IRS Rules Palm's Distro of PalmSource Tax-Free

Palm, Inc. today announced that it received a ruling from the Internal Revenue Service that a proposed distribution of shares of PalmSource, Inc., Palm's majority-owned operating-system software business subsidiary, will be tax-free to Palm, Inc. and its United States shareholders for U.S. federal income tax purposes. This is another key step in the final separation of Palm Inc and PalmSource.

Palm expects to distribute the shares of PalmSource, which develops and licenses the Palm operating system, to Palm, Inc. shareholders in the first half of calendar 2003, pending approval of the distribution from the Palm Board of Directors and filing of the appropriate documents with the U.S. Securities and Exchange Commission.

"The IRS ruling puts us another step closer to achieving our objective of creating two independent companies, each focused on the strategies required to strengthen its respective leadership position within the mobile-computing industry," said Eric Benhamou, Palm chairman and chief executive officer.

Palm Inc and PalmSource Separation milestones:

• Palm, Inc. announced on July 27, 2001, that it would establish a separate subsidiary structure for the operating system activities of the company. The other part of the company -- Palm Solutions Group -- is responsible for Palm branded handheld computers, enterprise software, peripherals and accessories;
• Internal separation was accomplished in December 2001, with PalmSource created as a wholly owned subsidiary of Palm Inc.;
• A PalmSource board of directors was established in June 2002;
• PalmSource ceased to be wholly owned by Palm, Inc. on Oct. 8, 2002, when it accepted its first outside investment. Sony Corp. invested $20 million, which resulted in an ownership of approximately 6 percent of PalmSource; and
• A ruling was received Dec. 30, 2002, from the IRS that a proposed distribution of PalmSource shares to Palm shareholders in the United States will be tax-free for U.S. federal income tax purposes.
  
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