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VOL. 124 | NO. 43 | Wednesday, March 4, 2009

Luminetx Founder at Odds With Management

By Tom Wilemon

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Editor’s Note: On Oct. 9, 2009, it was announced that Roxane Bischofberger and Luminetx Corp. settled their dispute amicably on terms agreeable to both sides, and all claims and counterclaims have been dismissed. The litigation was resolved pursuant to a confidential settlement.

Herb Zeman, the founder of Luminetx Corp. and inventor of the technology for the company’s products, is now the odd man out at the Memphis-based company that is fiercely battling a new competitor and simultaneously dealing with management turnover.

Perhaps he was always been the odd man out. Zeman does not speak in Southern nuances and is not your traditional Memphis business executive. He wonders if that could be a reason for the company’s management demoting him from chief technology officer in 2004 and firing him in 2007.

“I was a reform Jew, a liberal Democrat and a gay activist, so I didn’t fit into any of that crap,” Zeman said.

He is critical of the way the company is being managed and admits to having butted heads with company executives. Zeman said Luminetx has been too slow to update and improve the technology he invented that allows health care professional to see veins under patients’ skin. He worries that the company, which has been in existence for fewer than 10 years, is running out of money. The company recently sent out a letter to stakeholders notifying them that it is seeking to raise capital by selling more shares.

A personal matter

Zeman is passionate when he speaks about Luminetx because his relationship with the company goes beyond financial concerns or pride. The inspiration for the technology behind Luminetx is Charles Butler, who was Zeman’s life partner.

When Butler lost his vision from choroidal neovasacularization retinitis, a complication from AIDS, Zeman began dwelling on ways to improve contrasts between images to help people with that condition be able to see. The invention he came up with was not practical for that purpose, but it did have other applications, such as allowing health care professionals to easily identify veins and also providing new biometric technology (fingerprints, voice patterns and other ways of verifying personal identity).

Al Gossett, the chairman of Luminetx’s board of directors, declined to be interviewed by The Daily News, but the company did release a written statement after Zeman went public with his complaints. The statement said the privately held company, which does not have to release its financials, is “viable and strong” and had a 77 percent increase in unit sales in 2008 over 2007.

The statement refers to Zeman as a “former employee” and notes that he has been the subject of an investigation into the dissemination of trade secrets to a competitor.

Claims, counterclaims – posturing?

That competitor is AccuVein, a New York-based company that this year is launching a smaller product that provides the same function as Luminetx’s VeinViewer, which sells for about $25,000 per unit. Zeman bristles at any suggestion that he is hurting the company he founded and pointed out that doing so would not be in his own best interest. He still owns 4.9 million shares in Luminetx and is an expert witness in a patent infringement lawsuit the company has filed against AccuVein, he said.

Zeman, a physicist and retired professor from the University of Tennessee Health Science Center, is the expert witness because the patent is in his name.

“That’s what’s funny,” Zeman said. “Al Gossett likes to claim both in the press and elsewhere that I’m a security risk and giving away secrets to the enemy and so on, and at the same time, he’s paying me $250 an hour to prepare his lawsuit against the company that is violating the patent that I wrote. It doesn’t make sense to do that if I am this terrible security risk. He wouldn’t want me anywhere near it.”

Gossett wrote a letter to Zeman in late December explaining why the company would not allow him to view and evaluate the next generation of the Luminetx VeinViewer after Zeman made the request at a stockholder meeting earlier that month. The reason Gossett gave was an e-mail exchange between Zeman and former Luminetx employee Roxane Bischofberger, from August 2007.

Zeman provided a copy of the letter to The Daily News.

“Herb, I cannot imagine that you meant to knowingly deliver confidential information to Ms. Bischofberger, much less AccuVein, but that is exactly what you did,” Gossett wrote. “Similarly, I still have a difficult time believing that you would ever carry through with the threats you made to harm the company last fall by taking your intellectual property to a competitor.”

Electronic discovery

Bischofberger, who appeared to be fishing for information in the e-mail, passed the exchange along to an executive at an investment firm, who then forwarded it to an AccuVein executive. The e-mail exchange has been entered as an exhibit by AccuVein in a motion to compel Luminetx to provide information about an Israeli firm the company has a strategic partnership with to develop a smaller version of the VeinViewer.

Luminetx in court papers contends that this recent partnership with Explay, which began in 2007, is irrelevant because the intellectual property dispute is over the 1999 patent.

Zeman said that in his e-mail to Bisch­ofberger, who was an old friend, he did not tell her anything she did not already know. He said he was suspicious of the e-mail, which included endearments and personal notes, before she inquired about a “a new discovery (i.e. combining two light sources to enhance the current image of the VV x 10).”

Zeman did not directly answer this question in his response.

“I just made a nice polite response and didn’t answer any of her questions,” Zeman said. “She then tried to claim to AccuVein that she had gotten all this great information. She didn’t get anything from me.”

The exact text of Zeman’s response: “We are meeting with several different companies this week about building prototypes of new smaller VVs with greatly improved image quality. I’m optimistic that we can get a new product ready for sale in one and a half to two years that will really be a great improvement over what we’re selling now.

“Of course, the present model has to sell well for there to be enough resources to develop the new model. Sales (are) key right now.”

An hour later, Bischofberger forwarded the e-mail with the message, “Gentlemen: I am sure this will allay your concerns!! Below, you will find the e-mail response from Dr. Herbert Zeman regarding the technology revisions and improvements to date. Call with questions. Regards, Roxane.”

Zeman said Bischofberger betrayed a friendship in an effort to get a new job, but he said he doesn’t feel that angry because he believes she was treated badly by Luminetx and wanted revenge.

Zeman said he can empathize with her, but he is adamant that he has done nothing to betray the company he founded.

“The two statements that I have threatened the company and given away company secrets are lies,” he said. “They are fabrications. They are horrendous distortions of what actually happened. Al Gossett does that deliberately to justify the unjustifiable. After all, he took a company that had a pretty extensive engineering staff of competent people and got rid of everybody.”

Ballistic missiles

Explay was at the center of the dispute that culminated with Zeman’s exit from the company. Zeman said he argued for Luminetx to contract with an established company instead of a startup firm in Israel because he believed the costs would have been lower and the risks less.

“I went ballistic,” Zeman said. “I got very angry. What I did after this meeting in which this whole thing with Explay was presented, I went up to the break room on the third floor to have a coffee and relax. There were some colleagues there that I knew pretty well, and I told them what I thought of that decision, and I was trying to think: What could I do? How could I somehow have an influence on this company?

“What could I do to a certain extent take revenge on people who had so misled me? So I made a statement, gee, I could go and work for a competitor. Then I said the only trouble with that is I have a non-disclosure agreement and I have a non-compete agreement so it wouldn’t work. I couldn’t do it. And that was all that I said.”

Zeman said his biggest regret with the company is not insisting on having a permanent seat on the board or implementing other measures to maintain some control. He said he believes he got bad advice from a lawyer who perceived the company as being the client instead of himself.

‘Some progress’

Turnover and turmoil within the executive suite and research department have hurt the company. Luminetx has been without a chief executive officer since Jim Phillips left in June 2007. However, the company is expected to name someone new to that position any day. The position has been vacant for a year while Gossett, who owns car dealerships, has served as the interim head of the medical technology company.

There have also been turnovers in the chief operating officer position as well as top research and sales positions.

Luminetx is suing two former executives, Bischofberger, and Greg Candelmo, the former vice president of sales for Luminetx. He now works for AccuVein.

“Al Gossett’s first act was to fire all the distributors before he had any replacements,” Zeman said. “They finally got some replacements for all the distributors, then he fired the chief of U.S. sales, who is now working for the competitor. That’s Candelmo. If he’s this great at selling stuff, he certainly hasn’t been successfully selling VeinViewers. He obviously did better selling cars.”

Gossett defended the company in the Luminetx statement. He said December was the most profitable month in the company’s history.

“Even though the global economic market has not improved, our strategy continues to provide an excellent start in 2009, with a record-setting January and the same projected for February,” Gossett wrote.

He said the company expects “strong reinvestment” as it seeks new capital.

Zeman said he thought about suing the company, but doing that would be like suing himself.

“They are finally getting ready to hire a CEO,” Zeman said. “We should have a CEO soon who at least has got some experience in medical imaging and knows something about the medical field. I haven’t met any of these guys. I have no say who gets hired, obviously, but I hope to talk to the guy when he arrives at Luminetx and make some progress.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047
FORECLOSURE NOTICES 20 39 190
BUILDING PERMITS 0 305 3,056
BANKRUPTCIES 17 135 753
BUSINESS LICENSES 0 53 329
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0