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Applied Medical Recasts Plan for IPO

Applied Medical Resources Corp. remains reluctant as it reworks its plan for a public offering.

The Rancho Santa Margarita-based medical device maker said in a recent Securities and Exchange Commission filing that it now will try to raise $25 million through a sale of 729,798 Class B shares of common stock.

Applied’s original filing late last year November was for $95 million through the sale of 6.4 million shares of Class A common stock for sale.

Applied is included on this weeks list of fastest growing companies at No. 124 (see related stories throughout issue, list starting on page 36).

The plan for an initial public offering has been driven by Institutional Venture Partners LLP, a Menlo Park-based venture capital firm that owns 20% of Applied and wants to cash out.

Applied said in its newest filing that it has received correspondence from IVP, law firm Morrison & Foerster LLP, which represents underwriter WR Hambrecht + Co.—both in San Francisco—as well as others “requesting significant changes” to the IPO plan. The correspondence expressed a desire to have the deal structured differently from the plan first put in place in response to IVP’s original request, according to the filing.

“We have concluded that such correspondence constitutes an election to initiate a new demand registration” with respect to the company’s Class B common stock, Applied said in its filing.

A spokesperson for Applied declined comment. IVP didn’t respond to a request for comment.

Applied makes various medical devices, including catheters, clamps, stents and guide wires, and products used in laparoscopic surgeries. It has more than $300 million in annual sales, with about 2,100 employees overall and 1,500 in Orange County.

The company competes with a number of large companies, including New Brunswick, N.J.-based Johnson & Johnson and Covidien plc, which is based in Ireland and operates from Massachusetts.

The IPO filing indicates a continuing rift between Applied and IVP.

The latest filing said that Peter Thomas, a partner at IVP at the time of its investment in the device maker’s predecessors in 1988, was removed from Applied’s board in January by shareholders.

Thomas then exercised vested stock options to buy 37,950 shares of Applied’s Class B stock. He paid about $7.31 a share for a total of $277,650, according to the filing.

Applied repurchased the shares for $495,247.50, or $13.05 a share, and said in the filing that the price “reflects our compensation committee’s good fatith determination of the fair market value” of the Class B stock before Thomas’ removal as an Applied director.

The filing noted that Thomas, supported by IVP, asserts that Applied didn’t make the fair market value determination in good faith. It also said he told Applied management that IVP values its Applied shares at $32.66 a share.

Applied said in the filing that it sued Thomas and IVP in August, before he sold the shares back to the company.

“Resolving Mr. Thomas’ refusal to perform under certain stock agreements and his assertions regarding the process we use for establishing stock option values to our satisfaction is distracting our senior management from operating our business,” Applied said in its filing.

The device maker said it continues to “seek damages against Mr. Thomas and IVP as a result of their actions” even though Thomas eventually satisfied his obligations to sell back the shares.

Applied said underwriter Hambrecht’s initial estimate of the price range of the IPO “was established without consultation with us.” It said the range was expected to be $30 to $34 a share.

Applied continues to keep a low profile on its offering. It said in a February regulatory filing that its stock would be available on the low-profile over-the-counter bulletin board exchange and has indicated it doesn’t plan to engage with stock analysts.

The device maker said its status as an “emerging growth company” under the Jumpstart Our Business Startups law would allow it to “take advantage of certain exemptions” under federal reporting regulations. Those include reduced disclosure obligations regarding executive compensation, the company said.

The filing also showed Applied’s profit for six months through June was $9.2 million, 41% less than in the same period a year earlier.

Revenue grew 12% to $179 million during the span.

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