Company: Palm Inc.
Industry: Location-based Services (LBS), Personal Digital Assistant (PDA) Devices & Applications

"These two bold moves will serve as a powerful catalyst to transform the landscape of the handheld industry.The strategic choice of merging Handspring and the Palm Solutions Group of Palm will create the broadest portfolio and the most-experienced leadership team in the industry, fully capable of delivering value to customers, partners and shareholders," said Eric Benhamou, Palm, Inc.chairman and chief executive officer, and chairman of PalmSource."And the spin-off of PalmSource will help grow the Palm Economy, attract additional licensees and unlock shareholder value."

Palm, Inc.consists of two businesses -- PalmSource, a subsidiary responsible for developing and licensing the Palm(TM) operating system, and the Palm Solutions Group, a business unit responsible for designing, making and marketing the world's leading handheld devices(1).Immediately following the completion of the spin-off, Handspring will be merged with Palm, and the merged company will be renamed later in the year.

The transaction, encompassing the spin-off of PalmSource and the merger of Handspring with the remaining Palm Solutions Group of Palm, is expected to close in the fall, subject to certain conditions.

Under the proposed terms of the transaction, and following the spin-off of PalmSource, Handspring's shareholders will receive 0.09 Palm shares -- and no shares of PalmSource -- for each share of Handspring common stock owned.Palm, Inc.will issue approximately 13.9 million shares of Palm common stock to Handspring's shareholders on a fully diluted basis.As a result of the merger, Handspring's shareholders will own approximately 32.2 percent of the newly merged company on a fully diluted basis, and Palm's shareholders will own approximately 67.8 percent.

The value per share to be received by Handspring shareholders will be based on the Palm share price following the spin-off of PalmSource.The spin-off of PalmSource will be completed immediately prior to the closing of the Handspring acquisition.

Acquisition Rationale: Operational Excellence and Proven Innovation
The merger is designed to create a stronger competitor in handheld computing and communication solutions.Palm Solutions will become better able to realize its stated objectives of growing the market, maintaining industry leadership, and achieving consistent profitability.The strategic and operational benefits to the merged company include:

    -- Maximizing Palm and Handspring's combined scale and operational
       excellence to take full advantage of future growth opportunities;
    -- Delivering an unmatched portfolio of innovative mobile products from
       traditional and multimedia handhelds to wireless handhelds and
       smartphones;
    -- Adding Palm's strong brand and distribution channels to Handspring's
       highly regarded Treo product line and carrier relationships; and
    -- Enhancing the Palm management team -- including hardware and software
       design, engineering, and marketing -- to help drive handheld computing
       into deeper and broader solutions.

The merged companies expect greater revenue opportunities.They also expect to obtain improved operating efficiencies of approximately $25 million in cost savings annually.The cost savings assume combined employee reductions of approximately 125 people, elimination of overlapping programs and unnecessary real estate, and the advantages of increased volume in manufacturing and distribution.Handspring employees are expected to move to Palm Solutions headquarters in Milpitas, Calif.

Merger of Leaders
"This is a merger of leaders -- the world's leading maker of handheld computers and a global leader of Palm OS based smartphones," said Todd Bradley, Palm Solutions Group president and chief executive officer."Having the best and broadest portfolio of innovative products that deliver what matters most to customers, sold by a robust channel and built from a foundation of operational excellence, is the best formula to expand our young, promising markets."

"Palm and Handspring share a vision that handheld computers and smartphones have the potential to redefine the landscape of personal computing," said Donna Dubinsky, chief executive officer of Handspring."This merger brings together the best teams in the industry, and strengthens us to realize this vision."

The merged company will be led by Bradley, who will continue as president and chief executive officer, and will be structured around two business units: handheld computing solutions, led by Ken Wirt, currently senior vice president, sales and marketing, for Palm Solutions; and smartphone solutions, to be led by Ed Colligan, current president and chief operating officer for Handspring.Jeff Hawkins, Handspring chairman and chief product officer, will become chief technology officer for the merged company.

"The vision and leadership that Jeff and Ed have brought to the industry will be tremendous assets to the Palm Solutions management team.Together, we'll advance the industry in ways never before possible," Bradley said.

Board Composition
Upon execution of the spin-off and closing of the merger, the Palm Solutions board of directors will consist of seven members from the current Palm, Inc.board plus three members of the current Handspring board of directors: John Doerr, Bruce Dunlevie and Dubinsky.David Nagel, PalmSource president and chief executive officer, will leave the Palm, Inc.board. Benhamou will continue as chairman of the PalmSource board, and of the merged company board.

Spin-off Rationale: Focus, Attracting More Licensees and Investors

The separation of PalmSource from Palm, Inc.is based on three principles. They are that:

    -- Clarity of focus and mission for both Palm businesses leads to improved
       execution;
    -- Creation of a level playing field among current and future licensees
       will lead to more licensees and developers who have deeper commitments
       to the Palm OS platform.This is expected to bring greater growth in
       the Palm Economy, especially as the market for smartphones emerges; and
    -- Shareholder value can be enhanced if investors could evaluate and
       choose between both businesses separately, thereby attracting new and
       different investors.

"This is a great day for the Palm Economy," said David Nagel, PalmSource president and chief executive officer."The establishment of PalmSource as an independent company and the strengthening of our largest licensee mark an historic day in the handheld industry.As the leading mobile platform provider, we look forward to the opportunity to attract new customers and to grow the market for mobile computing and communication products."

Transaction Detail
The spin-off of PalmSource and acquisition of Handspring will be combined into one transaction.First, all of the shares of PalmSource owned by Palm will be distributed to Palm shareholders.Second, following the spin-off, Palm will issue approximately 13.9 million shares to Handspring shareholders in exchange for their Handspring shares.

The completion of the acquisition is conditioned upon, among other things, the expiration or termination of the waiting period under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, foreign anti-trust regulatory filings, approval from shareholders of Palm, Inc.and Handspring, listing of PalmSource shares on the Nasdaq Stock Market and other customary closing conditions. Shareholder votes are expected to take place at the two companies' respective stockholder meetings to be held in the fall.

Palm has received voting commitments from Dubinsky, Hawkins and Colligan -- the three largest employee stockholders -- to vote certain of their shares amounting to a total of 37.5 percent of Handspring's outstanding common stock in support of the proposed merger.

As part of the merger agreement, Palm will provide an initial $10 million line of credit to Handspring for working-capital purposes until the transaction closes.Under certain conditions, the line of credit may increase to $20 million, and its maturity may be extended.

The proposed spin-off is expected to be tax-free to Palm and the Palm shareholders, and the proposed acquisition of Handspring is expected to be tax-free to shareholders of both companies for U.S.federal income tax purposes.The merger with Handspring will be accounted for under the purchase method of accounting.

Morgan Stanley & Co.Incorporated served as financial advisor to Palm and also provided a fairness opinion.Wilson Sonsini Goodrich & Rosati, Professional Corporation, served as Palm's legal counsel.

Credit Suisse First Boston LLP served as financial advisor to Handspring and also provided a fairness opinion.Fenwick & West, LLP, acted as legal counsel to Handspring.

    Palm, Inc.and Handspring, Inc.Historical Timeline

     1992 - Jeff Hawkins and Donna Dubinsky found Palm, Inc.
     1995 - U.S.Robotics purchases Palm, Inc.
     1996 - Palm introduces the PalmPilot 1000 and 5000 organizers.
     1997 - 3Com purchases U.S.Robotics
     1998 - Hawkins, Dubinsky and Colligan leave Palm to create Handspring
     2000 - Palm executes an Initial Public Offering, separating from 3Com
     2001 - Palm begins building separate businesses
          -- Todd Bradley named Palm Solutions executive vice president and
             chief operating officer (June 1)
          -- Palm announces plans to create OS subsidiary (July 27)
          -- Palm OS subsidiary acquires assets and talent from Be, Inc.
             (Aug.16)
          -- David Nagel is named Palm OS subsidiary president and chief
             executive officer (Aug.27)

     2002 - Palm further builds on two businesses
          -- OS subsidiary creation completed (Jan.1)
          -- Bradley promoted to president and chief operating officer of Palm
             Solutions (May 2)
          -- OS subsidiary named PalmSource
          -- PalmSource names founding board of directors (June 24)
          -- Bradley named Palm Solutions chief executive officer (June 25)
          -- Palm Solutions and PalmSource move to separate campuses (August)
          -- Sony invests $20 million in PalmSource, marking first outside
             investment (Oct.8)
          -- PalmSource adds four new licensees in year
          -- IRS approves the spin-off as tax-free for U.S.citizens' federal
             income-tax purposes (December)

     2003 - Palm announces plans to acquire Handspring

About Handspring
Handspring is a leading innovator in personal communications and handheld computing.The company's products include the award-winning Treo family of smartphones, and client and server software for fast Web access from handheld devices and mobile phones.Today Handspring sells its products and accessories at www.Handspring.com and through select Internet, retail and carrier partners in the United States, Europe, Asia, Australia, New Zealand, Canada Middle East, and Mexico/Latin America.For further information, please visit www.Handspring.com/international.

About PalmSource, Inc.
Information about PalmSource is available at http://www.palmsource.com/about/.

About Palm, Inc.
Information about Palm, Inc.is available at http://www.palm.com/aboutpalm.

Forward-looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding the following: the transformation of the handheld industry; the growth of the Palm economy and the attraction of additional PalmSource licensees as a result of the spin-off; the integration of the Handspring management team and employees with the Palm management team and employees; the timing of the consummation of the merger and the spin-off; the ability of the Palm Solutions Group to realize its objectives of growing the market, maintaining industry leadership and achieving consistent profitability; the strategic and operational benefits to the merged company following the acquisition; the expectation of greater revenue opportunities, operating efficiencies and cost savings as a result of the merger; employee reductions; the relocation of Handspring employees to Palm's Milpitas headquarters; the management and board composition of Palm following the merger; and the tax-free nature of the spin-off and merger for U.S.federal income tax purposes.These statements are subject to risks and uncertainties that could cause actual results to differ materially, including, without limitation, the following: the approval of the transaction by the Palm and Handspring stockholders; the satisfaction of closing conditions, including the receipt of regulatory approvals; the ability of Palm and PalmSource to operate as separate companies after the spin-off; the successful integration of Handspring's employees and technologies with those of Palm; fluctuations in demand for Palm's and Handspring's products and solutions; the ability to successfully combine product offerings; the possibility that the business cultures of Palm and Handspring are incompatible; possible development of marketing delays relating to product offerings; the introduction of new products by competitors or the entry of new competitors into the markets for Palm's and Handspring's products; the possibility that the Internal Revenue Service will determine that the spin-off will not be tax-free to Palm and its stockholders; an acquisition of over 50% of the stock of Palm or PalmSource within two years following the spin-off that is determined by the Internal Revenue Service to be part of a plan or series of related transactions involving the spin-off, making the spin-off taxable to Palm. The merged company may not successfully integrate the operations of Palm and Handspring in a timely manner, or at all, and the merged company may not realize the anticipated benefits or synergies of the merger.A detailed discussion of other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Palm's and Handspring's most recent filings with the Securities and Exchange Commission.Neither Palm nor Handspring undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this press release.