Luna Innovations Inc (LUNA)

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http://www.roanoke.com/business/wb/229503Luna case is finally resolved to satisfaction
The Roanoke company agreed to pay a $5 million fine and give Hansen Medical nearly 10 percent of its stock.
By Katelyn Polantz | The Roanoke Times
Luna Innovations Inc. and Hansen Medical Inc. have reached an agreement that will give the bankrupt Roanoke company a chance of survival. A settlement announced Friday will end months of court disputes over a cash demand from Hansen that would have crippled Luna.

"This is something that we've worked hard at," said Scott Graeff, Luna's chief operating officer. "It was a very big struggle for Luna to have to go into Chapter 11 bankruptcy."

Hansen will earn a license to use Luna's fiber-optic technology, and the Roanoke company will develop and supply products to Hansen's specifications. Luna already supplies and has a license agreement with Intuitive Surgical Inc., a Hansen Medical competitor that makes minimally invasive devices used in surgeries.

After Luna began working with Intuitive Surgical in June 2007, Hansen accused Luna of stealing its trade secrets involving a robotic catheter used in high-tech surgeries. After a four-week trial, a jury in April found that Luna breached its contract with Hansen and misappropriated trade secrets. It ordered Luna to pay $36.3 million for the violation.

Luna, unable to pay the amount, filed for bankruptcy in July.

It agreed Friday to pay Hansen $5 million instead over the next four years.

The agreement also will make the license for Luna's fiber-optic product co-exclusive with both Intuitive Surgical, a medical robotics manufacturer, and with Hansen.

"One of the reasons this took so long was because we had a third party involved," Graeff said, referring to Intuitive.

The licensing agreement won't hurt Hansen or Intuitive, said Sameer Harish, an analyst who covers the two companies for Needham & Co.

While both manufacture robotics for medical use, they don't compete directly, he said.

The settlement will cut down the risk of future litigation, giving them "a little more freedom to operate," Harish said.

He recommends holding Hansen's shares and has a "buy" on Intuitive.

Luna, headquartered in Roanoke with offices in Blacksburg, Charlottesville and Danville, develops and manufactures products for the health care, telecommunications, energy and defense markets.

Luna expects to emerge from bankruptcy in 60 to 75 days, depending upon a court's approval of the settlement, Graeff said.

"In our case, this settlement with Hansen was critical in deciding to tell the courts, 'Here is the plan' " to emerge from bankruptcy, he said.

Luna pledges to pay its creditors back in full once that happens, Graeff added.

Luna will grant 9.9 percent of its outstanding common stock to Hansen and guarantee the company can hold that minority position for three years. At Friday's closing share price, that percentage will total $1.6 million.

Luna's shares fell 2 cents, to $1.47, at 4 p.m. in Nasdaq stock market trading, before the settlement's announcement was released. The stock has tumbled 30 percent since a year ago.

The companies will release all other outstanding litigation claims.