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Applied’s Resistance to Investor’s Push for IPO ‘Unprecedented’

Rancho Santa Margarita-based Applied Medical Resources Corp. is taking more shots at the investor that’s pushing for an initial public offering and the underwriter picked to handle the process.

San Francisco-based WR Hambrecht + Co. “has not completed an initial public offering of shares of any company as a lead underwriter since 2007,” the medical device maker said in an updated registration statement filed with the Securities and Exchange Commission last month.

Applied makes catheters, clamps, guide wires, stents and products used in less-invasive laparoscopic surgeries.

The company had $270.6 million in sales and earnings of $22.5 million in the nine months through Sept. 30. It employs more than 2,100 people overall and an estimated 1,550 people in Orange County.

Hambrecht is underwriting Applied’s offering at the request of Institutional Venture Partners LLP, a Menlo Park-based venture capital firm that wants to cash out of its 20% ownership of the device maker.

Applied said that Hambrecht “may be taking actions that are not in the best interests of us, our stockholders and potential investors.”

DBK Report

It mentioned a previously cited posting of a research report prepared by DBK Consulting that was posted on Hambrecht’s website. The device maker has said that several statements in the DBK report were “directly contradictory to information included in this prospectus, and other statements in the research report reflected opinions about our industry that are contrary to our management’s view.”

Hambrecht made the initial DBK research report available “without determining whether or not the content of the report contained any untrue statements of material fact or was otherwise false or misleading,” Applied said.

Hambrecht eventually removed the report from its website but posted a revised version that appeared to address some of the criticisms from Applied’s management.

Applied said that while DBK “appears to have removed certain statements” it identified to Hambrecht as false, “many other statements in the [report] similarly identified as false or misleading remain in the revised report.

“We have demanded that [Hambrecht] inform potential investors that they should not rely on any such report,” Applied said in its filing, later adding that “we specifically disavow the content” of the report.

Hambrecht spokesperson Sharon Smith did not return a call seeking comment.

The IPO is intended to raise $24.8 million through the sale of 730,000 common shares. An initial filing called for raising $95 million through the sale of 6.4 million common shares in late 2011, but terms were modified last September.

Institutional Venture Partners’ investment in Applied is through its IVP IV Fund, which is 25 years old.

Video

Firm founder Reid Dennis said in a video posted on Hambrecht’s website that some of the investors in IVP IV have a need to cash out of Applied. He cited a bank, two university endowment funds, several large insurance companies, and the retirement plan of a major corporation among the investors in favor of the IPO.

Applied also disavowed Dennis’ video and addressed his comments in the filing.

“IVP’s solution to their problem is to force us to go public,” the company said.

Institutional Venture Partners was able to initiate the offering because it holds at least 50% of the shares that have registration rights.

The unusual status of Applied’s pending offering has caught the eye of CNNMoney.com and Fortune magazine, which recently profiled the situation.

“We hear a lot about entrepreneurs who don’t want take their companies public but who ultimately give into arm-twisting by their venture capital investors,” author Dan Primack wrote. “Never, however, does that reluctance make itself known in the actual offering prospectus. Well, almost never.”

Applied’s disclosures in its filing are “remarkable, and from what I can tell, unprecedented,” Primack added. n

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