Exhibit 10.4

Execution Copy

LUNA INNOVATIONS INCORPORATED

AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

January 13, 2010

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TABLE OF CONTENTS

 

              Page

Section 1 Definitions

   2  

1.1

   Certain Definitions.    2

Section 2 Registration Rights

   4  

2.1

   Requested Registration.    4  

2.2

   Company Registration.    7  

2.3

   Registration on Form S-3.    8  

2.4

   Expenses of Registration.    9  

2.5

   Registration Procedures.    9  

2.6

   Indemnification.    10  

2.7

   Information by Holder.    12  

2.8

   Restrictions on Transfer.    12  

2.9

   Rule 144 Reporting.    14  

2.10

   Intentionally Omitted.    14  

2.11

   Delay of Registration.    14  

2.12

   Transfer or Assignment of Registration Rights.    14  

2.13

   Limitations on Subsequent Registration Rights.    15  

2.14

   Termination of Registration Rights.    15

Section 3 Miscellaneous

   15  

3.1

   Right of First Review.    15  

3.2

   Amendment.    15  

3.3

   Notices.    16  

3.4

   Governing Law.    16  

3.5

   Successors and Assigns.    16  

3.6

   Entire Agreement.    16  

3.7

   Delays or Omissions.    17  

3.8

   Severability.    17  

3.9

   Titles and Subtitles.    17  

3.10

   Counterparts.    17  

3.11

   Telecopy Execution and Delivery.    17  

3.12

   Jurisdiction; Venue; Waiver of Jury Trial.    17  

3.13

   Further Assurances.    17  

3.14

   Conflict.    18  

3.15

   Attorneys’ Fees.    18  

3.16

   Termination Upon a Change of Control.    18

 

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LUNA INNOVATIONS INCORPORATED

AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

This Amended and Restated Investor Rights Agreement (this “Agreement”) is made
as of January 13, 2010, by and among Luna Innovations Incorporated, a Delaware
corporation (the “Company”), the entity (the “Investor”) listed on Exhibit A
hereto, and certain stockholders of the Company listed on Exhibit B hereto (the
“Stockholders”). Unless otherwise defined herein, capitalized terms used in this
Agreement have the meanings ascribed to them in Section 1.

RECITALS

WHEREAS: the Investor is a party to the Class C Common Stock and Note Purchase
Agreement made and entered into as of December 30, 2005, by and between the
Company, the Investor, and certain Stockholders (the “Prior Agreement”) pursuant
to which, among other things, the Investor purchased senior convertible
promissory notes (the “Notes”).

WHEREAS: the Company has authorized the reservation and issuance of a new series
of preferred stock of the Company to be designated as Series A Preferred Stock,
par value $0.001 per share (“Series A Preferred”) that is convertible into
shares of the Company’s common stock, par value $0.001 per share (“Common
Stock”).

WHEREAS: the Investor wishes to exchange (the “Exchange”), upon the terms and
conditions set forth in the Securities Purchase and Exchange Agreement between
the Company and Investor, dated as of January 12, 2010 (the “Exchange
Agreement”), all of the outstanding Notes issued pursuant to the Prior Agreement
for 1,321,514 shares of Series A Preferred such that all outstanding principal
would be treated as retired and all accrued and unpaid interest under the Notes
would be treated as paid in full. In addition, as part of the Exchange, the
Company will also issue warrants (the “New Warrants”) to purchase an aggregate
of an additional 356,000 shares of Common Stock. Further, the exercise price of
the warrants currently held by the Investor (the “Existing Warrants,” together
with the New Warrants, the “Warrants”) to purchase 10,000 shares of the
Company’s Common Stock shall be amended to reduced the exercise price of such
Existing Warrants to $2.50 per share (the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants issued to the Investor,
collectively, the “Warrant Shares”).

WHEREAS: The Investor, the Company and certain of the Stockholders are parties
to that certain Investor Rights Agreement made and entered into as of
December 30, 2005 (the “Original Agreement”).

WHEREAS: the Company, the Investor and the Holders holding a majority of the
Registrable Securities as defined under the Original Agreement (collectively,
the “Requisite Stockholders”) desire to amend and restate the Original Agreement
as provided herein.

WHEREAS: the obligations in the Exchange Agreement are conditioned upon the
execution and delivery of this Agreement by the Company and the Requisite
Stockholders; and

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WHEREAS: in consideration of the Exchange, the Company, the Investor and the
Stockholders have agreed to the provisions set forth below.

NOW, THEREFORE: in consideration of the mutual promises and covenants set forth
herein, and other consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:

Section 1

Definitions

1.1 Certain Definitions. As used in this Agreement, the following terms shall
have the meanings set forth below:

(a) “Best Efforts” means the efforts that a prudent person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as practical unless such efforts would result in a
Material Adverse Effect on the Company, provided all costs and expenses that
will be necessary for the Company to incur in order to satisfy its obligations
under this Agreement pursuant to a request to register shares of Common Stock
pursuant to the Investor’s rights under this Agreement shall not be deemed, in
and of itself, to be a Material Adverse Effect on the Company.

(b) “Carilion” shall mean Carilion Clinic or its assigns.

(c) “Change of Control” shall mean any transaction or series of related
transactions to which the Company is a party in which one hundred percent
(100%) of the Company’s outstanding equity is sold and voting power is
transferred.

(d) “Commission” shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.

(e) “Common Stock” shall have the meaning set forth in the Recitals hereto.

(f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.

(g) “Exchange Agreement” shall have the meaning set forth in the Recitals
hereto.

(h) “Holder” shall mean any Investor or Major Stockholder who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been duly and validly transferred in
accordance with Section 2.12 of this Agreement.

(i) “Indemnified Party” shall have the meaning set forth in Section 2.6(c)
hereto.

 

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(j) “Indemnifying Party” shall have the meaning set forth in Section 2.6(c)
hereto.

(k) “Initiating Holders” shall mean any Holder or Holders who in the aggregate
hold not less than a majority of (i) the outstanding Registrable Securities or
(ii) the outstanding Registrable Securities issued or issuable, directly or
indirectly, pursuant to the conversion of the Series A Preferred and exercise of
the Warrants.

(l) “Major Stockholder” shall mean Kent A. Murphy, Ph.D. or any permitted
transferee.

(m) “Material Adverse Effect” means a material adverse change or any material
development involving a prospective adverse change, in or adversely affecting
the management, financial position, stockholders’ equity or results of
operations of the Company, provided, an order approving the Plan shall not be
deemed to be a Material Adverse Effect.

(n) “Other Selling Stockholders” shall mean persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their Other
Shares in certain registrations hereunder.

(o) “Other Shares” shall mean shares of Common Stock, other than Registrable
Securities (as defined below), with respect to which registration rights have
been granted.

(p) “Plan” shall mean the First Amended Joint Plan of Reorganization of Luna
Innovations Incorporated and Luna Technologies, Inc, dated December 18, 2009, as
it may be further amended, and together with the Exhibits thereto.

(q) “Registrable Securities” shall mean (i) shares of Common Stock beneficially
owned by the Holders and (ii) shares of Common Stock issued or issuable,
directly or indirectly, pursuant to the conversion of the Series A Preferred and
exercise of the Warrants; provided, however, that Registrable Securities shall
not include any shares of Common Stock described in clause (i) or (ii) above
which have previously been registered or which have been sold to the public
either pursuant to a registration statement or Rule 144, or which have been sold
in a private transaction in which the transferor’s rights under this Agreement
are not validly assigned in accordance with this Agreement.

(r) The terms “register,” “registered” and “registration” shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.

(s) “Registration Expenses” shall mean all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue-sky fees and expenses,
and expenses of any regular or special audits incident to or required by any
such registration, but shall not include Selling Expenses, fees and
disbursements of counsel for the Holders and the compensation of regular
employees of the Company, which shall be paid in any event by the Company.

 

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(t) “Restricted Securities” shall mean any Registrable Securities required to
bear the first legend set forth in Section 2.8(c) hereof.

(u) “Rule 144” shall mean Rule 144 as promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.

(v) “Rule 145” shall mean Rule 145 as promulgated by the Commission under the
Securities Act, as such rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.

(w) “Securities Act” shall mean the Securities Act of 1933, as amended, or any
similar successor federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time.

(x) “Selling Expenses” shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder.

(y) “Series A Preferred” shall have the meaning set forth in the Recitals
hereto.

(z) “Withdrawn Registration” shall mean a forfeited demand registration under
Section 2.1 in accordance with the terms and conditions of Section 2.4.

Section 2

Registration Rights

2.1 Requested Registration.

(a) Request for Registration. Subject to the conditions set forth in this
Section 2.1, if the Company shall receive from Initiating Holders a written
request signed by such Initiating Holders that the Company effect any
registration with respect to Registrable Securities held by such Initiating
Holders, provided such request states the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Initiating Holders, the Company will:

(i) promptly give written notice of the proposed registration to all other
Holders; and

(ii) file and use its Best Efforts to effect such registration within ninety
(90) days of such written request from the Initiating Holders (including,
without limitation, filing post-effective amendments, appropriate qualifications
under applicable blue-sky or other state securities laws, and appropriate
compliance with the Securities Act) and to permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in

 

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such request, together with all or such portion of the Registrable Securities of
any Holder or Holders joining in such request as are specified in a written
request received by the Company within twenty (20) days after such written
notice from the Company is mailed or delivered.

(b) Limitations on Requested Registration. The Company shall not be obligated to
effect, or to take any action to effect, any such registration pursuant to this
Section 2.1:

(i) If the Initiating Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration statement, propose to
sell Registrable Securities and such other securities (if any) the aggregate
proceeds of which (after deduction for underwriter’s discounts and expenses
related to the issuance) are less than $500,000;

(ii) In any particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such registration,
qualification, or compliance, unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act;

(iii) After the Company has initiated two (2) such registrations pursuant to
this Section 2.1; or

(iv) If the Initiating Holders propose to dispose of shares of Registrable
Securities which may be immediately registered on Form S-3 pursuant to a request
made under Section 2.3 hereof.

(c) Deferral. If (i) in the good faith judgment of the board of directors of the
Company (the “Board”), the filing of a registration statement covering the
Registrable Securities would be detrimental to the Company and the Board
concludes, as a result, that it is in the best interests of the Company to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Holders a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board, it
would be detrimental to the Company for such registration statement to be filed
in the near future and that it is, therefore, in the best interests of the
Company to defer the filing of such registration statement, then (in addition to
the limitations set forth in Section 2.1(b) above) the Company shall have the
right to defer such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders, and, provided further, that
the Company shall not defer its obligation in this manner more than once in any
twelve-month period.

(d) Other Shares. The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2.1(e), include
Other Shares, and may include securities of the Company being sold for the
account of the Company.

(e) Underwriting. If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.1
and the Company shall include such information in the written notice given
pursuant to Section 2.1(a)(i). In such event, the right of any Holder to include
all or any portion of its Registrable Securities in such

 

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registration pursuant to this Section 2.1 shall be conditioned upon such
Holder’s participation in an underwriting and the inclusion of such Holder’s
Registrable Securities to the extent provided herein. If the Company shall
request inclusion in any registration pursuant to Section 2.1 of securities
being sold for its own account, or if other persons shall request inclusion in
any registration pursuant to Section 2.1, the Initiating Holders shall, on
behalf of all Holders, offer to include such securities in the underwriting and
such offer shall be conditioned upon the participation of the Company or such
other persons in such underwriting and the inclusion of the Company’s and such
person’s other securities of the Company and their acceptance of the further
applicable provisions of this Section 2. The Company shall (together with all
Holders and other persons proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holders, which underwriters are
reasonably acceptable to the Company.

Notwithstanding any other provision of this Section 2.1, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated in the following order of priority:
first, to the Investor; second, to any other Initiating Holders; third, to the
Company for securities being sold for its own account; fourth, to the Major
Stockholder, and fifth, to any other Holders that have requested inclusion of
their shares in the underwriting on a pro rata basis based on the total number
of Registrable Securities held by such Holders; provided, however, that no such
reduction shall reduce the amount of securities of the Initiating Holders
included in the registration below twenty-five percent (25%) of the total amount
of securities included in such registration; provided, further, that,
notwithstanding the any of the foregoing to the contrary, in no event shall the
amount of Registrable Securities of the Investor to be included in such
underwriting be reduced until all Registrable Securities held by the Major
Stockholder, by the other Holders and by any Other Selling Stockholders have
been first excluded from the underwriting in their entirety. In no event will
shares of any Other Selling Stockholder be included in such registration without
the written consent of the Initiating Holder(s) if such inclusion would reduce
the number of shares that may be included by the Initiating Holders.

If a person who has requested inclusion in such registration as provided above
does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
Initiating Holders. The securities so excluded shall also be withdrawn from
registration. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall also be withdrawn from such registration.
If shares are so withdrawn from the registration and if the number of shares to
be included in such registration was previously reduced as a result of marketing
factors pursuant to this Section 2.1(e), then the Company shall then offer to
all Holders and Other Selling Stockholders who have retained rights to include
securities in the registration the right to include additional Registrable
Securities or Other Shares in the registration in an aggregate amount equal to
the number of shares so withdrawn, with such shares to be allocated among such
Holders and Other Selling Stockholders requesting additional inclusion, as set
forth above.

 

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2.2 Company Registration.

(a) Company Registration. If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders, other than a registration pursuant to Section 2.1 or 2.3, a
registration relating solely to employee benefit plans, a registration relating
to the offer and sale of debt securities, a registration relating to a corporate
reorganization or other Rule 145 transaction, or a registration on any
registration form that does not permit secondary sales, the Company will:

(i) promptly give written notice of the proposed registration to all Holders;
and

(ii) use its commercially reasonable efforts to include in such registration
(and any related qualification under blue-sky laws or other compliance), except
as set forth in Section 2.2(b) below, and in any underwriting involved therein,
all of such Registrable Securities as are specified in a written request or
requests made by any Holder or Holders received by the Company within ten
(10) days after such written notice from the Company is mailed or delivered.
Such written request may specify all or a part of a Holder’s Registrable
Securities.

(b) Underwriting. If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to
Section 2.2(a)(i). In such event, the right of any Holder to registration
pursuant to this Section 2.2 shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company, the Other Selling Stockholders and the other holders
of securities of the Company with registration rights to participate therein
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.

Notwithstanding any other provision of this Section 2.2, if the underwriters
advise the Company in writing that marketing factors require a limitation on the
number of shares to be underwritten, the underwriters may (subject to the
limitations set forth below) exclude all Registrable Securities from, or limit
the number of Registrable Securities to be included in, the registration and
underwriting. The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated in the
following order of priority: first, to the Company for securities being sold for
its own account; second, to the Investor; third, to the Major Stockholder; and
fourth, to any other Holders that have requested inclusion of their shares in
the underwriting on a pro rata basis based on the total number of Registrable
Securities held by such Holders; provided, however, that no such reduction shall
reduce the amount of securities of the Holders included in the registration
below twenty-five percent (25%) of the total amount of securities included in
such registration; provided, further, that, notwithstanding the any of the
foregoing to the contrary, in no event shall the amount of Registrable
Securities of the Investor to be included in such underwriting be reduced until
all Registrable Securities held by the Major Stockholder, by the other Holders
and by any Other Selling Stockholders have been first excluded from the
underwriting in their entirety.

 

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If a person who has requested inclusion in such registration as provided above
does not agree to the terms of any such underwriting, such person shall also be
excluded therefrom by written notice from the Company or the underwriter. The
Registrable Securities or other securities so excluded shall also be withdrawn
from such registration. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.

(c) Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 2.2
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.

2.3 Registration on Form S-3.

(a) Request for Form S-3 Registration. At any time after the Company has
qualified for the use of Form S-3, in addition to the rights contained in the
foregoing provisions of this Section 2 and subject to the conditions set forth
in this Section 2.3, if the Company shall receive from a Holder or Holders of
Registrable Securities a written request that the Company effect any
registration on Form S-3 or any similar short form registration statement with
respect to all or part of the Registrable Securities (such request shall state
the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders), the
Company will take all such action with respect to such Registrable Securities as
required by Section 2.1(a)(i) and (ii); provided, further that the Company shall
keep such registrations effective until the earlier to occur of such time as
(i) all Registrable Securities registered thereunder have been sold, (ii) the
Holders whose shares are registered thereon agree to terminate the registration,
or (iii) the registration rights of all such Holders terminate.

(b) Limitations on Form S-3 Registration. The Company shall not be obligated to
effect, or take any action to effect, any such registration pursuant to this
Section 2.3:

(i) In the circumstances described in either Sections 2.1(b)(i) or 2.1(b)(iv);

(ii) If the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than $500,000; or

(iii) In a given twelve-month period if, during such period, the Company has
already effected one (1) or more registrations pursuant to this Section 2.3.

(c) Deferral. The provisions of Section 2.1(c) shall apply to any registration
pursuant to this Section 2.3.

(d) Underwriting. If the Holders of Registrable Securities requesting
registration under this Section 2.3 intend to distribute the Registrable
Securities covered by their request by means of an underwriting, the provisions
of Sections 2.1(e) shall apply to such

 

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registration. Notwithstanding anything contained herein to the contrary,
registrations effected pursuant to this Section 2.3 shall not be counted as
requests for registration or registrations effected pursuant to Section 2.1.

2.4 Expenses of Registration. All Registration Expenses incurred in connection
with registrations pursuant to Sections 2.1, 2.2 and 2.3 hereof shall be borne
by the Company. All Selling Expenses relating to securities registered on behalf
of the Holders shall be borne by the holders of securities included in such
registration pro rata among each other on the basis of the number of Registrable
Securities so registered.

2.5 Registration Procedures. In the case of each registration effected by the
Company pursuant to Section 2, the Company will keep each Holder advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its commercially reasonable
efforts to:

(a) Keep such registration effective for a period of ending on the earlier of
the date which is sixty (60) days from the effective date of the registration
statement or such time as the Holder or Holders have completed the distribution
described in the registration statement relating thereto;

(b) Prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for the period set forth in subsection (a) above;

(c) Furnish such number of prospectuses, including any preliminary prospectuses,
and other documents incident thereto, including any amendment of or supplement
to the prospectus, as a Holder from time to time may reasonably request;

(d) Use its reasonable Best Efforts to register and qualify the securities
covered by such registration statement under such other securities or blue-sky
laws of such jurisdiction as shall be reasonably requested by the Holders;
provided, that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;

(e) Notify each seller of Registrable Securities covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or incomplete in light of the circumstances then existing, and
following such notification promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in light of the circumstances then existing;

 

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(f) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;

(g) Cause all such Registrable Securities registered pursuant hereunder to be
listed on each securities exchange on which similar securities issued by the
Company are then listed; and

(h) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 2.1 hereof, enter into an underwriting
agreement in form reasonably necessary to effect the offer and sale of Common
Stock, provided such underwriting agreement contains reasonable and customary
provisions, and provided, further, that each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.

2.6 Indemnification.

(a) To the extent permitted by law, the Company will indemnify and hold harmless
each Holder, each of its officers, directors and partners, legal counsel, and
accountants and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification, or compliance has been effected pursuant to this Section 2, and
each underwriter, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all expenses, claims,
losses, damages, and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on: (i) any untrue statement (or
alleged untrue statement) of a material fact contained or incorporated by
reference in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, (ii) any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any violation
(or alleged violation) by the Company of the Securities Act, any state
securities laws or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any offering covered by such registration, qualification, or compliance, and the
Company will reimburse each such Holder, each of its officers, directors,
partners, legal counsel, and accountants and each person controlling such
Holder, each such underwriter, and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action; provided, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
action is caused by any untrue statement or omission based upon written
information furnished to the Company by (a) such Holder, or (b) any of such
Holder’s officers, directors, partners, legal counsel or accountants, and any
person controlling such Holder, such underwriter or any person who controls any
such underwriter and stated to be specifically for use therein; and provided,
further that, the indemnity agreement contained in this Section 2.6(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld or delayed).

 

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(b) To the extent permitted by law, each Holder will, severally and not jointly,
if Registrable Securities held by such Holder are included in the securities as
to which such registration, qualification, or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, officers,
partners, legal counsel, and accountants and each underwriter, if any, of the
Company’s securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder, and each of their officers, directors,
and partners, and each person controlling such Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) caused by:
(i) any untrue statement (or alleged untrue statement) of a material fact
contained or incorporated by reference in any such registration statement,
prospectus, offering circular, or other document, or (ii) any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld or delayed); and
provided, that in no event shall any indemnity under this Section 2.6 exceed the
net proceeds from the offering received by such Holder.

(c) Each party entitled to indemnification under this Section 2.6 (the
“Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party’s expense; and provided, further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.6, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.

 

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(d) If the indemnification provided for in this Section 2.6 is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with respect
to any loss, liability, claim, damage, or expense referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties’ relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.

(f) The obligations of the Company and Holders under this Section 2.6 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.

2.7 Information by Holder. Each Holder of Registrable Securities shall furnish
to the Company such information regarding such Holder and the distribution
proposed by such Holder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in this Section 2.

2.8 Restrictions on Transfer.

(a) The holder of each certificate representing Registrable Securities by
acceptance thereof agrees to comply in all respects with the provisions of this
Section 2.8. Each Holder agrees not to make any sale, assignment, transfer,
pledge or other disposition of all or any portion of the Restricted Securities,
or any beneficial interest therein, unless and until (x) the transferee thereof
has agreed in writing for the benefit of the Company to take and hold such
Restricted Securities subject to, and to be bound by, the terms and conditions
set forth in this Agreement, including, without limitation, this Section 2.8,
except for transfers permitted under Section 2.8(b), and (y):

(i) There is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or

(ii) Such Holder shall have given prior written notice to the Company of such
Holder’s intention to make such disposition and shall have furnished the Company
with a detailed description of the manner and circumstances of the proposed
disposition, and, if

 

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requested by the Company, such Holder shall have furnished the Company, at its
expense, with (i) an opinion of counsel, reasonably satisfactory to the Company,
to the effect that such disposition will not require registration of such
Restricted Securities under the Securities Act (it being understood that an
opinion of Woods Rogers PLC shall be deemed satisfactory with respect to
Carilion or any permitted transferee of Registrable Securities held by Carilion)
or (ii) a “no action” letter from the Commission to the effect that the transfer
of such securities without registration will not result in a recommendation by
the staff of the Commission that action be taken with respect thereto, whereupon
the holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the Holder to the Company. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144, except in
unusual circumstances.

(b) Permitted transfers include (i) a transfer not involving a change in
beneficial ownership, or (ii) in transactions involving the distribution without
consideration of Restricted Securities by any Holder to (x) a parent, subsidiary
or other affiliate of Holder that is a corporation, or (y) any of its partners,
members or other equity owners, or retired partners, retired members or other
equity owners, or to the estate of any of its partners, members or other equity
owners or retired partners, retired members or other equity owners, or
(iii) transfers in compliance with Rule 144, as long as the Company is furnished
with satisfactory evidence of compliance with such rule including, if requested,
an opinion of counsel, reasonably satisfactory to the Company; provided, in each
case, that the Holder thereof shall give written notice to the Company of such
Holder’s intention to effect such disposition and shall have furnished the
Company with a detailed description of the manner and circumstances of the
proposed disposition.

(c) Each certificate representing Registrable Securities shall (unless otherwise
permitted by the provisions of this Agreement) be stamped or otherwise imprinted
with a legend substantially similar to the following (in addition to any legend
required under applicable state securities laws):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT, THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT
TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN

 

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WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Holders consent to the Company making a notation on its records and giving
instructions to any transfer agent of the Restricted Securities in order to
implement the restrictions on transfer established in this Section 2.8.

(d) The first legend referring to federal and state securities laws identified
in Section 2.8(c) hereof stamped on a certificate evidencing the Restricted
Securities and the stock transfer instructions and record notations with respect
to such Restricted Securities shall be removed and the Company shall issue a
certificate without such legend to the holder of such Restricted Securities if
(i) such securities are registered under the Securities Act, or (ii) such holder
provides the Company with an opinion of counsel reasonably acceptable to the
Company to the effect that a public sale or transfer of such securities may be
made without registration under the Securities Act, or (iii) such holder
provides the Company with reasonable assurances, which may, at the option of the
Company, include an opinion of counsel satisfactory to the Company, that such
securities can be sold freely without restriction pursuant to Rule 144 under the
Securities Act.

2.9 Rule 144 Reporting. With a view to making available the benefits of certain
rules and regulations of the Commission that may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to
use its commercially reasonable efforts to:

(a) Make and keep public information regarding the Company available as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times;

(b) File with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and

(c) So long as a Holder owns any Restricted Securities, furnish to the Holder
forthwith upon written request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, and of the Securities
Act and the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.

2.10 Intentionally Omitted.

2.11 Delay of Registration. No Holder shall have any right to take any action to
restrain, enjoin, or otherwise delay any registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.

2.12 Transfer or Assignment of Registration Rights. The rights to cause the
Company to register securities granted to a Holder by the Company under this
Section 2 may be transferred or assigned by a Holder only to a transferee or
assignee (a) of not less than 750,000 of the Registrable Securities (as
presently constituted and subject to subsequent adjustments for stock

 

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splits, stock dividends, reverse stock splits, and the like), (b) that is a
partner or retired partner of any Holder that is a partnership, (c) that is a
member or former member of any Holder that is a limited liability company,
(d) that is an affiliate of any Holder or (e) that is a family member or trust
for the benefit of any individual Holder, provided, that (i) such transfer or
assignment of Registrable Securities is effected in accordance with the terms of
Section 2.8 hereof and applicable securities laws, (ii) the transferee or
assignee of such rights assumes in writing the obligations of such Holder under
this Agreement, and (iii) with respect to a proposed transfer pursuant to this
Section 2.12, the Company is given written notice within 30 days after said
transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are intended to be transferred or assigned and such transferee is not, in
the Company’s reasonable opinion, a competitor of the Company or a party who is
demonstrably hostile toward the Company.

2.13 Limitations on Subsequent Registration Rights. From and after the date of
this Agreement, the Company shall not, without the prior written consent of
Holders of at least a majority of the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any registration rights the terms of
which are pari passu with or senior to the registration rights granted to the
Holders hereunder.

2.14 Termination of Registration Rights. The right of any Holder to request
registration or inclusion in any registration pursuant to Section 2.1, 2.2 or
2.3 shall terminate on such date as all of the Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately transferred
or sold without restriction under Rule 144 of the Securities Act.

Section 3

Miscellaneous

3.1 Right of First Review. So long as Carilion continues to hold at least
750,000 shares of Common Stock (or Common Stock issuable upon the conversion of
the Series A Preferred), and to the extent such technology is not restricted by
other contractual arrangements in effect as of August 2, 2005, the Company shall
disclose to Carilion Consolidated Laboratory (“CCL”) for review on a
confidential basis, that technology developed now or in the future by the
employees of the Company or its affiliates which impacts, or has an application
to, the clinical laboratory industry, at least sixty (60) days prior to
disclosing such technology to any third-party for purpose of commercialization.

3.2 Amendment. This Agreement amends, restates and supersedes the Original
Agreement such that the Original Agreement is terminated and is of no further
force or effect. Except as expressly provided herein, neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument referencing this Agreement and signed by (i) the Company,
(ii) the Holders holding a majority of the Series A Preferred issued and
outstanding (excluding any of such shares that have been sold to the public or
pursuant to Rule 144), and (iii) the Holders holding a majority of the
Registrable Securities. Any such amendment, waiver, discharge or termination
effected in accordance with this

 

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paragraph shall be binding upon each Holder and each future holder of all such
securities of Holder. Each Holder acknowledges that by operation of this
paragraph, the holders of a majority of the Common Stock issued or issuable upon
conversion of the Series A Preferred issued pursuant to the Exchange Agreement
(excluding any of such shares that have been sold to the public or pursuant to
Rule 144) will have the right and power to diminish or eliminate all rights of
such Holder under this Agreement.

3.3 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger addressed:

(a) if to an Investor, at the Investor’s address as shown on Exhibit A hereto or
in the Company’s records, as may be updated in accordance with the provisions
hereof.

(b) if to any Holder, at such address as shown in the Company’s records, or,
until any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such shares for which the Company has contact
information in its records; or

(c) if to the Company, one copy should be sent to 1 Riverside Circle, Roanoke,
VA 24106, Attn: Chief Executive Officer, or at such other address as the Company
shall have furnished to the Investor, with a copy to Trevor Chaplick, Esq.
Proskauer Rose LLP, 1001 Pennsylvania Avenue, NW, Suite 400 South, Washington,
DC 20004.

Each such notice or other communication shall for all purposes of this Agreement
be treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or 72 hours after
the same has been deposited in a regularly maintained receptacle for the deposit
of the United States mail, addressed and mailed as aforesaid.

3.4 Governing Law. This Agreement shall be governed in all respects by the
internal laws of the Commonwealth of Virginia as applied to agreements entered
into among Virginia residents to be performed entirely within Virginia, without
regard to principles of conflicts of law.

3.5 Successors and Assigns. This Agreement, and any and all rights, duties and
obligations hereunder, shall not be assigned, transferred, delegated or
sublicensed by any Investor without the prior written consent of the Company.
Any attempt by an Investor without such permission to assign, transfer, delegate
or sublicense any rights, duties or obligations that arise under this Agreement
shall be void. Subject to the foregoing and except as otherwise provided herein,
the provisions of this Agreement shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

3.6 Entire Agreement. This Agreement and the exhibits hereto and the agreements
and documents referenced herein constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof. No party
hereto shall be liable or bound to any other party in any manner with regard to
the subjects hereof or thereof by any warranties, representations or covenants
except as specifically set forth herein.

 

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3.7 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement
shall impair any such right, power or remedy of such non-defaulting party, nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring, nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.

3.8 Severability. If any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, portions
of such provision, or such provision in its entirety, to the extent necessary,
shall be severed from this Agreement, and such court will replace such illegal,
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the same economic, business
and other purposes of the illegal, void or unenforceable provision. The balance
of this Agreement shall be enforceable in accordance with its terms.

3.9 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs and exhibits shall, unless otherwise provided, refer to sections and
paragraphs hereof and exhibits attached hereto.

3.10 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be enforceable against the parties that execute such
counterparts, and all of which together shall constitute one instrument.

3.11 Telecopy Execution and Delivery. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto and
delivered by such party by facsimile or any similar electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen. Such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all parties
hereto agree to execute and deliver an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.

3.12 Jurisdiction; Venue; Waiver of Jury Trial. With respect to any disputes
arising out of or related to this Agreement, the parties consent to the
exclusive jurisdiction of, and venue in, the state courts in the City of Roanoke
in the Commonwealth of Virginia (or in the event of exclusive federal
jurisdiction, the courts of the Western District of Virginia, Roanoke Division).
Each party hereto hereby waives all rights to a trial by jury.

3.13 Further Assurances. Each party hereto agrees to execute and deliver, by the
proper exercise of its corporate, limited liability company, partnership or
other powers, all such other and additional instruments and documents and do all
such other acts and things as may be necessary to more fully effectuate this
Agreement.

 

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3.14 Conflict. In the event of any conflict between the terms of this Agreement
and the Company’s Amended and Restated Certificate of Incorporation or its
Bylaws, the terms of the Company’s Amended and Restated Certificate of
Incorporation or its Bylaws, as the case may be, will control.

3.15 Attorneys’ Fees. In the event that any suit or action is instituted to
enforce any provisions in this Agreement, the each party hereto shall be
responsible for its own fees, costs and expenses incurred with respect to
enforcing its rights under this Agreement, including without limitation, all
fees, costs and expenses of appeals.

3.16 Termination Upon a Change of Control. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall terminate upon the effective
date of a Change of Control.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated
Investor Rights Agreement effective as of the day and year first above written.

 

“COMPANY”

LUNA INNOVATIONS INCORPORATED

a Delaware corporation

By:  

/s/ Kent A. Murphy

Name:  

Kent A. Murphy

Title:  

CEO

SIGNATURE PAGE TO AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

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“INVESTOR” CARILION CLINIC By:  

/s/ G. Robert Vaughn, Jr.

Name:  

G. Robert Vaughn, Jr.

Title:  

Asst. Treasurer

SIGNATURE PAGE TO AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

--------------------------------------------------------------------------------

“STOCKHOLDERS”

/s/ Kent A. Murphy

Kent A. Murphy

SIGNATURE PAGE TO AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

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EXHIBIT A

SCHEDULE OF INVESTORS

Carilion Clinic

213 S. Jefferson Street

Suite 720

P.O. Box 40032

Roanoke, VA 24022-0032

Attn: Briggs W. Andrews, General Counsel

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EXHIBIT B

SCHEDULE OF STOCKHOLDERS

Kent A. Murphy

Ashish Vengsarkar

Mike Gunther