolution of the Board, in accordance with the following rules:

(i) for Common Stock or other security traded or quoted on an Exchange, the Fair Market Value will be the average of the closing prices of such security on such Exchange over a ten (10) consecutive trading day period, ending on the trading day immediately prior to the date of determination;

(ii) for any security that is not so traded or quoted, the Fair Market Value shall be determined: (x) mutually by the Board and the holders of at least a majority of the then-outstanding shares of Series C Preferred Stock, or (y) by a nationally recognized investment bank, appraisal or accounting firm (whose fees and expenses will be paid by the Company) selected by mutual agreement between the Board and the holders representing a majority of the then-outstanding shares of Series C Preferred Stock; or

(iii) for any other property, the Fair Market Value shall be determined by the Board in good faith assuming a willing buyer and a willing seller in an arms’-length transaction; provided that if holders representing a majority of the then-outstanding shares of Series C Preferred Stock object to a determination of the Board made pursuant to this clause (iii), the Fair Market Value of such property shall be as determined by nationally recognized investment bank, appraisal or accounting firm (whose fees and expenses will be paid by the Company) selected by mutual agreement between the Board and such holders.

(y) “Fundamental Change” means the occurrence of any of the following:

(i) any merger, consolidation, stock or asset purchase, recapitalization or other business combination transaction (or series of related transactions) as a result of which the shares of capital stock of the Company entitled to vote generally in the election of directors and the Series B Preferred Stock and the Series C Preferred Stock (treated on an as-converted basis) immediately prior to such transaction (or series of related transactions) are converted into and/or continue to represent (on an as-converted basis in the case of the Series B Preferred Stock and the Series C Preferred Stock), in the aggregate, less than 50% of the total voting power of all shares of capital stock that are entitled to vote generally in the election of directors of the entity surviving or resulting from such transaction (or ultimate parent thereof);

(ii) any person or group, together with any Affiliates thereof (other than any Investor Stockholder, as defined in the Stockholders Agreement, or any of their respective Affiliates), has, directly or indirectly, become the Beneficial Owner of more than 50% of the total voting power of all shares of capital stock of the Company that are entitled to vote generally in the election of directors;

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(iii) the sale, transfer or disposition, including but not limited to any spin-off or in-kind distribution (a “Divestiture”), by the Company or by one or more of its subsidiaries of all or substantially all of the assets, business or securities of the Company (on a consolidated basis) to any person or group (other than the Company or its wholly-owned subsidiaries); provided that a Fundamental Change shall not include a spin-off or similar in-kind distribution to the stockholders of the Company in which the holders of Series B Preferred Stock and Series C Preferred Stock are entitled to such distribution as Dividends without other adjustment to the Conversion Price if the rights of the holders of Series B Preferred Stock and Series C Preferred Stock pursuant to this Certificate of Designation, the Certificate of Designation of the Series B Preferred Stock and the Stockholders’ Agreement are preserved after giving effect to such spin-off or in-kind distribution.

(z) “group” has the meaning assigned to such term in Section 13(d)(3) of the Exchange Act.

(aa) “hereof”; “herein” and “hereunder” and words of similar import refer to these resolutions as a whole and not merely to any particular clause, provision, section or subsection.

(bb) “Investor Stockholder” shall have the meaning ascribed thereto in the Stockholders’ Agreement.

(cc) “Market Disruption Event” means the occurrence or existence for more than one half hour period in the aggregate on any scheduled Trading Day for the Common Stock (or Reference Property, to the extent applicable) of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Nasdaq National Market or otherwise) in the Common Stock (or Reference Property, to the extent applicable) or in any options, contracts or future contracts relating to the Common Stock (or Reference Property, to the extent applicable), and such suspension or limitation occurs or exists at any time before 1:00 p.m. (New York City time) on such day.

(dd) “Nasdaq” means The NASDAQ Stock Market.

(ee) “Offering” shall have the meanings ascribed thereto in the Stockholders’ Agreement.

(ff) “Original Issuance Date” means the date on which the first share of Series C Preferred Stock was issued.

(gg) “person” means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government, any agency or political subdivisions thereof or other “person” as contemplated by Section 13(d) of the Exchange Act.

(hh) “Permitted Transferee” shall have the meaning set forth in the Stockholders’ Agreement.

(ii) “Right to Vote” means the right to direct the voting of the Series C Preferred Stock with respect to any matter for which the Series C Preferred Stock is entitled to vote.

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(jj) “Rights” shall have the meaning given thereto in the Company Rights Plan (or the comparable right under any successor, substitute or additional shareholder rights plan).

(kk) “Rights Plan Triggering Event” shall have the meaning given thereto in the Company Rights Plan (or its comparable term/provision under any successor, substitute or additional shareholder rights plan).

(ll) “Rights Triggering Date” means the date on which a Rights Plan Triggering Event occurs.

(mm) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(nn) “Securities Purchase Agreement” means that certain Securities Purchase Agreement dated December 22, 2008 between the Company and Elevation.

(oo) “Shared Beneficial Ownership” means Beneficial Ownership in which (a) voting power is shared with another Person, except in the case of the Investor Stockholders and their Permitted Transferees, to the extent that such shared voting power is shared only with another Investor Stockholder or Permitted Transferee and/or (b) the Investor Stockholders and/or their Permitted Transferees have effected a Transfer to a Person other than a Permitted Transferee, provided that any contractual encumbrance resulting from a bona fide incurrence of indebtedness for money borrowed (including an obligation to repay such indebtedness with the proceeds of any Transfer of, or dividend or distribution on, any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares) not incurred in violation of Section 3.1 of the Stockholders’ Agreement shall not be deemed to be a Transfer, loss or reduction in the Beneficial Ownership associated with such shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares, as the case may be.

(pp) “Share Ownership Reduction Cure Period” means the period commencing on the date the Company provides the Company Notice (as defined in the Stockholders’ Agreement) and ending on the date 60 days thereafter.

(qq) “Stockholders’ Agreement” means the Amended and Restated Stockholders Agreement, dated the Original Issuance Date, by and among the Company and the Investor Stockholders, as it may be amended from time to time in accordance with the terms thereof.

(rr) “Survivor of Fundamental Change” means the issuer of the securities received by the holders of Common Stock (or Reference Property, to the extent applicable) (in their capacities as such) upon the consummation of a Fundamental Change, to the extent the holders of Common Stock (or Reference Property, to the extent applicable) receive other securities in exchange, conversion or substitution of their Common Stock (or Reference Property, to the extent applicable) in the transaction that resulted in such Fundamental Change.

(ss) “Total Current Voting Power” shall have the meaning set forth in the Stockholders’ Agreement.

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(tt) “Trading Day” means any day on which (i) there is no Market Disruption Event and (ii) Nasdaq or, if the Common Stock (or Reference Property, to the extent applicable) is not listed on Nasdaq, the principal national securities exchange on which the Common Stock (or Reference Property, to the extent applicable) is listed, is open for trading or, if the Common Stock (or Reference Property, to the extent applicable) is not so listed, admitted for trading or quoted, any Business Day. A Trading Day only includes those days that have a scheduled closing time of 4:00 p.m. (New York City time) or the then standard closing time for regular trading on the relevant exchange or trading system.

(uu) “Transfer” means, directly or indirectly, to sell, transfer, assign, pledge (other than a bona fide pledge not in violation of Section 3.1(b) of the Stockholders’ Agreement (but not a foreclosure thereon)), encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge (other than a bona fide pledge not in violation of Section 3.1(b) of the Stockholders’ Agreement (but not a foreclosure thereon)), encumbrance, hypothecation or similar disposition of, any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares beneficially owned by a person or any interest (including any Economic Rights or Voting Rights or creation of Shared Beneficial Ownership) in any shares of Series B Preferred Stock, Series C Preferred Stock or Conversion Shares beneficially owned by a Person.

(vv) “Uncured Share Ownership Reduction” means a decrease, for any reason, in the Elevation Beneficial Ownership Percentage that results in a reduction in the number of Directors that constitutes the Board Representation Entitlement; provided, however that if, during an applicable Share Ownership Reduction Cure Period, the Elevation Beneficial Ownership Percentage (as determined pursuant to the definition thereof in SECTION 8(r), including the last sentence thereof) is increased to, and maintained at, the minimum Elevation Beneficial Ownership Percentage necessary to avoid a reduction in the number of Directors that constitutes the Board Representation Entitlement as of immediately prior to such decrease, then such decrease in the Elevation Beneficial Ownership Percentage shall not be an Uncured Share Ownership Reduction (it being understood that any subsequent decrease in Elevation Beneficial Ownership Percentage that results in a reduction in the number of Directors that constitutes the Board Representation Director Entitlement may again qualify as an Uncured Share Ownership Reduction).

(ww) “Voting Rights” shall mean the power to vote or direct the voting of any security (subject to any bona fide pledge, but not foreclosure thereon).

(xx) Each of the following terms is defined in the Section set forth opposite such term:

Term	Section
Acquirer	SECTION 7(a)(i)
Acquirer Stock	SECTION 7(a)(i)
Additional Shares of Common Stock	SECTION 5(f)(iv)(A)(2)
ADR	SECTION 4(g)
ADS	SECTION 4(g)
Aggregate Amount	SECTION 5(f)(iii)

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Term	Section
Below Conversion Price Issuance	SECTION 5(f)(iv)(D)
Board	Recital
Board Size Decrease	SECTION 4(d)(iv)
Certificate of Incorporation	Recital
Common Stock	SECTION 1(b)(i)
Company	Recital
Company Election	SECTION 7(a)(i)
Conditional Dividend Payment Date	SECTION 2(b)(i)
Conditional Dividends	SECTION 2(b)
Consolidated EBITDA	SECTION 4(f)
Conversion Amount	SECTION 5(a)
Conversion Date	SECTION 5(a)
Conversion Price	SECTION 5(a)
Conversion Security	SECTION 4(b)(ii)
Convertible Securities	SECTION 5(f)(iv)(A)(1)
Credit Agreement	SECTION 4(f)
DGCL	Recital
Disposition Event	SECTION 5(f)(v)(A)
Dividends	SECTION 2(b)
Expiration Date	SECTION 5(f)(iii)
Expiration Time	SECTION 5(f)(iii)(B)
Expired Rights	SECTION 5(f)(ii)
Floor Price	SECTION 5(f)(iv)(G)
Fundamental Change Notice	SECTION 7(a)(iii)
Fundamental Change Offer	SECTION 7(a)(i)
Fundamental Change Price	SECTION 6(b)(i)
Indebtedness	SECTION 4(f)
Investor Preferred Stock	SECTION 4(d)
Irrevocable Date	SECTION 6(c)(i)
Junior Securities	SECTION 1(b)(i)
Liquidation Preference	SECTION 3(a)
Mandatory Redemption Date	SECTION 6(a)(ii)
Mandatory Redemption Price	SECTION 6(a)(i)
Maturity Date	SECTION 6(a)(i)
Maximum Voting Percentage	SECTION 4(a)
Maximum Voting Power	SECTION 4(a)
Measurement Date	SECTION 5(f)(iv)(A)(3)
New Preferred Stock	SECTION 4(c)
Non-Constituent Issuer Fundamental Change	SECTION 4(b)(ii)
Number of Fully Diluted Shares of Common Stock	SECTION 5(f)(iv)(E)(1)
Optional Redemption Date	SECTION 6(b)(ii)
Optional Redemption Price	SECTION 6(b)(i)
Original Liquidation Amount	SECTION 2(b)
Parity Securities	SECTION 1(b)(ii)

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Term	Section
Participating Dividends	SECTION 2(a)
Participating Liquidation Preference	SECTION 3(a)
Preferred Directors	SECTION 4(d)
Preferred Stock	Recital
Purchased Shares	SECTION 5(f)(iii)
Redemption	SECTION 6(c)(v)
Redemption Price	SECTION 6(b)(i)
Reference Property	SECTION 5(f)(v)(A)(2)
Regular Liquidation Preference	SECTION 3(a)
Repurchase Date	SECTION 7(a)(iii)
Repurchase Price	SECTION 7(a)(i)
Senior Securities	SECTION 1(b)(iii)
Series A Preferred Stock	SECTION 1(b)(i)
Series B Preferred Stock	SECTION 1(b)(ii)
Series C Preferred Stock	SECTION 1(a)
Successor Credit Agreement	SECTION 4(f)
Successor Public Company	SECTION 7(a)(i)
Total Leverage Ratio	SECTION 4(f)
Transition Time	SECTION 4(d)(vii)
Triggering Event	SECTION 2(b)(vii)
Triggering Fundamental Change	SECTION 6(b)(i)
Underlying Common Stock Amount	SECTION 5(f)(ii)
Unpaid Conditional Dividends	SECTION 2(b)(i)

SECTION 9. Miscellaneous. For purposes of these resolutions, the following provisions shall apply:

(a) Status of Cancelled Shares. Shares of Series C Preferred Stock which have been converted, redeemed, repurchased or otherwise cancelled shall be retired and, following the filing of any certificate required by the DGCL, have the status of authorized and unissued shares of Preferred Stock, without designation as to series until such shares are once more, subject to SECTION 4, designated as part of a particular Series by the Board.

(b) Severability. If any right, preference or limitation of the Preferred Stock set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other rights, preferences and limitations set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

(c) Headings. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

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[Rest of page intentionally left blank.]

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IN WITNESS WHEREOF, the Company has caused this Certificate of Designation to be executed by a duly authorized officer of the Company as of January 9, 2009.

PALM, INC.
By:	/s/    Edward T. Colligan
Name:	Edward T. Colligan
Title:	President and CEO

EX-10.28

EXECUTION COPY

Exhibit 10.28

PALM, INC.

AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

Dated as of January 9, 2009

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS		2
SECTION 1.1.	Certain Defined Terms	2
SECTION 1.2.	Other Capitalized Terms	2
SECTION 1.3.	Effectiveness of this Agreement	2
ARTICLE II REGISTRATION RIGHTS		2
SECTION 2.1.	Piggyback Registrations	2
SECTION 2.2.	Demand Registration	4
SECTION 2.3.	Exceptions to the Company’s Obligations	7
SECTION 2.4.	Registration Procedures	9
SECTION 2.5.	Information Supplied	13
SECTION 2.6.	Expenses	13
SECTION 2.7.	Restrictions on Disposition	13
SECTION 2.8.	Indemnification	13
SECTION 2.9.	Required Reports	16
SECTION 2.10.	Selection of Counsel	17
SECTION 2.11.	Market Standoff Agreement	17
SECTION 2.12.	No Inconsistent Agreements; No Free Writing Prospectuses	17
SECTION 2.13.	Termination of Registration Rights	17
ARTICLE III MISCELLANEOUS		18
SECTION 3.1.	Expenses	18
SECTION 3.2.	Successors and Assigns; Assignment	18
SECTION 3.3.	No Third Party Beneficiaries	18
SECTION 3.4.	Entire Agreement	18
SECTION 3.5.	Severability	18
SECTION 3.6.	Amendment and Waiver	18
SECTION 3.7.	Delays or Omissions	19
SECTION 3.8.	Notices	19
SECTION 3.9.	Interpretation	19
SECTION 3.10.	Governing Law; Jurisdiction; Waiver of Jury Trial	20
SECTION 3.11.	No Special Damages	20
SECTION 3.12.	Counterparts	21

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AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered as of January 9, 2009, among Palm, Inc. a Delaware corporation (together with any other issuer of Registrable Securities, the “Company”), Elevation Partners, L.P., a Delaware limited partnership (“Elevation”), and Elevation Employee Side Fund, LLC, a Delaware limited liability company (together with Elevation and their respective Permitted Transferees, the “Investor Stockholders”).

RECITALS

WHEREAS, the Company and Elevation entered into a Preferred Stock Purchase Agreement and Agreement and Plan of Merger, dated as of June 1, 2007, pursuant to which the Investor Stockholders purchased an aggregate of 325,000 shares (the “Series B Purchased Shares”) of the Company’s Series B Preferred Stock (as defined below) for an aggregate purchase price of $325 million on October 24, 2007;

WHEREAS, in connection with the sale and issuance of the Series B Preferred Stock, the Company and the Investor Stockholders entered into a Registration Rights Agreement (the “Original Agreement”) dated as of October 24, 2007, whereby the Company granted Investor Stockholders certain registration rights with respect to the Series B Conversion Shares (as defined below);

WHEREAS, the Company and Elevation have entered into a Securities Purchase Agreement, dated as of December 22, 2008 (as amended from time to time in accordance with the provisions thereof, the “Securities Purchase Agreement”), pursuant to which the Investor Stockholders have agreed, on the terms and subject to the conditions set forth in such Securities Purchase Agreement, to purchase an aggregate of 100,000 shares (the “Series C Purchased Shares,” and together with the Series B Purchased Shares, the “Purchased Shares”) of the Company’s Series C Preferred Stock (as defined below) and Warrants (as defined below) exercisable for 7,000,000 Warrant Shares (as defined below) for an aggregate purchase price of $100 million in accordance with the terms of the Securities Purchase Agreement; and

WHEREAS, the parties hereto desire to enter into this Agreement in order to (i) amend and restate the Original Agreement in its entirety as set forth herein and (ii) enter into certain arrangements relating to the Company, the Purchased Shares, the Conversion Shares (as defined below) and the Warrants.

NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual promises hereinafter set forth, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1. Certain Defined Terms. Certain terms used herein shall have the meanings given to them in Exhibit A.

SECTION 1.2. Other Capitalized Terms. Capitalized terms used but not defined herein or in Exhibit A shall have the meanings given to them in the Securities Purchase Agreement.

SECTION 1.3. Effectiveness of this Agreement. This Agreement amends and restates certain provisions of the Original Agreement and restates the terms of the Original Agreement in their entirety. All amendments to the Original Agreement effected by this Agreement, and all other covenants, agreements, terms and provisions of this Agreement shall have effect as of the Closing unless expressly stated otherwise. Notwithstanding any other provision to the contrary in this Agreement, this Agreement shall not take effect until the Closing, and in the event the Securities Purchase Agreement is terminated, this Agreement shall be void ab initio and the Original Agreement shall remain in full force and effect.

ARTICLE II

REGISTRATION RIGHTS

SECTION 2.1. Piggyback Registrations. If the Company proposes to register Equity Securities under the Securities Act (other than a registration on Form S-4 or Form S-8, or any successor or other forms promulgated for similar purposes, and other than demand registrations pursuant to Section 2.2) involving the offering of such Equity Securities at any time on or after the last day of the Restricted Period (the “Restricted Period Termination Date”), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities of the same class of such Equity Securities for sale to the public under the Securities Act, it will, at each such time, give prompt written or telephonic notice (a “Piggyback Offering Notice”) to the Holders of: its intention to do so, the form on which the Company expects to effect such registration (e.g. Form S-1, Form S-3, Form S-3ASR), the anticipated filing date with the SEC of such registration statement, the anticipated date that the registration statement will be declared or otherwise become effective, whether the offering is to be underwritten, in the case of Form S-3 or Form S-3ASR, the anticipated date and time that the offering will be made. The registration rights provided for in this Section 2.1 are in addition to, and not in lieu of, registrations made upon the demand of any Holder in accordance with Section 2.2.

(a) Form S-1. If the Company indicates in the Piggyback Offering Notice that it intends to effect a registration pursuant to Form S-1, upon the written request of any Holder (which request shall specify the Registrable Securities intended to be registered by such Holder), made within ten (10) days after the receipt of any such notice but in no event later than two (2) Business Days prior to the date the Form S-1 is filed with the SEC, the Company will, subject to the conditions set forth in Section 2.3 and the provision of the information specified in Section 2.5, use reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof.

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(b) Form S-3. If the Company indicates in the Piggyback Offering Notice that it intends to effect a registration pursuant to Form S-3, upon the written request of any Holder (which request shall specify the Registrable Securities intended to be registered by such Holder), made within ten (10) days after the receipt of any such notice but in no event later than two (2) Business Days prior to the effectiveness of the registration statement as indicated in such notice, notifying the Company whether any Holders intend to include within the Form S-3 or any Prospectus included therein Registrable Securities, the Company will, subject to the conditions set forth in Section 2.3 and the provision of the information specified in Section 2.5, use reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof.

(c) Form S-3ASR. If the Company indicates in the Piggyback Offering Notice that it intends to effect a registration pursuant to Form S-3ASR, upon the written request of any Holder (which request shall specify the Registrable Securities intended to be registered by such Holder), made within ten (10) days after the receipt of any such notice but in no event later than two (2) Business Days (six (6) business hours in the case that the Company’s notice specifies that the offering is expected to occur within one (1) Business Day following the date of the notice, or one (1) Business Day in the case that the Company’s notice specifies that the offering is expected to occur within two (2) Business Days) prior the date and time of the offering as specified in the Company’s notice, notifying the Company whether any Holders intend to include within such Form S-3ASR or any Prospectus included therein Registrable Securities, the Company will, subject to the conditions set forth in Section 2.3 and the provision of the information specified in Section 2.5, use reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof.

(d) Right to Withdraw. If a registration pursuant to this Section 2.1 involves an underwritten offering, any Holder requesting to be included in such registration may elect, in writing prior to the effective date of the registration statement filed in connection with such registration, not to register all or any part of such Holder’s Registrable Securities in connection with such registration.

(e) Conversion into Registrable Securities. Nothing in this Section 2.1 shall limit the right of any Holder to request the registration of the Registrable Securities issuable upon (i) conversion of the Series B Preferred Stock or the Series C Preferred Stock by such Holder (subject to such conversion occurring prior to the completion of the sale of the underlying Registrable Securities prior to such registration) or (ii) exercise of the Warrants by such Holder (subject to such exercise occurring prior to the completion of the sale of the underlying Registrable Securities prior to such registration), notwithstanding the fact that at the time of the request such Holder holds Series B Preferred Stock, Series C Preferred Stock or Warrants, as the case may be, and not Registrable Securities.

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SECTION 2.2. Demand Registration.

(a) General.

(i) Subject to the provisions of this Section 2.2(a), upon the written request (a “Demand Notice”) of holders holding at least 40% of the aggregate Registrable Securities then held by the Holders (collectively the “Demand Party”) (assuming conversion of all outstanding shares of Series B Preferred Stock and Series C Preferred Stock into Conversion Shares and exercise of all outstanding Warrants into Warrant Shares (as defined below)) requesting that the Company effect the registration under the Securities Act of all or part of such Demand Party’s Registrable Securities, which Registrable Securities will be offered for sale on or after the Restricted Period Termination Date, and specifying the amount and intended method of disposition thereof, including pursuant to a shelf registration statement utilizing Rule 415 of the Securities Act (or its successor provision) (a “Shelf Registration”), thereupon the Company will promptly give written notice of such requested registration to each of the other Holders and thereupon will, as expeditiously as reasonably practicable (and in any event no later than 45 days after the date of the Demand Notice in the case of a Demand Notice dated on or after the Restricted Period Termination Date), file and use its reasonable best efforts to cause to be declared effective under the Securities Act a registration statement to effect the registration under the Securities Act of the following, provided that, notwithstanding the foregoing: (x) to the extent a Demand Notice is delivered not less than 45 days prior to the Restricted Period Termination Date requesting a Shelf Registration, the Company shall use its reasonable best efforts to cause such registration statement to become effective no later than the Restricted Period Termination Date, and (y) under no circumstances under this Section 2.2(a) (including the foregoing clause (x)) shall the Company be required to file any registration statement prior to the date that is 45 days prior to the Restricted Period Termination Date:

(1) such Registrable Securities which the Company has been so requested to register by the Demand Party under the Demand Notice; and

(2) the Registrable Securities of Holders which the Company has been requested to register by written request to the Company by the Holders within ten (10) days after the giving of such written notice by the Company to the Holders (which request shall specify the amount and intended method of disposition of such securities).

all to the extent necessary to permit the disposition (in accordance with the intended method thereof as aforesaid) of the Registrable Securities and such other securities so to be registered.

(ii) Nothing in this Section 2.2 shall limit the right of any Holder to request the registration of the Registrable Securities issuable upon (i) conversion of the Series B Preferred Stock or the Series C Preferred Stock by such Holder (subject to such conversion occurring prior to the completion of the sale of the underlying Registrable Securities prior to such registration) or (ii) exercise of the Warrants by such Holder (subject to such exercise occurring prior to the completion of the sale of the underlying Registrable Securities prior to such registration), notwithstanding the fact that at the time of the request such Holder holds Series B Preferred Stock, Series C Preferred Stock or Warrants, as the case may be, and not Registrable Securities.

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(b) Shelf Take-Downs. Any of the Holders whose Registrable Securities have been registered pursuant to a Shelf Registration may initiate an offering or sale of Registrable Securities pursuant to such Shelf Registration (each, a “Shelf Take-Down”) and, except as set forth in this Section 2.2(b) with respect to Marketed Underwritten Offerings (as defined below in Section 2.4(q)), such Holder shall not be required to permit the offer and sale of Registrable Securities by other Holders in connection with such Shelf Take-Down. If the initiating Holders so elect by written request to the Company, a Shelf Take-Down may be in the form of an underwritten offering (an “Underwritten Shelf Take-Down”), and the Company shall, if so requested, file and effect an amendment or supplement of the Shelf Registration for such purpose as soon as practicable. Only the Demand Party shall have the right to initiate an Underwritten Shelf Take-Down that is a Marketed Underwritten Offering, and any such Underwritten Shelf Take-Down that is a Marketed Underwritten Offering shall be deemed to be a registration pursuant to Section 2.2(a), and the Company shall provide notice to the other Holders of such registration in accordance with the provisions of Section 2.2(a).

(c) Effective Registration Statement. A registration requested pursuant to this Section 2.2 will not be deemed to have been effected unless: (i) it has been declared effective by the SEC or has otherwise become effective under the Securities Act, or (ii) it has been filed with the SEC but abandoned or withdrawn at the request of the Demand Party prior to effectiveness, other than an abandonment or withdrawal requested because of: (A) the stock price of the Company’s Common Stock falling 15% or more since the delivery of a request for registration pursuant to this Section 2.2 (provided that such registration shall be deemed to have been effected, unless (x) the Holders participating in the registration reimburse the Company for Registration Expenses incurred or payable by the Company up until the receipt of notice of an abandonment or withdrawal pursuant to this clause (A) and for the withdrawal of the registration statement, and (y) a Demand Party has not previously requested abandonment or withdrawal of a registration pursuant to this clause (A) (it being understood that an abandonment or withdrawal pursuant to this clause (A) may be made only once)), (B) the delivery of a postponement notice pursuant to Section 2.3(b)(iv), (C) a material adverse change in the Company’s and its Subsidiaries’ prospects, business, operations, properties, assets, liabilities, financial condition or results of operations, taken as a whole, which became known to the Holders or the public after the delivery of a request for registration pursuant to this Section 2.2, or (D) the discovery of materially adverse, non-public information concerning the Company and its Subsidiaries, taken as a whole.

(d) Selection of Underwriters. If a requested registration pursuant to this Section 2.2 involves an underwritten offering, the investment bankers, underwriters and managers for such registration shall be selected by the Holders of a majority of the Registrable Securities which the Company has been requested to register; provided, however, that such selection of investment bankers, underwriters and managers shall be subject to the reasonable approval by the Company.

(e) Priority in Demand Registrations; Right to Abandon or Withdraw. If a requested registration pursuant to this Section 2.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Equity Securities (including Registrable Securities) to be included in such registration as contemplated by

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the Holders and the Company would be likely to exceed the largest number of Equity Securities that can be sold without having an adverse effect on the success of such offering, including any impact on the selling price or the number of Equity Securities that can be sold (the “Maximum Offering Size”), then the Company shall include in such registration (i) first, 100% of the Registrable Securities requested to be included in such registration by the Demand Party and other Holders of Registrable Securities who have requested that their Registrable Securities be included up to the Maximum Offering Size (such Registrable Securities allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among the Demand Party and the other Holders of Registrable Securities so requested to be included in such registration by each) and (ii) second, to the extent the managing underwriter believes additional securities can be sold in the offering without exceeding the Maximum Offering Size, the securities the Company proposes to sell up to the number of securities that, in the opinion of such managing underwriter, can be sold without exceeding the Maximum Offering Size. Notwithstanding the foregoing, if the managing underwriter of any underwritten offering shall advise the Holders participating in a registration pursuant to this Section 2.2 that the Registrable Securities covered by the registration statement cannot be sold in such offering within a price range acceptable to the Demand Party or that all of the Registrable Securities requested to be included in a registration by a Demand Party pursuant to this Section 2.2 cannot be sold in the manner requested, then the Demand Party shall have the right to notify the Company that it has determined that the registration statement be abandoned or withdrawn, in which event the Company shall abandon or withdraw such registration statement; it being understood that in the event the Demand Party exercises its right set forth in this sentence, the Company shall remain liable for any Registration Expenses pursuant to Section 2.6 and that the abandonment or withdrawal of the registration statement shall nevertheless constitute a registration for purposes of Section 2.3(b)(i) unless the Demand Party elects to pay (or reimburse the Company for) such Registration Expenses, in which case such registration statement shall not constitute a registration for purposes of Section 2.3(b)(i).

(f) Notification of Sales. Prior to the sale of any Registrable Securities pursuant to a Shelf Registration, the Holders shall give reasonable prior written notice of such sale to the Company under the particular circumstances, but in any event at least two (2) Business Days prior notice, which notice may contemplate possible sales by the Holder over a period of time not to exceed one (1) week but need not specify the number of Registrable Securities to be sold, the method of distribution or proposed purchaser or underwriter. Delivery of such notice shall not obligate the Holders to consummate such sale. Any underwritten sale pursuant to a Shelf Registration pursuant to this Section 2.2 must be for a number of Registrable Securities which, based on the good faith determination of the Holders, will result in gross proceeds of at least $50 million in the case of any Marketed Underwritten Offering or $20 million in the case of any other underwritten offering.

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SECTION 2.3. Exceptions to the Company’s Obligations.

(a) Notwithstanding anything in Section 2.1 to the contrary:

(i) if, at any time after giving a Piggyback Offering Notice, the Company shall determine for any reason not to proceed with the proposed registration of the securities to be sold by it, the Company may, at its election, give written notice of such determination to the Holders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith); and

(ii) if a registration pursuant to Section 2.1 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Equity Securities (including Registrable Securities requested to be included in such registration) to be included in such registration as contemplated by the Company and the Holders would be likely to exceed the Maximum Offering Size, then the Company shall include in such registration (a) first, 100% of the securities the Company proposes to sell, and (b) second, to the extent of the amount of Registrable Securities requested to be included in such registration which, in the opinion of such managing underwriter can be sold without exceeding the Maximum Offering Size, the amount of Registrable Securities which the Holders have requested to be included in such registration, such amount to be allocated pro rata among all requesting Holders and all other Persons entitled to registration rights, on the basis of the relative amount of Registrable Securities then held by each such Person (provided that any such amount thereby allocated to any such Person that exceeds such Person’s request shall be reallocated among the remaining requesting Persons in a like manner to the extent practicable).

(b) Notwithstanding anything in Section 2.2 to the contrary:

(i) in no event shall the Company be required to effect more than (x) four (4) registrations pursuant to Section 2.2(a) or (y) four (4) Marketed Underwritten Offerings;

(ii) in no event shall the Company be obligated to prepare and file (x) any such registration statement or (y) any prospectus supplement thereto relating to a Marketed Underwritten Offering, in each case with respect to Registrable Securities with a market value (based on then current trading prices) of less than $50 million;

(iii) the Company shall not be obligated to (x) file a registration statement under Section 2.2(a) within a period of 270 days after the effective date of any other registration statement, (1) for which the Holders exercised their rights pursuant Section 2.1 to include Registrable Securities, provided that the Company and the underwriters did not limit in its entirety the number of Registrable Securities that such Holder was permitted to include in such registration statement or (2) which the Company filed or effected pursuant to Section 2.2(a) or (y) effect more than one Marketed Underwritten Offering pursuant to Section 2.2 in any 180-day period;

(iv) if the Company receives a request for registration pursuant to Section 2.2, at a time when (A) the Company has commenced, or has a bona fide intention to commence, a public or Rule 144A securities offering transaction, (B) registration of the Registrable Securities would, in the good faith judgment of the executive officers of the Company (after consultation with counsel), impede, delay or otherwise interfere with any pending or contemplated material

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acquisition, corporate reorganization or similar material transaction, or (C) non-public material information not otherwise then required by Law to be publicly disclosed regarding the Company exists, the immediate disclosure of which would in the good faith judgment of the Chief Executive Officer, Chief Financial Officer or General Counsel of the Company be disadvantageous in any material respect to the Company (clauses (A), B) and (C), a “Material Pending Event”), then the Company may postpone the filing (but not the preparation) of a registration statement requested pursuant to Section 2.2 for a period not to exceed 90 consecutive calendar days from the date of a Demand Notice upon providing the Demand Party with written notice of such postponement (which notice need not include a statement of the reason for such postponement); provided that the Company shall at all times in good faith use reasonable best efforts to cause any registration statement required by Section 2.2 to be filed as soon as reasonably practicable thereafter; provided, further, that the Company shall postpone the filing of a registration statement pursuant to this Section 2.3(b)(iv) for no more than 180 days in the aggregate in any twelve-month period in respect of all requested registrations; and provided further that the Company shall make prompt and adequate disclosure of any material information required to be disclosed from time to time in accordance with Law and Nasdaq rules. Each Holder shall keep confidential any communications received by it from the Company regarding the postponement pursuant to this Section 2.3(b)(iv) (including the fact of the postponement), except as required by Law. In the event that the Company gives the Holders the notice specified in this Section 2.3(b)(i), the Demand Party shall have the right, within 15 days after receipt thereof, to withdraw its request under Section 2.2, in which case such request shall not be counted as a demand for purposes of Section 2.2 or for purposes of the limitations set forth in Section 2.3(b)(i);

(v) if the Company receives a request for registration pursuant to Section 2.2, at a time when there is a Material Pending Event, then the Company may suspend sales under a shelf registration statement, or a registration statement pursuant to which Registrable Securities are not immediately sold after the effectiveness thereof, for a period not to exceed 60 days in any 90-day period upon providing the Holders with written notice of such suspension (which notice shall include a statement of the reason for such suspension); provided, that the Company shall suspend the filing of a registration statement pursuant to this Section 2.3(b)(v) for no more than 180 days in the aggregate in any twelve-month period and three (3) times in any twelve-month period respect of all requested registrations; and provided further that the Company shall make prompt and adequate disclosure of any material information required to be disclosed from time to time in accordance with Law and Nasdaq rules. Upon receipt of a notice from the Company in accordance with the terms of this Section 2.3(b)(v), each Holder agrees not to sell or offer to sell any Registrable Securities pursuant to such shelf registration statement until the Company notifies such Holder that the shelf registration statement may be used (which notice the Company shall promptly provide following the termination of the event or circumstance giving rise to such suspension). Each Holder shall keep confidential any communications received by it from the Company regarding the suspension of sales pursuant to this Section 2.3(b)(v) (including the fact of the suspension), except as required by Law; and

(vi) in no event shall the Company be obligated to prepare and file in connection with any Shelf Take-Down any post-effective amendment to a Shelf Registration or any

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prospectus supplement with respect to such Shelf Take-Down unless the Holders requesting such filing expect in good faith to sell Registrable Securities in connection therewith for an aggregate gross sales price of at least $17.5 million ($20 million with respect to an Underwritten Shelf Take-Down).

(c) Notwithstanding anything in Section 2.1 or Section 2.2 to the contrary:

(i) if all of the Registrable Securities held by a Holder (together with those of its Affiliates) constitute less than 5% of the outstanding Common Stock and can be sold without restriction under Rule 144(k) under the Securities Act, the Company shall not be required to effect any registrations, Shelf Take-Downs or Underwritten Shelf Take-Downs of any kind for such Holder pursuant to Section 2.1 or Section 2.2 (but the Company shall be required to maintain the effectiveness of any shelf registration statement as required by Section 2.4(b));

(ii) if all of the Registrable Securities held by a Holder (together with those of its Affiliates) constitute less than 5% of the outstanding Common Stock and can be sold within any three (3) month period without restriction under Rule 144 because the number of Registrable Securities held by such Holder does not exceed the volume limitations imposed by Rule 144(e) of the Securities Act, the Company shall not be required to effect any registrations, Shelf Take-Downs or Underwritten Shelf Take-Downs of any kind for such Holder pursuant to Section 2.1 or Section 2.2; and

(iii) if any registration involves an underwritten offering, all Holders requesting to participate in any registration in connection with an underwritten offering hereunder must sell its Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled to approve such arrangements (with such differences, including any with respect to indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings) and completes and executes all reasonable questionnaires, powers of attorney, underwriting agreements, hold-back agreement letters and other documents customarily required under the terms of such underwriting arrangements; provided, however, that to the extent such Holder is obligated under the terms of the underwriting arrangements to (i) make representations and warranties other than generally as to his, her or its respective (A) execution, delivery and performance of such underwriting agreement and the agreements contemplated thereby, (B) individual ownership of the Registrable Securities being sold pursuant to such underwriting agreement and (C) information provided by such Holder in writing specifically for inclusion in the Prospectus and (ii) agree to provide indemnification for any liability arising out of a breach of any such representations or warranties of such Holder that would exceed the total proceeds received by such Holder for the sale of such Registrable Securities pursuant to such underwriting agreement, then such Holder, to the extent he, she or it determined not to enter into such underwriting agreement, shall not be obligated to enter into a lock-up agreement contemplated by Section 2.11.

SECTION 2.4. Registration Procedures. If and whenever the Company is required to effect a registration of any Registrable Securities as provided in this Agreement, subject to the limitations set forth in Section 2.3, the Company will:

(a) promptly prepare and file with the SEC a registration statement with respect to such Registrable Securities and use reasonable best efforts to cause a registration statement with respect to a demand registration pursuant to Section 2.2 to be filed (in the case of a registration pursuant to Form S-3ASR), or become effective (in the case of any registration other than pursuant to Form S-3ASR) as promptly as practicable;

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(b) prepare and file with the SEC such amendments and supplements to such registration statement (including Exchange Act documents incorporated by reference into the registration statement) and the Prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period not in excess of 90 days (or such longer period as may be requested by the Holders in the event of a shelf registration statement) and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided that before filing a registration statement or prospectus or any amendments or supplements thereto in accordance with Section 2.4(a) or this Section 2.4(b) to the extent that doing so will not materially interfere with the timing of the offering: (i) the Company will furnish to counsel selected pursuant to Section 2.10 copies of all documents proposed to be filed, and (ii) such documents will be subject to the review of such counsel reasonably in advance of any filing to permit a reasonable opportunity to review and comment in light of the circumstances;

(c) use reasonable best efforts to comply with all applicable securities laws in the United States and register or qualify such Registrable Securities covered by such registration in such jurisdictions in the United States as each seller shall reasonably request, and do any and all other acts and things which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 2.4(c), it would not be obligated to, subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction;

(d) promptly furnish to each seller of such Registrable Securities such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits filed therewith, including any documents incorporated by reference), such number of copies of the Prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other similar documents as such seller may reasonably request necessary to facilitate the disposition of the Registrable Securities by such seller;

(e) notify each seller of any such Registrable Securities covered by such registration statement promptly if the Company becomes aware that the Prospectus included in such registration statement, as then in effect, or the registration statement includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and, prepare and

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furnish to such seller a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(f) otherwise use reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable (but not more than 18 months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act;

(g)(i) use reasonable best efforts to list such Registrable Securities on the Exchange on which the Common Stock is then listed (if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such Exchange) to the extent required; and (ii) use reasonable best efforts to provide for a transfer agent and registrar for such Registrable Securities covered by such registration statement not later than the effective date of such registration statement;

(h) in connection with an underwritten offering pursuant to a demand registration pursuant to Section 2.2, promptly enter into an underwriting agreement in customary form, which may include indemnification provisions in favor of underwriters and other Persons in addition to, or in substitution for, the provisions of Section 2.8, and take such other actions as the managing underwriters reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;

(i) in connection with an underwritten offering pursuant to a demand registration pursuant to Section 2.2, promptly obtain a “cold comfort” letter or letters from the Company’s independent public accounts in customary form and covering matters of the type customarily covered by “cold comfort” letters provided to sellers of securities as the seller or sellers of a majority of shares of such Registrable Securities shall reasonably request;

(j) promptly make available for inspection by any seller of such Registrable Securities covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company’s officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with the “due diligence” of such seller or such underwriter with respect to such registration statement, subject to the execution of a mutually acceptable confidentiality agreement;

(k) promptly notify counsel (selected pursuant to Section 2.10) for the Holders of Registrable Securities included in such registration statement and the managing underwriter or agent and confirm such notice in writing (i) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the

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Prospectus and any amendments to the Prospectus shall have been filed (other than in the case of a registration pursuant to Form S-3ASR), (ii) of the receipt of any comments from the SEC, (iii) of any request by the SEC to amend the registration statement or amend or supplement the Prospectus or for additional information, and (iv) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any Prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes;

(l) use reasonable best efforts to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any Prospectus and, if any such order is issued, to obtain the withdrawal of any such order as soon as practicable;

(m)(i) if requested by the managing underwriter or agent or any Holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such Holder reasonably requests to be included therein, including, with respect to the number of Registrable Securities being sold by such Holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent; and (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment;

(n) cooperate with the Holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under the registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or agent, if any, or such Holders may reasonably request;

(o) in connection with an underwritten offering pursuant to a demand registration pursuant to Section 2.2, promptly obtain for delivery to the Holders of Registrable Securities being registered and to the underwriter or agent an opinion or opinions from counsel for the Company in customary form and scope for sellers of securities;

(p) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD;

(q) use reasonable best efforts to make available certain of the executive officers of the Company (which in any event shall include the Company’s chief executive officer) for a five (5) Business Day period to participate and to cooperate with the Holders of Registrable Securities and any underwriters in any “road shows” or other selling efforts, in each case in the United States, that may be reasonably be requested upon reasonable notice thereof by the Holders in connection with a firm commitment underwritten offering for the Registrable Securities with a minimum sales price of $50 million with respect to a registration statement effected pursuant to Section 2.2 (an

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underwritten offering contemplated by this Section 2.4(q), a “Marketed Underwritten Offering”); provided that to the extent the initial such Marketed Underwritten Offering is for Registrable Securities having a minimum sales price of not less than $100 million, such five (5) Business Day period may be extended to eight (8) Business Days, solely in the case of such an initial Marketed Underwritten Offering, upon reasonable request of the Holders of such Registrable Securities.

SECTION 2.5. Information Supplied. It shall be a condition precedent to the obligations of the Company to take any action to register the Registrable Securities held by any Holder as to which any registration is being effected that such Holder shall furnish the Company with such information regarding such Holder that is pertinent to the disclosure requirements relating to the registration and the distribution of such securities as the Company may from time to time reasonably request. Each Holder agrees to promptly furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not misleading.

SECTION 2.6. Expenses. Except as provided herein, the Company will pay all Registration Expenses in connection with registrations of Registrable Securities requested pursuant to Section 2.1 or Section 2.2; provided, however, that the Company shall not be obligated to pay the Registration Expenses in more than seven (7) Underwritten Offerings (which shall in no event include more than four (4) Marketed Underwritten Offerings). To the extent the Holders engage in more than seven (7) Underwritten Offerings, the Holders shall pay all Registration Expenses with respect to such Underwritten Offerings and the Company will have no obligation to pay any such Registration Expenses. Each Holder shall pay all underwriting discounts and commissions, broker fees and commissions, and transfer taxes, if any, relating to the sale or disposition of such Holder’s Registrable Securities pursuant to any registration statement.

SECTION 2.7. Restrictions on Disposition. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.4(e), Section 2.4(k)(iii) or Section 2.4(k)(iv), such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 2.4(e) or written notice from the Company that the registration statement is again effective and no amendment or supplement is needed. In the event that the Company shall give any such notice, the period referred to in Section 2.4(b) shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.4(e) and to and including the date when each seller of Registrable Securities covered by such registration statement shall have receive the copies of the supplemented and amended Prospectus contemplated by Section 2.4(e).

SECTION 2.8. Indemnification.

(a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 2.1 or Section 2.2, to the fullest extent permitted by law, the Company will indemnify and hold harmless each Holder, each Affiliate of such Holder and their respective directors and officers, members or general and limited

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partners (and the directors, officers, employees, affiliates and each Person who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (hereinafter referred to as a “Controlling Person”) of any of the foregoing), and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter (collectively, the “Seller Indemnified Parties”), against all claims, losses, damages and liabilities, joint or several, actions or proceedings (whether commenced or threatened in writing) in respect thereof (“Claims”) and expenses arising out of or based on: (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement (or any amendment or supplement thereto), including all documents incorporated therein by reference, or any omission or alleged omission therefrom of a material fact, in each case, necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, (ii) any untrue statement or alleged untrue statement of a material fact contained in a Prospectus (or any amendment or supplement thereto), including all documents incorporated therein by reference, or any omission or alleged omission therefrom of a material fact, in each case, necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, or (iii) any untrue statement or alleged untrue statement of a material fact contained in any Issuer Free Writing Prospectus prepared by it or authorized by it in writing for use by such Holder (or any amendment or supplement thereto), including all documents incorporated therein by reference, or any omission or alleged omission therefrom of a material fact, in each case, necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, and the Company will reimburse each such Seller Indemnified Party for any reasonable fees and disbursements of counsel and any other reasonable out-of-pocket expenses incurred in connection with investigating and defending or settling any such Claim; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or action arises out of or is based on any untrue statement or alleged untrue statement or omission or alleged omission by such Holder or underwriter but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission is made in such registration statement, Prospectus, or Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder and stated to be specifically for use therein; and provided, further that, the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such Claim if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed); and provided, further that the Company will not be liable to any Seller Indemnified Parties pursuant to this Section 2.8(a) to the extent that any Claims for which such Seller Indemnified Party seeking indemnification relates to a sale of Registrable Securities in violation of Section 2.3(b)(v).

(b) Indemnification by the Holders. To the fullest extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the registration statement or Prospectus, indemnify and hold harmless the Company, all other Holders or any prospective underwriter, as the case may be, and any of their respective Affiliates, directors, officers and Controlling Persons (collectively, the “Company Indemnified Parties”), against all Claims and expenses arising out of or based on: (i) any untrue statement or alleged untrue statement of a material fact contained in a registration statement (or any amendment or supplement thereto), including all documents incorporated therein by reference, or any omission or alleged omission

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therefrom of a material fact, in each case, necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, (ii) any untrue statement or alleged untrue statement of a material fact contained in a Prospectus (or any amendment or supplement thereto), including all documents incorporated therein by reference, or any omission or alleged omission therefrom of a material fact, in each case, necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, or (iii) any untrue statement or alleged untrue statement of a material fact contained in any Issuer Free Writing Prospectus (or any amendment or supplement thereto), including all documents incorporated therein by reference, or any omission or alleged omission therefrom of a material fact, in each case, necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, and the Holder will reimburse each such Company Indemnified Party for any reasonable fees and disbursements of counsel and any other reasonable expenses incurred in connection with investigating and defending or settling any such Claim, in each case to the extent, but only to the extent that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, Prospectus, or Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder and stated to be specifically for use therein; and provided that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such Claim if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed); and provided, further, that in the absence of fraud by such Holder, the liability of each selling Holder of Registrable Securities hereunder shall be limited to the net proceeds received by such selling Holder from the sale of Registrable Securities covered by such registration statement.

(c) Notification of Claims. Promptly after receipt by a Person entitled to indemnification pursuant to Section 2.8 (an “Indemnified Party”) hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 2.8, such Indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action or proceeding; provided that the failure of the Indemnified Party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 2.8, except to the extent that the indemnifying party is prejudiced in any material respect by such failure to give notice. In case any such action or proceeding is brought against an Indemnified Party, unless in such Indemnified Party’s reasonable judgment, based upon advice of counsel, a conflict of interest between such indemnified and indemnifying parties may exist in respect of such action or proceeding (in which case the Indemnified Party shall have the right to assume or continue its own defense and the indemnifying party shall be liable for any reasonable expenses therefor (but in no event will bear the expenses for more than one firm of counsel for all Indemnified Parties in each jurisdiction who shall, with respect to Seller Indemnified Parties, be approved by the majority of the participating Holders in the registration in respect of which such indemnification is sought), the indemnifying party will be entitled to participate in and to assume the defense thereof (at its expense), jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the

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indemnifying party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation and shall have no liability for any settlement made by the Indemnified Party without the consent of the indemnifying party, such consent not to be unreasonably withheld. No indemnifying party will settle any action or proceeding or consent to the entry of any judgment without the prior written consent of the Indemnified Party, unless such settlement or judgment (i) includes as an unconditional term thereof the giving by the claimant or plaintiff of a release to such Indemnified Party from all liability in respect of such action or proceeding and (ii) does not involve the imposition of equitable remedies or the imposition of any obligations on such Indemnified Party and does not otherwise adversely affect such Indemnified Party, other than as a result of the imposition of financial obligations for which such Indemnified Party will be indemnified hereunder. An Indemnified Party may not settle any action or proceeding or the entry of any judgment without the prior written consent of the indemnifying party.

(d) Contribution. (i) If the indemnification provided for in this Section 2.8 from the indemnifying party is unavailable to an Indemnified Party hereunder in respect of any Claim or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Claim or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and Indemnified Party in connection with the actions which resulted in such Claim or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party under this Section 2.8(d) as a result of the Claim and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any action or proceeding; and (ii) the parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.8(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in Section 2.8(d)(i). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(e) Non-Exclusive Remedy. The obligations of the parties under this Section 2.8 shall be in addition to any liability which any party may otherwise have to any other party.

SECTION 2.9. Required Reports. The Company covenants that it will use reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act, and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.

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SECTION 2.10. Selection of Counsel. In connection with any registration of Registrable Securities pursuant to Section 2.1 and Section 2.2, the Holders of a majority of the Registrable Securities covered by any such registration may select one counsel to represent all Holders of Registrable Securities covered by such registration; provided, however, that in the event that the counsel selected as provided above is also acting as counsel to the Company in connection with such registration, a majority of the remaining Holders shall be entitled to select one additional counsel to represent all such remaining Holders.

SECTION 2.11. Market Standoff Agreement. Subject to the proviso in Section 2.3(c)(iii), in connection with any underwritten public offering, each Holder who was offered the opportunity to include Registrable Securities in such offering pursuant to Section 2.1 or Section 2.2 will agree upon the request of the managing underwriter with respect to such offering not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any Equity Security of the Company during the 14-day period prior to, and for the 90 days after (plus any Booster Period), the effective date of the registration statement for such offering (or such lesser period as the managing underwriters may require or permit), except for such Equity Securities to be included in such offering; provided that all of the Company’s executive officers and all of the members of the Company’s Board (other than the Series B Directors, Series C Directors or Investor Directors, as each term is defined in the Amended and Restated Stockholders’ Agreement) are restricted in the same manner and for the same duration; and provided further that the obligations set forth in this Section 2.11 shall not apply to any Holder who was substantially limited in the number of Registrable Securities that such Holder could sell in the offering pursuant to Section 2.2(e) or Section 2.3(a)(ii) and did not otherwise sell Registrable Securities in such offering.

SECTION 2.12. No Inconsistent Agreements; No Free Writing Prospectuses. The Company represents and warrants that it is not a party to a Contract which conflicts with or limits or prohibits the exercise of the rights granted to the Holders of Registrable Securities in this ARTICLE II. Each Holder agrees that, unless it obtains the prior consent of the Company and any such underwriter, it will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus, or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405, required to be filed with the SEC.

SECTION 2.13. Termination of Registration Rights. The rights of any Holder under this ARTICLE II shall terminate (other than Section 2.6, Section 2.8 and Section 2.13) at such time as (a) such Holder ceases to hold any Registrable Securities or (b) either (i) the Company is no longer required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act and has ceased to file reports under the Exchange Act, or (ii) a Form 15 (or any successor form) has been filed under the Exchange Act with respect to the Common Stock, unless, in the case of clause (b), such situation or filing is due to the occurrence of any merger, consolidation or other transaction upon consummation of which the issuer of the Common Stock is an entity other than the Company, in which event such rights of the Holders shall not terminate at such time pursuant to such clause (b) and this Agreement shall be assumed by the Survivor as provided in Section 3.2.

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ARTICLE III

MISCELLANEOUS

SECTION 3.1. Expenses. Except as otherwise provided herein (and except as provided in the Securities Purchase Agreement), all expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses.

SECTION 3.2. Successors and Assigns; Assignment. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. This Agreement may not be assigned without the prior written consent of the other parties, except that this Agreement (i) may be assigned by a Holder so long as the Person to whom it is being assigned agrees to be bound under this Agreement as a Holder hereunder and delivers a counterpart signature page to this Agreement to the Company and (ii) shall be assigned by the Company in the event of any merger, consolidation or other transaction upon consummation of which the issuer of the Common Stock is an entity other than the Company (such entity, the “Survivor”) to such Survivor, and the Company shall not enter into any such transaction unless and until the Survivor assumes all rights and obligations of the Company hereunder pursuant to a written agreement for the benefit of the Holders (it being understood that if the Survivor is the issuer of the Common Stock and such assumption of the rights and obligations of the Company hereunder occurs by operation of law, that such Survivor shall not be required to execute a written agreement for the benefit of the Holders).

SECTION 3.3. No Third Party Beneficiaries. Except as specifically provided in Section 2.8 (with respect to which the Indemnified Parties named therein shall be express, intended third party beneficiaries of such provision), this Agreement is not intended, and shall not be deemed, to confer any rights or remedies upon any Person other than the parties hereto or otherwise create any third-party beneficiary hereto.

SECTION 3.4. Entire Agreement. This Agreement and the other agreements or documents referred to herein, constitute the full and entire understanding and agreement among the parties with respect to the subject matter hereof and supersede any prior understandings, agreements or representations by or among the parties, written or oral, that may have related to the subject matter hereof in any way.

SECTION 3.5. Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 3.6. Amendment and Waiver. No amendment, waiver or other modification of, or consent under, any provision of this Agreement shall be effective against the Company, unless it is approved in writing by the Company, and no amendment, waiver or other modification of, or

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consent under, any provision of this Agreement shall be effective against any Holder, unless it is approved in writing by Holders holding a majority of the Registrable Securities. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained.

SECTION 3.7. Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on an Holder’s part of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative.

SECTION 3.8. Notices. Except as otherwise provided herein, all notices required or permitted hereunder shall be in writing and shall be deemed effectively given and received: (a) upon personal delivery to the party to be notified; (b) when sent by confirmed facsimile or e-mail if sent during normal business hours of the recipient, if not, then on the next business day; or (c) one (1) business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All notices to a Holder shall be delivered to the address of such Holder set forth on the signature page of such Holder hereto (or such other address as such Holder may designate by like notice to the Company hereunder). All notices to the Company shall be delivered to:

Palm, Inc.

950 West Maude Avenue

Sunnyvale, California 94085

Attention: General Counsel

Facsimile: (408) 617-0139

with a copy to (which shall not constitute notice):

Davis Polk & Wardwell

1600 El Camino Real

Menlo Park, California 94025

Attn: William M. Kelly, Esq.

Facsimile: (650) 752-3603

SECTION 3.9. Interpretation. The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. When reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or Section of this Agreement, unless otherwise

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indicated. The table of contents, table of defined terms and headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise, and shall include all amendments of the same and any successor or replacement statutes and regulations as of the Closing Date. All references to agreements shall mean such agreement as may be amended or otherwise modified from time to time. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

SECTION 3.10. Governing Law; Jurisdiction; Waiver of Jury Trial.

(a) This Agreement shall be governed in all respects by the Laws of the State of New York. Any disagreement, issue, dispute, claim, demand or controversy arising out of or relating to this Agreement (each, a “Dispute”) shall be brought in the United States District Court for the Southern District of New York in New York, New York or any New York State court sitting in New York, New York, so long as one of such courts shall have subject matter jurisdiction over such Dispute. Each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such Dispute and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such Dispute in any such court and that any such Dispute which is brought in any such court has been brought in an inconvenient forum. Process in any such Dispute may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 3.8 shall be deemed effective service of process on such party.

(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

SECTION 3.11. No Special Damages. The parties hereto agree that the obligations imposed on them in this Agreement are special, unique and of an extraordinary character, and that, in the event of breach by any party, damages would not be an adequate remedy and each of the other parties shall be entitled to specific performance and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity; and the parties hereto further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief; provided, however, that no Holder shall be entitled to specific performance, injunctive or other equitable relief unless such Holder together with other Holders that collectively hold at least 40% of the aggregate Registrable Securities then held by

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the Holders join in the action seeking similar such specific performance, injunctive or other equitable relief, as the case may be, on their own behalf. Each party agrees that there shall be no special, exemplary, punitive or multiple damages connected with or resulting from any breach of this Agreement, or actions undertaken in connection with or related hereto, including any such damages which are based upon breach of contract, tort, breach of warranty, strict liability, statute, operation of law or any other theory of recovery, except to the extent such damages are actually paid by a party hereunder to a third party, and hereby waives any rights to claim such damages. For purposes of clarity, the foregoing does not exclude consequential, indirect or incidental damages.

SECTION 3.12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

[Remainder of Page Intentionally Left Blank.]

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IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first set forth above.

PALM, INC.
By:	/s/    Edward T. Colligan
Name:	Edward T. Colligan
Title:	President and CEO
ELEVATION PARTNERS, L.P.
By:	Elevation Associates, L.P.,
	As General Partner
By:	Elevation Associates, LLC,
	As General Partner
By:	/s/    Bret Pearlman
Name:	Bret Pearlman
Title:	Member
ELEVATION EMPLOYEE SIDE FUND, LLC
By:	Elevation Management, LLC,
	its manager
By:	/s/    Bret Pearlman
Name:	Bret Pearlman
Title:	Member

[Registration Rights Agreement]

By executing this Registration Rights Agreement, the undersigned is agreeing to the rights and obligations of a “Holder” hereunder.

HOLDER

Name of Holder:

By:

Name:

Title:

Date:

Address:

[Registration Rights Agreement]

EXHIBIT A

“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person, for so long as such Person remains so associated to the specified Person.

“Amended and Restated Stockholders’ Agreement” means the Amended and Restated Stockholders’ Agreement, dated as of January 9, 2009 among the Company and the Investor Stockholders, as may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

“Booster Period” means such additional period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto.

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in New York.

“Capital Stock” means any and all shares of capital stock of the Company, including without limitation, any and all shares of Common Stock and Preferred Stock.

“Common Stock” means the Common Stock, par value $0.001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.

“control” or “controlled by” have the meaning set forth in Rule 12b-2 of the Exchange Act.

“Conversion Shares” means the Series B Conversion Shares and the Series C Conversion Shares.

“Equity Securities” means any and all shares of Capital Stock of the Company, securities of the Company convertible into, or exchangeable or exercisable for, such shares, and options, warrants or other rights to acquire such shares (including the shares of Series B Preferred Stock, Series C Preferred Stock, the Conversion Shares, Warrants and the Warrant Shares).

“Exchange” means Nasdaq or the New York Stock Exchange, as the case may be.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Form S-1” means a registration statement on Form S-1 under the Securities Act, or any successor form thereto.

“Form S-3” means a registration statement on Form S-3 (other than on Form S-3ASR) under the Securities Act, or any successor form thereto.

“Form S-3ASR” means an “automatic shelf” registration statement on Form S-3 filed by a Well-Known Seasoned Issuer.

“Form S-4” means a registration statement on Form S-4 under the Securities Act, or any successor form thereto.

“Form S-8” means a registration statement on Form S-8 under the Securities Act, or any successor form thereto.

“Holder” means any Investor Stockholder that beneficially owns any Registrable Securities and any of their respective assignees pursuant to the terms hereof.

“incur” means, directly or indirectly, to incur, refinance, create, assume, guarantee or otherwise become liable.

“Issuer Free Writing Prospectus” shall have the meaning set forth in Rule 433 of the Securities Act.

“Nasdaq” means The NASDAQ Stock Market, or any successor thereto.

“NASD” means the National Association of Securities Dealers, Inc.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

“Preferred Stock” means the shares of preferred stock, par value $0.001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.

“Prospectus” means the prospectus included in any registration statement, including any preliminary prospectus, any final prospectus and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a registration statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all materials incorporated by reference therein.

“Registrable Securities” means (i) the Conversion Shares held by any Holder or issuable upon the conversion of Series B Preferred Stock or Series C Preferred Stock held by the Holders, (ii) the Warrant Shares held by any Holder or issuable upon the exercise of Warrants held by the Holders, and (iii) any Common Stock or other securities which may be issued, converted, exchanged or distributed in respect thereof, or in substitution therefor, in connection with any stock split,

dividend or combination, or any recapitalization, reclassification, merger, consolidation, exchange or other similar reorganization with respect to the Conversion Shares or the Warrant Shares, as the case may be. As to any particular Registrable Securities, once issued, such Registrable Securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale by the Holder of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) such securities shall have been distributed to the public pursuant to Rule 144, or (iii) such securities shall have ceased to be outstanding. For purposes of this Agreement, any required calculation of the amount of, or percentage of, Registrable Securities shall be based on the number of shares of Common Stock which are Registrable Securities, including shares issuable upon the conversion, exchange or exercise of any security convertible, exchangeable or exercisable into Common Stock (including the Series B Preferred Stock, the Series C Preferred Stock and the Warrants).

“Registration Expenses” means any and all expenses incident to performance of or compliance with ARTICLE II, including (i) all SEC and securities exchange or NASD registration and filing fees (including, if applicable, the fees and expenses of any “qualified independent underwriter,” as such term is defined in Section 2720 of the bylaws of the NASD, and of its counsel), (ii) all fees and expenses of complying with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities and any escrow fees), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange, (v) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or “cold comfort” letters required by or incident to such performance and compliance, (vi) the reasonable fees and disbursements of counsel selected pursuant to Section 2.10 not to exceed $50,000 in connection with any registration statement, (vii) any fees and disbursements of underwriters customarily paid by the issuers, including liability insurance if the Company so desires, and (viii) the reasonable expenses incurred by the Company or any underwriters in connection with any “road show” undertaken pursuant to Section 2.1 or Section 2.4(q).

“Restricted Period” shall mean the period of time from the Closing Date to the earlier of (i) the Restricted Period Termination Date (as defined in the Amended and Restated Stockholders’ Agreement) and (ii) the consummation of a Fundamental Event (as defined in the Amended and Restated Stockholders’ Agreement).

“Rule 144” means Rule 144 under the Securities Act (or any successor rule).

“SEC” means the U.S. Securities and Exchange Commission or any other federal agency then administering the Securities Act or the Exchange Act and other federal securities laws.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Series B Certificate of Designation” means the Certificate of Designation with respect to the Series B Preferred Stock, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

“Series B Conversion Shares” means the shares of Common Stock that may be issued upon the conversion of the Series B Preferred Stock as provided for in the Series B Certificate of Designation.

“Series B Preferred Stock” means the Preferred Stock of the Company that is designated as Series B Convertible Preferred Stock and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization (other than the Series B Conversion Shares upon conversion thereof as contemplated by the Series B Certificate of Designation).

“Series C Certificate of Designation” means the Certificate of Designation with respect to the Series C Preferred Stock, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.

“Series C Conversion Shares” means the shares of Common Stock that may be issued upon the conversion of the Series C Preferred Stock as provided for in the Series C Certificate of Designation.

“Series C Preferred Stock” means the Preferred Stock of the Company that is designated as Series C Convertible Preferred Stock and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization (other than the Series C Conversion Shares upon conversion thereof as contemplated by the Series C Certificate of Designation).

“Transfer” means, directly or indirectly, to sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any shares of Equity Securities beneficially owned by a Person or any interest in any shares of Equity Securities Beneficially Owned by a Person. For purposes of clarity, a conversion of the shares of Series B Preferred Stock or Series C Preferred Stock into Conversion Shares is not a Transfer.

“Underwritten Offering” means any Marketed Underwritten Offering, Underwritten Shelf Take-Down or other underwritten offering pursuant to Section 2.2.

“Warrants” means the warrants issued by the Company pursuant to the Securities Purchase Agreement and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization (other than the Warrant Shares upon exercise thereof).

“Warrant Shares” means the shares of Common Stock that may be issued upon the exercise of the Warrants.

“Well-Known Seasoned Issuer” has the meaning set forth in Rule 405 under the Securities Act.

EX-10.29

EXECUTION COPY

Exhibit 10.29

PALM, INC.

AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT

Dated as of January 9, 2009

TABLE OF CONTENTS

	PAGE
ARTICLE 1
DEFINITIONS
Section 1.1.    Certain Defined Terms	1
Section 1.2.    Other Capitalized Terms	2
Section 1.3.    Effectiveness of This Agreement	2
ARTICLE 2
CORPORATE GOVERNANCE AND INFORMATION RIGHTS
Section 2.1.    Board Representations.	2
Section 2.2.    Board Committees	6
Section 2.3.    Information Rights.	7
Section 2.4.    Confidentiality	8
Section 2.5.    Investor Director Expenses	9
Section 2.6.    D&O Insurance	9
Section 2.7.    Election of Directors; Quorum.	9
Section 2.8.    Notices Regarding Ownership and Investor Director Entitlement.	9
Section 2.9.    VCOC Investor Stockholders.	11
ARTICLE 3
TRANSFERS
Section 3.1.    Transfer Restrictions.	12
Section 3.2.    Legends; Securities Act Compliance.	15
ARTICLE 4
CERTAIN COVENANTS
Section 4.1.    Right to Maintain	16
Section 4.2.    Standstill.	17
Section 4.3.    Indemnification.	20
Section 4.4.    Regulatory Matters	21
Section 4.5.    Company Rights Agreement	21
Section 4.6.    Section 16 Matters.	23

ARTICLE 5
MISCELLANEOUS
Section 5.1.    Termination	24
Section 5.2.    Expenses	24
Section 5.3.    Successors and Assigns; Assignment.	24
Section 5.4.    No Third Party Beneficiaries	25
Section 5.5.    Entire Agreement	25
Section 5.6.    Severability	25
Section 5.7.    Amendment and Waiver	25
Section 5.8.    Delays or Omissions	26
Section 5.9.    Notices	26
Section 5.10.  Interpretation	26
Section 5.11.  Governing Law; Jurisdiction; Waiver of Jury Trial.	27
Section 5.12.  Specific Performance; No Special Damages.	27
Section 5.13.  Counterparts	28

EXHIBIT A — Defined Terms

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AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT

THIS AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT (this “Agreement”) is entered into as of January 9, 2009, among Palm, Inc., a Delaware corporation (the “Company”), Elevation Partners, L.P., a Delaware limited partnership (“Elevation”), and Elevation Employee Side Fund, LLC, a Delaware limited liability company (“Side Fund” and, together with Elevation and their respective Permitted Transferees, the “Investor Stockholders”).

RECITALS

WHEREAS, the Company and Elevation entered into a Preferred Stock Purchase Agreement and Agreement and Plan of Merger, dated as of June 1, 2007 (the “Series B Purchase Agreement”), pursuant to which the Investor Stockholders purchased an aggregate of 325,000 shares (the “Series B Purchased Shares”) of the Company’s Series B Preferred Stock (as defined below) for an aggregate purchase price of $325 million on October 24, 2007;

WHEREAS, the Company and Elevation entered into a Securities Purchase Agreement, dated as of December 22, 2008 (as amended from time to time in accordance with the provisions thereof, the “Series C Purchase Agreement”), pursuant to which the Investor Stockholders have agreed, on the terms and subject to the conditions set forth in such Series C Purchase Agreement, to purchase 100,000 shares (the “Series C Purchased Shares,” and together with the Series B Purchased Shares, the “Purchased Shares”) of the Company’s Series C Preferred Stock (as defined below) and warrants (the “Warrants”) exercisable for 7,000,000 Warrant Shares (as defined below) for an aggregate purchase price of $100 million;

WHEREAS, the parties hereto entered into a Stockholders’ Agreement, dated as of October 24, 2007 (the “Series B Stockholders’ Agreement”), with respect to certain arrangements relating to the Company, the Series B Purchased Shares and the Series B Conversion Shares (as defined below);

WHEREAS, the parties hereto desire to amend and restate the Series B Stockholders’ Agreement to change certain arrangements relating to the Series B Purchased Shares and provide for certain arrangements relating to the Company, the Series C Purchased Shares, the Series C Conversion Shares, the Warrants and the Warrant Shares.

NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual promises hereinafter set forth, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1. Certain Defined Terms. Certain terms used herein shall have the meanings given to them in Exhibit A.

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Section 1.2. Other Capitalized Terms. Capitalized terms used but not defined herein or in Exhibit A shall have the meanings given to them in the Series C Purchase Agreement.

Section 1.3. Effectiveness of This Agreement. This Agreement amends and restates the terms of the Series B Stockholders’ Agreement in their entirety. Such amendment and restatement of the Series B Stockholders’ Agreement shall have effect as of the Closing unless expressly stated otherwise. Notwithstanding any other provision to the contrary in this Agreement, this Agreement shall not take effect until the Closing and in the event that the Series C Purchase Agreement is terminated, this Agreement shall be void ab initio and the Series B Stockholders’ Agreement shall remain in full force and effect.

ARTICLE 2

CORPORATE GOVERNANCE AND INFORMATION RIGHTS

Section 2.1. Board Representations.

(a) Immediately Following the Closing. Effective as of the time immediately following the Closing and for so long as the Board Representation Entitlement is greater than zero (0) (the “Director Entitlement Period”), (i) the Investor Stockholders shall have the right to designate or appoint that number of Directors (each, an “Appointed Director”) equal to the Board Representation Entitlement, and (ii) upon a designation of any Additional Directors (as defined below) that satisfy the specifications set forth in clauses (A) and (B) of Section 2.1(d)(ii), the Company agrees to take all necessary actions to effectuate the election of such Additional Directors to the Board as soon as reasonably practicable and in any event by the later of (x) January 15, 2009 and (y) five (5) business days upon receipt of such designation. The Investor Stockholders agree and acknowledge that Fred Anderson and Roger McNamee will continue to serve on the Board as Appointed Directors, and the Company agrees and acknowledges that each such designee meets the specifications set forth in clauses (B) and (C) of Section 2.1(d)(i).

(b) During the Director Entitlement Period. During the Director Entitlement Period, each Appointed Director designated, nominated or appointed by the Investor Stockholders or any of their Affiliates shall be subject to the limitations set forth in Section 2.1(d) and Section 2.1(f). In addition, upon the occurrence of an increase in the authorized number of directors then constituting the Board that results in an increase in the Board Representation Entitlement to a number greater than the number of Appointed Directors then serving on the Board, the Investor Stockholders shall have the right to designate or appoint that number of additional Appointed Directors such that the total number of Appointed Directors (after giving effect to such designation or appointment) shall be equal to the Board Representation Entitlement at such time.

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(c) After the Director Entitlement Periods. After the Director Entitlement Period (and subject in each case to the limitations set forth in Section 2.1(d):

(i) Right of Nomination. The Investor Stockholders shall have the right, subject to the limitations in this Section 2.1(c), at each annual or special meeting of stockholders of the Company at which Directors are to be elected, to designate a number of Investor Directors, and the Company shall nominate and recommend for election at such meeting, a number of Investor Directors such that if such Investor Directors are elected by the stockholders of the Company at such meeting, the number of Investor Directors on the Board shall be equal to the Investor Director Entitlement. The Company agrees to use the same efforts to cause the Investor Director designees of the Investor Stockholders to be elected to the Board as it uses to cause other nominees of the Company or the Board to be elected.

(ii) Uncured Share Ownership Reduction; Board Size Decrease. Upon the occurrence of an Uncured Share Ownership Reduction, the Investor Stockholders at the expiration of the applicable Share Ownership Reduction Cure Period shall cause one or more Investor Directors, as applicable, to immediately resign from the Board such that following such resignation(s), the number of Investor Directors on the Board shall be equal to the Investor Director Entitlement as of the time immediately following the Share Ownership Reduction Cure Period. In addition, upon a Board Size Decrease, the Investor Stockholders shall cause one or more Investor Directors, as applicable, to immediately resign from the Board such that following such resignation(s), the number of Investor Directors on the Board shall be equal to the Investor Director Entitlement as of the time immediately following the occurrence of the Board Size Decrease, provided that if the Board Size Decrease goes into effect during a Share Ownership Reduction Cure Period, then such resignation requirement shall not take effect until the expiration of such Share Ownership Reduction Cure Period, provided that upon such expiration, the Investor Director Entitlement is less than the number of Investor Directors then serving on the Board. Upon the reduction of the Investor Director Entitlement to zero (0) pursuant to clause (A) of the definition thereof, the Investor Stockholders will promptly cause all Investor Directors to resign from the Board, unless otherwise requested in writing by or on behalf of the Board.

(iii) Vacancy. In the event that a vacancy is created at any time with respect to a Board seat held by an Investor Director by reason of the death, disability, retirement, resignation or removal (with or without cause) of such Investor Director, the Investor Stockholders may designate or nominate, as applicable, another individual to be elected to fill the vacancy created thereby, and the Company shall use its reasonable best efforts to take at any time and from time to time, all actions necessary to accomplish the same, but in any case, only to the extent required to maintain the then applicable Investor Director Entitlement. For the avoidance of doubt, this Section 2.1(c)(iii) does not apply to any vacancy arising as a result of failure of an Investor Director who has been nominated and recommended in accordance with this Section 2.1(c) to be elected, but any such failure to be elected shall in no way affect the right of the Investor Stockholders to designate, nominate or appoint another individual in replacement thereof as a nominee for Investor Director with respect to the next election. In addition, upon the occurrence

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of an increase in the authorized number of directors then constituting the Board that results in an increase in the Investor Director Entitlement to a number greater than the number of Investor Directors then serving on the Board, the Investor Stockholders shall have the right to designate, and subject to this Section 2.1(c), the Board shall appoint, that number of additional individuals to serve as Investor Directors such that the total number of Investor Directors (after giving effect to such designation) shall be equal to the Investor Director Entitlement at such time;

provided, that if after the Closing there is a change in the applicable rules of the Exchange on which the Common Stock is listed at the time such change becomes effective that would cause the Common Stock to be delisted by such Exchange as a result of the terms of this clause (c), the voting rights of the holders of the Series B Preferred Stock and Series C Preferred Stock set forth in this clause (c) shall thereafter be limited to the extent required by such changed rules for the Common Stock to continue to be listed on such Exchange.

(d) Limitations on Appointed Directors.

(i) Except as provided in Section 2(d)(ii), each Appointed Director shall, at all times during which such Person serves as a Director, (A) be a present or former full-time general partner, managing director or principal of Elevation Management, LLC, (B) not be (or be a representative of or otherwise affiliated with) a direct competitor of the Company as determined in good faith by the Board, and (C) otherwise be reasonably acceptable (in terms of suitability) to the Company’s Nominating and Governance Committee as determined in good faith in the discharge of its fiduciary duties. The Investor Stockholders shall not nominate or appoint any such Appointed Director who does not meet the specifications set forth in this Section 2.1(d)(i) and shall cause any such Appointed Director to immediately resign if such director fails to meet either of the requirements set forth in clauses (i)(A) or (i)(B) above.

(ii) If and to the extent the number of Appointed Directors is more than two (any such Appointed Director in excess of two, an “Additional Director”), each Additional Director may be a Person employed by, or be a present or former full-time general partner, managing director or principal of, Elevation or any of its Affiliates (an “Elevation Person”) so long as such Elevation Person has relevant operating, industry or other expertise; provided, however, that unless otherwise agreed in writing by the Company, Elevation shall use commercially reasonable efforts to replace each Additional Director who is an Elevation Person as soon as reasonably practicable with a designee that shall (x) not be an Elevation Person and (y) have relevant operating, industry or other expertise. Each Additional Director shall, at all times during which such Person serves as a Director, (A) not be (or be a representative of or otherwise affiliated with) a direct competitor of the Company as determined in good faith by the Board and (B) otherwise be reasonably acceptable (in terms of suitability) to the Company’s Nominating and Governance Committee as determined in good faith in the discharge of its fiduciary duties. The Investor Stockholders shall not nominate or appoint any such Additional

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Director who does not meet the specifications set forth in this Section 2.1(d)(ii) and shall cause any such Additional Director to immediately resign if such director fails to meet the requirement set forth in clause (ii)(A) above.

(e) Limitations on Other Investor Directors. Any Investor Director who is not an Appointed Director shall, at all times during which such Person serves as a Director, meet the specifications set forth in either Section 2.1(d)(i) for Appointed Directors or Section 2.1(d)(ii) for Additional Directors. The Investor Stockholders shall not nominate or appoint any Investor Director who does not meet the specifications set forth in either Section 2.1(d)(i) for Appointed Directors or Section 2.1(d)(ii) for Additional Directors and shall cause any such Investor Director to immediately resign if such Investor Director fails to meet the requirement set forth in either clause (B) of Section 2.1(d)(i) or clause (A) of Section 2.1(d)(ii).

(f) Notification Regarding Directors. The Investor Stockholders shall notify the Company in writing of each proposed Appointed Director a reasonable time in advance of any action taken for the purpose of electing or appointing such Appointed Director, to fill a vacancy and of the mailing of any proxy statement, information statement or registration statement in which any Board nominee or Board member of the Company would be named (which in the event of any proxy statement relating to an annual meeting of stockholders of the Company shall be no later than 30 days prior to the first anniversary of the mailing of the proxy statement related to the previous year’s annual meeting of stockholders), together with all information concerning such nominee reasonably requested by the Company, so that the Company may determine whether such nominee complies with the above qualifications and so that the Company can comply with applicable disclosure rules; provided that in the absence of such notice, the Investor Stockholders shall be deemed to have designated or nominated the same Investor Directors as set forth in the most recent notice delivered to the Company pursuant to this Section 2.1(f).

(g) Fundamental Change. The rights granted to the Investor Stockholders under this Section 2.1 shall survive a Fundamental Change to the extent that the Investor Stockholders continue to Beneficially Own in the aggregate, excluding Shared Beneficial Ownership, no less than 7.5% of the Total Current Voting Power of the Survivor of a Fundamental Change, provided that for all purposes of this Section 2.1, the board of directors of the Survivor of a Fundamental Change shall be substituted for the Board. The Investor Stockholders shall cause all Appointed Directors and/or Investor Directors to resign from the Board effective upon the occurrence of a Fundamental Change to the extent that either (i) the Investor Stockholders are no longer entitled to designate or nominate such directors as a result of this Section 2.1(g) or (ii) the Company is not the Survivor of such Fundamental Change. To the extent that the Company is not the Survivor of a Fundamental Change and the Investor Stockholders would be entitled to nominate or designate a member to the board of directors or similar governing body of the Survivor of a Fundamental Change pursuant to Section 2.1(c)(i) (substituting the Survivor of a Fundamental Change for the Company therein) and this Section 2.1(g), such Survivor of a Fundamental Change shall cause one (1) designee of the Investor Stockholders to be elected or appointed to the board of directors or equivalent governing body of the Survivor of a

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Fundamental Change promptly following the Fundamental Change. In the event the Investor Stockholders at any time cease to Beneficially Own in the aggregate, excluding Shared Beneficial Ownership, at least 7.5% of the Total Current Voting Power of the Survivor of a Fundamental Change, all rights granted under this Section 2.1 shall cease and the Investor Stockholders shall cause all Appointed Directors and/or Investor Directors to promptly resign from the board of directors or equivalent governing body of the Survivor of a Fundamental Change.

(h) Advance Resignation Letters. The Company and any Survivor of a Fundamental Change may implement the resignation provisions of this Section 2.1 by requiring, prior to or after becoming a member of the Board (with respect to the Company) or the board of directors or similar governing body (with respect to the Survivor of a Fundamental Change), each Appointed Director and/or Investor Director to execute and deliver an undated resignation letter to the Secretary of the Company or the Survivor of a Fundamental Change, as the case may be, which the Company and/or the Survivor of a Fundamental Change agrees shall not be dated or become effective until such time as an Investor Director’s and/or Appointed Director’s resignation is required pursuant to this Section 2.1.

(i) Exercise of Rights. Unless otherwise agreed in writing by the Investor Stockholders (which agreement shall be delivered to the Company as a condition to its effectiveness), the Board designation and nomination rights pursuant to this Section 2.1 will be exercised by Elevation.

Section 2.2. Board Committees. Subject to the requirements of applicable Law, the Exchange on which the Company’s securities are then traded and Committee Qualification Requirements, for as long as there is an Appointed Director or the Investor Director Entitlement is not zero, the Investor Stockholders shall be entitled to designate or nominate at least one (1) Appointed Director or Investor Director (as the case may be) and the Board shall appoint such director, to serve on each standing committee of the Board, except that where the requirements of applicable Law, the rules of the Exchange on which the Company’s securities are then traded or Committee Qualification Requirements prescribe certain qualifications for such service on a standing committee of the Board and such Appointed Director or Investor Director, as applicable, does not meet such qualifications (excluding, for this purpose, the “exceptional and limited circumstances” exception under the Marketplace Rules of Nasdaq), the Investor Stockholders shall be entitled to have at least one (1) Appointed Director or Investor Director be an observer to such Board committee who will not be a member, voting or otherwise, of such Board committee. Notwithstanding any such observer status, any Board committee may hold executive sessions at which the observer is not permitted to be present and may withhold information from the observer in order to avoid any conflict of interest or in light of corporate governance concerns, or to comply with applicable Laws, and rules of the Exchange on which the Company’s securities are then traded, in each case as reasonably determined in good faith by such Board committee.

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Section 2.3. Information Rights.

(a) Subject to Section 2.3(b) and Section 2.4, during the Information Rights Period, the Company will deliver to the Investor Stockholders or an Investor Director the following information:

(i) on an annual basis and promptly after it has been made available (but no later than 30 days before the beginning of each fiscal year), (A) an annual budget of the Company, (B) a business plan of the Company, and (C) financial forecasts for the next fiscal year of the Company, in each case, solely to the extent and in such manner and form prepared by or for the Company’s Board;

(ii) on an annual basis and promptly after it has been made available (but no later than 60 days after the end of each fiscal year), annual unaudited financial and operating reports of the Company, solely to the extent and in such manner and form prepared by or for the Board;

(iii) on a quarterly basis and promptly after it has been made available (but in no event later than 35 days after the end of each quarter), unaudited quarterly financial and operating reports of the Company, solely to the extent and in such manner and form prepared by or for the Board;

(iv) final drafts of monthly management and operating reports of the Company as reasonably requested by the Investor Stockholders solely to the extent and in such manner and form prepared by or for the Company’s chief executive officer and/or provided to the Board; and

(v) such other financial, management and operating reports reasonably requested by the Investor Stockholders solely to the extent and in such manner and form prepared for the Board.

(b) If during the Information Rights Period the Company is no longer obligated to file an annual report on Form 10-K or quarterly report on Form 10-Q with the SEC, the Company shall deliver the following to the Investor Stockholders or an Investor Director in such manner and form as customarily provided to the Board:

(i) as soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter (to the extent practicable), (A) a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and consolidated statements of income and cash flows of the Company and its Subsidiaries for such year, prepared in accordance with GAAP and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and followed promptly thereafter (to the extent it shall be available) with the opinion of the independent registered public accounting firm selected by the Company’s Audit Committee with respect to such financial statements; and

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(ii) in lieu of providing the information required under Section 2.3(a)(iii), as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter (to the extent practicable), an unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of each such quarterly period, and unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such period and for the current fiscal year to date, prepared in accordance with GAAP and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail, except that such financial statements need not contain the notes required by GAAP.

Section 2.4. Confidentiality. The Investor Stockholders agree to and shall cause each of their Affiliates to (i) keep confidential (x) all proprietary and non-public information regarding the Company and its Subsidiaries received pursuant to Section 2.3 or otherwise hereunder, whether through an Appointed Director, an Investor Director or otherwise, and (y) all “Confidential Information” (as defined in the Confidentiality Agreement) provided to the Investor Stockholders or their Affiliates or representatives under the Confidentiality Agreement prior to the termination of such Confidentiality Agreement on October 24, 2007 pursuant to the terms of the Series B Purchase Agreement (clauses (x) and (y) collectively, “Confidential Information”), and in each case not to disclose or reveal any such information to any Person without the prior written consent of the Company other than those of its directors, general partner and officers, attorneys, accountants and financial advisors (“Permitted Representatives”) who need to know such information for the purpose of evaluating, monitoring or taking any other action with respect to the investment by the Investor Stockholders in the Series B Preferred Stock, the Series C Preferred Stock or Common Stock and to cause those Permitted Representatives to observe the terms of this Section 2.4 and agree for the benefit of the Company to do so and (ii) not to use such proprietary and non-public information for any purpose other than in connection with evaluating, monitoring or taking any other action with respect to the investment by the Investor Stockholders in the Series B Preferred Stock, Series C Preferred Stock or Common Stock (it being understood that none of the Investor Stockholders or any Affiliate shall contravene applicable Laws with respect to insider trading; provided that nothing herein shall prevent the Investor Stockholders or any Affiliate from disclosing any such information that (1) is or becomes generally available to the public in accordance with Law other than as a result of a disclosure by the Investor Stockholders, any Affiliate, Permitted Representatives, Affiliates or subsidiaries of Investor Stockholders or in violation of this Section 2.4 or any other confidentiality agreement between the Company and such Person or any other legal duty, fiduciary duty, or other duty of trust and confidence, of such Person, (2) was within the Investor Stockholders’ or an Affiliate’s possession or developed by it prior to being furnished with such information (provided that the source of such information was not bound by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to or other duty of trust and confidence to, the Company with respect to such information), (3) becomes available to the Investor Stockholders or an Affiliate on a non-confidential basis from a source other than the Company (provided that such source is not bound

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by a confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to or other duty of trust and confidence to, the Company with respect to such information), or (4) is required to be disclosed by Law or Order (provided that prior to such disclosure, the Investor Stockholders or such Affiliate shall, unless prohibited by Law or Order, promptly notify the Company of any such disclosure, use reasonable efforts to limit the disclosure requirements of such Law or Order, and maintain the confidentiality of such information to the maximum extent permitted by Law or Order).

Section 2.5. Investor Director Expenses. The Company shall reimburse each Appointed Director and each Investor Director for their reasonable out of pocket expenses incurred for the purpose of attending meetings of the Board or committees thereof, in accordance with the Company’s reimbursement policy in effect from time to time.

Section 2.6. D&O Insurance. During the period that an Appointed Director or Investor Director is a Director, such Director shall be entitled to benefits under any director and officer insurance policy maintained by the Company to the same extent as any similarly situated Directors.

Section 2.7. Election of Directors; Quorum.

(a) During the Standstill Period, at every meeting (or action by written consent, if applicable) of the stockholders of the Company called, and at every postponement or adjournment thereof, each Investor Stockholder agrees to, and agrees to cause each Permitted Transferee to, in each case subject to the Company’s compliance with Section 2.1 in connection with such meeting (or action by written consent) and vote any and all shares of Common Stock Beneficially Owned by it or them (subject to the Maximum Voting Percentage), or to cause any such shares to be voted (in each case to the extent such Common Stock Beneficially Owned by it or them is eligible to so vote), at the election of each Investor Stockholder, in its sole discretion, in connection with any election or removal of Directors in (i) the manner recommended by the Board with respect to the election or removal of each Director, or (ii) the same proportion as the votes of all stockholders of the Company other than Elevation and its Affiliates present in person or by proxy at the meeting with respect to the election or removal of each Director.

(b) During the Standstill Period, at every meeting (or action by written consent, if applicable) of the stockholders of the Company called, and at every postponement or adjournment thereof, each Investor Stockholder agrees to, and agrees to cause each Permitted Transferee to, cause any and all shares of Common Stock Beneficially Owned by it or them and entitled to be voted thereat to be present in person or represented by proxy at the meeting so that all such shares shall be counted as present for determining the presence of a quorum at such meeting.

Section 2.8. Notices Regarding Ownership and Investor Director Entitlement.

(a) Until such time as the Investor Director Entitlement is zero (0), the Investor Stockholders shall provide prompt written notice to the Company reasonably prior to, if

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practicable, but in any event within two (2) days after, any Transfer by the Investor Stockholders of any Purchased Shares, Conversion Shares, Warrants or Warrant Shares and shall state in such notice the material terms of such Transfer and an accurate accounting of the resulting Beneficial Ownership (including what portion thereof is Shared Beneficial Ownership) of the Investor Stockholders immediately following such Transfer. In addition, the Investor Stockholders will comply with the requirements set forth in Section 3.1(g). If the Investor Stockholders Transfer (other than pursuant to a bona fide pledge, but not a foreclosure thereon and other than to one or more Permitted Transferees) and/or convert into Common Stock a majority of the Purchased Shares, or if the Investor Stockholders Transfer (other than pursuant to a bona fide pledge, but not a foreclosure thereon and other than to one or more Permitted Transferees) and/or exercise for Common Stock a majority of the Warrants, the Investor Stockholders shall promptly (and in any event within two (2) days) notify the Company in writing. If the Company reasonably believes that the Investor Stockholders have Transferred (other than pursuant to a bona fide pledge, but not a foreclosure thereon, and other than to one or more Permitted Transferees) and/or converted a majority of the Purchased Shares, or have Transferred (other than pursuant to a bona fide pledge, but not a foreclosure thereon, and other than to one or more Permitted Transferees) and/or exercised a majority of the Warrants, it shall provide written notice, and the Investor Stockholders shall promptly confirm in writing whether or not they have so Transferred and/or converted a majority of the Purchased Shares or Transferred and/or exercised a majority of the Warrants.

(b) If the Company believes in good faith that there has been a reduction in the Investor Director Entitlement or the Board Representation Entitlement due to either (i) a Share Ownership Reduction or (ii) a Board Size Decrease, it shall provide written notice (the “Company Notice”) to the Investor Stockholders setting forth the Company’s calculation in reasonable detail of the Elevation Beneficial Ownership Percentage, and based on such Elevation Beneficial Ownership Percentage, the then applicable Investor Director Entitlement or Board Representation Entitlement, as the case may be. If in response to the Company Notice, the Investor Stockholders determine to acquire Beneficial Ownership of additional shares of Common Stock during the Share Ownership Reduction Cure Period, then within the Share Ownership Reduction Cure Period, the Investor Stockholders shall provide additional written notice (the “Additional Notice”) to the Company informing the Company of (i) whether or not they acquired Beneficial Ownership of a sufficient number of shares of Common Stock within the Share Ownership Reduction Cure Period to allow them to retain the Investor Director Entitlement or Board Representation Entitlement, as the case may be, as of immediately prior to the reduction of the Investor Director Entitlement or Board Representation Entitlement, as the case may be, that would otherwise occur (the result of such acquisitions, a “Beneficial Ownership Cure”), and (ii) the Elevation Beneficial Ownership of the date of the Additional Notice. Failure by the Investor Stockholders to provide the Additional Notice within the Share Ownership Reduction Cure Period shall be deemed confirmation that there has been the reduction in Investor Director Entitlement or Board Representation Entitlement, as the case may be, set forth in the Company Notice. Nothing in this Section 2.8 is intended to modify the restrictions set forth in Section 4.2 or the Standstill Limit.

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Section 2.9. VCOC Investor Stockholders.

(a) With respect to each Investor Stockholder that is an Elevation Entity or a Controlled Affiliate of an Elevation Entity (for so long as they are Controlled Affiliates thereof), in each case that is intended to qualify as a “venture capital operating company” as defined in the Plan Asset Regulations, that holds Series B Preferred Stock, Series C Preferred Stock or Conversion Shares (each, a “VCOC Investor Stockholder”), at the written request of such VCOC Investor Stockholder, the Company shall, with respect to each such VCOC Investor Stockholder:

(i) provide such VCOC Investor Stockholder or its designated representative with the following: (1) the right to visit and inspect any of the offices and properties of the Company and its Subsidiaries and inspect and copy the books and records of the Company and its Subsidiaries, as the VCOC Investor Stockholder shall reasonably request; (2) copies of the information set forth in Section 2.3(a); and (3) copies of all materials provided to the Board; and

(ii) make appropriate officers and members of the Board available periodically and at such times as reasonably requested by such VCOC Investor Stockholder for consultation with such VCOC Investor Stockholder or its designated representative with respect to matters relating to the business and affairs of the Company and its Subsidiaries, including significant changes in management personnel and compensation of employees, introduction of new products or new lines of business, important acquisitions or dispositions of plants and equipment, significant research and development programs, the purchasing or selling of important trademarks, licenses or concessions or the proposed commencement or compromise of significant litigation;

The Company reserves the right to withhold any information and restrict access pursuant to clauses (i) and (ii) above (A) to the extent such information or access could adversely affect the attorney-client privilege between the Company and its counsel, (B) to any VCOC Investor Stockholder that is not a party to this Agreement, unless such VCOC Investor Stockholder agrees to be bound by, but not benefit from, the obligations under this Agreement as an Investor Stockholder, or (C) to any VCOC Investor Stockholder that is a direct competitor of the Company.

(b) The Company agrees to consider, in good faith, the recommendations of each VCOC Investor Stockholder or its designated representative in connection with the matters on which it is consulted as described above, recognizing that the ultimate discretion with respect to all such matters shall be retained by the Company.

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ARTICLE 3

TRANSFERS

Section 3.1. Transfer Restrictions.

(a) No Investor Stockholder shall Transfer any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares other than as expressly permitted by, and in compliance with, the other provisions of this Section 3.1. Notwithstanding anything herein to the contrary, the restrictions set forth in this Section 3.1 shall terminate upon the consummation of a Fundamental Change.

(b) Subject to Section 3.1(d), prior to the six (6) month anniversary of the Closing Date (the “Restricted Period Termination Date”), no Investor Stockholder shall Transfer any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares, other than as expressly permitted by, and in compliance with, the following provisions of this Section 3.1(b):

(i) An Investor Stockholder may Transfer any or all of its shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares (A) to the Company or any of its Subsidiaries or (B) pursuant to any tender offer, exchange offer, merger, reclassification, reorganization, recapitalization or other similar transaction in which stockholders of the Company are offered, permitted or required to participate as holders of any of the Company’s Capital Stock, provided that such transaction is an Approved Transaction which, to the extent of any Transfer of Series B Preferred Stock or Series C Preferred Stock, provides for such Series B Preferred Stock or Series C Preferred Stock to receive consideration no greater than the higher of (x) the consideration on a per share as-converted basis deliverable with respect to the Common Stock and (y) the Regular Liquidation Preference.

(ii) An Investor Stockholder may Transfer any or all of its shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares to any Permitted Transferee of such Investor Stockholder; provided that such Permitted Transferee (A) agrees to be bound hereunder as an Investor Stockholder, (B) agrees that the representations, covenants and other agreements made by the assignor herein shall be deemed to have been made by such Transferee, (C) shall execute a counterpart to this Agreement, the execution of which shall constitute such Transferee’s agreement to the terms of this Section 3.1(b)(ii), and (D) agrees that all notices hereunder to it may be delivered to Elevation on its behalf. Upon such a Transfer, the Permitted Transferee shall be deemed an Investor Stockholder hereunder and shall be entitled to the rights, and subject to the obligations and restrictions, contained herein.

(iii) The Investor Stockholders may, solely for the purpose of securing bona fide indebtedness for borrowed money (a “Secured Loan”) from any bank or financial institution (“Lenders”), make a bona fide pledge of any or all of the Purchased Shares,

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Conversion Shares, Warrants or Warrant Shares and such Lenders may execute a bona fide foreclosure upon such Purchased Shares, Conversion Shares, Warrants or Warrant Shares upon the terms and subject to the conditions set forth in any such Secured Loan, provided that any pledge or other contractual encumbrance or foreclosure resulting from a Secured Loan (including an obligation to repay such Secured Loan with the proceeds of any Transfer of, or dividend or distribution on, any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares) shall not be deemed to be a Transfer associated with such shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares; provided, however, that the aggregate principal amount of all outstanding Secured Loans of the Investor Stockholders may not exceed 30% of the aggregate fair market value, on the date of the incurrence of any such Secured Loan, of all of the Purchased Shares, Conversion Shares, Warrants and/or Warrant Shares pledged to secure such indebtedness.

(iv) The Investor Stockholders shall Transfer shares of Series C Preferred Stock and Warrants to the extent required pursuant to, and in accordance with, Section 2.3 of the Series C Purchase Agreement.

As used herein, “Approved Transaction” means any tender offer, exchange offer, merger, sale of the Company, reclassification, reorganization, recapitalization or other transaction that either (x) has been approved or recommended by the Board (and which at the time of Transfer continues to be approved or recommended by the Board) or (y) has not been effectively precluded by operation of the Company Rights Agreement because either (1) the Board has taken action such that the acquiring person in such transaction would not be an “Acquiring Person” (as defined in the Company Rights Agreement or its comparable term/provision under any successor or substitute shareholder rights plan) or such that the “Distribution Date” (as defined in the Company Rights Agreement or its comparable term/provision under any successor or substitute shareholder rights plan) would not occur in connection with such transaction or the Rights will otherwise not effectively preclude such transaction or (2) an Order has been issued invalidating or enjoining operation of the Company Rights Agreement in respect of such transaction. To the extent that any tender offer is effectively precluded by operation of the Company Rights Agreement, the Company will take such actions under its control as are reasonably requested by the Investor Stockholders so as to enable the Investor Stockholders to timely tender into such offer prior to expiration thereof (including any extensions thereto), shares of Common Stock that would be received upon conversion of the Series B Preferred Stock or Series C Preferred Stock or exercise of the Warrants, in each case in the event the tender offer is no longer effectively precluded, without requiring conversion of the Series B Preferred Stock or Series C Preferred Stock or exercise of the Warrants, in each case until after such time as such tender offer is no longer effectively precluded.

(c) After the Restricted Period Termination Date, the Investor Stockholders shall have the right to Transfer any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares without restriction hereunder, subject to the provisions of Section 2.8, Section 3.1(d), Section 3.1(e), Section 3.1(f), Section 3.1(g) and

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Section 3.2, provided that in the case of any Transfer to a Permitted Transferee, such Permitted Transferee (i) agrees to be bound hereunder as an Investor Stockholder, (ii) agrees that the representations, covenants and other agreements made by the assignor herein shall be deemed to have been made by such Transferee, (iii) shall execute a counterpart to this Agreement, the execution of which shall constitute such Transferee’s agreement to the terms of this Section 3.1(c), and (iv) agrees that all notices hereunder to it may be delivered to Elevation on its behalf. Upon such a Transfer, the Permitted Transferee shall be deemed an Investor Stockholder hereunder and shall be entitled to the rights, and subject to the obligations and restrictions, contained herein.

(d) No Investor Stockholder may, together with its Affiliates, in any single transaction or series of related transactions, whether on, before or after the Restricted Period Termination Date, Transfer to any Person or group of related Persons (other than Permitted Transferees) shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares to the extent such Person or group of related Persons would, to the knowledge of such Investor Stockholder after due inquiry (it being understood that due inquiry shall not be required in circumstances where the purchaser in a sale transaction is not reasonably identifiable, such as in a “brokers’ transaction” as defined in Rule 144 under the Securities Act), upon completion of the Transfer of such Conversion Shares Beneficially Own more than ten percent (10%) of the outstanding Common Stock, unless such Transfer (i) has been approved by, or is in connection with a transaction approved or recommended by, the Board, (ii) is made pursuant to a tender offer, exchange offer, merger, consolidation or similar transaction that is an Approved Transaction, or (iii) is to an underwriter or placement agent in a Public Offering, provided that such underwriter or placement agent implements reasonable protections to the extent practicable so that such offering will not be made to, and would not reasonably facilitate the acquisition of Common Stock by, a Person or group of related Persons who after such offering would Beneficially Own more than 10% of the Common Stock. To the extent that any tender offer is not an Approved Transaction, the Company will take such actions under its control as are reasonably requested on a non-public basis and in compliance with Section 4.2 by the Investor Stockholders so as to enable the Investor Stockholders to timely tender into such offer prior to expiration thereof (including any extensions thereto), shares of Common Stock that would be received upon conversion of the Series B Preferred Stock or Series C Preferred Stock or upon exercise of the Warrants, in the event the tender offer becomes an Approved Transaction, without requiring conversion of the Series B Preferred Stock or Series C Preferred Stock or exercise of the Warrants until after such time as such tender offer is an Approved Transaction.

(e) Any Transfer not made in accordance with this Section 3.1 shall be null and void and of no force or effect regardless of whether the proposed Transferee had actual or constructive knowledge of the Transfer restrictions set forth herein, and no such proposed Transfer will be recorded on the stock transfer books of the Company.

(f)(i) Subject to applicable Law, the Investor Stockholders (other than the Appointed Directors and the Investor Directors with respect to any Equity Securities held directly by such Persons, or indirectly by such Persons through family trusts, or similar arrangements or held

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directly by family members sharing the same household as the Appointed Director or Investor Director) will not be subject to the Company’s trading policies requiring pre-clearance or limiting trading to specified dates (it being understood that this is not intended to modify the rights or obligations set forth in the Amended and Restated Registration Rights Agreement), and (ii) the Investor Stockholders acknowledge their obligation hereunder not to Transfer shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares in contravention of applicable Law, including each of Section 10(b) and Rule 10b-5 of the Exchange Act.

(g) The Investor Stockholders will comply with the Transfer notice provisions of Section 2.8. In addition, during the Information Rights Period, the Investor Stockholders will provide the Company with at least 24 hours advance notice (which notice must be delivered on a Business Day) of any Transfer (other than a Transfer to a Permitted Transferee) to be made during a period when the Company’s directors and executive offices are prohibited by Company policies from effecting any Transfer.

(h) The Investor Stockholders shall not be subject to any restrictions on Transfer other than as set forth in this Agreement, applicable Law and to the extent applicable, the Amended and Restated Registration Rights Agreement.

Section 3.2. Legends; Securities Act Compliance.

(a) Each certificate representing Conversion Shares and each certificate representing Warrant Shares will bear a legend conspicuously thereon to the following effect:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A STOCKHOLDERS’ AGREEMENT AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT.”

(b) In addition to the restrictions set forth in Section 3.1, the Investor Stockholders and each Permitted Transferee shall not offer, sell or legally transfer any shares of Series B Preferred Stock or Series C Preferred Stock, the Conversion Shares, the Warrants or the Warrant Shares except pursuant to: (i) an effective registration statement under the Securities Act; (ii) an opinion of legal counsel reasonably acceptable to the Company that such Transfer is exempt from the registration requirements of Section 5 of the Securities Act; (iii) pursuant to Rule 144; or (iv) a “no action” letter from the staff of the SEC addressed to the Investor Stockholders or a Permitted Transferee to the effect that the Transfer without registration would not result in a recommendation by the staff to the SEC that action be taken with respect thereto.

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(c) In the event that any Conversion Shares or Warrant Shares are Transferred in a Public Offering, the Company shall promptly, upon request, but in any event not later than is necessary in order to consummate the sale of such securities pursuant to such Public Offering, remove the legend set forth above in connection with such Transfer. In the event that any Conversion Shares or Warrant Shares are Transferred pursuant to Rule 144, the Company shall upon request, upon receipt of documentation reasonably required by the Company to confirm such Investor Stockholder’s eligibility to sell such Conversion Shares or Warrant Shares pursuant to Rule 144, promptly but in any event not later than is necessary in order to consummate the sale of such securities pursuant to Rule 144 (subject to receipt of such documentation a reasonable period of time prior to such sale), remove the second sentence of the legend set forth above in connection with such Transfer.

(d) In the event that any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares are Transferred in compliance with Section 3.1(b)(i), the Company shall promptly, upon request, but in any event not later than is necessary in order to consummate such Transfer, remove the second sentence of the legend set forth above in connection with such Transfer.

(e) In the event that any Conversion Shares or Warrant Shares become transferable pursuant to Rule 144(k) under the Securities Act and the terms of this Section 3.2 no longer restrict the Transfer of such Conversion Shares or Warrant Shares by the holder thereof, the Company shall promptly upon request remove the legends set forth above from the certificates representing such Conversion Shares or Warrant Shares.

(f) Upon the termination of the restrictions set forth in Section 3.1, the Company shall promptly, upon request, deliver a replacement certificate not containing the second sentence of the legend set forth above.

ARTICLE 4

CERTAIN COVENANTS

Section 4.1. Right to Maintain. During the Right to Maintain Period:

(a) The Company shall provide the Investor Stockholders the opportunity to purchase in any Offering of the type described in clause (ii) of the definition of “Offering” (which is not also of the type described in clause (i) of the definition of “Offering”), and shall use its reasonable best efforts to provide the Investor Stockholders the opportunity to purchase in any Offering of the type described in clause (i) of the definition of “Offering”, up to their respective Pro Rata Shares; provided, however, in no event shall the Investor Stockholders be entitled to purchase an amount of Equity Securities in any such Offering that would cause Section 4.2 to be violated.

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(b) The Company shall send a written or electronic notice (the “Offering Notice”) in a manner it deems reasonably appropriate under the circumstances (which notice may or may not be in the same manner contemplated by Section 5.9) to Elevation on behalf of the Investor Stockholders at the latest address or e-mail address known to the Company, indicating (i) the number of Equity Securities expected to be offered and the material terms of such Equity Securities, (ii) the expected price at which it proposes to offer such Equity Securities, or the expected formula for determining such price, (iii) the expected timing of the Offering, and (iv) the name, telephone and facsimile number or e-mail address of the Person at the Company to whom the Investor Stockholders should deliver a Response Notice (as defined below). To the extent that the Company in good faith determines that the process for the Investor Stockholders’ exercise of their rights pursuant to this Section 4.1 delays or impairs the Company’s ability to access the public markets at will, the Company shall notify the Investor Stockholders, and the Company and the Investor Stockholders will negotiate in good faith to modify such process to the extent practicable so that it no longer causes such delay or impediment (it being understood that no such negotiation shall impair or delay any impending Offering and any Offering may be consummated during such negotiations without giving the Investor Stockholders the right to participate).

(c) As promptly as practicable after its receipt of the Offering Notice, the Investor Stockholders shall provide the Company with written notice indicating its desire to purchase Equity Securities in the Offering, and indicating the name, telephone number, facsimile number or e-mail address of the Person or Persons that the underwriter(s) of the Offering should call to coordinate with respect to any sales to such purchaser (the “Response Notice”). If the Investor Stockholders or a Permitted Transferee shall fail to provide the Company with a Response Notice prior to the earlier to occur of (i) six hours before the pricing of the Offering, and (ii) one Business Day prior to the date of the expected Offering as set forth in the Offering Notice, then the Investor Stockholders shall not be given the opportunity to purchase Equity Securities in the Offering. In any event, it shall be a condition to the Investor Stockholders’ or a Permitted Transferee’s opportunity to purchase Equity Securities in an Offering that it comply with the reasonable requests of the underwriter(s) necessary for it to purchase shares in the Offering (e.g., establishing an account with an underwriter in the Offering). The rights of the Investor Stockholders under this Section 4.1 shall not modify the restrictions set forth in Section 4.2 with respect to the then applicable Standstill Limit.

(d) Without limiting the generality of the foregoing, with respect to an Offering of the type described in clause (i) of the definition of “Offering”, the Company and the Investor Stockholders will comply with the provisions of the Amended and Restated Registration Rights Agreement to the extent the provisions of such Amended and Restated Registration Rights Agreement are then applicable.

Section 4.2. Standstill.

(a) During the Standstill Period, except as required in connection with the execution, delivery or performance of this Agreement and the consummation of the transactions pursuant to

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the Series C Purchase Agreement, the Investor Stockholders shall not, and the Investor Stockholders shall ensure that none of the Elevation Entities or their respective Affiliates shall, nor shall any of the foregoing Persons act in concert with any other Person to:

(i) except (x) as a result of the Beneficial Ownership of or exercise of any Rights, (y) for the receipt of any Capital Stock, rights or other securities from the Company pursuant to the terms of the Series B Preferred Stock, Series C Preferred Stock or Warrants (or the exercise or conversion of any such Capital Stock rights or other securities), including any increase in the number of shares of Common Stock issuable upon conversion or exercise of the Series B Preferred Stock, Series C Preferred Stock or Warrants as a result of any anti-dilution or other terms thereof or the exercise of rights pursuant to Section 4.1 hereof and (z) Equity Securities issued to Appointed Directors or Investor Directors in their capacities as such, if any, (A) acquire any Economic Right or Beneficial Ownership of Equity Securities or (B) authorize or make a tender offer, exchange offer or other offer or proposal, whether oral or written, to acquire Equity Securities, in each case, if the effect of such acquisition would be that the Common Stock Beneficially Owned in the aggregate by the Investor Stockholders and their Affiliates (including, without limitation, any 13D Group of which any Investor Stockholder or any Affiliate thereof is a member) would exceed the Standstill Limit, provided that for purposes of calculating the number of shares of Common Stock Beneficially Owned by the Investor Stockholders and their Affiliates, there shall be excluded from such calculation shares of Common Stock Beneficially Owned by Affiliates of the Investor Stockholders that are not also Beneficially Owned by the Investor Stockholders, up to a maximum number of shares of Common Stock that will be excluded pursuant to this clause equal to one percent (1%) of the Diluted Common Shares Outstanding;

(ii)(A) solicit or participate in any solicitation of proxies with respect to any Voting Stock, or (B) seek to advise or influence any Person with respect to the voting of any Voting Stock (other than (x) the Investor Stockholders or any Affiliate or (y) other than in accordance with and consistent with the recommendation of the Board); provided, that the limitation contained in this clause (ii) shall not apply to any proposal recommended by the Board relating to a Change in Control of the Company to be voted on by the Company’s stockholders that is not instituted or proposed by any Investor Stockholder or any Affiliate of any Investor Stockholder or any 13D Group of which any Investor Stockholder or any Affiliate of an Investor Stockholder is a member;

(iii) deposit any Voting Stock in a voting trust or, except as otherwise provided or contemplated herein, subject any Voting Stock to any arrangement or agreement with any Person with respect to the voting of such Voting Stock;

(iv) join a 13D Group (other than a group comprising solely of the Investor Stockholders and their Permitted Transferees) or other group, or otherwise act in concert with any third Person for the purpose of acquiring, holding, voting or disposing of Voting Stock or Non-Voting Convertible Securities;

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(v) effect or seek, offer or propose (whether publicly or otherwise) to effect any Change in Control of the Company;

(vi) effect or seek, offer or propose (whether publicly or otherwise) to effect any recapitalization (other than the Merger), restructuring, liquidation, dissolution or other transaction with respect to the Company or any of its Subsidiaries;

(vii) authorize or take any action to permit any Affiliate of Elevation to be named as a director candidate on a proxy or ballot of any other Person other than the proxy or ballot of the Company with the recommendation of the Board;

(viii) otherwise act, alone or in concert with others, to effect or seek, offer or propose (whether publicly or otherwise) to effect control of the management, Board or policies of the Company or to seek a waiver of any provision of this Agreement or the voting and conversion limits set forth in the Series B Certificate of Designation and Series C Certificate of Designation; provided, however, that no action by an Appointed Director or Investor Director (solely in their capacities as such) shall be deemed to violate this Section 4.2(a)(viii);

(ix) take any action that results in the Investor Stockholders having to file or amend a Schedule 13D indicating an intention, plan or proposal to do any of the foregoing; or

(x) otherwise take any action that would or could reasonably be expected to compel the Company to make a public announcement regarding any of the matters set forth in this Section 4.2.

(b) If, at any time during the Standstill Period, (i) the Company has entered into a definitive agreement, the consummation of which would result in a Fundamental Change, or (ii) any Person shall have commenced and not withdrawn a bona fide public tender or exchange offer which if consummated would result in a Fundamental Change and the Board has not recommended that its stockholders reject such offer within the time period contemplated by Rule 14d-9, for so long as such condition continues to apply, the limitation on the actions described in clauses (a)(ii), (a)(iii), (a)(iv) (and any related acquisition of Beneficial Ownership solely by being part of a group shall be exempt from (a)(i)), (a)(v), (a)(vi), (a)(ix) and (a)(x) above shall not be applicable to the Investor Stockholders (but all other provisions of this Agreement will, subject to Section 4.2(c), continue to apply).

(c) Anything in this Section 4.2 to the contrary notwithstanding, this Section 4.2 shall not prohibit or restrict any actions taken by the Investor Stockholders’ designee or designees on the Board in their capacities as a member of the Board and in compliance with and subject to his or her fiduciary duties as a member of the Board.

(d) The Investor Stockholders agree that during the Standstill Period they will not directly or indirectly propose, effect or agree to any transaction which if consummated would

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result in a Change of Control of the Company in which the acquiring counterparty is (i) an Investor Stockholder or an Affiliate of an Investor Stockholder or (ii) a member of a 13D Group of which an Investor Stockholder or an Affiliate of an Investor Stockholder is also a member, in each case unless such transaction is approved by (or in the case of a tender or exchange offer, is conditioned on the receipt of tenders from), the holders of a majority of the outstanding shares of Common Stock not Beneficially Owned by the Investor Stockholders or any of their affiliates (as defined in Section 12b-2 of the Exchange Act).

Section 4.3. Indemnification.

(a) The Company shall defend, indemnify and hold harmless the Investor Stockholders and each Investor Stockholder Controlling Person and their respective directors, officers, employees and agents, in their respective capacities as such (the “Indemnitees”) against any out-of-pocket: costs, penalties, judgments, awards, disbursements, amounts paid in settlement or compromise and expenses (including reasonable attorneys’ fees and expenses) (collectively “Damages”) arising out of or resulting from any governmental or third party allegations or claim commenced or made on or after October 24, 2007 against such Indemnitee relating to any act or omission (or alleged act or omission) by the Company or any of its Subsidiaries (each such claim, a “Vicarious Claim”), including any Damages arising out of or relating to any federal, state or other securities law arising out of or relating to any offer or sale of securities by the Company or its Subsidiaries, provided that the Company will not be liable for any such Damages to the extent that such Damages are judicially determined to have resulted primarily from an Indemnitee’s express acts or omissions that are in bad faith or constitute willful misconduct, and upon such a judicial determination the Investor Stockholders will, and will cause each other Indemnitee to, promptly reimburse the Company for any amounts previously paid by the Company for which the Company is not liable pursuant to the terms of this Section 4.3. At the Company’s request, the Investor Stockholders and the other Indemnitees shall consent to the entry of a judgment or enter into any settlement with respect to any Vicarious Claim to which they are parties provided that such judgment or settlement includes an unconditional release of each Indemnitee with respect to such Vicarious Claim without imposing any obligations or liabilities on any Indemnitee. The Investor Stockholders and the other Indemnitees shall not consent to the entry of a judgment or enter into any settlement of claims against them in any Vicarious Claim without the written consent of the Company, not to be unreasonably withheld. Notwithstanding anything in this Section 4.3 to the contrary, the Damages shall not include any lost profits based on the potential appreciation of or hypothetical investment returns on the Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares.

(b) The rights of any Indemnitee to indemnification hereunder will be in addition to any other rights any such Person may have under any other agreement or instrument to which such Indemnitee is or becomes a party or is or otherwise becomes a beneficiary or under law or regulation or under the certificate of incorporation or bylaws of the Company or any of its Subsidiaries.

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(c) Notwithstanding anything to the contrary contained in this Agreement, for purposes of this Section 4.3, the term “Indemnitees” shall not include any Person who is an officer, director or employee of the Company or any of the Company’s Subsidiaries in such capacity as an officer, director or employee.

Section 4.4. Regulatory Matters. If necessary, at the request of an Investor Stockholder, the Company shall promptly make any and all filings which it is required to make under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), for the conversion of the Purchased Shares into the Conversion Shares, the exercise of the Warrants for the Warrant Shares and the exercise of the rights pursuant to Section 4.1, and the Company agrees to furnish the Investor Stockholders with such necessary information and reasonable assistance as the Investor Stockholders may reasonably request, in connection with its preparation of any necessary filings or submissions to the Federal Trade Commission or the Antitrust Division of the U.S. Department of Justice, including, without limitation, any filings or notices necessary under the HSR Act. The Company shall pay or reimburse all expenses and fees payable to governmental authorities in connection with filings made pursuant to this Section 4.4.

Section 4.5. Company Rights Agreement. During the Standstill Period, the Company agrees that it shall not take any action to amend, modify or supplement the Company Rights Agreement (as amended by the Rights Agreement Amendment), or adopt, propose or implement any other shareholder rights plan, in each case such that (a) the Rights become exercisable, (b) a Distribution Date (as defined in the Company Rights Agreement or its comparable term/provision under any successor or substitute shareholder rights plan) occurs, or (c) the Investor Stockholders or any of their Affiliates becomes an Acquiring Person (as defined in the Company Rights Agreement or its comparable term/provision under any successor or substitute shareholder rights plan), in each case due to the Beneficial Ownership by the Investor Stockholders and their Affiliates of the Purchased Shares, Conversion Shares, Warrants, Warrant Shares and any other Equity Securities, so long as none of the Investor Stockholders, the Elevation Entities or any of their respective Affiliates, or any of the foregoing Persons acting in concert with any other Person, shall acquire any Economic Rights or Beneficial Ownership of Equity Securities if the effect of such acquisition would be that the Common Stock Beneficially Owned in the aggregate by the Investor Stockholders and their Affiliates (including, without limitation, any 13D Group of which any Investor Stockholder or any Affiliate thereof is a member) would exceed the Standstill Limit as may be in effect from time to time (regardless of the termination of the Standstill Period or any other provision of this Agreement), except (x) as a result of the Beneficial Ownership of or exercise of any Rights, (y) the receipt of any Capital Stock, rights or other securities from the Company pursuant to the terms of the Series B Preferred Stock, the Series C Preferred Stock or the Warrants (or the exercise or conversion of any such Capital Stock rights or other securities) and (z) Equity Securities issued to Appointed Directors or Investor Directors in their capacities as such, if any, provided that for purposes of calculating the number of shares of Common Stock Beneficially Owned by the Investor Stockholders and their Affiliates, there shall be excluded from such calculation shares of Common Stock Beneficially Owned by Affiliates of the Investor Stockholders that are not also

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Beneficially Owned by the Investor Stockholders up to the maximum number of shares of Common Stock that will be excluded pursuant to this clause equal one percent (1%) of the Diluted Common Shares Outstanding. It is agreed that for purposes of the Company Rights Agreement, if and to the extent that a Person is deemed not to be considered an Affiliate of an Investor Stockholder under the definition of “Affiliate” in Exhibit A hereto, such Person shall not be considered an “Affiliate” or “Associate” of an Investor Stockholder under the Company Rights Agreement (i.e., definitions of “Acquiring Person” and “Beneficial Owner”, respectively), or any successor or substitute therefor. It is agreed that to the extent that any Person (a “Contracting Party”) who is not an Investor Stockholder, Elevation Entity or Affiliate thereof, and who is not a member of any 13D Group of which any Investor Stockholder, Elevation Entity or Affiliate thereof is a member, enters into an agreement, arrangement or understanding with an Investor Stockholder, Elevation Entity or Affiliate thereof with respect to the purchase or sale from or to such Contracting Party of any Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants, Warrant Shares or other Equity Securities (the securities that are the subject of such purchase/sale arrangement, “Subject Securities”), which agreement, arrangement or understanding is not in violation of the provisions of Section 4.2(a) (without regard to Section 4.2(b)) (to the extent directly relating to such purchase/sale, an “Unrelated Contract”), then (i) such Contracting Party and its affiliates and associates shall not be deemed to beneficially own (as defined in the Company Rights Agreement or its comparable term/provision under any successor or substitute shareholder rights plan) by virtue of such Unrelated Contract any Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants, Warrant Shares or other Equity Securities held by any Investor Stockholder, Elevation Entity or Affiliate thereof, other than the Subject Securities, and (ii) no Investor Stockholder, Elevation Entity or Affiliate thereof shall be deemed to beneficially own (as defined in the Company Rights Agreement or its comparable term/provision under any successor or substitute shareholder rights plan) by virtue of such Unrelated Contract any Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants, Warrant Shares or other Equity Securities held by the Contracting Party or its associates and affiliates, other than any Subject Securities (it being understood, for the purposes of clarity, that this sentence shall not in any way exclude from operation of the Company Rights Agreement (or its comparable term/provision under any successor or substitute shareholder rights plan) the effects of (A) any other agreement, arrangement or understanding with respect to the acquisition, disposition, holding or voting of any Equity Securities other than the purchase or sale, as applicable, of the Subject Securities and/or (B) any acting in concert by any Persons with respect to the acquisition, disposition, holding or voting of any Equity Securities other than the purchase or sale, as applicable, of the Subject Securities. To the extent that any Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants, Warrant Shares or other Equity Securities held by any Investor Stockholder, Elevation Entity or Affiliate thereof are subject to any bona fide pledge (but not a foreclosure thereon) or contractual encumbrance (collectively, “Encumbrances”) resulting from a bona fide incurrence of indebtedness for money borrowed that is not entered into with the intent or purpose of effecting any action that would otherwise be prohibited by Section 4.2(a) or Article 3 (“Loans”) from any bank or financial institution (a “Loan Party”) (such securities, “Pledged Securities”), (x) no Loan Party or any of its associates or affiliates shall be deemed to beneficially own (as defined in the Company Rights Agreement or its comparable term/provision

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under any successor or substitute shareholder rights plan) by virtue of any such Encumbrances or agreements (to the extent directly relating to such Loans) any such Pledged Securities except any Equity Securities acquired by such Lender as a result of the foreclosure on such Pledged Securities and (y) no Investor Stockholder, Elevation Entity or Affiliate thereof shall be deemed to beneficially own (as defined in the Company Rights Agreement or its comparable term/provision under any successor or substitute shareholder rights plan) any Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants, Warrant Shares or other Equity Securities held by any Loan Party or any of its associates or affiliates by virtue of any such Encumbrances, or such agreements (to the extent directly relating to such Loans). In furtherance of the foregoing, during the Standstill Period, the Company shall in connection with any amendment, modification or supplement to this Agreement (the terms or provisions so amended, modified or supplemented, the “Amended Terms”), take such action as necessary to amend, modify or supplement the Company Rights Agreement (as amended from time to time), or any other shareholder rights plan then in effect, in each case to give effect to such Amended Terms (to the extent applicable) in the Company Rights Agreement, as may be amended or otherwise modified or supplemented from time to time, or any other shareholder rights plan then in effect, contemporaneously with such amendment, modification or supplement to this Agreement.

Section 4.6. Section 16 Matters.

(a) During the period commencing on the Closing Date and ending on the day after the later of (i) the six-month anniversary of the Closing Date and (ii) the six-month anniversary of any Transfer of shares of Series C Preferred Stock and Warrants required pursuant to, and in accordance with, Section 2.3 of the Series C Purchase Agreement, the Company agrees that it will not take any action that would result in an actual or deemed disposition or, if there has been any Transfer of shares of Series C Preferred Stock and Warrants required pursuant to, and in accordance with, Section 2.3 of the Series C Purchase Agreement, acquisition of Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants, Warrant Shares or other Equity Securities held by any Investor Stockholder or Elevation Entity subject to the disgorgement of profits pursuant to the requirements of Section 16(b) of the Exchange Act (assuming in all cases that such Persons would tender into any transaction described in Section 4.2(b)(ii) or approved by the Board), including without limitation (x) taking any action to permit, facilitate, exempt or exclude (by amendment, modification or supplement or otherwise) any Fundamental Change or any tender offer from operation of the Company Rights Agreement or (y) calling a stockholders meeting to approve or otherwise consummate any Fundamental Change or any other transaction that would result in such a disposition. Notwithstanding anything herein to the contrary, the Company shall be permitted to cause the Transfer of shares of Series C Preferred Stock and Warrants pursuant to, and in accordance with, Section 2.3 of the Series C Purchase Agreement.

(b) In addition, for the purpose of seeking an exemption under Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3), the Company shall, upon receiving reasonable prior notice from any Investor Stockholder or Elevation Entity, request that the Board or the applicable committee of the Board approve, in accordance with Rule 16b-3 and SEC no-action

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letters thereunder, any acquisitions from, or dispositions to, the Company of Series B Preferred Stock, Series C Preferred Stock, Conversion Shares, Warrants, Warrant Shares or other Equity Securities, to the extent made by any Investor Stockholder, Elevation Entity or Affiliate thereof who is or will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company.

ARTICLE 5

MISCELLANEOUS

Section 5.1. Termination. This Agreement shall terminate, except for this Article 5 and Section 4.2 and Section 4.3 which shall survive such termination, as follows: (i) with respect to a particular Investor Stockholder, on the date that such Investor Stockholder no longer beneficially owns, and has no contractual or other right to acquire, any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Warrants or Warrant Shares and (ii) upon the written consent of the parties hereto in such number and manner required for amendments hereto as provided in Section 5.7.

Section 5.2. Expenses. Except as otherwise provided herein (and except as provided in the Series C Purchase Agreement), all expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses; provided, however, that the Company shall reimburse each Investor Stockholder and its Affiliates for reasonable out-of-pocket expenses incurred in connection with (i) monitoring their investment in the Purchased Shares and the Conversion Shares, provided that without the prior written consent of the Company, such reimbursement shall not exceed $50,000 in the aggregate in any year and (ii) the provision of services to the Company by an Investor Stockholder or any of its Affiliates as agreed to in writing for such services, from time to time, of the Company or any of its Subsidiaries.

Section 5.3. Successors and Assigns; Assignment.

(a) Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the parties hereto. This Agreement may not be assigned by an Investor Stockholder or a Permitted Transferee without the prior written consent of the Company, except that Investor Stockholders and Permitted Transferees may assign their respective rights and obligations without such consent if a Transfer is made in accordance with Section 3.1(b)(ii).

(b) Notwithstanding anything to the contrary herein, to the extent that the Company is not the Survivor of a Fundamental Change, the Company shall cause such Survivor of a Fundamental Change to become a party hereto and bound upon consummation of such Fundamental Change to the provisions of (i) Section 2.1(c)(i) (substituting the Survivor of a Fundamental Change for the Company) and (ii) to the extent that any VCOC Investor Stockholder directly or indirectly continues to hold any Purchased Shares or Conversion Shares, Section 2.9 (substituting the Survivor of a Fundamental Change for the Company).

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Section 5.4. No Third Party Beneficiaries. Except as specifically provided in Section 2.6 (with respect to which the Appointed Directors, Investor Directors and Indemnitees named therein shall be third party beneficiaries of such provisions), Section 2.9 (with respect to which an affiliated entity provided therein shall be third party beneficiaries of such provisions), Section 4.3 (with respect to which all Indemnitees shall be third party beneficiaries) and the last sentence of Section 5.7 (with respect to which holders of Common Stock who are not Investor Stockholders or Affiliates thereof shall be third party beneficiaries), this Agreement is not intended, and shall not be deemed, to confer any rights or remedies upon any Person other than the parties hereto or otherwise create any third-party beneficiary hereto.

Section 5.5. Entire Agreement. This Agreement and the other agreements or documents referred to herein, constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof and supersede any prior understandings, agreements or representations by or among the parties, written or oral, that may have related to the subject matter hereof in any way.

Section 5.6. Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 5.7. Amendment and Waiver. No amendment, waiver or other modification of, or consent under, any provision of this Agreement shall be effective against the Company, unless it is approved in writing by the Company and no amendment, waiver or other modification of, or consent under, any provision of this Agreement shall be effective against the Investor Stockholders or a Permitted Transferee, unless it is approved in writing by Elevation or the Investor Stockholders Beneficially Owning a majority in interest of the Series B Preferred Stock, Series C Preferred Stock and Conversion Shares; provided that if any amendment or waiver operates in a manner that purports by its terms to treat any Investor Stockholder different from other Investor Stockholders in a manner adverse to such Investor Stockholder, the consent of such Investor Stockholder shall also be required for such amendment or waiver to be binding on such adversely affected Investor Stockholder; provided further that the Investor Stockholders or any Permitted Transferee may waive any rights or provide consent with respect to itself; provided further that notwithstanding the foregoing, the addition of a Permitted Transferee as a party hereto in accordance with the terms of Section 3.1(b)(ii) shall not constitute an amendment hereto and need be signed only by such Permitted Transferee. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. The Company shall not amend or waive Section 4.2(d) without the approval of the holders of a majority of the Voting Stock not Beneficially Owned by the Investor Stockholders or Affiliates thereof.

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Section 5.8. Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any Investor Stockholder’s or any Permitted Transferee’s part of any breach, default or noncompliance under this Agreement or any waiver on such party’s part of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative.

Section 5.9. Notices. Except as otherwise provided herein, all notices required or permitted hereunder shall be in writing and shall be deemed effectively given and received: (a) upon personal delivery to the party to be notified; (b) when sent by confirmed facsimile or e-mail if sent during normal business hours of the recipient, if not, then on the next business day; or (c) one (1) business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent, with respect to the Company, the Investor Stockholders and any Permitted Transferee, to their respective addresses specified in the Series C Purchase Agreement (or at such other address as any such party may specify by like notice). The Investor Stockholders will promptly provide the Company with written notice if at any time an Investor Stockholder or other Permitted Transferee no longer satisfies the criteria of a Permitted Transferee. Notwithstanding the foregoing, for so long as the Investor Director Entitlement or Director Representation Entitlement is greater than zero (0), (i) the Company shall be entitled to deliver all notices required hereunder to Elevation or one designee designated by Elevation in writing on behalf of all other Investor Stockholders, and (ii) Elevation or one designee designated in writing by Elevation shall be entitled to act on behalf of all Investor Stockholders, including for the avoidance of doubt, any Permitted Transferee, with respect to any action or consent to be taken by an Investor Stockholder hereunder.

Section 5.10. Interpretation. The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. When reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or Section of this Agreement, unless otherwise indicated. The table of contents, table of defined terms and headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise, and shall

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include all amendments of the same and any successor or replacement statutes and regulations as of the Closing Date. All references to agreements shall mean such agreement as may be amended or otherwise modified from time to time. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

Section 5.11. Governing Law; Jurisdiction; Waiver of Jury Trial.

(a) This Agreement shall be governed in all respects by the Laws of the State of Delaware. Any disagreement, issue, dispute, claim, demand or controversy arising out of or relating to this Agreement (each, a “Dispute”) shall be brought in the Chancery Court of Delaware, so long as such court shall have subject matter jurisdiction over such Dispute, or if it does not have subject matter jurisdiction over such Dispute, the United States District Court or other state court in Delaware having jurisdiction of the Dispute. Each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such Dispute and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such Dispute in any such court and that any such Dispute which is brought in any such court has been brought in an inconvenient forum. Process in any such Dispute may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 5.9 shall be deemed effective service of process on such party.

(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 5.12. Specific Performance; No Special Damages.

(a) The parties hereto agree that the obligations imposed on them in this Agreement are special, unique and of an extraordinary character, and that, in the event of breach by any party, damages would not be an adequate remedy and each of the other parties shall be entitled to specific performance and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity; and the parties hereto further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief.

(b) Each party agrees that there shall be no special, exemplary, punitive or multiple damages connected with or resulting from any breach of this Agreement, or actions undertaken in connection with or related hereto, including any such damages which are based upon breach of contract, tort, breach of warranty, strict liability, statute, operation of law or any other theory of recovery, except to the extent such damages are actually incurred by a party hereunder to a third party, and hereby waives any rights to claim such damages. For purposes of clarity, the

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foregoing does not exclude consequential, indirect or incidental damages. Notwithstanding anything to the contrary in the foregoing, no damages (including lost profits) based on potential appreciation of the value of the Common Stock, Series B Preferred Stock, Series C Preferred Stock or Warrants of hypothetical investment returns or of potential alternative investments shall be taken into account in determining the amount of damages.

Section 5.13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

[Remainder of Page Intentionally Left Blank.]

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IN WITNESS WHEREOF, the parties hereto have executed this Stockholders’ Agreement as of the date first set forth above.

PALM, INC.
By:	/s/    Edward T. Colligan
Name:	Edward T. Colligan
Title:	President and CEO
ELEVATION PARTNERS, L.P.
By:	Elevation Associates, L.P., as General Partner
By:	Elevation Associates, LLC, as General Partner
By:	/s/    Bret Pearlman
Name:	Bret Pearlman
Title:	Member
ELEVATION EMPLOYEE SIDE FUND, LLC
By:	Elevation Management, LLC, its manager
By:	/s/    Bret Pearlman
Name:	Bret Pearlman
Title:	Member

[Stockholders’ Agreement]

EXHIBIT A

Defined Terms

“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person, for so long as such Person remains so associated to the specified Person. Notwithstanding the foregoing, (i) the Company, its Subsidiaries and its other controlled Affiliates shall not be considered Affiliates of any Investor Stockholder or their Permitted Transferees, (ii) the portfolio companies in which the Investor Stockholders, any other Elevation Entities or any other Elevation Partners investment fund that is Controlled by, or under common control with, an Elevation Entity have directly or indirectly made a debt or equity investment shall not be considered Affiliates of the Investor Stockholders or their Permitted Transferees if the Investor Stockholders, alone, or together with their Permitted Transferees, (x) in the aggregate Beneficially Own securities that would comprise (upon conversion, exchange or exercise of any rights, options, warrants or similar securities, if applicable) less than 50% of the Total Current Voting Power of such portfolio company and (y) do not constitute, nor do they have the contractual or other legal right to elect, a majority of the members of the board or other governing body of such portfolio company, unless such portfolio company has received Confidential Information, directly or indirectly, or has been provided assistance with respect to the acquisition, holding, voting or disposition of Capital Stock from an Investor Stockholder or any of its Affiliates or has otherwise acted in concert with an Investor Stockholder or any of its Affiliates with respect to the acquisition, holding, voting or disposition of Capital Stock and (iii) a corporation or other entity (a “Specified Entity”) with respect to which (x) none of the Investor Stockholders or Elevation Entities has directly or indirectly made a debt or equity investment and (y) none of the Investor Stockholders, alone or together with their Permitted Transferees, constitute, or have the contractual or other legal right to elect, a majority of the members of the board or other governing body of such Specified Entity (and which otherwise is not controlled by an Elevation Entity), but which is an Affiliate of an individual who would be considered a controlling Affiliate of an Elevation Entity, will not be considered an Affiliate of the Investor Stockholders or their Permitted Transferees unless such Specified Entity has received Confidential Information, directly or indirectly or has been provided assistance with respect to the acquisition, holding, voting or disposition of Capital Stock from an Investor Stockholder or any of its Affiliates or has otherwise acted in concert with an Investor Stockholder or any of its Affiliates with respect to the acquisition, holding, voting or disposition of Capital Stock. For the avoidance of doubt, Permitted Transferees shall be considered Affiliates of the Investor Stockholders.

“as converted” means, with respect to any Equity Securities owned by any Investor Stockholder and its Permitted Transferees that are convertible into, or exchangeable or exercisable for Common Stock, such Equity Securities on an as converted, exchanged or exercised basis.

“Below Market” means (i) the issuance of Common Stock at a price per share less than 95% of the closing sale price of Common Stock on the trading day immediately prior to the date

of a definitive agreement pursuant to which the sale of Common Stock is to occur or (ii) the issuance of any security convertible into or, exchangeable or exercisable for, Common Stock for a conversion, exchange or exercise price per share less than 95% of the closing sale price of Common Stock on the trading day immediately prior to the date of a definitive agreement pursuant to which the sale of such securities is to occur.

“Beneficial Owner”, “Beneficially Own” and “Beneficial Ownership” have the meaning given such term in Rule 13d-3 under the Exchange Act, and a Person’s beneficial ownership of securities will be calculated in accordance with the provisions of such Rule; provided, however, that (i) a Person will be deemed to be the beneficial owner of any security which may be acquired by such Person whether within 60 days or thereafter, upon the conversion, exchange or exercise of any rights, options, warrants or similar securities to subscribe for, purchase or otherwise acquire (x) capital stock of any person or (y) debt or other evidences of indebtedness, capital stock or other securities directly or indirectly convertible into or exercisable or exchangeable for such capital stock of such person and (ii) a Person shall be deemed to be the beneficial owner of any securities with which a Person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of such securities.

“Board” means the Board of Directors of the Company.

“Board Representation Entitlement” has the meaning assigned to it in the Series C Certificate of Designation.

“Board Size Decrease” means a decrease in the authorized number of Directors then constituting the Board that, as a result thereof results in a reduction of the (i) Board Representation Entitlement to less than the number of Appointed Directors then serving on the Board or (ii) Investor Director Entitlement to less than the number of Investor Directors then serving on the Board.

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in New York, New York.

“Bylaws” means the Bylaws of the Company, as in effect on the Closing Date and as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and the terms of the Restated Certificate.

“Capital Stock” means any and all shares of capital stock of the Company, including without limitation, any and all shares of Common Stock and Preferred Stock.

“Change in Control of the Company” means any of the following: (i) a merger, consolidation or other business combination or transaction to which the Company is a party if the Voting Stock of the Company immediately prior to the effective date of such merger, consolidation or other business combination or transaction (or the securities such Voting Stock is converted or exchanged into), represents less than 50% of the Total Current Voting Power of the

A-2

surviving entity (or its parent) following such merger, consolidation or other business combination or transaction; (ii) an acquisition by any Person, entity or 13D Group of direct or indirect Beneficial Ownership of Voting Stock of the Company representing 50% or more of the Total Current Voting Power of the Company; or (iii) a sale of all or substantially all of the assets of the Company to any Person or Persons; or (iv) a liquidation or dissolution of the Company.

“Committee Qualification Requirements” shall mean that the Investor Director shall, in the good faith judgment of the Board, meet at all times during the Investor Director’s service on a particular committee: (i) all independence requirements applicable to companies listed for quotation on Nasdaq (or other Exchange if the Company’s shares are listed on another Exchange) for members of the particular committee, (ii) be free of any relationship that, in the good faith judgment of the Board, would interfere with the exercise of independent judgment as a member of the particular committee, (iii) in the case of the Compensation Committee, be a “non-employee director” (within the meaning of Rule 16b-3) and an “outside director” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), and (iv) in the case of the Audit Committee, satisfy the requirements of NASDAQ Marketplace Rule 4350(d)(2) for serving on the Audit Committee.

“Common Stock” means the Common Stock, par value $0.001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.

“Company Rights Agreement” means that certain Preferred Stock Rights Agreement, dated as of September 25, 2000, as amended, between the Company and Computershare Trust Company of New York, as successor to Equiserve Trust Company, N.A. and Fleet National Bank.

“Confidentiality Agreement” means the agreement, dated October 6, 2006, between the Company and Elevation Associates, L.P. with respect to confidential information.

“Control” or “Controlled by” have the meaning set forth in Rule 12b-2 of the Exchange Act.

“Controlled Affiliate(s)” means any Affiliate(s) of Elevation directly or indirectly Controlled by an Elevation Entity. For the avoidance of doubt, any entity that is not an Affiliate of an Elevation Entity as a result of the operation of clause (i), (ii) or (iii) of the definition of “Affiliate” shall not be considered a Controlled Affiliate.

“Conversion Shares” means the Series B Conversion Shares and the Series C Conversion Shares.

“Diluted Common Shares Outstanding” means the sum of (i) the number of outstanding shares of Common Stock plus (ii) the number of shares of Common Stock issuable upon the

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conversion of outstanding shares of Series B Preferred Stock and Series C Preferred Stock plus (iii) the number of shares of Common Stock issuable upon the exercise of the Warrants plus (iv) the number of shares of Common Stock issuable upon the conversion, exercise, exchange or issuance of any Equity Securities of the Company sold in any Offering described in clause (ii) of the definition of Offering. For purposes of determining compliance with Section 4.3 in connection with any acquisition of Beneficial Ownership of shares of Common Stock, the Investor Stockholders and their Affiliates will be entitled to rely on (and the Diluted Common Shares Outstanding will be calculated by reference to) the information set forth in the most recent report on Form 10-Q or 10-K filed with the SEC unless the Company has provided Elevation more recent information regarding the components of the Diluted Common Shares Outstanding.

“Director” means any member of the Board.

“Dispute” has the meaning assigned to such term in Section 5.11(a).

“Economic Rights” means, with respect to a security, the right to the full pecuniary interest in the security, including, without limitation, the right to receive dividends and distributions, proceeds upon liquidation and receive the proceeds of disposition or conversion (if applicable) of the security.

“Elevation Beneficial Ownership Percentage” means, at any time, the quotient of (a) the aggregate number of shares of Common Stock Beneficially Owned, but excluding Shared Beneficial Ownership of Common Stock, by the Investor Stockholders divided by (b) the sum of (i) the total number of shares of Common Stock outstanding at such time plus (ii) the number of shares of Common Stock into which the outstanding shares of Series B Preferred Stock and Series C Preferred Stock are entitled to convert at such time plus (iii) the number of shares of Common Stock issuable upon the exercise of the Warrants plus (iv) the number of shares of Common Stock issuable upon the conversion, exercise, exchange or issuance of any Equity Securities of the Company sold in any Offering described in clause (ii) of the definition of Offering. For purposes hereof, if a Share Ownership Reduction Cure Period shall have ever taken place (on one or more occasions), and at the end of such Share Ownership Reduction Cure Period there is a reduction in the number of Appointed Directors pursuant to Section 4(d)(iii) of the Series C Certificate of Designation or the number of Investor Directors pursuant to Section 2.1(d)(ii), then the Elevation Beneficial Ownership Percentage shall be deemed at any point in time thereafter to be no greater than the lowest Elevation Beneficial Ownership Percentage that shall have existed at the end of any such Share Ownership Reduction Cure Period.

“Elevation Entity” means any of: (i) Elevation, (ii) Elevation Employee Side Fund, LLC, (iii) Elevation Associates, L.P., the sole general partner of Elevation, (iv) Elevation Associates, LLC, the sole general partner of Elevation Associates, L.P. and of Elevation GP Participants, LP, (v) Elevation GP Participants, LP, a limited partner of Elevation Associates, L.P., and (vi) Elevation Management, LLC, the sole management company to Elevation, in each case so long as, with respect to such entity, such entity is under common control with Elevation.

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“Elevation Ownership Limit” means the Elevation Beneficial Ownership Percentage at the close of business on the Closing Date, provided that if any Investor Stockholder effects a Transfer to any Person other than one or more Permitted Transferees, then on and after the first day after the end of the fiscal quarter of the Company in which such Transfer occurred (the “Transfer Quarter”) the Elevation Ownership Limit will equal the Elevation Beneficial Ownership Percentage at the close of business on the last day of the Transfer Quarter; provided further, however, that the Elevation Ownership Limit shall never be higher than the Elevation Beneficial Ownership Percentage at the close of business on the Closing Date.

“Equity Securities” means any and all shares of Capital Stock of the Company, securities of the Company convertible into, or exchangeable or exercisable for, such shares, and options, warrants or other rights to acquire such shares (including the shares of Series B Preferred Stock and Series C Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares).

“Exchange” means the Nasdaq or the New York Stock Exchange, as the case may be.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Fundamental Change” has the meaning assigned to it in the Series C Certificate of Designation.

“GAAP” means generally accepted accounting principles, as in effect in the United States of America from time to time.

“incur” means, directly or indirectly, to incur, refinance, create, assume, guarantee or otherwise become liable.

“Information Rights Period” means the period beginning with the Closing Date and ending when the Investor Director Entitlement is zero (0).

“Investor Director” means any Director designated or nominated for election to the Board by Investor Stockholders pursuant to Section 2.1.

“Investor Director Entitlement” means, a number of Investor Directors (rounded to the nearest whole number) equal to the product of (x) the total number of Directors then comprising the full Board and (y) the lesser of the Maximum Voting Percentage and the Elevation Beneficial Ownership Percentage; provided, that, notwithstanding the foregoing (A) subject to clause (B) below, until such time as the Investor Stockholders shall have collectively Transferred (other than pursuant to a bona fide pledge, but not a foreclosure thereon or to one or more Permitted Transferees who continue to be such) more than 70.0% of the aggregate Purchased Shares (calculated on an as-converted to Common Stock basis) and Conversion Shares to Persons other than Permitted Transferees who continue to be such (the “70% Transfer Date”), the Investor Director Entitlement shall in no event be less than one (1) and on and after the 70% Transfer

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Date, the Investor Director Entitlement shall mean zero (0), and (B) from and after the first time the Investor Stockholders cease to Beneficially Own, excluding Shared Beneficial Ownership, at least 7.5% of the Total Current Voting Power of the Survivor of a Fundamental Change, the Investor Director Entitlement shall thereafter mean zero (0). For purposes of this definition, however, “Purchased Shares” shall not include any shares of Series C Preferred Stock Transferred pursuant to, and in accordance with, Section 2.3 of the Series C Purchase Agreement and “Conversion Shares” shall not include any shares of Common Stock that may be issued or are issued upon conversion of shares of Series C Preferred Stock that do not constitute Purchased Shares.

“Investor Stockholder Controlling Person” shall mean each Person that Controls, directly or indirectly, an Investor Stockholder.

“Maximum Voting Percentage” has the meaning assigned to it in the Series C Certificate of Designation.

“Maximum Voting Power” has the meaning assigned to it in the Series C Certificate of Designation.

“Nasdaq” means The NASDAQ Stock Market, or any successor thereto.

“Non-Constituent Issuer Fundamental Change” has, (i) with respect to the Series C Preferred Stock, the meaning assigned to it in the Series C Certificate of Designation, and (ii) with respect to the Series B Preferred Stock, the meaning assigned to it in the Series B Certificate of Designation.

“Non-Voting Convertible Securities” means any securities which are convertible into, exchangeable for or otherwise exercisable to acquire Voting Stock of the Company, including convertible securities, warrants, rights or options to purchase Voting Stock, but excluding Series B Preferred Stock and Series C Preferred Stock.

“Offering” means (i) a firm commitment underwritten public offering of shares of Common Stock by the Company, or (ii) any offering of Common Stock or of Equity Securities convertible into, or exchangeable or exercisable for, Common Stock by the Company (which, for the avoidance of doubt, shall not be deemed to include any Transfer of shares of Series C Preferred Stock and Warrants required pursuant to, and in accordance with, Section 2.3 of the Series C Purchase Agreement) sold Below Market or for consideration per share that is less than the Series C Conversion Price (as defined in the Series C Certificate of Designation) in effect at the time of such offering, other than shares of Common Stock or other Equity Securities offered or issued in strategic acquisitions, for compensatory purposes, or in any commercial or other transaction the primary purpose of which is other than the raising of additional capital.

“Permitted Transferee” means (i) an Elevation Entity’s directors and officers, (ii) any Elevation Entity, and (iii) any corporation, partnership or limited liability company which is and

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continues to be a Controlled Affiliate. In the event that such a corporation, partnership or limited liability company subsequent to a Transfer hereunder ceases to be a Controlled Affiliate (as described in clause (iii) above), or in the event that any Elevation Entity ceases to meet the definition thereof (as described in clause (ii) above) or if an Elevation Entity’s director or officer ceases to be such (any such event described in this sentence, a “Disqualifying Event”), such Disqualifying Event shall be considered a Transfer and shall be subject to the terms hereof with respect thereto, including Section 3.1. In the event of a Disqualifying Event, the Person that shall have ceased to be a Controlled Affiliate, Elevation Entity, or director or officer shall cease to be considered an Investor Stockholder or Permitted Transferee for any purpose hereunder or under the Series B Certificate of Designation or Series C Certificate of Designation, but for all purposes shall continue to be bound by the provisions of this Agreement as an Investor Stockholder.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

“Preferred Stock” means the shares of preferred stock, par value $0.001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.

“Pro Rata Share” means, for any Investor Stockholder, such number of Equity Securities (of the same type as the Equity Securities being sold in the Offering) as shall equal the product obtained by multiplying (i) the quotient obtained by dividing (A) the number of shares of Common Stock (on an as converted basis) Beneficially Owned by such Investor Stockholder but excluding Shared Beneficial Ownership of Common Stock (it being understood that in determining the number of shares of Capital Stock Beneficially Owned, there shall be no double counting of such shares to the extent there is shared voting or dispositive power among any Investor Stockholder and any Permitted Transferee or among Permitted Transferees), by (B) the sum of (x) the number of shares of Common Stock outstanding as of the most recent practicable date prior to the Offering, (y) the number of shares of Common Stock into which the outstanding shares of Series B Preferred Stock and Series C Preferred Stock are then convertible pursuant to the respective terms of the Series B Certificate of Designation and Series C Certificate of Designation and (z) the number of shares of Common Stock issuable upon the exercise of the Warrants by (ii) the aggregate number of such Equity Securities being sold in the Offering.

“Public Offering” means a public offering of shares of Common Stock pursuant to an effective registration statement (other than on Form S-4, Form S-8 or their equivalent) under the Securities Act.

“Restated Certificate” means the Amended and Restated Certificate of Incorporation (including the Series B Certificate of Designation and Series C Certificate of Designation) of the Company, as in effect on the Closing Date and as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and the terms of this Agreement.

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“Rights” shall have the meaning given thereto in the Company Rights Agreement (or the comparable right under any successor or substitute shareholder rights plan).

“Right to Maintain Period” means the period beginning on the Closing Date and ending upon the earliest to occur of (i) the date that is seven years from the Original Issuance Date (as defined in the Series C Certificate of Designation) of the Series C Preferred Stock, (ii) the first date on which the Elevation Beneficial Ownership Percentage ceases to be at least 10.0%, and (iii) a Fundamental Change.

“Right to Vote” means, with respect to a security, the right to direct the voting of a security with respect to any matter for which the security is entitled to vote.

“SEC” means the U.S. Securities and Exchange Commission or any other federal agency then administering the Securities Act or the Exchange Act and other federal securities laws.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Series B Certificate of Designation” means the Certificate of Designation with respect to the Series B Preferred Stock, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof.

“Series B Conversion Shares” means the shares of Common Stock that may be issued upon the conversion of the Series B Preferred Stock as provided for in the Series B Certificate of Designation.

“Series B Preferred Stock” means the Preferred Stock of the Company that is designated as Series B Convertible Preferred Stock and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization (other than the Series B Conversion Shares upon conversion thereof as contemplated by the Series B Certificate of Designation).

“Series C Certificate of Designation” means the Certificate of Designation with respect to the Series C Preferred Stock, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof and hereof.

“Series C Conversion Shares” means the shares of Common Stock that may be issued upon the conversion of the Series C Preferred Stock as provided for in the Series C Certificate of Designation.

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“Series C Preferred Stock” means the Preferred Stock of the Company that is designated as Series C Convertible Preferred Stock and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization (other than the Series C Conversion Shares upon conversion thereof as contemplated by the Series C Certificate of Designation).

“Shared Beneficial Ownership” means Beneficial Ownership in which (a) voting power is shared with another Person, except in the case of the Investor Stockholders and their Permitted Transferees, to the extent that such shared voting power is shared only with another Investor Stockholder or Permitted Transferee and/or (b) the Investor Stockholders and/or their Permitted Transferees have effected a Transfer to a Person other than a Permitted Transferee, provided that any contractual encumbrance resulting from a bona fide incurrence of indebtedness for money borrowed (including an obligation to repay such indebtedness with the proceeds of any Transfer of, or dividend or distribution on, any shares of Series B Preferred Stock, Series C Preferred Stock or Common Stock) not incurred in violation of Section 3.1 shall not be deemed to be a Transfer, loss or reduction in the Beneficial Ownership associated with such shares of Series B Preferred Stock, Series C Preferred Stock or Common Stock.

“Share Ownership Reduction” means a reduction, for any reason, in the Elevation Beneficial Ownership Percentage which would result in a reduction to the number of Directors the Investor Stockholders are entitled to nominate, designate or appoint pursuant to Section 2.1.

“Share Ownership Reduction Cure Period” means the period commencing on the date the Company provides the Company Notice and ending on the date 60 days thereafter.

“Standstill Limit” shall mean, at any time, the greater of:

(i) the product of (x) 10% and (y) the number of Diluted Common Shares Outstanding; and

(ii) the lesser of (x) the product of (A) the Elevation Ownership Limit and (B) the number of Diluted Common Shares Outstanding and (y) the product of (A) 39.9% and (B) the Maximum Voting Power.

“Standstill Period” means the period beginning on the Closing Date and ending on the latest of (i) the third anniversary of the Closing Date, (ii) the time that the Investor Stockholders no longer have the right (whether pursuant to this Agreement, the Series B Certificate of Designation or the Series C Certificate of Designation) to nominate (or have nominated), designate or elect an Appointed Director or an Investor Director to serve on the Board or board of directors or similar governing body of any Survivor of a Fundamental Change, and (iii) the date that an Elevation Affiliate no longer serves on the Board or on the board of directors or similar governing body of any Survivor of a Fundamental Change.

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“Survivor of a Fundamental Change” means (a) the issuer of the securities received by the holders of Common Stock (in their capacities as such) upon the consummation of a Fundamental Change, to the extent the holders of Common Stock receive other securities in exchange, conversion or substitution of their Common Stock in the transaction that resulted in such Fundamental Change or (b) the Company (or its successor) in all other circumstances of a Fundamental Change.

“Third-Party Takeover Proposal” means an offer or proposal by a Person other than any Investor Stockholder, any Affiliate of any Investor Stockholder or any 13D Group of which any Investor Stockholder or any of its Permitted Transferees is a member that has been publicly disclosed by the Company to effect a Change in Control of the Company.

“13D Group” means any group of Persons formed for the purpose of acquiring, holding, voting or disposing of Equity Securities which would be required under Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, to file a statement on Schedule 13D (a “Schedule 13D”) pursuant to Rule 13d-1(a) of the rules and regulations promulgated under the Exchange Act or a Schedule 13G of the rules and regulations promulgated under the Exchange Act pursuant to Rule 13d-1(c) of the rules and regulations promulgated under the Exchange Act with the SEC as a “person” within the meaning of Section 13(d)(3) of the Exchange Act if such group Beneficially Owned Equity Securities representing more than 5% of any class of Equity Securities then outstanding.

“Total Current Voting Power” means, with respect to any entity, at the time of determination of Total Current Voting Power, the total number of votes which may be cast on a general matter of the entity at which all classes of equity voting securities of the entity are entitled to vote (or, in the event the entity is not a corporation, the governing members, board or other similar body of such entity) plus, for any determination with respect to the Total Current Voting Power following a Non-Constituent Issuer Fundamental Change, the number of votes that the holders of Series B Preferred Stock and holders of Series C Preferred Stock would have been entitled to vote (by virtue of the number of shares of Series B Preferred Stock and Series C Preferred Stock outstanding immediately prior to the Fundamental Change) if they had converted to Common Stock pursuant to the respective Series B Certificate of Designation and Series C Certificate of Designation immediately prior to the Fundamental Change; provided that for any determination with respect to the Total Current Voting Power of the Company, such determination shall take into account the limitation resulting from application of the Maximum Voting Percentage pursuant to Section 4(a) of the Series B Certificate of Designation and Section 4(a) of the Series C Certificate of Designation.

“Transfer” means, directly or indirectly, to sell, transfer, assign, pledge (other than a bona fide pledge not in violation of Section 3.1 (but not a foreclosure thereon)), encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge (other than (except for purposes of Section 3.1(b)) a bona fide pledge not in violation of Section 3.1 (but not a foreclosure thereon)), encumbrance, hypothecation or similar

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disposition of, any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Common Stock, Warrants or Warrant Shares beneficially owned by a person or any interest (including any Economic Rights or Voting Rights or creation of Shared Beneficial Ownership) in any shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Common Stock, Warrants or Warrant Shares beneficially owned by a Person, provided that (except for purposes of Section 3.1(b)) any contractual encumbrance resulting from a bona fide incurrence of indebtedness for money borrowed (including an obligation to repay such indebtedness with the proceeds of any Transfer of, or dividend or distribution on, any shares of Series B Preferred Stock, Series C Preferred Stock or Common Stock) not incurred in violation of Section 3.1 shall not be deemed to be a Transfer associated with such shares of Series B Preferred Stock or Series C Preferred Stock, Conversion Shares, Common Stock, Warrants or Warrant Shares.

“Transferee” means any Person to whom any Investor Stockholder or any Permitted Transferee or any Transferee thereof Transfers Equity Securities of the Company in accordance with the terms hereof.

“Uncured Share Ownership Reduction” means a decrease, for any reason, in the Elevation Beneficial Ownership Percentage that results in a reduction in the number of Directors that constitutes the Investor Director Entitlement; provided, however that if, during an applicable Share Ownership Reduction Cure Period, the Elevation Beneficial Ownership Percentage is increased to, and maintained at, the minimum Elevation Beneficial Ownership Percentage necessary to avoid a reduction in the number of Directors that constitutes the Investor Director Entitlement as of immediately prior to such decrease, then, subject to the last sentence of the definition of Elevation Beneficial Ownership Percentage in this Exhibit A, an Uncured Share Ownership Reduction shall be deemed not to have occurred (it being understood that any subsequent decrease in Elevation Beneficial Ownership Percentage that results in a reduction in the number of Directors that constitutes the Investor Director Entitlement may again qualify as an Uncured Share Ownership Reduction).

“Voting Stock” means shares of the Common Stock, Series B Preferred Stock, Series C Preferred Stock and any other securities of the Company or its successor having the power to vote in the election of members of the Board of the Company or its successor.

“Warrant Shares” means the shares of Common Stock that may be issued upon the exercise of the Warrants.

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EX-10.46

Exhibit 10.46

TRANCHE B TERM NOTE

$160,000,000.00 New York, New York January 5, 2009

FOR VALUE RECEIVED, the undersigned PALM, INC. (the “Borrower”) hereby unconditionally promises to pay to the order of MORGAN STANLEY SENIOR FUNDING, INC. or its registered assigns (the “Lender”), at the offices of JPMorgan Chase Bank, N.A. (“Administrative Agent”) at 270 Park Avenue, New York, NY 10017 or such other place as Administrative Agent shall have specified, in dollars and in immediately available funds, in accordance with Section 2.09 of the Credit Agreement (as defined below) on the Tranche B Maturity Date, the principal amount of $160,000,000.00 or, if less, the then unpaid principal amount of the Tranche B Term Loan made by the Lender to the Borrower pursuant to the Credit Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.

The Borrower further unconditionally promises to pay interest on the unpaid principal amount of the Tranche B Term Loa made by the Lender in like money at said office until paid at the rate or rates per annum, from the dates and payable on the dates set forth in the Credit Agreement.

This term note (this “Note”) is one of the promissory notes referred to in Section 2.09(e) of the Credit Agreement dated as of October 24, 2007 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Morgan Stanley Senior Funding, Inc., as syndication agent, and is entitled to the benefits thereof and of the other Loan Documents.

This Note is given subject to the provisions of the Credit Agreement, which, among other things, contains provisions for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Credit Agreement.

The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

PALM INC., as the Borrower
By:	/s/    Andrew J. Brown
Name:	Andrew J. Brown
Title:	Senior Vice President and CFO

EX-10.47

Exhibit 10.47

REVOLVING NOTE

$12,000,000.00 New York, New York January 5, 2009

FOR VALUE RECEIVED, the undersigned PALM, INC. (the “Borrower”) hereby unconditionally promises to pay to the order of MORGAN STANLEY SENIOR FUNDING, INC. or its registered assigns (the “Lender”), at the offices of JPMorgan Chase Bank, N.A. (“Administrative Agent”) at 270 Park Avenue, New York, NY 10017 or such other place as Administrative Agent shall have specified, in dollars and in immediately available funds, in accordance with Section 2.09 of the Credit Agreement (as defined below) on the Revolving Maturity Date, the principal amount of $12,000,000.00 or, if less, the then unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to the Credit Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.

The Borrower further unconditionally promises to pay interest on the unpaid principal amount of each Revolving Loan made by the Lender in like money at said office until paid at the rate or rates per annum, from the dates and payable on the dates set forth in the Credit Agreement.

This revolving note (this “Note”) is one of the promissory notes referred to in Section 2.09(e) of the Credit Agreement dated as of October 24, 2008 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the lenders from time to time party thereto (the “Lenders”), JPMorgan Chase Bank, N.A., as administrative agent, and Morgan Stanley Senior Funding, Inc., as syndication agent, and is entitled to the benefits thereof and of the other Loan Documents.

This Note is given subject to the provisions of the Credit Agreement, which, among other things, contains provisions for optional and mandatory prepayment of the principal hereof prior to the maturity hereof, the reborrowing of Revolving Loans from the Lender in an aggregate amount not to exceed the Commitment of the Lender at any time outstanding and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Credit Agreement.

The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

PALM, INC., as the Borrower
By:	/s/    Andrew J. Brown
Name:	Andrew J. Brown
Title:	Senior Vice President and CFO

EX-10.48

Exhibit 10.48

PALM, INC.

WARRANT FOR THE PURCHASE OF SHARES OF

COMMON STOCK OF PALM, INC.

No. [—] Warrant to Purchase [—] Shares

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY NON-U.S. OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH IN THE AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE COMPANY OR ANY SUCCESSOR THERETO.

FOR VALUE RECEIVED, Palm, Inc., a Delaware corporation (the “Company”), hereby certifies that [—], its successor or permitted assigns (the “Holder”), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at the times specified herein, up to an aggregate of [—] fully paid and non-assessable shares of Common Stock, par value $0.001 per share, of the Company (the “Common Stock”), at a purchase price per share of Common Stock equal to the Exercise Price (as hereinafter defined). The number of shares of Common Stock to be received upon the exercise of this Warrant and the Exercise Price are subject to adjustment from time to time as hereinafter set forth, and all references to “Common Stock”, “Warrant Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments.

1. Definitions. (a) The following terms, as used herein, have the following meanings:

“Affiliate” shall have the meaning ascribed to such term in the Amended and Restated Stockholders’ Agreement.

“Amended and Restated Stockholders’ Agreement” means the Amended and Restated Stockholders’ Agreement, dated as of January 9, 2009, by and among the Company and the Investor Stockholders (as defined therein) party thereto, as amended, modified or supplemented from time to time.

“Board” means the Board of Directors of the Company.

“Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or obligated to close.

“Current Market Price Per Common Share” as of any date means the average of the Daily Prices per share of Common Stock for the five (5) consecutive trading days immediately prior to such date.

“Daily Price” means (i) if the shares of Common Stock then are listed and traded on the New York Stock Exchange, Inc. (“NYSE”) or the Nasdaq Stock Market, Inc. (“Nasdaq”), the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of Common Stock on NYSE or Nasdaq on such date, (ii) if the shares of Common Stock then are not listed and traded on NYSE or Nasdaq, the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of Common Stock on such date by the principal national securities exchange on which the shares are listed and traded or (iii) if the shares of Common Stock then are not listed and traded on any such securities exchange, the last quoted bid price on such date for the shares of Common Stock in the over-the-counter market as reported by Pink Sheets LLC or similar organization. If on any determination date the shares of Common Stock are not quoted by any such organization or such bid price is not available, the Current Market Price Per Common Share shall be the fair market value of the shares of Common Stock on such date as determined by a nationally recognized independent investment banking firm retained mutually agreed upon by the Company and the Holder.

“Elevation” means Elevation Partners, L.P.

“Ex-Dividend Date” means, with respect to any issuance or distribution, the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such issuance or distribution.

“Exercise Price” means $3.25 per Warrant Share, as adjusted from time to time as provided herein.

“Expiration Date” means October 24, 2014 at 5:00 p.m., New York City time, or if such day is not a Business Day, then on the next succeeding day that shall be a Business Day.

“Fair Market Value” of Common Stock or any other security or property means the fair market value thereof as determined in good faith by the Board, which determination must be set forth in a written resolution of the Board, in accordance with the following rules: (i) for Common Stock or other security traded or quoted on an Exchange, the Fair Market Value will be the average of the closing prices of such security on such Exchange over a ten (10) consecutive trading day period, ending on the trading day immediately prior to the date of determination; (ii) for any security that is not so traded or quoted, the Fair Market Value shall be determined: (x) mutually by the Board and the holders of at least a majority of the then-outstanding shares of Series C Preferred Stock, or (y) by a nationally recognized investment bank, appraisal or accounting firm (whose fees and expenses will be paid by the Company) selected by

mutual agreement between the Board and the holders representing a majority of the then-outstanding shares of Series C Preferred Stock; or (iii) for any other property, the Fair Market Value shall be determined by the Board in good faith assuming a willing buyer and a willing seller in an arms'-length transaction; provided that if holders representing a majority of the then-outstanding shares of Series C Preferred Stock object to a determination of the Board made pursuant to this clause (iii), the Fair Market Value of such property shall be as determined by nationally recognized investment bank, appraisal or accounting firm (whose fees and expenses will be paid by the Company) selected by mutual agreement between the Board and such holders.

“Market Disruption Event” means the occurrence or existence for more than one half hour period in the aggregate on any scheduled Trading Day for the Common Stock (or Reference Property, to the extent applicable) of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Nasdaq or otherwise) in the Common Stock (or Reference Property, to the extent applicable) or in any options, contracts or future contracts relating to the Common Stock (or Reference Property, to the extent applicable), and such suspension or limitation occurs or exists at any time before 1:00 p.m. (New York City time) on such day.

“Original Issuance Date” shall mean January 9, 2009.

“Rights Plan Exercise Price” shall have the same meaning as “Exercise Price” set forth in the Company Rights Agreement or its comparable term/provision under any successor, substitute or additional shareholder rights plan.

“Rights Plan Triggering Event” shall have the meaning given thereto in the Certificate of Designation relating to the Company’s Series C Preferred Stock.

“Rights Triggering Date” means the date on which a Rights Plan Triggering Event occurs.

“Securities Purchase Agreement” means that certain Securities Purchase Agreement, dated as of December 22, 2008, between [—] and the Company.

“Trading Day” means any day on which (i) there is no Market Disruption Event and (ii) Nasdaq or, if the Common Stock (or Reference Property, to the extent applicable) is not listed on Nasdaq, the principal national securities exchange on which the Common Stock (or Reference Property, to the extent applicable) is listed, is open for trading or, if the Common Stock (or Reference Property, to the extent applicable) is not so listed, admitted for trading or quoted, any Business Day. A Trading Day only includes those days that have a scheduled closing time of 4:00 p.m. (New York City time) or the then standard closing time for regular trading on the relevant exchange or trading system.

“Warrant” means this Warrant, issued pursuant to the Securities Purchase Agreement.

“Warrant Shares” means the shares of Common Stock deliverable upon exercise of this Warrant, as adjusted from time to time.

(b) Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Amended and Restated Stockholders’ Agreement.

2. Exercise of Warrant; Term.

(a) Subject to paragraph 2(f), the Holder is entitled to exercise the right to purchase the Warrant Shares represented by this Warrant, in whole or in part, but not for less than 100,000 Warrant Shares (or such lesser number of Warrant Shares which may then constitute the maximum number purchasable pursuant to this Warrant), such number being subject to adjustment as provided in paragraph 10, at any time or from time to time after the 16^th day following the Original Issuance Date, until the Expiration Date. To exercise this Warrant, the Holder shall deliver to the Company (i) an executed Warrant Exercise Notice substantially in the form annexed hereto and (ii) this Warrant. Upon such delivery and payment (the “Exercise Date”), the Holder shall be deemed to be the holder of record of the Warrant Shares subject to such exercise and shall have all of the rights associated with such Warrant Shares to which the Holder is entitled pursuant to this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder.

(b) If the Holder exercises this Warrant in part, this Warrant shall be surrendered by the Holder to the Company and a new Warrant of the same tenor and for the unexercised number of Warrant Shares shall be executed by the Company within a reasonable time, and in any event not exceeding three (3) Business Days after the Exercise Date. The Company shall register the new Warrant in the name of the Holder or in such name or names of its transferee pursuant to paragraph 6 hereof as may be directed in writing by the Holder, and deliver the new Warrant to the Person or Persons entitled to receive the same.

(c) Subject to paragraph 2(e), upon surrender of this Warrant and delivery of the Warrant Exercise Notice in conformity with the foregoing provisions, the Company shall transfer to the Holder appropriate evidence of ownership of any Warrant Shares and/or other securities or property (including any money) to which the Holder is entitled, registered or otherwise placed in, or payable to the order of, the Holder or such name or names of its transferee pursuant to paragraph 6 hereof as may be directed in writing by the Holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share as provided in paragraph 5 below, within a reasonable time, not to exceed three (3) Business Days after the Exercise Date.

(d) Upon exercise of the Warrant pursuant to paragraph 2(a), the Holder shall be entitled to receive Warrant Shares equal to the value (as determined below) of the Warrant (or the portion thereof being exercised) by

surrender of this Warrant and delivery of the Warrant Exercise Notice, in which event the Company will promptly issue to the Holder a number of Warrant Shares computed using the following equation:

X = (A - B) x C
	A

where:

X	=	the number of Warrant Shares issuable to the Holder upon exercise pursuant to this paragraph 2(d).
A	=	the Current Market Price Per Common Share (as of the Exercise Date).
B	=	the Exercise Price (as of the Exercise Date).
C	=	the number of Warrant Shares issuable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of the Warrant being exercised (as of the Exercise Date).

If the foregoing calculation results in zero or a negative number, then no Warrant Shares shall be issued upon exercise pursuant to this paragraph 2(d).

(e) The Company may at any time in its sole discretion deliver a written notice (a “Cash Settlement Notice”) to the Holder setting forth its intention to exercise its right to pay the Holder in cash in lieu of delivery of any shares of Common Stock upon any exercise of this Warrant as contemplated by this paragraph 2(e). The Cash Settlement Notice shall specify the date from which it shall be effective, which shall be no earlier than thirty (30) Business Days after delivery. The Cash Settlement Notice will be effective until such time as the Company amends such Cash Settlement Notice with a superseding Cash Settlement Notice or revokes such Cash Settlement Notice by delivery of a written notice of revocation delivered to the Holder (a “Revocation Notice”). A Cash Settlement Notice may be amended or revoked by the Company at any time, and following delivery of a Revocation Notice, the Company may deliver a new Cash Settlement Notice pursuant to this paragraph 2(e). In the event that the Company has delivered a Cash Settlement Notice pursuant to the requirements of this paragraph 2(e) which is effective at the time this Warrant is being exercised pursuant to paragraph 2(a), in lieu of delivery of any shares of Common Stock upon such exercise, the Company will pay to the Holder an amount in cash equal to the result obtained by multiplying (a) the number of shares of Common Stock issuable upon exercise pursuant to paragraph 2(d), by (b) the Current Market Price Per Common Share at the date of such exercise.

(f) No Holder will be permitted to exercise the right to purchase Warrant Shares represented by this Warrant to the extent that the Holder exercising such right (together with such Holder’s Affiliates) would immediately

after giving effect to such exercise and after giving effect to any limitation on voting power set forth in the Series B Certificate of Designation and the Series C Certificate of Designation beneficially own outstanding equity voting securities of the Company representing more than 39.9% of the total number of votes which may be cast on a general matter of the Company at which all classes of equity voting securities of the Company are entitled to vote.

3. Restrictive Legend. Certificates representing shares of Common Stock issued pursuant to this Warrant shall bear a legend substantially in the form of the legend set forth on the first page of this Warrant to the extent that and for so long as such legend is required pursuant to the Amended and Restated Stockholders’ Agreement or applicable securities laws.

4. Reservation of Shares; Listing. The Company hereby agrees at all times to keep reserved for issuance and delivery upon exercise of this Warrant such number of its authorized but unissued shares of Common Stock or other securities of the Company from time to time issuable upon exercise of this Warrant as will be sufficient to permit the exercise in full of this Warrant. The Company hereby represents that all such shares shall be duly authorized and, when issued upon such exercise pursuant to the terms of this Warrant, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than restrictions on transfer contemplated by paragraph 6 or those created by the Holder) and free and clear of all preemptive rights. The Company will use its reasonable best efforts to ensure that the Common Stock may be issued without violation of any law or regulation applicable to the Company or of any requirement of any securities exchange applicable to the Company on which the shares of Common Stock are listed or traded.

5. No Fractional Warrant Shares or Scrip. No fractional Warrant Shares or scrip representing fractional Warrant Shares shall be issued upon the exercise of this Warrant. In lieu of delivery of any such fractional Warrant Share upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Price Per Common Share at the date of such exercise.

6. Transfer or Assignment of Warrant. Subject to compliance with the Amended and Restated Stockholders’ Agreement, the Holder shall be entitled, without obtaining the consent of the Company, to assign and transfer this Warrant or any rights hereunder, at any time in whole or from time to time in part, but not for less than 100,000 Warrant Shares (or such lesser number of Warrant Shares which may then constitute the maximum number purchasable pursuant to this Warrant), such number being subject to adjustment as provided in paragraph 10, to any Person or Persons. Subject to the preceding sentence, upon surrender of this Warrant to the Company, together with the attached Warrant Assignment Form duly executed, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee or assignees named in such instrument of assignment and, if the Holder’s entire interest is not being assigned, in the name of the Holder and this Warrant shall promptly be canceled. All expenses (other than stock transfer taxes) and other charges payable in connection with the preparation, execution and delivery of the new Warrants pursuant to this paragraph 6 shall be paid by the Company.

7. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares (or other securities) to the Holder upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company.

8. Exchange and Registry of Warrant. The Company shall maintain a registry showing the name and address of the Holder as the registered holder of this Warrant, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. This Warrant is exchangeable, upon the surrender hereof by the Holder to the Company, for a new Warrant or Warrants of like tenor and representing the right to purchase the same aggregate number of Warrant Shares.

9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon the receipt of a bond, indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and date and representing the right to purchase the same aggregate number of Warrant Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.

10. Anti-dilution Provisions.

(a) Adjustment for Change in Capital Stock.

(i) If the Company shall, at any time or from time to time, while this Warrant is outstanding, issue a dividend or make a distribution on its Common Stock (or Reference Property, to the extent applicable) payable in shares of its Common Stock (or Reference Property, to the extent applicable) to all holders of its Common Stock (or Reference Property, to the extent applicable), then, at the opening of business on the Ex-Dividend Date for such dividend or distribution:

(1) The Exercise Price will be adjusted by multiplying such Exercise Price by a fraction: (A) the numerator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding such Ex-Dividend Date; and (B) the denominator of which shall be the sum of the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding at the close of business on the Business Day immediately preceding the Ex-Dividend Date for such

dividend or distribution, plus the total number of shares of Common Stock (or Reference Property, to the extent applicable) constituting such dividend or other distribution; and

(2) The number of Warrant Shares will be adjusted by multiplying such number by a fraction: (A) the numerator of which shall be the Exercise Price immediately prior to the adjustment pursuant to Section 10(a)(i)(1) and (B) the denominator of which shall be the Exercise Price immediately after such adjustment.

If any dividend or distribution of the type described in this Section 10(a)(i) is declared but not so paid or made, the Exercise Price shall again be adjusted to the Exercise Price which would then be in effect if such dividend or distribution had not been declared. Except as set forth in the preceding sentence, in no event shall the Exercise Price be increased or the number of Warrant Shares be decreased pursuant to this Section 10(a)(i).

(ii) If the Company shall, at any time or from time to time while this Warrant is outstanding, subdivide or reclassify its outstanding shares of Common Stock (or Reference Property, to the extent applicable) into a greater number of shares of Common Stock (or Reference Property, to the extent applicable), then the Exercise Price in effect at the opening of business on the day upon which such subdivision becomes effective shall be proportionately decreased, and conversely, if the Company shall, at any time or from time to time while this Warrant is outstanding, combine or reclassify its outstanding shares of Common Stock (or Reference Property, to the extent applicable) into a smaller number of shares of Common Stock (or Reference Property, to the extent applicable), then the Exercise Price in effect at the opening of business on the day upon which such combination or reclassification becomes effective shall be proportionately increased. In each such case, effective immediately after the opening of business on the day upon which such subdivision, combination or reclassification becomes effective:

(1) The Exercise Price shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately prior to such subdivision or combination and the denominator of which shall be the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately after giving effect to such subdivision, combination or reclassification; and

(2) The number of Warrant Shares will be adjusted by multiplying such number by a fraction: (A) the numerator of

which shall be the Exercise Price immediately prior to the adjustment pursuant to Section 10(a)(ii)(1) and (B) the denominator of which shall be the Exercise Price immediately after such adjustment.

(b) Cash Dividends and Distributions. If the Company shall, at any time or from time to time, while this Warrant is outstanding, issue a dividend or make a distribution on its Common Stock (or Reference Property, to the extent applicable) payable in cash, assets, rights or other property (other than shares of its Common Stock) to all holders of its Common Stock (or Reference Property, to the extent applicable), then, at the opening of business on the Ex-Dividend Date for such dividend or distribution:

(i) The Exercise Price will be adjusted by multiplying such Exercise Price by a fraction: (A) the numerator of which shall be the Fair Market Value per share of Common Stock as of the last Trading Day preceding the such Ex-Dividend Date less the Fair Market Value of the cash, assets, rights or other property paid per share of Common Stock in such dividend or distribution; and (B) the denominator of which shall be the Fair Market Value per share of Common Stock as of the last Trading Day before the Ex-Dividend Date; and

(ii) The number of Warrant Shares will be adjusted by multiplying such number by a fraction: (A) the numerator of which shall be the Exercise Price immediately prior to the adjustment pursuant to Section 10(b)(i) and (B) the denominator of which shall be the Exercise Price immediately after such adjustment.

If any dividend or distribution of the type described in this Section 10(b) is declared but not so paid or made, the Exercise Price shall again be adjusted to the Exercise Price which would then be in effect if such dividend or distribution had not been declared. Except as set forth in the preceding sentence, in no event shall the Exercise Price be increased or the number of Warrant Shares be decreased pursuant to this Section 10(b).

(c) Adjustment for Rights Issued under Rights Plan. If at any time and from time to time while this Warrant is outstanding there shall occur a Rights Plan Triggering Event, then, effective immediately after the opening of business on the Rights Triggering Date:

(i) The Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect at the opening of business on the Rights Triggering Date by a fraction: (i) the numerator of which shall be the sum of (A) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding on the close of business on the Business Day immediately

preceding the Rights Triggering Date, plus (B) (x) the aggregate Rights Plan Exercise Price payable to the Company, assuming that all Rights then-outstanding that are capable of being exercised are immediately exercised following the Rights Plan Triggering Event, divided by (y) the Current Market Price Per Common Share as of the Rights Triggering Date; and (ii) the denominator of which shall be the sum of (A) the number of shares of Common Stock outstanding at the close of business on the Business Day immediately preceding the Rights Triggering Date, plus (B) the aggregate number of shares of Common Stock (or Reference Property, to the extent applicable) into which the Rights then-outstanding are exercisable for (immediately following such Rights Plan Triggering Event); and

(ii) The number of Warrant Shares will be adjusted by multiplying such number by a fraction: (A) the numerator of which shall be the Exercise Price immediately prior to the adjustment pursuant to Section 10(c)(i) and (B) the denominator of which shall be the Exercise Price immediately after such adjustment.

To the extent that shares of Common Stock (or Reference Property, to the extent applicable) are not delivered pursuant to such Rights prior to the expiration or termination of any Rights (other than as a result of the repurchase of those Rights by the Company), upon expiration or termination of such Rights (“Expired Rights”) the Exercise Price and number of Warrant Shares issuable under this Warrant shall be readjusted to the Exercise Price and number of Warrant Shares issuable that would then be in effect had the adjustments made upon the occurrence of a Rights Plan Triggering Event been made without taking into account such Expired Rights. Except as set forth in this paragraph, in no event shall the Exercise Price be increased or the number of Warrants Shares issuable be decreased pursuant to this Section 10(c). Notwithstanding the foregoing, the Exercise Price and number of Warrant Shares as adjusted pursuant to this Section 10(c) shall not apply to any Warrants Beneficially Owned by a Person who is an Acquiring Person, and, with respect to such shares, the Exercise Price and number of Warrant Shares shall be the Exercise Price and number of Warrant Shares in effect immediately prior to the Rights Triggering Date.

(d) Adjustment for Certain Tender Offers or Exchange Offers. In case the Company or any of its subsidiaries shall, at any time or from time to time, while this Warrant is outstanding, distribute cash or other consideration in respect of a tender offer or an exchange offer (that is treated as a “tender offer” under U.S. federal securities laws) made by the Company or any subsidiary for all or any portion of the Common Stock (or Reference Property, to the extent applicable), where the sum of the aggregate amount of such cash distributed and the aggregate Fair Market Value as of the Expiration Date (as defined below), of such other consideration distributed (such sum, the “Aggregate Amount”) expressed as an amount per share of Common Stock (or Reference Property, to

the extent applicable) validly tendered or exchanged, and not withdrawn, pursuant to such tender offer or exchange offer as of the Expiration Time (as defined below) (such tendered or exchanged shares of Common Stock (or Reference Property, to the extent applicable), the “Purchased Shares”) exceeds the Daily Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the last date (such last date, the “Expiration Date”) on which tenders or exchanges could have been made pursuant to such tender offer or exchange offer (as the same may be amended through the Expiration Date), then, effective immediately prior to the opening of business on the second Trading Day immediately following the Expiration Date:

(i) The Exercise Price shall be decreased so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the close of business on the Trading Day immediately following the Expiration Date by a fraction: (i) the numerator of which shall be equal to the product of (A) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding as of the Expiration Time (including all Purchased Shares) and (B) the Daily Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the Expiration Date; and (ii) the denominator of which is equal to the sum of (A) the Aggregate Amount and (B) the product of (I) an amount equal to (x) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding as of the last time (the “Expiration Time”) at which tenders or exchanges could have been made pursuant to such tender offer or exchange offer less (y) the Purchased Shares and (II) the Daily Price per share of the Common Stock (or Reference Property, to the extent applicable) on the first Trading Day immediately following the Expiration Date; and

(ii) The number of Warrant Shares issuable upon exercise of this Warrant will be adjusted by multiplying such number by a fraction: (A) the numerator of which shall be the Exercise Price immediately prior to the adjustment pursuant to Section 10(d)(i) and (B) the denominator of which shall be the Exercise Price immediately after such adjustment.

In the event that the Company or a subsidiary is obligated to purchase shares of Common Stock (and Reference Property, to the extent applicable) pursuant to any such tender offer or exchange offer, but the Company or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Exercise Price and number of Warrant Shares issuable shall again be adjusted to be the Exercise Price and number of Warrant Shares issuable which would then be in effect if such tender offer or exchange offer had not been made. Except as set forth in the preceding sentence, if the application of this Section 10(d) to any tender offer or exchange offer would result in an increase in the Exercise Price or reduction in the number of Warrant Shares issuable, no adjustment shall be made for such tender offer or exchange offer under this Section 10(d).

(e) Adjustments for Issuances of Additional Shares of Common Stock.

(i) Definitions. For purposes of this Section 10(e), the following definitions apply:

(1) “Convertible Securities” means any debt or other evidences of indebtedness, capital stock, rights, options, warrants or other securities directly or indirectly convertible into or exercisable or exchangeable for Common Stock (including Reference Property, if applicable).

(2) “Additional Shares of Common Stock” means any shares of Common Stock issued (whether from the Company’s treasury or authorized and unissued shares of capital stock) or, as provided in Section 10(e)(ii) below, deemed to be issued by the Company after the Original Issuance Date; provided that, notwithstanding anything to the contrary contained herein, Additional Shares of Common Stock shall not include issuances of Common Stock (including any deemed issuance pursuant to Section 10(e)(ii)) which are (x) pursuant to employee benefit plans and compensation related arrangements approved by the board of directors of the Company (including any duly authorized committee or delegee thereof) or (y) to Elevation or any of its Affiliates pursuant to the exercise of their respective preemptive rights.

(3) “Measurement Date” means, with respect to a transaction, the public announcement of such transaction (or, if no such public announcement is made, the date of issuance).

(ii) Deemed Issuances of Additional Shares of Common Stock. The maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise, conversion or exchange of Convertible Securities will be deemed to be Additional Shares of Common Stock issued as of the time of the issuance of such Convertible Securities; provided, however, that:

(1) No adjustment in the Exercise Price will be made upon the subsequent issuance of shares of Common Stock upon the exercise, conversion or exchange of such Convertible Securities;

(2) To the extent that Additional Shares of Common Stock are not issued pursuant to any such Convertible Security upon the expiration or termination of an unissued, unexercised, unconverted or unexchanged Convertible Security, the Exercise Price will be readjusted to the Exercise Price that would have been in effect had such Convertible Security (to the extent outstanding immediately prior to such expiration or termination) never been issued; and

(3) In the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Convertible Security, excluding a change resulting from any transaction giving rise to an adjustment pursuant to Section 10(a)(ii), but including periodic or scheduled accretions or adjustments to a Convertible Security, interest and dividends paid in kind, repricings of the exercise or conversion price of such Convertible Securities or otherwise, the Exercise Price then in effect will be readjusted to the Exercise Price that would have been in effect if, on the date of issuance, such Convertible Security were exercisable, convertible or exchangeable for such changed number of shares of Common Stock.

(iii) Determination of Consideration. The Fair Market Value of the consideration received by the Company for the issue of any Additional Shares of Common Stock will be computed as follows:

(1) Cash and Property. Aggregate consideration consisting of cash and other property will: (x) insofar as it consists of cash, be computed at the aggregate of cash received by the Company, excluding amounts paid or payable for accrued interest or accrued dividends; (y) insofar as it consists of property other than cash, be computed at the Fair Market Value thereof on the Measurement Date; and (3) insofar as it consists of both cash and other property, be the proportion of such consideration so received.

(2) Convertible Securities. The aggregate consideration per share received by the Company for Convertible Securities will be determined by dividing: (x) the total amount, if any, received or receivable by the Company as consideration for the issuance of such Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the full and complete exercise, conversion or exchange of such Convertible Securities, by (y) the maximum

number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the full and complete exercise, conversion or exchange of such Convertible Securities.

(iv) In the event the Company shall, at any time and from time to time while any of the Warrants is outstanding, issue or sell Additional Shares of Common Stock (or Reference Property, to the extent applicable) for a consideration per share, as determined by such consideration’s Fair Market Value in accordance with Section 10(e)(iii), less than the Exercise Price in effect immediately prior to such issuance (a “Below Exercise Price Issuance”), then, effective immediately upon the date of such Below Exercise Price Issuance:

(1) The Exercise Price in effect immediately after such Below Exercise Price Issuance shall be reduced so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to such Below Exercise Price Issuance by a fraction: (1) the numerator of which shall be the sum of (a) the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding immediately prior to such Below Exercise Price Issuance (on a fully diluted basis based on the treasury method) (such number of shares of Common Stock, the “Number of Fully Diluted Shares of Common Stock”); plus (b) (x) the Fair Market Value of the aggregate consideration received by the Company in respect of such Below Exercise Price Issuance, divided by (y) the Exercise Price in effect immediately prior to such Below Exercise Price Issuance, and (2) the denominator of which shall be the sum of (a) the Number of Fully Diluted Shares of Common Stock, plus (b) the number of such Additional Shares of Common Stock issued in such Below Exercise Price Issuance; and

(2) The number of Warrant Shares issuable upon exercise of this Warrant shall be adjusted by multiplying such number by a fraction: (A) the numerator of which shall be the Exercise Price immediately prior to the adjustment pursuant to Section 10(e)(iv)(1) and (B) the denominator of which shall be the Exercise Price immediately after such adjustment.

(v) Notwithstanding the foregoing, in no event shall any adjustment pursuant to this Section 10(e) cause the Exercise Price to be less than $2.4900 (the “Floor Price”) or the number of Warrant Shares issuable to be greater than the number of Warrant Shares issuable at such Exercise Price, provided that such Floor Price and corresponding number

of Warrant Shares issuable shall be adjusted in the same manner as the Exercise Price and number of Warrant Shares issuable to reflect any adjustments made in accordance with this Section 10 (other than adjustments pursuant to this Section 10(e)).

(f) Disposition Event. If any of the following events (any such event, a “Disposition Event”) occurs: (i) any reclassification or exchange of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); or (ii) any merger, consolidation or other combination to which the Company is a constituent party, in each case, as a result of which the holders of Common Stock shall be entitled to receive cash, securities or other property for their shares of Common Stock, the Company or the surviving entity of the merger, consolidation or other combination shall provide that this Warrant be exercised following the effective date of any Disposition Event, shall be calculated based on the kind and amount of cash, securities or other property (collectively, “Reference Property”) received upon the occurrence of such Disposition Event by a holder of Common Stock holding, immediately prior to the transaction, a number of shares of Common Stock equal to the number of Warrant Shares issuable under this Warrant immediately prior to such Disposition Event; provided that if the Disposition Event provides the holders of Common Stock with the right to receive more than a single type of consideration determined based in part upon any form of stockholder election, the Reference Property shall be comprised of the weighted average of the types and amounts of consideration received by the holders of the Common Stock. The Company may not cause, or agree to cause, a Disposition Event to occur, unless the issuer of any securities or other property for which this Warrant becomes exercisable agrees, for the express benefit of the holders of record of this Warrant (including making them beneficiaries of such agreement), to issue such securities or property. The provisions of this Section 10(f) shall similarly apply to successive Disposition Events. If this Section 10(e) applies to any event or occurrence, neither Section 10(a) nor Section 10(d) shall apply; provided, however, that this Section 10(f) shall not apply to any stock split or combination to which Section 10(a) is applicable. To the extent that equity securities of a company are received by the holders of Common Stock of the Company in connection with a Disposition Event, the portion of this Warrant which will be exercisable for such equity securities will continue to be subject to the anti-dilution adjustments set forth in this Section 10.

(g) Minimum Adjustment. Notwithstanding the foregoing, the Exercise Price will not be reduced (and the corresponding increase to the number of Warrant Shares will not occur) if the amount of such reduction would be an amount less than $0.01, but any such amount will be carried forward and reduction with respect to the Exercise Price (and increase with respect to the number of Warrant Shares) will be made at the time that such amount, together with any subsequent amounts so carried forward, aggregates to $0.01 or more.

(h) Limitation on Adjustment; When No Adjustment Required.

(i) No adjustment need be made for the issuance of Common Stock (and Reference Property, to the extent applicable) or any securities convertible into or exchangeable for Common Stock (and Reference Property, to the extent applicable) or carrying the right to purchase Common Stock (and Reference Property, to the extent applicable) or any such security except to the extent explicitly required herein.

(ii) No adjustment need be made for rights to purchase Common Stock (or Reference Property, to the extent applicable) pursuant to a Company plan for reinvestment of dividends or interest.

(iii) No adjustment need be made for a change in the par value or no par value of the Common Stock (or Reference Property, to the extent applicable).

(iv) To the extent this Warrant becomes exercisable pursuant to Section 10 into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.

(i) Rules of Calculation; Treasury Stock. All calculations will be made to the nearest one-hundredth of a cent or to the nearest one-ten thousandth of a share. Except as otherwise explicitly provided herein, the number of shares of Common Stock (or Reference Property, to the extent applicable) outstanding will be calculated on the basis of the number of issued and outstanding shares of Common Stock (or Reference Property, to the extent applicable), not including shares held in the treasury of the Company. The Company shall not pay any dividend on or make any distribution to shares of Common Stock (or Reference Property, to the extent applicable) held in treasury.

(j) Waiver. Notwithstanding the foregoing, the Exercise Price will not be reduced and number of Warrant Shares issuable will not be increased if the Company receives, prior to the effective time of the adjustment to the Exercise Price and number of Warrant Shares issuable, written notice from the Holder that no adjustment is to be made as the result of a particular issuance of Common Stock (or Reference Property, to the extent applicable) or other dividend or other distribution on shares of Common Stock. This waiver will be limited in scope and will not be valid for any issuance of Common Stock (or Reference Property, to the extent applicable) or other dividend or other distribution on shares of Common Stock (or Reference Property, to the extent applicable) not specifically provided for in such notice.

(k) Tax Adjustment. Anything in this Section 10 notwithstanding, the Company shall be entitled to make such downward adjustments in the Exercise

Price (and corresponding increases in the number of Warrant Shares issuable), in addition to those required by this Section 10, as the Board in its sole discretion shall determine to be advisable in order that any event treated for federal income tax purposes as a dividend or stock split will not be taxable to the holders of Common Stock (or Reference Property, to the extent applicable).

(l) Par Value. Anything in this Section 10 notwithstanding, no adjustment to the Exercise Price shall reduce the Exercise Price below the then par value per share of Common Stock (or Reference Property, to the extent applicable), and any such purported adjustment shall instead reduce the Exercise Price to such par value.

(m) No Duplication. If any action would require adjustment of the Exercise Price and the number of Warrant Shares pursuant to more than one of the provisions described in this Section 10 in a manner such that such adjustments are duplicative, only one adjustment shall be made.

(n) Notice of Record Date. In the event of:

(i) any stock split or combination of the outstanding shares of Common Stock (or Reference Property, to the extent applicable);

(ii) any declaration or making of a dividend or other distribution to holders of Common Stock (or Reference Property, to the extent applicable) in Additional Shares of Common Stock, any other capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness);

(iii) any reclassification or change to which Section 10(a)(ii) applies;

(iv) the dissolution, liquidation or winding up of the Company; or

(v) any Disposition Event;

then the Company shall file with its corporate records and mail to the holders of the Warrants at their last addresses as shown on the records of the Company, at least 10 days prior to the record date specified in (A) below or 10 days prior to the date specified in (B) below, a notice stating:

(A) the record date of such stock split, combination, dividend or other distribution, or, if a record is not to be taken, the date as of which the holders of Common Stock (or Reference Property, to the extent applicable) of record to be entitled to such stock split, combination, dividend or other distribution are to be determined, or

(B) the date on which such reclassification, change, liquidation, dissolution, winding up or Disposition Event is estimated to become effective, and the date as of which it is expected that holders of Common Stock (or Reference Property, to the extent applicable) of record will be entitled to exchange their shares of Common Stock (or Reference Property, to the extent applicable) for the capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) deliverable upon such reclassification, change, liquidation, dissolution, winding up or other Fundamental Change.

Disclosures made by the Company in any filings required to be made under the Exchange Act shall be deemed to satisfy the notice requirements set forth in this Section 10(m).

(o) Certificate of Adjustments. Upon the occurrence of each adjustment or readjustment of the Exercise Price and the number of Warrant Shares pursuant to this Section 10, the Company at its expense shall promptly as reasonably practicable compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Warrants a certificate, signed by an officer of the Company, setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based and shall file a copy of such certificate with its corporate records. The Company shall, upon the reasonable written request of any holder of Warrants, furnish to such holder a similar certificate setting forth (i) the calculation of such adjustments and readjustments in reasonable detail, (ii) the Exercise Price then in effect, and (iii) the number of shares of Common Stock (or Reference Property, to the extent applicable) and the amount, if any, of capital stock, other securities or other property (including but not limited to cash and evidences of indebtedness) which then would be received upon the exercise of the Warrant.

11. Notices. Any notice, demand or delivery authorized by this Warrant shall be in writing and shall be given to the Holder or the Company, as the case may be, at its address (or facsimile number) set forth below, or such other address (or facsimile number) as shall have been furnished to the party giving or making such notice, demand or delivery:

If to the Company, to it at the following address:

Palm, Inc.

950 West Maude Avenue

Sunnyvale, California 94085

Facsimile No.: (408) 617-0139

Attention: General Counsel

with a copy to (which shall not constitute notice):

Davis Polk & Wardwell
1600 El Camino Real Menlo Park, California 94025
Facsimile: (650) 752-2112
Attention:	William M. Kelly
	Sarah K. Solum

If to the Holder:

[—]

70 East 55 ^th Street, 12 Floor

New York, New York 10022

Facsimile No.: (212) 317-6556

Attention: Bret Pearlman

with copies (which shall not constitute notice) to:

[—]

2800 Sand Hill Road, Suite 160

Menlo Park, California 94025

Facsimile No.: (650) 687-6710

Attention: Tracy Hogan

Simpson Thacher & Bartlett LLP
2550 Hanover Street
Palo Alto, California 94304
Facsimile No.: (650) 251-5002
Attention:	Richard Capelouto, Esq.
	Kirsten Jensen, Esq.

Each such notice, demand or delivery shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day. Otherwise, any such notice, demand or delivery shall be deemed not to have been received until the next succeeding Business Day.

12. Rights of the Holder; Transfer Books. Prior to any exercise of this Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of Stockholders or any notice of any proceedings of the Company except as may be specifically provided for herein. The Company will at no time close its stock transfer books against transfer of this Warrant in any manner which interferes with the timely exercise of this Warrant.

13. GOVERNING LAW. THIS WARRANT AND ALL RIGHTS ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS.

14. Binding Effect. This Warrant shall be binding upon any successors or assigns of the Company.

15. Amendments; Waivers. Any provision of this Warrant may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Holder and the Company, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

16. Entire Agreement. This Warrant and the forms attached hereto, the Securities Purchase Agreement and the Amended and Restated Stockholders’ Agreement (and the other documents referenced therein), contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangement or undertakings with respect thereto.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by its duly authorized officer and to be dated as of [—].

PALM, INC.

By:

Name:

Title:

Acknowledged and Agreed:

[—]

By:

Name:

Title:

EX-10.49

Exhibit 10.49

AMENDMENT NO. 2

TO

PALM, INC.

2001 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

(As Amended and Restated Effective as of October 5, 2006 and Amended as of September 12, 2007)

Pursuant to Section 7.1 of the Palm, Inc. 2001 Stock Option Plan for Non-Employee Directors, as amended and restated effective October 5, 2006 and amended effective September 12, 2007 (the “Plan”), the Plan is hereby amended as follows, effective as of February 2, 2009:

1. Section 5.2.4(b) of the Plan is hereby deleted in its entirety and replaced with the following:

“(b) The expiration of three (3) months from the date of the Participant’s Termination of Service prior to age 65 for any reason other than the Participant’s death or Disability, unless a different period is set forth in the Participant’s Option Agreement;”

2. Except as modified hereby, the Plan shall remain in full force and effect and unmodified.

IN WITNESS WHEREOF, Palm, Inc., by its duly authorized officer, has executed this Amendment No. 2 to the Plan on the date indicated below.

	PALM, INC.
Dated: February 2, 2009	By:	/s/    Mary E. Doyle
	Name:	Mary E. Doyle
	Title:	Senior Vice President, General Counsel and Secretary

EX-10.50

Exhibit 10.50

AMENDMENT NO. 1 TO OPTION AGREEMENTS

February 2, 2009

This Amendment No. 1 to Option Agreements (this “Amendment”) is hereby entered into by and between Palm, Inc. (the “Company”) and Donna L. Dubinsky (“Ms. Dubinsky”).

WHEREAS, Ms. Dubinsky has been granted options by the Company as set forth on Schedule A attached hereto (the “Options”); and

WHEREAS, it is contemplated that Ms. Dubinsky’s service on the Company’s board of directors will terminate on or about February 2, 2009.

NOW, THEREFORE, the parties hereto agree as follows:

1. Exercisability of Options. Upon the termination of Ms. Dubinsky’s service on the Company’s board of directors, the Options, to the extent vested as of the date of termination of Ms. Dubinsky’s service on the Company’s board of directors, will remain exercisable for a period of one (1) year following the date of such termination, but in no event will any Option be exercisable later than the expiration of the term of the relevant Option as set forth in the applicable option agreement and/or notice of grant. Nothing contained in this Amendment is intended to accelerate, increase or otherwise change the vesting of the Options.

2. Remaining Terms. Except as expressly set forth in Section 1 above regarding the period of exercisability of the Options, the terms and conditions of the Options shall remain in full force and effect and shall not be amended hereby.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first set forth above.

PALM, INC.		DONNA L. DUBINSKY
By:	/s/    Edward T. Colligan	/s/    Donna L. Dubinsky
	Edward T. Colligan	Donna L. Dubinsky
	President and CEO
Dated: February 2, 2009		Dated: February 2, 2009

EX-10.51

Exhibit 10.51

AMENDMENT NO. 1 TO

AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

This AMENDMENT NO. 1 (this “Amendment”), dated as of March 17, 2009, by and among Palm, Inc., a Delaware corporation (the “Company”), Elevation Partners, L.P., a Delaware limited partnership (“Elevation”), and Elevation Employee Side Fund, LLC, a Delaware limited liability company (“Side Fund”), amends that certain Amended and Restated Registration Rights Agreement, dated as of January 9, 2009 (the “Agreement”), among the Company, Elevation and Side Fund. Capitalized terms that are not expressly defined herein shall have the meaning ascribed to them in the Agreement.

WHEREAS, the parties hereto previously entered into the Agreement, which relates to the Company, the Purchased Shares, the Conversion Shares, the Warrants and the Warrant Shares;

WHEREAS, pursuant to Section 3.6 of the Agreement, the Company and the Holders holding a majority of the Registrable Securities may amend the Agreement; and

WHEREAS, the Company and the Holders holding all of the Registrable Securities are willing to amend the Agreement on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Amendment to Registrable Securities. The definition of “Registrable Securities” set forth in Exhibit A of the Agreement is hereby deleted in its entirety and replaced with the following:

“‘Registrable Securities’ means (i) the Conversion Shares held by any Holder or issuable upon the conversion of Series B Preferred Stock or Series C Preferred Stock held by the Holders, (ii) the Warrant Shares held by any Holder or issuable upon the exercise of Warrants held by the Holders, (iii) any of the 8,166,666 shares of Common Stock purchased and received by the Holders on March 13, 2009 and held by any Holder, and (iv) any Common Stock or other securities which may be issued, converted, exchanged or distributed in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any recapitalization, reclassification, merger, consolidation, exchange or other similar reorganization with respect to the Conversion Shares, the Warrant Shares or the Common Stock described in clause (iii) of this sentence, as the case may be. As to any particular Registrable Securities, once issued, such Registrable Securities shall cease to be Registrable Securities when (A) a registration statement with respect to the sale by the Holder of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (B) such securities shall have been distributed to the public pursuant to Rule 144, or (C) such

securities shall have ceased to be outstanding. For purposes of this Agreement, any required calculation of the amount of, or percentage of, Registrable Securities shall be based on the number of shares of Common Stock which are Registrable Securities, including shares issuable upon the conversion, exchange or exercise of any security convertible, exchangeable or exercisable into Common Stock (including the Series B Preferred Stock, the Series C Preferred Stock and the Warrants).”

2. Effective Date. This Amendment shall be effective as of the date hereof.

3. Continuing Effect of the Agreement. This Amendment shall not constitute an amendment of any other provision of the Agreement not expressly referred to herein. Except as expressly amended herein, the provisions of the Agreement are and shall remain in full force and effect.

4. Governing Law. This Amendment shall be governed in all respects by the Laws of the State of New York.

5. Headings. The descriptive headings of this Amendment are inserted for convenience only and do not constitute a substantive part of this Amendment.

6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

[Remainder of Page Intentionally Left Blank]

2

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized representative as of the day and date first above written.

PALM, INC.
By:	/s/    Douglas Jeffries
Name:	Douglas Jeffries
Title:	Senior Vice President and Chief
	Financial Officer
ELEVATION PARTNERS, L.P.
By:	Elevation Associates, L.P.,
	its general partner
By:	Elevation Associates, LLC,
	its general partner
By:	/s/    Fred D. Anderson
Name:	Fred D. Anderson
Title:	Manager
ELEVATION EMPLOYEE SIDE FUND, LLC
By:	Elevation Management, LLC,
	its manager
By:	/s/    Fred D. Anderson
Name:	Fred D. Anderson
Title:	Manager

[Signature Page to Amendment No. 1]

EX-31.1

Exhibit 31.1

Certifications

I, Edward T. Colligan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Palm, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 3, 2009	By:	/S/    EDWARD T. COLLIGAN
	Name:	Edward T. Colligan
	Title:	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certifications

I, Douglas C. Jeffries, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Palm, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 3, 2009	By:	/S/    DOUGLAS C. JEFFRIES
	Name:	Douglas C. Jeffries
	Title:	Senior Vice President and
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Edward T. Colligan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Palm, Inc. on Form 10-Q for the fiscal quarter ended February 27, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Palm, Inc.

Date: April 3, 2009	By:	/S/    EDWARD T. COLLIGAN
	Name:	Edward T. Colligan
	Title:	President and Chief Executive Officer

I, Douglas C. Jeffries, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Palm, Inc. on Form 10-Q for the fiscal quarter ended February 27, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Palm, Inc.

Date: April 3, 2009	By:	/S/    DOUGLAS C. JEFFRIES
	Name:	Douglas C. Jeffries
	Title:	Senior Vice President and Chief Financial Officer