11 January 2010


Luminus settles lawsuit with lender Hercules, but lays off 30 staff

Luminus Devices Inc of Billerica, MA, which makes LED solid-state light sources for illumination applications (including high-definition TVs, video projectors, avionics displays, and lighting systems), has settled a lawsuit filed against its lender Hercules Technology Growth Capital Inc of Palo Alto, CA (which provides financing to technology and life sciences firms).

Luminus filed the lawsuit on 18 December, claiming that Hercules had blocked it from accessing $12m in bank accounts after improperly declaring it to be in default on a $15.1m loan. Since being founded in 2002, Luminus has raised $140m in funds, and was close to raising another $15m from investors when the accounts were frozen.

According to a report in The Boston Globe, Luminus said that Hercules’ actions were a “blatant attempt to seize the upper hand in ongoing negotiations with Luminous and its sponsors”. However, Hercules claimed that it had no choice but to exercise its rights under the loan agreement, after Luminus in November almost doubled May’s forecast for 2009 losses to more than $29m and lowered its 2010 revenue forecast by 60% to $24.8m, raising doubts about its cash flow being adequate to repay the loan. Starting this year, Luminus was supposed to pay Hercules $800,000 per month over the next two years.

Before freezing the accounts, Hercules said it talked to Luminus about the possibility of existing investors injecting another $15m, but investors demanded “unreasonable modifications to the loan agreement”, including deferring some of the payments and converting some of the debt to stock. Without the additional investment, Hercules said Luminus’ cash collateral would have quickly dissipated, putting the loan at risk.

Luminus was consequently forced to lay off most of its staff. The firm had 130 staff at its Billerica headquarters and a factory in Woburn.

Now, Luminus has withdrawn its legal action after Hercules agreed to release the bank accounts following renegotiation of terms of the $15.1m loan, including reducing the amount borrowed. Luminus has also been able to line up some bridge funding from its board of directors and existing investors to help fund it until it can finish raising the $15m from investors later in January (allowing it to recall most of its staff). Nevertheless, to improve efficiency, Luminus has decided to cut 30 jobs (mainly in manufacturing).

“From the outset, Luminus was confident of a full and cooperative outcome to the recent legal action we took against Hercules,” says Luminus’ president & CEO Keith T.S. Ward.

“Luminus has complete and unwavering support from its investors, a committed board of directors, and a strong internal leadership team,” Ward stresses. The firm says that investors and shareholders are committed to supporting its growth-oriented 2010/2011 business plan (approved in late 2009), and that it is committed to the customers, applications and markets for its PhlatLight LEDs.

The firm’s products are used by some of the world’s largest electronics companies, including Acer, LG, Sony, Samsung and Toshiba. “We are committed to our 2010/2011 vision of continued growth in projection display, general illumination lighting and UV industries,” says Ward, adding that, in general illumination lighting markets such as architectural, retail, residential, roadways, digital signage, industrial high-bay and in entertainment lighting applications, companies such as Vari-Lite have validated use of the firm’s large-chip PhlatLight LEDs in many new lighting applications.

The firm still expects its revenue this year to more than double from nearly $10m last year. “We had our best month ever in December,” Ward noted, according to The Boston Globe’s report.

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