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Palm Announces Acquisition of Handspring & Board Approves PalmSource Spin-off MILPITAS, Calif. and MOUNTAIN VIEW, Calif., June 4 2003. The boards of directors of Palm, Inc. and Handspring, Inc., a maker of Palm OS smartphones, today announced that they each have unanimously approved a definitive agreement for Palm to acquire Handspring to form a new, stronger market leader in mobile computing and communications. The Palm board also gave final approval for the spin-off of PalmSource, Inc. "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 operating system, and the Palm Solutions Group, a business unit responsible for designing, making and marketing the world's leading handheld devices. 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: 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;
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: 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;
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) 2002 - Palm further builds on two businesses -- OS subsidiary creation completed (Jan. 1) 2003 - Palm announces plans to acquire Handspring
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