According to the Company’s FORM 10-Q For the Quarterly Period Ended March 3, 2006, 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. Special committees of both Palm’s and Handspring’s respective Boards of Directors approved a tentative settlement proposal from plaintiffs, which includes a guaranteed recovery to be paid to plaintiffs by the issuer defendants’ insurance carriers and an assignment to plaintiffs of certain claims the issuers, including Palm and Handspring, may have against the underwriters. There is no guarantee that the settlement will become final, however, as it is subject to a number of conditions, including final Court approval. Should the settlement become final, it will not be material to Palm’s financial position.

The original class action lawsuit was filed against Palm Inc. The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On or about March 1, 2000 Palm commenced an initial public offering of 23,000,000 of its shares of common stock at an offering price of $38.00 per share (the ``Palm IPO''). In connection therewith, Palm filed a registration statement, which incorporated a prospectus (the ``Prospectus''), with the SEC. The complaint further alleges that the Prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) the Underwriter Defendants (Goldman Sachs, Morgan Stanley, Merrill Lynch, Robertson Stephens and Salomon Smith Barney) had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the Underwriter Defendants allocated to those investors material portions of the restricted number of Palm shares issued in connection with the Palm IPO; and (ii) the Underwriter Defendants had entered into agreements with customers whereby the Underwriter Defendants agreed to allocate Palm shares to those customers in the Palm IPO in exchange for which the customers agreed to purchase additional Palm shares in the aftermarket at pre-determined prices.