PalmSource (PSRC) announced an agreement for the acquisition of China MobileSoft Limited (CMS), a leading Chinese mobile phone software company with business operations headquartered with its wholly-owned subsidiary, MobileSoft Technology, in Nanjing.

Pursuant to the agreement, PalmSource would issue approximately 1,570,000 shares of PalmSource common stock in exchange for the outstanding equity and rights to acquire equity in CMS. The transaction is subject to certain conditions, including CMS shareholder approval. The transaction is anticipated to close before the end of PalmSource's third fiscal quarter, ending February 28, 2005.

The acquisition of CMS is expected to further extend PalmSource's leadership as a software provider for phones and mobile devices worldwide. The combination of Palm OS and CMS's software products will give PalmSource one of the broadest line of mobile software in the industry, powering mobile phones at all price points in all regions of the world.

"This is the next stage in our growth and a major milestone for the mobile phone industry. We plan to offer the ease-of-use and flexibility that Palm OS(R) is known for to all mobile phones," said David Nagel, president and CEO of PalmSource, Inc. "We believe the combination of PalmSource, CMS and Linux gives us the technological and market critical mass to compete with even the biggest proprietary operating system companies."

CMS and its subsidiaries currently offer customers a wide range of software for mobile phones, including more than a dozen phone applications, operating software for smart and feature phones. The company has also been developing a version of Linux optimized for mobile devices. In the future, we plan to give the phone applications and phone software the Palm OS look and feel and data compatibility, extending the Palm OS ease-of-use to all classes of mobile phones worldwide.