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Despite fears, Palm lockup expiration passes quietly

After raising concerns among some investors of a potential sell-off, the company's lockup period ends, and shares continue to climb.

The lockup period for Palm expired today--an event that had raised fears among some investors of a potential sell-off but actually passed quietly.

Lockup periods prevent company executives from selling their holdings for 180 days following an initial public offering. Many investors closely track the expiration of such lockups, concerned about a potential flood of selling once insiders such as venture capitalists and executives are allowed to cash in on their lucrative holdings.

In Palm's case, those fears were heightened as a result of some incorrect information that circulated on some Web sites stating that 530 million shares, or 90 percent to 95 percent of Palm's outstanding shares, were coming out of lockup.

However, Merrill Lynch analyst Bill Crawford issued a report clarifying that the expiration impacted fewer than 5 million Palm shares, or about 1 percent of the 570 million shares outstanding.

The confusion may have stemmed from the fact that 3Com distributed some 532 million shares of Palm to its stockholders on July 11, according to Crawford's report. Owners of 3Com stock received 1.48 shares of Palm for each 3Com share.

"I got at least 10 calls from investors today and over the last two days, and they were really concerned about this being a big deal because of the number," Crawford said, adding that there was nothing to worry about.

Occasionally investors will sell their shares in the weeks leading up to a lockup expiration, hoping to get out before the stock may fall.

"If you've had a run-up relative to the IPO price, (company insiders) are in the money to a certain amount," Crawford said, pointing out that people inside a company typically pay less than the IPO price for their shares. "There's quite often an incentive to sell."

Shares of Palm rose 150 percent to $95.06 on the day of its March 2 IPO. In the past two weeks, shares of Palm have climbed 22 percent, closing today at $40.13, up $1.50.