Hefty contract for Palm OS leader

Palm offered a hefty compensation package to lure board member David Nagel to leave his AT&T job and head the company's handheld operating system subsidiary, according to an SEC filing.

Under the terms of his employment letter, Nagel will receive a starting salary of $620,000, a $200,000 hiring bonus, a Palm stock grant as well as the option to buy a significant portion of the operating system business. The letter was made public Monday as part of a Securities and Exchange Commission filing.

Palm in July announced its plan to separate the operating system business as a subsidiary of Palm, with initial plans to keep it wholly owned by the handheld maker. In August, the company said that Nagel would leave his job as chief technology officer at AT&T to head the unit.

The terms of the letter to Nagel make it clear that Palm is committed to creating a distinct business with the operating system subsidiary. The letter outlines several steps that the company plans to take to create an internal subsidiary and notes the possibility of further separation.

"The separation process may include a legal separation, third party investments by strategic partners, sub-IPO and spin-off," Palm said in the filing.

Palm spokeswoman Marlene Somsak said the company doesn't plan to reveal any other plans outside of making the operating system business a separate legal entity within Palm. However, Somsak added that the company is eyeing other possibilities.

"There certainly is the expectation over time that we could create additional value with external separation," Somsak said. "We haven't set any public date at all for any external separation."

Nagel's stock incentives consist of two restricted stock grants in Palm shares along with options to buy 6.5 percent of the shares of the Palm OS business once the OS unit is made a subsidiary later this year.

One grant of 50,000 shares will vest two years after granting, but "will accelerate vesting" upon the "successful release to the market of the first Palm ARM-based OS, currently referred to as Hercules 1.0." Palm has said it intends to release that operating system, which runs on ARM-based chips some time in 2002, and Nagel said at the shareholders' meeting last week that progress remains on track.

A second grant of 100,000 shares is scheduled to vest over two years at the rate of 50 percent a year.