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Stakeholder Explains Push for Applied IPO

The investor driving plans for an initial public offering by Applied Medical Resources Corp.’s stock has laid out its thinking.

Rancho Santa Margarita-based Applied Medical aims to raise $24.8 million through a sale of almost 730,000 common shares.

Menlo Park-based Institutional Venture Partners LLP, a longtime stakeholder, wants to cash out of its 20% interest in Applied because some of its own investors “have had a real need for liquidity,” IVP founder Reid Dennis said in a video posted on the website of WR Hambrecht + Co., the San Francisco-based investment bank underwriting Applied’s offering.

The investors Dennis cited hold positions in the IVP IV Fund, the vehicle for the firm’s investment in Applied. IVP IV was created 24 years ago.

“IVP IV was supposed to be a 10-year fund, which is standard in the venture capital industry, so 24 years is a long time to try to keep maintaining a fund that was supposed to last for 10 years,” Dennis said.

He didn’t identify fund investors by name but said they have included a major bank, two major university-endowment funds, several large insurance companies, and the retirement plan of a major corporation.

Some of those investors already have sold their holdings and “at a very, very substantial discount from what the true value should be,” he said.

Dennis added that the firm doesn’t want to cash out of Applied completely.

“However, what we really need is a marketable security that reflects the true value that we helped to create by making our investment in the first place some 24 years ago,” Dennis said.

A year ago, Applied—at the urging of IVP—filed to raise $95 million through the sale of 6.4 million common shares.

It modified terms of the proposed offering and reined in its target proceeds in September.

Applied makes various medical devices such as catheters, clamps, stents, and guide wires and products used in laparoscopic surgeries. The company had about $350 million in 2011 sales, with about 2,100 employees overall and 1,500 in Orange County.

Hambrecht

Last month Applied submitted an updated registration statement with the Securities and Exchange Commission in which it questioned Hambrecht’s performance to date as the offering’s underwriter. The selection of Hambrecht had been a choice urged by IVP.

Hambrecht “has not communicated or cooperated with us to the extent that we would have expected from an underwriter in an initial public offering,” Applied said in the filing.

Hambrecht spokesperson Sharon Smith declined comment.

Criticism

Applied also criticized Hambrecht’s posting of a research report prepared by firm DBK Consulting.

Applied said the report contained statements contradicting information included in the offering prospectus. It said Hambrecht subsequently removed the report from its website.

Applied also reiterated its status as an “emerging growth company” under federal “jumpstart” guidelines.

The company said such a classification would allow it to take advantage of certain exemptions under federal reporting regulations, such as reduced disclosure obligations regarding executive compensation.

Applied competes with a number of large, diversified medical companies, including New Brunswick, N.J.-based Johnson & Johnson and Covidien PLC, which is based in Ireland but operates from Massachusetts.

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