Luna Innovations files bankruptcy in light of unfavorable jury verdict

By Caroline Salls

Pittsburgh, July 17 - Luna Innovations Inc. filed Chapter 11 bankruptcy Friday in the U.S. Bankruptcy Court for the Western District of Virginia as a result of a jury verdict under which the company could be forced to pay more than $36 million to Hansen Medical Inc., according to a company news release.

Luna said it expects to continue normal operations during the restructuring process.

"The jury verdict in our dispute with Hansen Medical in April obviously presented a very serious potential negative outcome for Luna as well as its creditors, shareholders and other stakeholders," Luna chairman and chief executive officer Kent Murphy said in the release.

"In the absence of reasonable settlement of that dispute, we believe that today's filing is in the best interests of Luna and our shareholders, creditors and communities, while providing the first step toward securing a future for Luna.

"The jury in our litigation proposed an award to Hansen in excess of $36 million. Since then, we have filed motions with the court in California to have the award reduced, and Hansen has filed motions to ask the court to increase the award.

"While we believe we have arguments as to why the award should be significantly reduced, there is no way to predict the outcome of the litigation."

As part of the Chapter 11 filing, Luna has asked the bankruptcy court to estimate Hansen's litigation claims at less than $1.3 million.

If that motion is successful, the company said it believes creditors would recover 100% of their claims.

Murphy also said the plan would leave existing shareholders in place.

Murphy said Luna's business has continued to make progress in recent quarters despite the lawsuit.

"Since the first quarter of 2007, we have grown our revenue base by approximately 20% while reducing our baseline expenses and increasing the efficiency of operations by nearly 20%," he said.

According to court documents, Luna had $29.81 million in total assets and $55.58 million in total debt at March 31.

The company's largest unsecured creditors include Hansen Medical Inc. of Mountain View, Calif., with a $36.4 million litigation claim and Carillion Clinic of Roanoke, Va., with a $5 million convertible notes claim.

Luna is a Roanoke, Va.-based company involved in research, development and commercialization of innovative technologies in molecular technology solutions and sensing solutions. Its Chapter 11 case number is 09-71811.

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