Exhibit 10.3

CONSENT, RELEASE AND FIFTH LOAN MODIFICATION AGREEMENT
This Consent, Release and Fifth Loan Modification Agreement (this “Loan
Modification Agreement”) is entered into as of January 21, 2014, by and between
(i) SILICON VALLEY BANK, a California corporation with a loan production office
located at 8020 Towers Crescent Drive, Suite 475, Vienna, Virginia 22182
(“Bank”), and (ii) LUNA INNOVATIONS INCORPORATED, a Delaware corporation
(“Innovations”) and LUNA TECHNOLOGIES, INC., a Delaware corporation
(“Technologies”), each with offices located at 1 Riverside Circle, Suite 400,
Roanoke, Virginia 24016 (Innovations and Technologies are referred to herein,
individually and collectively, jointly and severally, the “Borrower”).
1.DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness
and obligations which may be owing by Borrower to Bank, Borrower is indebted to
Bank pursuant to a loan arrangement dated as of February 18, 2010, evidenced by,
among other documents, a certain Loan and Security Agreement dated as of
February 18, 2010, between Borrower and Bank, as amended by a certain First Loan
Modification Agreement, dated as of March 7, 2011, as further amended by a
certain Second Loan Modification Agreement, dated as of May 18, 2011, as further
amended by a certain Third Loan Modification Agreement, dated as of June 1,
2012, and as further amended by a certain Fourth Loan Modification Agreement,
dated as of March 1, 2013 (as amended, the “Loan Agreement”). Capitalized terms
used but not otherwise defined herein shall have the same meaning as in the Loan
Agreement.
2.    DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the
Collateral as described in the Loan Agreement and in certain Intellectual
Property Security Agreements executed by each Borrower in favor of Bank
(collectively, the “IP Agreements”, and together with any other collateral
security granted to Bank, the “Security Documents”).
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Obligations shall be referred to as the “Existing
Loan Documents”.
3.     DESCRIPTION OF CHANGE IN TERMS.
A.
Modifications to Loan Agreement.

1
The Loan Agreement shall be amended by deleting the following text appearing as
Section 6.9(a) thereof:

“(a)    Minimum Cash. Borrower’s unrestricted cash at Bank of not less than Five
Million Dollars ($5,000,000).”
and inserting in lieu thereof the following:
“(a)    Minimum Cash. Borrower’s unrestricted cash at Bank of not less than
Three Million Five Hundred Thousand Dollars ($3,500,000).”
2
The loan Agreement shall be amended by inserting the following definitions in
Section 13.1 thereof, each in its appropriate alphabetical order:

“Fifth Loan Modification Effective Date” is January 21, 2014.”
3
The Compliance Certificate appearing as Exhibit B to the Loan Agreement is
hereby replaced with the Compliance Certificate attached as Exhibit A hereto.

4.    CONSENT. Borrower has requested that Bank consent to the sale by
Innovations of certain of its assets to Intuitive Surgical Operations, Inc., a
Delaware corporation (the “Purchaser”) pursuant to an Asset Purchase Agreement
dated as of January

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

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17, 2014 (the “Purchase Agreement”). Innovations intends to sell certain
Collateral in connection with its Fiber Optic Shape Sensing/Localization
technology to Purchaser in accordance with the terms contained in the Purchase
Agreement (the “Transaction”). Absent such consent, the Transaction would be a
violation of Section 7.1 (Dispositions) of the Loan Agreement. Bank hereby
consents to the Transaction pursuant to the terms of the Purchase Agreement and
agrees that: (i) notwithstanding anything to the contrary contained in Section
7.1 or otherwise in the Loan Agreement, the Transaction shall be permitted under
the Loan Agreement, and (ii) notwithstanding anything to the contrary contained
in Section 6.4 or otherwise in the Loan Agreement, Borrower shall not be
obligated to remit the proceeds of the Transaction to Bank to be applied to the
Obligations; provided, however, that Borrower retain at least $12,000,000 of the
proceeds from the Transaction on its balance sheet as cash and deposits (a) on
the closing date of the Transaction, $6,000,000 of such proceeds in an account
of Borrower maintained at Bank and (b) upon receipt, and in any event not later
than ninety (90) days after the closing date of the Transaction, $6,000,000 of
such proceeds in an account of Borrower maintained at Bank, in each case until
used by Borrower in the ordinary course of business.
5.    PARTIAL RELEASE. Bank hereby fully and unconditionally releases and
reassigns to Borrower any and all liens, security interests, right, title and
interest of Bank pursuant to the Loan Agreement in certain of the Collateral
described on Schedule 1 attached hereto (as more specifically defined in the
Purchase Agreement, the “Transferred Assets”), without recourse or
representation or warranty, express or implied, of any kind. Bank authorizes
Borrower, Purchaser, or any other party on behalf of Borrower, after review by
Bank, to file any UCC-3 Termination Statements or other documents necessary to
evidence the release of Bank’s security interests in the Purchased Assets.  In
addition, Bank shall take any other actions, as may be reasonably requested by
Borrower or which are required to evidence the release of the Purchased Assets,
in each case at the expense of Borrower (including all reasonable attorneys’
fees and expenses).
6.    FEES. Borrower shall reimburse Bank for all legal fees and expenses
incurred in connection with this amendment to the Existing Loan Documents.
7.    RATIFICATION OF IP AGREEMENTS. Other than with respect to the Purchased
Assets being released herein, Borrower hereby ratifies, confirms and reaffirms,
all and singular, the terms and conditions of the IP Agreements, and
acknowledges, confirms and agrees that said IP Agreements, as modified by
certain disclosures made by Borrower to Bank through and including the date
hereof, contain an accurate and complete listing of all Intellectual Property
Collateral as defined in each respective IP Agreement, and each remains in full
force and effect. Notwithstanding the terms and conditions of any of the IP
Agreements, Borrower shall not register any Copyrights or Mask Works in the
United States Copyright Office unless it: (i) has given at least fifteen (15)
days’ prior written notice to Bank of its intent to register such Copyrights or
Mask Works and has provided Bank with a copy of the application it intends to
file with the United States Copyright Office (excluding exhibits thereto); (ii)
executes a security agreement or such other documents as Bank may reasonably
request in order to maintain the perfection and priority of Bank’s security
interest in the Copyrights proposed to be registered with the United States
Copyright Office; and (iii) records such security documents with the United
States Copyright Office contemporaneously with filing the Copyright
application(s) with the United States Copyright Office. Borrower shall promptly
provide to Bank a copy of the Copyright application(s) filed with the United
States Copyright Office, together with evidence of the recording of the security
documents necessary for Bank to maintain the perfection and priority of its
security interest in such Copyrights or Mask Works. Borrower shall provide
written notice to Bank of any application filed by Borrower in the United States
Patent Trademark Office for a patent or to register a trademark or service mark
within thirty (30) days of any such filing.
8.    RATIFICATION OF PERFECTION CERTIFICATE. Other than with respect to the
Purchased Asstes being released herein, Borrower hereby ratifies, confirms and
reaffirms, all and singular, the terms and disclosures contained in certain
Perfection Certificates, each dated as of February 18, 2010, each as modified by
written disclosures made by Borrower to Bank through and including the date
hereof, and acknowledges, confirms and agrees the disclosures and information
above Borrower provided to Bank in each such Perfection Certificate, as modified
through the date hereof, remains true and correct in all material respects as of
the date hereof.
9.    AUTHORIZATION TO FILE. Borrower hereby authorizes Bank to file UCC
financing statements without notice to Borrower, with all appropriate
jurisdictions, as Bank deems appropriate, in order to further perfect or protect
Bank’s interest in the Collateral, including a notice that any disposition of
the Collateral, by either the Borrower or any other Person, shall be deemed to
violate the rights of the Bank under the Code.

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

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10.    CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
11.    RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of the Loan Agreement (as modified by this
Loan Modification Agreement), and all security or other collateral granted to
the Bank, and confirms that the indebtedness secured thereby includes, without
limitation, the Obligations.
12.    NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that
Borrower has no offsets, defenses, claims, or counterclaims against Bank with
respect to the Obligations, or otherwise, and that if Borrower now has, or ever
did have, any offsets, defenses, claims, or counterclaims against Bank, whether
known or unknown, at law or in equity, all of them are hereby expressly WAIVED
and Borrower hereby RELEASES Bank from any liability thereunder.
13.    CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the existing Obligations, Bank is relying upon Borrower’s representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank’s agreement to modifications to the existing Obligations pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Obligations. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Obligations. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
14.    JURISDICTION/VENUE. Section 11 of the Loan Agreement is hereby
incorporated by reference in its entirety.
15.    COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank.
[Signatures included on the following page]

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

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IN WITNESS WHEREOF, the parties hereto have caused this Loan Modification
Agreement to be executed as a sealed instrument under the laws of the
Commonwealth of Massachusetts as of the date first above written.

BORROWER:
LUNA INNOVATIONS INCORPORATED
By    /s/ Kent A. Murphy        
Name: Kent A. Murphy            
Title: President and CEO
LUNA TECHNOLOGIES, INC.
By    /s/ Scott A. Graeff        
Name: Scott A. Graeff            
Title: President                 
BANK:
SILICON VALLEY BANK
By:    /s/ Alicia Fuller        
Name:    Alicia Fuller    
Title:    Vice President

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

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SCHEDULE 1
TRANSFERRED ASSETS

[***]

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

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Exhibit A to Fifth Loan Modification Agreement
EXHIBIT B
COMPLIANCE CERTIFICATE

TO:    SILICON VALLEY BANK                        Date:                 
FROM:     LUNA INNOVATIONS INCORPORATED
    LUNA TECHNOLOGIES, INC.

The undersigned authorized officer of Luna Innovations Incorporated, a Delaware
corporation, and Luna Technologies, Inc., a Delaware corporation (individually
and collectively, jointly and severally, the “Borrower”) certifies that under
the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the “Agreement”), (1) Borrower is in complete compliance for the period
ending _______________ with all required covenants except as noted below, (2)
there are no Events of Default, (3) all representations and warranties in the
Agreement are true and correct in all material respects on this date except as
noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, (4)
Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries, if any, relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank. Attached are
the required documents supporting the certification. The undersigned certifies
that these are prepared in accordance with GAAP consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
The undersigned acknowledges that no borrowings may be requested at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that compliance is determined not just at the date this
certificate is delivered. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.
 
Reporting Covenant
Required
Complies
 
 
 
Monthly financial statements with
Compliance Certificate
Monthly within 30 days
Yes No
Annual financial statement (CPA Audited) + CC
FYE within 120 days
Yes No
10‑Q, 10‑K and 8-K
Within 5 days after filing with SEC
Yes No
A/R & A/P Agings, Deferred Revenue/billings in
excess of cost report/project identifiers for Assignments of Claim tracking
purposes
Monthly within 15 days
Yes No
Transaction Reports
Bi-weekly (monthly with 30 days
during a Streamline Period) and with each
request for an advance
Yes No
Projections
FYE within 30 days, and as amended
Yes No
 

The following Intellectual Property was registered after the Effective Date (if
no registrations, state “None”)
____________________________________________________________________________

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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Financial Covenant
Required
Actual
Complies
 
 
 
 
Maintain as indicated:
 
 
 
Minimum Cash
$3,500,000
$_______
Yes No

    

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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The following financial covenant analyses and information set forth in Schedule
1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

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LUNA INNOVATIONS INCORPORATED
LUNA TECHNOLOGIES, INC.

By:    
Name:    
Title:    

BANK USE ONLY

Received by: _____________________
AUTHORIZED SIGNER
Date: _________________________

Verified: ________________________
AUTHORIZED SIGNER
Date: _________________________

Compliance Status: Yes No

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:    ____________________

I.    Minimum Cash (Section 6.9(a))

Required:
Borrower shall maintain at all times unrestricted cash at Bank of not less than
Three Million Five Hundred Thousand Dollars ($3,500,000).

Actual:

A.
Aggregate value of Borrower’s unrestricted cash at Bank
$   

Is line A equal to or greater than $3,500,000?

  No, not in compliance                          Yes, in compliance

Confidential and Proprietary

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.