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From the Boston Globe:
Lighting start-up fighting for life
Facing shutdown, Luminus claims its lender is reneging
By Todd Wallack Globe Staff / January 1, 2010
Luminus Devices Inc., a Billerica lighting technology start-up, is fighting to keep the lights on.
In court documents, the company, which makes light-emitting diode products, accused its lender, Hercules Technology Growth Capital Inc. and several related entities, of reneging on a $15.1 million loan and blocking access to its bank accounts. Unless the company can persuade a judge to intervene quickly and allow it to regain access to its cash, Luminus warned that it might have to shut down or slash its staff.
"As of a result of [Hercules's] actions, Luminus cannot make its payroll and must furlough and terminate employees immediately,'' the company warned in a legal complaint filed Dec. 18 in Suffolk Superior Court. In addition, Luminus said it would advise its investment bank that it "no longer has access to its accounts and must immediately terminate operations.''
Luminus, which makes lighting products used everywhere from concert venues to street lamps, has about 130 employees at its Billerica headquarters and a factory in Woburn, according to its lawsuit. The company said it has raised $140 million since it was founded in 2002 and was close to raising another $15 million in financing when Hercules blocked access to some of its bank accounts. Hercules, which provides financing to technology and life sciences companies, is based in Palo Alto, Calif., and has an office in Boston.
Hercules argued in US District Court in Boston, where the case was moved, that it was justified in seizing Luminus's bank accounts, because the lighting firm's finances deteriorated so sharply that it doubted Luminus would be able to make its loan payments. Starting this month, Luminus was supposed to pay Hercules $800,000 per month over the next two years.
Hercules could not be reached for comment. But in a court filing, the company's lawyers said the company "had no real choice but to exercise its rights under the loan agreement.''
"Luminus's own projections showed that its cash flow would be wholly inadequate to service its debt,'' the Hercules filing said.
The dispute appears to have erupted two weeks ago, when Luminus says Hercules claimed that Luminus defaulted on its loan and tried to block it from accessing its funds in ac counts at Citizens Bank and State Street Bank & Trust. Luminus said the accounts contained more than $12 million. Luminus denied it defaulted on the loan and said Herculus made the move "in a blatant attempt to seize the upper hand in ongoing negotiations with Luminous and its sponsors.'' But the lawsuit doesn't make it clear exactly how Hercules hoped to influence the talks or what it was seeking.
Regardless, Hercules said it was forced to act because Luminus's finances worsened significantly. For instance, Luminus predicted in November that it would generate $24.8 million in revenue in 2010, 60 percent less than it predicted last May. And Luminus estimated it would lose more than $29 million this year, nearly double the amount it initially predicted six months earlier.
Based on the revised numbers, Hercules said it was clear that Luminus's "ability to repay the loan declined significantly.''
Luminus chief executive Keith T.S. Ward said the company stood by the statements in its lawsuit. But in a brief comment he said "we are expecting a full cooperative outcome. Our business is growing, and our shareholders are supporting the expansionary business plan approved in late 2009.''
Before freezing the accounts, Hercules said it talked to Luminus about the possibility that its existing investors would inject another $15 million into the company. But Hercules said the investors demanded "unreasonable modifications to the loan agreement,'' including deferring some of the payments and converting some of the debt to company stock. Without the additional investment, Hercules said Luminus's cash collateral would have quickly dissipated, putting the loan at risk.
Hercules "did not take these steps lightly,'' the company's lawyers told the court.
Magistrate Judge Robert B. Collings denied Luminus's initial request for a temporary restraining order against Hercules on Dec. 23 - which would have barred Hercules from blocking the Billerica company's access to its bank accounts - because it wasn't clear that Luminus could prove that its interpretation of the loan document was the correct one. But Luminus will have another chance to win an injunction later this month. Collings is slated to consider Luminus's request for a preliminary injunction on Jan. 11.
The company's PhlatLight LEDs are used for many purposes, including to light stages, streets, stores, factories, and homes. The company says the lights are more efficient and last longer than conventional bulbs.
Hercules has faced similar accusations before. Specifically, Custom One Design Inc. sued Hercules last spring after Hercules tried to freeze some of its bank accounts. Custom One, an integrated circuit designer in Melrose with 15 employees, had borrowed $1 million from Hercules. The companies settled the case in June. Custom One's lawyer declined comment.
Todd Wallack can be reached at [email protected].
Lighting start-up fighting for life
Facing shutdown, Luminus claims its lender is reneging
By Todd Wallack Globe Staff / January 1, 2010
Luminus Devices Inc., a Billerica lighting technology start-up, is fighting to keep the lights on.
In court documents, the company, which makes light-emitting diode products, accused its lender, Hercules Technology Growth Capital Inc. and several related entities, of reneging on a $15.1 million loan and blocking access to its bank accounts. Unless the company can persuade a judge to intervene quickly and allow it to regain access to its cash, Luminus warned that it might have to shut down or slash its staff.
"As of a result of [Hercules's] actions, Luminus cannot make its payroll and must furlough and terminate employees immediately,'' the company warned in a legal complaint filed Dec. 18 in Suffolk Superior Court. In addition, Luminus said it would advise its investment bank that it "no longer has access to its accounts and must immediately terminate operations.''
Luminus, which makes lighting products used everywhere from concert venues to street lamps, has about 130 employees at its Billerica headquarters and a factory in Woburn, according to its lawsuit. The company said it has raised $140 million since it was founded in 2002 and was close to raising another $15 million in financing when Hercules blocked access to some of its bank accounts. Hercules, which provides financing to technology and life sciences companies, is based in Palo Alto, Calif., and has an office in Boston.
Hercules argued in US District Court in Boston, where the case was moved, that it was justified in seizing Luminus's bank accounts, because the lighting firm's finances deteriorated so sharply that it doubted Luminus would be able to make its loan payments. Starting this month, Luminus was supposed to pay Hercules $800,000 per month over the next two years.
Hercules could not be reached for comment. But in a court filing, the company's lawyers said the company "had no real choice but to exercise its rights under the loan agreement.''
"Luminus's own projections showed that its cash flow would be wholly inadequate to service its debt,'' the Hercules filing said.
The dispute appears to have erupted two weeks ago, when Luminus says Hercules claimed that Luminus defaulted on its loan and tried to block it from accessing its funds in ac counts at Citizens Bank and State Street Bank & Trust. Luminus said the accounts contained more than $12 million. Luminus denied it defaulted on the loan and said Herculus made the move "in a blatant attempt to seize the upper hand in ongoing negotiations with Luminous and its sponsors.'' But the lawsuit doesn't make it clear exactly how Hercules hoped to influence the talks or what it was seeking.
Regardless, Hercules said it was forced to act because Luminus's finances worsened significantly. For instance, Luminus predicted in November that it would generate $24.8 million in revenue in 2010, 60 percent less than it predicted last May. And Luminus estimated it would lose more than $29 million this year, nearly double the amount it initially predicted six months earlier.
Based on the revised numbers, Hercules said it was clear that Luminus's "ability to repay the loan declined significantly.''
Luminus chief executive Keith T.S. Ward said the company stood by the statements in its lawsuit. But in a brief comment he said "we are expecting a full cooperative outcome. Our business is growing, and our shareholders are supporting the expansionary business plan approved in late 2009.''
Before freezing the accounts, Hercules said it talked to Luminus about the possibility that its existing investors would inject another $15 million into the company. But Hercules said the investors demanded "unreasonable modifications to the loan agreement,'' including deferring some of the payments and converting some of the debt to company stock. Without the additional investment, Hercules said Luminus's cash collateral would have quickly dissipated, putting the loan at risk.
Hercules "did not take these steps lightly,'' the company's lawyers told the court.
Magistrate Judge Robert B. Collings denied Luminus's initial request for a temporary restraining order against Hercules on Dec. 23 - which would have barred Hercules from blocking the Billerica company's access to its bank accounts - because it wasn't clear that Luminus could prove that its interpretation of the loan document was the correct one. But Luminus will have another chance to win an injunction later this month. Collings is slated to consider Luminus's request for a preliminary injunction on Jan. 11.
The company's PhlatLight LEDs are used for many purposes, including to light stages, streets, stores, factories, and homes. The company says the lights are more efficient and last longer than conventional bulbs.
Hercules has faced similar accusations before. Specifically, Custom One Design Inc. sued Hercules last spring after Hercules tried to freeze some of its bank accounts. Custom One, an integrated circuit designer in Melrose with 15 employees, had borrowed $1 million from Hercules. The companies settled the case in June. Custom One's lawyer declined comment.
Todd Wallack can be reached at [email protected].
