Document:

Exhibit 4.2

 Exhibit 4.2 
  
 EXECUTION COPY 
  
 THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”). NEITHER THE NOTE NOR THE SECURITIES ISSUABLE HEREUNDER MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT WITH
RESPECT TO SUCH NOTE OR SECURITIES OR AN OPINION OF COUNSEL SATISFACTORY TO LUNA INNOVATIONS INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED. 
  
 LUNA INNOVATIONS INCORPORATED 
  
 SENIOR CONVERTIBLE PROMISSORY NOTE 
  

			
	 $1,000,000.00
	  	December 30, 2005
		
	 Instrument Number:             
	  	Blacksburg, Virginia

  
 FOR VALUE RECEIVED,
Luna Innovations Incorporated, a Delaware corporation (the “Company”) promises to pay to Carilion Health System, a Virginia non-profit, non-stock corporation (“Investor”), or its registered assigns, in lawful money
of the United States of America the principal sum of One Million Dollars ($1,000,000.00), or such lesser amount as shall equal the outstanding principal amount hereof, together with simple interest from the date of this Note on the unpaid principal
balance at a rate equal to 6.00% per annum, computed on the basis of the actual number of days elapsed and a year of 365 days. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall
be due and payable on the earlier of (i) December 30, 2009, or such later date as may be determined pursuant to Section 9 hereof (the “Maturity Date”), or (ii) when, upon or after the occurrence of an Event of Default
(as defined below), such amounts are declared due and payable by Investor or made automatically due and payable in accordance with the terms hereof. This Note is one of the “Notes” issued pursuant to that certain Class C Common Stock and
Note Purchase Agreement of even date herewith (as may from time to time be amended, modified or supplemented, the “Stock and Note Purchase Agreement”) between the Company and the Investor. 
  
 The following is a statement of the rights of Investor and the conditions to
which this Note is subject, and to which Investor, by the acceptance of this Note, agrees: 
  
 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: 
  
 (a) “Change of Control” shall mean (a) the merger or consolidation of the Company with or into another entity in
which the stockholders of the Company immediately prior to such merger 

 
or consolidation own less than 50% of the voting securities of the surviving entity, (b) any other transaction or series of related transactions to
which the Company is a party as a result of which the stockholders of the Company immediately prior to such transaction or series of related transactions own less than 50% of the voting securities of the Company or other surviving entity following
such transaction or related transactions (other than the sale of equity securities by the Company in a capital raising transaction), or (c) a sale, lease or other conveyance of all or substantially all of the assets of the Company. 

 
 (b) “Class B Common Stock” shall mean
the Class B Common Stock, $0.001 par value per share, of the Company. 
  
 (c) “Class C Common Stock” shall mean the Class C Common Stock, $0.001 par value per share, of the Company. 
  
 (d) “Common Stock” shall mean the Common Stock, $0.001 par value per share, of the Company. 
  
 (e) the “Company” includes the corporation
initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note. 
  
 (f) “Event of Default” has the meaning given in Section 4 hereof. 
  
 (g) “GAAP” shall mean generally accepted
accounting principles as in effect in the United States of America from time to time. 
  
 (h) “Investor” shall mean the Person specified in the introductory paragraph of this Note or any Person who shall at the
time be the registered holder of this Note. 
  
 (i) “IPO” shall mean the closing of the Company’s first firm commitment underwritten public offering of the Company’s Common Stock registered under the Securities Act. 
  
 (j) “Majority in Interest” shall mean more
than fifty percent (50%) of the aggregate outstanding principal amount of the Notes issued pursuant to the Stock and Note Purchase Agreement. 
  
 (k) “Material Adverse Effect” shall mean a material adverse effect on (a) the business, assets, operations or
financial condition of the Company; (b) the ability of the Company to pay or perform the Obligations in accordance with the terms of this Note and the other Transaction Documents and to avoid an Event of Default, or an event which, with the
giving of notice or the passage of time or both, would constitute an Event of Default, under any Transaction Document; or (c) the rights and remedies of Investor under this Note or the other Transaction Documents. 
  
 (l) “Note” or “Notes”
shall mean the senior convertible promissory notes of the Company issued pursuant to the Stock and Note Purchase Agreement. 
  
 (m) “Obligations” shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed
by the Company to Investor of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money) now existing or hereafter arising under or pursuant to the terms of this Note and the Stock and
Note 

  

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Purchase Agreement, including all interest, fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and costs chargeable to and
payable by the Company hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code
(11 U. S. C. Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding. 
  
 (n) “Person” shall mean and include an individual, a partnership, a corporation (including
a non-profit corporation, a non-stock corporation, or a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority. 
  
 (o) “Qualified Change of Control” shall
mean a Change of Control that (A) involves a bona fide, arm’s length transaction with a third party unaffiliated with the Company, the terms of which have been negotiated in good faith by the Company and such third party, and (B) in
respect of a stock purchase or merger, results in such third party acquiring one hundred percent (100%) of the voting securities (excluding options, warrants or other rights to purchase capital stock of the Company then outstanding) of the
Company. 
  
 (p) “Securities
Act” shall mean the Securities Act of 1933, as amended. 
  
 (q) “Stock and Note Purchase Agreement” has the meaning given in the introductory paragraph hereof. 
  
 (r) “Subsidiary” shall mean (a) any corporation of which more than 50% of the issued and outstanding equity
securities having ordinary voting power to elect a majority of the board of directors of such corporation is at the time directly or indirectly owned or controlled by the Company, (b) any partnership, joint venture, or other association of
which more than 50% of the equity interest having the power to vote, direct or control the management of such partnership, joint venture or other association is at the time directly or indirectly owned and controlled by the Company,
(c) any other entity included in the financial statements of the Company on a consolidated basis. 
  
 (s) “Transaction Documents” shall mean (i) this Note, (ii) each of the other Notes issued under the Stock and
Note Purchase Agreement and (iii) the Stock and Note Purchase Agreement. 
  
 2. Interest. Accrued interest on this Note shall be payable on the Maturity Date or upon conversion as provided herein. 
  
 3. Prepayment. This Note may not be prepaid without the consent of the Investor. 
  
 4. Events of Default. The occurrence of any of the following
shall constitute an “Event of Default” under this Note and the other Transaction Documents: 
  
 (a) Failure to Pay. The Company shall fail to pay (i) when due any principal or interest payment on the due date hereunder or
(ii) any other payment required under the terms of this Note on the date due and such payment shall not have been made within five days of the Company’s receipt of Investor’s written notice to the Company of such failure to pay;
or 
  

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 (b) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may be defined or interpreted under any applicable statute),
(vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such
relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose of effecting any of the foregoing; 
  
 (c) Involuntary Bankruptcy or Insolvency Proceedings.
Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other
relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged
within 30 days of commencement; or 
  
 (d)
Other Breach. The Company shall (i) breach any representation or warranty made in this Note or in the other Transaction Documents where such breach has a Material Adverse Effect, (ii) materially breach any covenant, obligation,
condition or agreement contained in this Note or the other Notes (other than the provisions of Section 7 hereof and thereof) or in the Stock and Note Purchase Agreement, or (iii) fail to observe or perform any covenant, obligation
or agreement contained in Section 7 of this Note or the other Notes; provided that, in the event of a breach that is reasonably capable of a cure, Investor shall first give written notice to the Company of such breach and an Event
of Default shall not be deemed to occur (including without limitation for purposes of Section 5 below) until and unless such breach has not been cured within thirty (30) days of the Company’s receipt of Investor’s written
notice of such breach. 
  
 5. Rights of Investor upon
Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default described in Sections 4(b) or 4(c)) and at any time thereafter during the continuance of such Event of Default, Investor
may, with the consent of a Majority in Interest of the holders of the Notes, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 4(b) and 4(c), immediately and without notice, all outstanding
Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. During any period in which an Event
of Default has occurred and is continuing, the Company shall pay interest on the unpaid principal balance hereof at a rate per annum equal to the rate otherwise applicable hereunder plus five percent (5%). In addition to the foregoing remedies,
upon the occurrence or existence of any Event of Default, Investor may exercise any other right power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both.

  

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 6. Conversion. 
  
 (a) Optional Conversion at Maturity. This Note shall only be convertible on the Maturity Date unless
otherwise provided in Sections 6(b) or (c) below. If no Qualified Equity Financing (defined below) or Qualified Change of Control takes place prior to the Maturity Date, then (i) if the Maturity Date is on or after the date
of the Company’s IPO, the outstanding principal amount of and all accrued interest under this Note shall be convertible at the option of the Investor into that number of shares of the Company’s Common Stock as is determined by dividing
such principal amount and accrued interest by $2.65183 per share (adjusted to reflect subsequent stock dividends, stock splits, combinations or recapitalizations), and (ii) if the Maturity Date is prior to the date of the Company’s IPO,
then at the option of the Investor (A) the outstanding principal amount of this Note shall be convertible into that number of shares of the Company’s Class C Common Stock (or, in the event that no Class C Common Stock is outstanding, into
that number of shares of any other class or series of stock into which shares of the Company’s Class C Common Stock were previously converted) as is determined by dividing such principal amount by $2.65183 per share (adjusted to reflect
subsequent stock dividends, stock splits, combinations or recapitalizations) and (B) all accrued interest under this Note shall be convertible into that number of shares of the Company’s Class B Common Stock (or, in the event that no Class
B Common Stock is outstanding, into that number of shares of any other class or series of stock into which shares of the Company’s Class B Common Stock were previously converted) as is determined by dividing such accrued interest by $2.65183
per share (adjusted to reflect subsequent stock dividends, stock splits, combinations or recapitalizations). This Section 6(a) shall terminate immediately prior to the close of business on the Maturity Date. 
  
 (b) Optional Conversion upon Certain Events Prior to an
IPO. In the event the Company consummates, after the date hereof but prior to both (1) the Company’s IPO and (2) the Maturity Date, either of the following transactions (each, a “Triggering Event”): 
  
 (i) an equity financing pursuant to which the Company sells
shares of Class C Common Stock or shares of a class or series of capital stock having rights, privileges and preferences equal or senior to the rights, privileges and preferences of the Class C Common Stock (the “Senior Stock”) with
an aggregate sales price of not less than $15,000,000, including any and all debt which is converted into Class C Common Stock or Senior Stock (but excluding this Note upon the conversion hereof pursuant to this Section 6(b) and
excluding the other Notes upon conversion thereof pursuant to Section 6(b) therein), and with the principal purpose of raising capital (a “Qualified Equity Financing”), or 
  
 (ii) a Qualified Change of Control; 
  
 then in connection with such Triggering Event at the option of the Investor (A) the
outstanding principal amount of this Note shall be convertible into that number of shares of the Company’s Class C Common Stock (or, in the event that no Class C Common Stock is outstanding, into that number of shares of any other class or
series of stock into which shares of the Company’s Class C Common Stock were previously converted) as is determined by dividing such principal amount by $2.65183 per share (adjusted to reflect subsequent stock dividends, stock splits,
combinations or recapitalizations) and (B) all accrued interest under this Note shall be convertible into that number of shares of the Company’s Class B Common Stock (or, in the event that no Class B Common Stock is outstanding, into that
number of shares of any other class or series of stock into which shares of the Company’s Class B 

  

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Common Stock were previously converted) as is determined by dividing such accrued interest by $2.65183 per share (adjusted to reflect subsequent stock
dividends, stock splits, combinations or recapitalizations). This Section 6(b) shall terminate immediately prior to the Company’s IPO. 
  
 (c) Early Conversion. Notwithstanding the foregoing, in the event that the Company is either (i) no longer eligible for Small
Business Innovation Research (SBIR) grants, as evidenced by an opinion of counsel mutually acceptable to the Company and Investor, or (ii) has not applied for an SBIR grant within the preceding twelve (12) months, then the Investor may
convert this Note into equity securities of the Company as otherwise provided under Section 6(a). Prior to an event specified in clause (i) or (ii) of the immediately preceding sentence, beginning on the one-year anniversary of
the Company’s IPO, the holders of a Majority in Interest of the Notes may make a written request to the Company that the Company review a legal opinion of counsel selected and retained by the holders of a Majority in Interest of the Notes (the
costs of which legal opinion shall be borne by the holders making such request) as to whether any one or more Notes may be converted into equity securities of the Company without adversely affecting the Company’s efforts to maintain SBIR
eligibility and fully cooperate with such counsel. Such request may be made no more frequently than once every 12 months, and if the Company in its sole good faith discretion is satisfied, based on such legal opinion, that the conversion of this
Note by the Investor shall not adversely affect the Company’s efforts to maintain SBIR eligibility, then upon written notice from the Company the Investor may convert this Note into equity securities of the Company as otherwise provided under
Section 6(a). Notwithstanding anything to the contrary contained herein, no conversion shall be allowed during any period in which the Company is, in good faith, making commercially reasonable efforts to maintain or regain SBIR
eligibility unless such conversion, together with all other conversions of Notes, would not be reasonably expected to adversely affect such efforts to maintain or regain SBIR eligibility. 
  
 (d) Procedures for Conversion. The Company shall
provide the Investor at least twenty (20) days prior notice of the closing of a Triggering Event (the “Triggering Event Notice”) or the Maturity Date, as applicable. If the Company does not provide the Investor prior notice of
the Maturity Date as required by this Section 6(d), the Maturity Date shall automatically be extended to the date that is twenty (20) days after Investor has received notice of the Maturity Date from the Company. In the event that
Investor elects to convert this Note into shares of Common Stock, Class C Common Stock and/or Class B Stock, as applicable, under Section 6(a) or Section 6(b), the Investor shall, at least ten (10) days prior to the
Maturity Date (if Section 6(a) is applicable) or within ten (10) days following the date of the Triggering Event Notice (if Section 6(b) is applicable) surrender the original of this Note, duly endorsed (or a notice to
the effect that the original Note has been lost, stolen or destroyed and an agreement acceptable to the Company whereby the holder agrees to indemnify the Company from any loss incurred by it in connection with this Note), at the principal corporate
office of the Company and shall give written notice to the Company at its principal corporate office of the election to convert the same pursuant to Section 6(a) or Section 6(b), as applicable, and shall state therein the
name or names in which the certificate or certificates for shares of Common Stock or shares of Class C Common Stock and/or Class B Common Stock, as applicable, are to be issued. Before shares of Common Stock, Class C Common Stock or Class B Common
Stock, as applicable, under Section 6(a) or Section 6(b) are issued by the Company to the Investor in connection with the conversion of this Note hereunder, the Investor shall execute and deliver to the Company a common stock
purchase agreement reasonably acceptable to the Company containing customary representations and warranties and transfer restrictions (including a lock-up agreement in connection with a public offering). The Company shall, upon conversion or as soon
as practicable thereafter, issue and deliver 

  

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at such office to Investor a certificate or certificates for the number of shares of Common Stock or shares of Class C Common Stock and/or Class B Common
Stock, as applicable, to which Investor shall be entitled upon conversion (bearing such legends as are required by the common stock purchase agreement and applicable state and federal securities laws in the opinion of counsel to the Company),
together with any other securities and property to which Investor is entitled upon such conversion under the terms of this Note, including a check payable to Investor for any cash amounts payable as described in Section 6(e). The
conversion shall be deemed to have been made immediately prior to the closing of the Triggering Event (in the event the Investor elects to convert this Note pursuant to Section 6(b)) or immediately prior to the close of business on the
date of the surrender of this Note (in the event the Investor elects to convert this Note pursuant to Section 6(a)), and the Person or Persons entitled to receive the shares of Common Stock, Class C Common Stock and/or Class B Common
Stock, as applicable, upon such conversion shall be treated for all purposes as the record Investor or Investors of such shares of Common Stock, Class C Common Stock and/or Class B Common Stock, as applicable, as of such date. 
  
 (e) Fractional Shares; Interest; Effect of Conversion.
No fractional shares shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Investor upon the conversion of this Note, the Company shall pay to Investor an amount equal to the product obtained by
multiplying the conversion price by the fraction of a share not issued pursuant to the previous sentence. Upon conversion of this Note in full and the payment of any amounts specified in this Section 6(e), the Company shall be forever
released from all its obligations and liabilities under this Note. 
  
 (f) Treatment upon Qualified Change of Control. If at any time while this Note, or any portion hereof, is outstanding and unexpired there shall be a Qualified Change of Control, this Note shall cease to
represent the right to receive equity securities of the Company upon conversion and shall automatically represent the right to receive upon conversion of this Note, during the period and upon the terms and conditions specified herein, the number of
shares of stock or other securities or property offered to the Company’s holders of Common Stock in connection with such Qualified Change of Control that a holder of the shares deliverable upon conversion of this Note would have been entitled
to receive in such Qualified Change of Control if this Note had been converted immediately before such Qualified Change of Control. The foregoing provisions of this Section 6(f) shall similarly apply to Qualified Changes of Control and
to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. If the per share consideration payable to the holder hereof in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined in good faith by the Company’s board of directors. 
  
 7. Covenants of the Company. The Company agrees that it will not, without the prior written consent of the Investors holding a
Majority in Interest, drawdown any amount under the Company’s existing line of credit with First National Bank or incur additional indebtedness other than (i) unsecured indebtedness incurred in the ordinary course of the Company’s
business (including accounts payable), (ii) up to $250,000 in aggregate principal amount of secured indebtedness outstanding at any time that is incurred solely for the purpose of financing all or any part of the cost of acquiring or holding
property in the ordinary course of business, and (iii) indebtedness which is expressly made subordinate to the Notes. 
  

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 8. Successors and Assigns. Subject to the restrictions on transfer described in
Sections 10, 11 and 12 below, the rights and of the Company and Investor shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 
  
 9. Waiver and Amendment. Any provision of this Note may
be amended, waived or modified upon the written consent of the Company and the Investors holding a Majority in Interest. Notwithstanding the foregoing, the Investors holding a Majority in Interest may, without the consent of the Company, elect to
amend all of the Notes solely to extend the Maturity Dates thereof for one (1) year by providing the Company written notice of such election no later than ninety (90) days prior to the original Maturity Dates; provided further, that
unless the Company is either not eligible for or has elected not to pursue SBIR funding as determined pursuant to Section 6(c)(i) or 6(c)(ii), respectively, the Investors holding a Majority in Interest may extend the Maturity
Dates (subject to the notice requirement provided in this Section 9) of all of the Notes for up to three (3) consecutive one (1) year periods. Such election by the Investors holding a Majority in Interest to extend the Maturity
Dates of all of the Notes shall be irrevocable unless otherwise agreed by the Company, and following such election the Company shall have the option, in its sole discretion, to pay accrued interest under the Notes either in cash or in shares of the
Company’s Common Stock (if such payment is made on or after the date of the Company’s IPO) or Class B Common Stock (if such payment is made prior to the date of the Company’s IPO). In the event of an amendment, waiver or modification
of this Note pursuant to this Section 9, the Company shall provide written notice of such event to all holders of the Notes, and if requested by the Company in such notice, the holder of this Note shall promptly tender to the Company all
Notes held by such holder for replacement by the Company with amended and restated Notes. 
  
 10. Transfer of this Note. This Note shall be freely transferable by Investor; provided, however, that any such transfer may not involve a principal amount of less than the entire remaining
principal amount under this Note, and provided, further, that any such transfer must comply with all applicable federal and state securities laws as evidenced, in the case of a transfer to an entity not an affiliate of the Investors, by
opinion of counsel to the transferor reasonably acceptable to the Company. With respect to any offer, sale or other disposition of this Note, Investor shall give written notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of Investor’s counsel, if required under this Section 10, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without
registration or qualification under any federal or state law then in effect. 
  
 11. Transfer of the Securities Issuable on Conversion of this Note. With respect to any offer, sale or other disposition of securities into which this Note may be converted, Investor will give
written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of Investor’s counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly
as practicable, shall notify Investor that Investor may sell or otherwise dispose of such securities, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 11
that the opinion of counsel for Investor, or other evidence, is not reasonably satisfactory to the Company, the Company shall so notify Investor promptly after such determination has been made. Each certificate representing the securities thus
transferred shall bear a legend as to the applicable 

  

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restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not
required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of any securities hereunder shall be
registered upon registration books maintained for such purpose by or on behalf of the Company. 
  
 12. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company
without the prior written consent of the Investor. 
  
 13.
Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties as
set forth in the Stock and Note Purchase Agreement, or at such other address or facsimile number as the Company shall have furnished to Investor in writing. All such notices and communications will be deemed effectively given the earlier of
(i) when received, (ii) when delivered personally, (iii) one business day after being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight courier
service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with postage prepaid. 
  
 14. Pari Passu Notes. Investor acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of
this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes issued pursuant to the Stock and Note Purchase Agreement or pursuant to the terms of such Notes. In the event Investor
receives payments in excess of its pro rata share of the Company’s payments to the Investors of all of the Notes, then Investor shall hold in trust all such excess payments for the benefit of the holders of the other Notes and shall pay such
amounts held in trust to such other holders upon demand by such holders. 
  
 15. Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess
of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note. 
  
 16. Waivers. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or
dishonor and all other notices or demands relative to this instrument. 
  
 17. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without regard to the conflicts
of law provisions of the Commonwealth of Virginia, or of any other state. 
  
 (Signature Page Follows) 
  

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 EXECUTION COPY 
  
 The Company has caused this Senior Convertible Promissory Note to be issued as of the date first written above. 

 

			
	 LUNA INNOVATIONS INCORPORATED
 a Delaware corporation

		
	By:	 	 
		
	Name:	 	 
		
	Title:	 	 

  

 [Signature page to Senior Convertible Promissory Note]Exhibit 4.3

 Exhibit 4.3 
  

WARRANT TO PURCHASE 1,047 SHARES 
 OF CLASS B COMMON STOCK (SUBJECT TO ADJUSTMENT) 
  
 THIS WARRANT AND ALL SHARES OF CAPITAL STOCK ISSUABLE HEREUNDER, HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION. 
  
 WARRANT TO PURCHASE SHARES OF CLASS B COMMON STOCK 
  
 OF LUNA INNOVATIONS INCORPORATED 
  
 Date of Issuance: September 30, 2005 
 Void
after September 27, 2007 
  
 WHEREAS, pursuant to that
certain warrant, dated September 27, 2002 (the “Prior Warrant”), issued by Luna Technologies, Inc., a Delaware corporation (“LTI”), Virginia Tech Foundation, Inc. (“VTF”) was entitled to purchase 36,364 shares of
LTI’s Series A Preferred Stock at an exercise price of $0.7222 per share. 
  
 WHEREAS, pursuant to that certain Agreement and Plan of Merger dated September 30, 2005, by and among Luna Innovations Incorporated, a Delaware corporation (the “Company”), Luna Technologies
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company (“Sub”), LTI, and the principal stockholders listed on Annex A thereto (the “Merger Agreement”), LTI merged with and into Sub with LTI being the
surviving corporation. 
  
 WHEREAS, pursuant to the Merger
Agreement, all unexpired and unexercised warrants of LTI were assumed by the Company and were deemed to be exercisable for the corresponding number of the Company’s presently authorized Class B Common Stock (“Class B Common
Stock”). 
  
 WHEREAS, pursuant to Section 1.6(e)
of the Merger Agreement, the Company is offering to exchange this Warrant, which is of substantially like tenor, for the Prior Warrant. 
  
 NOW, THEREFORE, THIS WARRANT CERTIFIES THAT, for value received, VTF or its registered assigns (the “Holder”), is entitled to subscribe
for and purchase such shares of fully paid and nonassessable capital stock of the Company in such number of shares and at such exercise price as is provided herein (the “Warrant”). As used herein, the term “Common Stock” shall
mean the Company’s presently authorized Common Stock, and any stock into or for which such Common Stock may hereafter be converted or exchanged. The shares purchasable upon exercise of this Warrant, and the purchase price per share, each as
adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the “Warrant Shares” and the “Purchase Price,” respectively. 

 1. Purchase Right. This Warrant represents the right of the Holder to subscribe for and purchase
up to an aggregate of 1,047 shares of fully paid and nonassessable Class B Common Stock of the Company (the “Warrant Amount”) (subject to adjustment pursuant to Section 4 hereof). The Purchase Price for each share of Class B
Common Stock is equal to $21.06 (subject to adjustment pursuant to Section 4 hereof). 
  
 2. Method of Exercise: Payment. 
  
 (a) Cash Exercise; Timing. The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form (the
“Notice of Exercise”) attached hereto as Exhibit A duly executed) at the principal office of the Company, and by the payment to the Company of an amount equal to the aggregate Purchase Price for the number of Warrant Shares
being purchased (the “Exercise Amount”), which amount may be paid, at the election of the Holder, (i) by wire transfer or certified check payable to the order of the Company, (ii) by cancellation by the Holder of indebtedness or
other obligations of the Company to the Holder or (iii) by a combination of (i) and (ii). The person or persons in whose name(s) any certificate(s) representing Warrant Shares that shall be issuable upon exercise of this Warrant shall be
deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the Warrant Shares represented thereby (and such Warrant Shares shall be deemed to have been issued) immediately prior to the close
of business on the date or dates upon which this Warrant is exercised. 
  
 (b) Net Issue Exercise. In lieu of the payment methods set forth in Section 2(a) above, if the Fair Market Value of one Warrant Share is greater than the Purchase Price (at the date of calculation as set
forth below), the Holder may elect to exchange all or some of the Warrant for Warrant Shares equal to the value of the Warrant (as determined below) being exercised on the date of exchange. If the Holder elects to exchange this Warrant as provided
in this Section 2(b), the Holder shall tender to the Company at the principal office of the Company the Warrant for the amount being exchanged, along with a properly endorsed Notice of Exercise, and the Company shall issue to the Holder the
number of Warrant Shares computed using the following formula: 
  

							
	 X
	  	=	  	Y (A-B)	  	 
	 	  	 	  	A	  	 

  
 Where: 
  

					
	 X
	  	=	  	the number of Warrant Shares to be issued to the Holder.
			
	 Y
	  	=	  	the number of Warrant Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such
calculation).
			
	 A
	  	=	  	the Fair Market Value of one Warrant Share (at the date of such calculation).
			
	 B
	  	=	  	the Purchase Price (as adjusted to the date of such calculation).

  

 -2- 

 All references herein to an “exercise” of the Warrant shall include an exchange pursuant to
this Section 2(b). Upon receipt of a written notice of the Company’s intention to raise capital by selling shares of Common Stock in the initial public offering of the Company’s Common Stock (the “IPO”), which notice (the
“IPO Notice”) shall be delivered to Holder at least thirty (30) but not more than ninety (90) days before the anticipated date of the filing with the SEC of the registration statement associated with the IPO, the Holder shall
notify the Company within ten (10) days whether or not the Holder will exercise this Warrant pursuant to this Section 2(b) prior to consummation of the IPO. Notwithstanding whether an IPO Notice has been delivered to Holder or any other
provision of this Warrant to the contrary, if Holder decides to exercise this Warrant while a registration statement is on file with the Securities and Exchange Commission (the “SEC”), but prior to effectiveness of such Registration
Statement, in connection with the IPO, this Warrant shall be deemed exercised on the consummation of the IPO and the Fair Market Value will be the price at which one share of Common Stock was sold to the public in the IPO. If Holder elects to
exercise this Warrant pursuant to this Section 2(b) while a registration statement is on file with the SEC in connection with an IPO and the IPO is not consummated, then Holder’s exercise of this Warrant shall not be effective unless
Holder confirms in writing Holder’s intention to go forward with the exercise of this Warrant. 
  
 (c) “Easy Sale” Exercise. In lieu of the payment methods set forth in Section 2(a) above, when permitted by law and
applicable regulations (including Nasdaq and National Association of Securities Dealers (“NASD Rules”), the Holder may pay the Exercise Amount through a “same day sale” commitment from the Holder (and if applicable a
broker-dealer that is a member of the NASD (an “NASD Dealer”)), whereby the Holder will irrevocably elect to exercise this Warrant and to sell at least that number of Warrant Shares so purchased to pay the Exercise Amount (and up to all of
the Warrant Shares so purchased) and the Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in the case of the NASD Dealer, upon receipt) of such Warrant Shares to forward the Exercise Amount directly to the Company, with any sale
proceeds in excess of the Exercise Amount being for the benefit of the Holder. 
  
 (d) Fair Market Value. For purposes of this Warrant, the “Fair Market Value” of a Warrant Share shall mean: 

 
 (i) if the conversion right is being exercised in
connection with the IPO, the IPO price per share (before deducting commissions, discounts or expenses) at which the Common Stock is sold to the public in the IPO, multiplied by the number of shares of Common Stock into which a share of Class B
Common Stock is convertible at the time of the exercise of the conversion right (the “Conversion Rate”); 
  
 (ii) if the conversion right is being exercised in connection with a bona fide acquisition of the Company (an
“Acquisition”) (i.e., not a mere recapitalization, reincorporation for the sole purpose of changing corporate domicile, or similar transaction pursuant to which control of the Company is not transferred), regardless of the form of
the transaction (e.g., merger, consolidation, sale or lease of assets or sale of stock), the price per share to be paid to the holders of the Company’s Class B Common Stock by the acquiring entity, or, if no such price per share has
been established, the price per share to be paid to the holders of the Company’s Common Stock multiplied by the Conversion Rate; 
  

 -3- 

 (iii) if the Company’s Common Stock is traded on a securities exchange or national
over the counter trading system, the fair value shall be deemed to be the product of the average of the security’s prices at 4:30 Eastern Time on such exchange or trading system over the 30-day period ending three (3) days prior to the
closing of the Acquisition, multiplied by the Conversion Rate; and 
  
 (iv) in all other cases, the value shall be the fair market value thereof, as determined in good faith by the Board. 
  
 (e) Exercisability. This Warrant is fully exercisable by the Holder as of the date hereof, and shall remain exercisable prior to
its expiration pursuant to Section 12 below. 
  
 (f) Stock Certificates; Fractional Shares. As soon as practicable on or after the date of exercise of this Warrant under Section 2(a), 2(b) or 2(c) above, as applicable, such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for the number of Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share equal to such fraction of the current Fair Market Value
of one whole Warrant Share as of the date of exercise of this Warrant. No fractional shares or scrip representing fractional shares shall be issued upon an exercise of this Warrant. 
  
 (g) Partial Exercise; Effective Date of Exercise. In case of any partial exercise of this Warrant,
the Company shall cancel this Warrant upon surrender hereof and shall execute and deliver a new Warrant of like tenor and date for the balance of the Warrant Shares purchasable hereunder. This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for exercise as provided above. The person entitled to receive the Warrant Shares shall be treated for all purposes as the holder of record of such Warrant Shares as of the
close of business on the date the Holder is deemed to have exercised this Warrant. 
  
 3. Stock Fully Paid; Reservation of Shares. All of the Warrant Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Purchase Price therefor, be
validly issued, fully paid and nonassessable, and free from all taxes, liens and charges except for restrictions on transfer provided for herein or under applicable federal and state securities laws. During the period within which the rights
represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance a sufficient number of shares of its Class B Common Stock to provide for the exercise of the rights represented by this
Warrant and sufficient shares of Common Stock to provide for the conversion of such Class B Common Stock. The Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for the Shares upon the exercise of this Warrant. 
  
 4. Adjustment of Price and Number of Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Purchase Price
therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: 
  
 (a) Merger, Sale of Assets, etc. If at any time while this Warrant, or any portion hereof, is outstanding and unexpired there shall
be (i) a reorganization (other than a combination, 

  

 -4- 

 
reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving entity, or a reverse triangular merger, or similar transaction, in which the Company is the surviving entity but the shares of the Company’s capital stock outstanding immediately prior to
the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, and as a result of which the ownership of the Company shall change 50% or more, or (iii) a sale or transfer of the
Company’s properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer (collectively, a “Change of Control”), this Warrant shall cease
to represent the right to receive Warrant Shares and shall automatically represent the right to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Purchase Price then in effect, the number of shares of
stock or other securities or property offered to the Company’s holders of Class B Common Stock in connection with such Change of Control that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to
receive in such Change of Control if this Warrant had been exercised immediately before such Change of Control, subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4(a) shall similarly
apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per share consideration payable to
the holder hereof for Shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company’s Board of Directors. In all
events, appropriate adjustment (as determined in good faith by the Company’s Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 
  
 (b) Reclassification, etc. If the Company, at any
time while this Warrant, or any portion hereof, remains outstanding and unexpired shall change the Warrant Shares (other than a change in par value, or solely as a result of a stock dividend, subdivision or combination) whether by reclassification,
a merger or consolidation not subject to Section 4(a), or otherwise (a “Reclassification”), or shall change, by a Reclassification, any of the securities as to which purchase rights under this Warrant exist, into the same or a
different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities
that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Purchase Price therefore shall be appropriately adjusted, all subject to further adjustment as provided in this
Section 4. The provisions of this Section 4(b) shall also apply to successive Reclassifications. 
  
 (c) Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall split, subdivide or combine the shares of Class B Common Stock, as to which purchase rights under this Warrant exist, into a different number of securities of the same class, the number of shares of Class B
Common Stock issuable upon exercise of this Warrant shall be proportionately increased and the Purchase Price for such securities shall be proportionately decreased in the case of a split or 

  

 -5- 

 
subdivision and the number of shares of Class B Common Stock issuable upon exercise of this Warrant shall be proportionately decreased and the Purchase
Price shall be proportionately increased in the case of a combination. 
  
 (d) Adjustments for Dividends in Stock or Other Securities or Property. If while this Warrant, or any portion hereof, remains outstanding and unexpired, the holders of the securities as to which purchase rights
under this Warrant exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefore, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then and in each case, this Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Warrant, and
without payment of any additional consideration therefore, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such holder would hold on the date of such exercise had it been the holder
of record of the security receivable upon exercise of this Warrant on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 4. 
  
 5. Notice of Adjustments. 
  
 (a) Upon any adjustment of the Purchase Price and any increase or decrease in the number of Shares purchasable upon the exercise of this
Warrant in accordance with Section 4 hereof, then, and in each such case, the Company, within thirty (30) days thereafter, shall give written notice thereof to the Holder at the address of such Holder as shown on the books of the Company,
which notice shall state (i) the event requiring the adjustment, (ii) the Purchase Price as adjusted and, if applicable, (iii) the increased or decreased number of shares of Class B Common Stock purchasable upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation of each. 
  
 (b) Any such notices by the Company required or permitted hereunder may be given by hand delivery or first class mail, postage prepaid,
addressed to the Holder at the address shown on the books of the Company for the Holder and shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery and (ii) in the case of mailing, on the
third business day following the date of such mailing. 
  
 6.
Lockup. If and to the extent required by any managing underwriter in the IPO, the Holder of this Warrant agrees not to effect any sale, transfer, disposition or distribution of any Shares (except as part of such offering) during (i) the
180-day period commencing with the effective date of the registration statement for such IPO filed under the Securities Act of 1933, as amended (the “Securities Act”) (or such other period as may be requested in writing by the managing
underwriter and agreed to in writing by the Company), and (ii) as to any Holder which beneficially owns 5% or more of the Company’s outstanding capital stock, the 90-day period commencing with the effective date of a registration statement
of the Company filed under the Securities Act for any public offering following the Company’s IPO, provided that all officers, directors and holders of 1% 

  

 -6- 

 
or more of the Company’s outstanding capital stock enter into similar agreements providing for similar restrictions on sales. 
  
 7. Conditions of Exercise of Warrant or Transfer of Shares. Except in
accordance with the conditions contained herein, this Warrant, the Warrant Shares and all rights hereunder are not transferable or assignable by the Holder. 
  
 (a) It shall be a condition to any exercise or transfer of this Warrant that the Company shall have received, at the time of such exercise
or transfer, a representation in writing from the recipient or transferee in the form attached hereto as Exhibit A-1 or Exhibit B-l. respectively, that the shares of Class B Common Stock being issued upon exercise, or
the Warrant (or portion hereof) being transferred, as the case may be, are being acquired for investment and not with a view to any sale or distribution thereof. 
  
 (b) It shall be a further condition to any transfer of this Warrant or of any or all of the shares of
Class B Common Stock, other than a transfer registered under the Act, that the Holder shall have given written notice to the Company which shall describe the manner and circumstances of the proposed transfer and be accompanied by, at the
Holder’s option, a written opinion of Holder’s legal counsel or a “no-action” letter reasonably satisfactory to the Company stating that such transfer is exempt from the registration and prospectus delivery requirements of the
Act and applicable state securities laws. In order to effect any transfer or assignment of this Warrant, the transferor shall deliver a completed and duly executed Notice of Transfer in the form attached hereto as Exhibit B. 

 
 (c) Each certificate evidencing the Warrant Shares issued
upon exercise of this Warrant, or transfer of such Warrant Shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall be stamped or imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities laws): 
  
 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT. 
  
 The Company may
instruct its transfer agent not to register the transfer of this Warrant, or any of the Warrant Shares, unless the conditions specified in Section 8 hereof are satisfied. 
  
 8. Removal of Legend. Upon request of a holder of a certificate with the legend referred to in Section 7 hereof,
the Company shall issue to such holder a new certificate therefor free of any transfer legend, if, with such request, the Company shall have received either an opinion of counsel or a “no-action” letter referred to in Section 7(b)
hereof to the effect that any transfer by such holder 

  

 -7- 

 
of the shares evidenced by such certificate will not violate the Securities Act and applicable state securities laws; provided, however, that the Company
shall not be obligated to remove any such legends prior to the closing date of the Company’s IPO. 
  
 9. Fractional Shares. This Warrant may not be exercised for fractional shares, and the number of shares to be issued shall be rounded down to the
nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder an amount computed by multiplying the fractional interest by the
fair market value of a full share of Class B Common Stock. 
  
 10. Representations and Warranties by the Holder. The Holder represents and warrants to the Company as follows: 
  
 (a) This Warrant is being acquired for the Holder’s own account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the Securities Act. Upon exercise of this Warrant, the Holder shall, if so requested by the Company, confirm in writing, in a form reasonably satisfactory to the Company, that
the Warrant Shares issuable upon exercise of this Warrant are being acquired for investment arid not with a view toward distribution or resale. 
  
 (b) The Holder understands that the Warrant and the Warrant Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear
the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act or is exempted from such registration. The Holder further understands that the Warrant and the Warrant Shares have not
been qualified under any state’s blue sky laws by reason of their issuance in a transaction exempt from the qualification requirements of applicable blue sky laws, which exemptions depend upon, among other things, the bona fide nature of the
Holder’s investment intent expressed above. 
  
 (c) The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of this Warrant and the Warrant Shares purchasable pursuant to the terms of this
Warrant and of protecting its interests in connection therewith. 
  
 (d) The Holder is able to bear the economic risk of the purchase of the Warrant and the Warrant Shares pursuant to the terms of this Warrant. 
  
 (e) The Holder is an “accredited investor” within the meaning of Rule 501 or
Regulation D promulgated under the Securities Act. 
  
 11.
No Rights or Liabilities as Stockholders. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In the absence of affirmative action by such Holder to purchase Warrant Shares by
exercise of this Warrant, no provisions of this 

  

 -8- 

 
Warrant, and no enumeration herein of the rights or privileges of the Holder hereof shall cause such Holder hereof to be a stockholder of the Company for any
purpose. 
  
 12. Expiration of Warrant. This Warrant shall
expire and shall no longer be exercisable at 5:00 p.m., Virginia local time, on September 27, 2007 (the “Expiration Date”). If the Expiration Date falls on a Saturday, Sunday or legal holiday, the Expiration Date shall automatically
be extended until 5:00 p.m., Virginia local time, the next business day. 
  
 13. No Impairment. The Company will not, by amendment of its Certificate or bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this Warrant against impairment. 
  
 14. Notices of Record Date. In case the Company shall take a record of the holders of its Class B Common Stock (or other stock or securities
at the time receivable upon the exercise of this Warrant), for the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities or to
receive any other right; or of any consolidation or merger of the Company with or into another corporation, any capital reorganization of the Company, any reclassification of the capital stock of the Company, or any conveyance of all or
substantially all of the assets of the Company to another corporation in which holders of the Company’s stock are to receive stock, securities or property of another corporation; or of any voluntary dissolution, liquidation or winding-up of the
Company; then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation, winding-up is to take place, and the time, if any is to be fixed, as of which the holders of
record of Class B Common Stock (or such stock or securities as at the time are receivable upon the exercise of this Warrant), shall be entitled to exchange their shares of Class B Common Stock (or such other stock or securities), for
securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be delivered at least fifteen (15) days prior to the date therein
specified. 
  
 15. Miscellaneous. 
  
 (a) This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware. 
  
 (b) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. 
  
 (c) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or
assigns of the Company and of the Holder or holders hereof and of the Shares issued or issuable upon the exercise hereof. 
  

 -9- 

 (d) This Warrant and the other documents delivered pursuant hereto or referenced herein
constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 
  
 (e) Upon receipt of evidence reasonably satisfactory to the Company of the ownership of and the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory hi form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver to the holder of record, in lieu thereof, a new Warrant of like date, tenor and amount. 
  
 (f) This Warrant and any provision hereof may be amended, waived or terminated only by an instrument in writing signed by the Company and
the holders representing at least a majority of the number of unissued Warrant Shares issuable hereunder. 
  
 (g) If any term, provision, covenant or restriction of this Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Warrant shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 
  
 (h) The Holder hereby waives any notice requirements
provided for in the Prior Warrant with respect to the transactions contemplated by the Merger Agreement, accepts this Warrant as a replacement for the Prior Warrant and releases LTI and the Company from any claims related thereto. 
  
 [Signature Page Follows] 
  

 -10- 

 IN WITNESS WHEREOF, the undersigned have executed this Warrant as of the date first above written.

  

									
	 LUNA INNOVATIONS INCORPORATED
	 	 	 	 VIRGINIA TECH FOUNDATION, INC.

					
	By:	 	/s/    SCOTT A. GRAEFF        	 	 	 	By:	 	/s/    RAYMOND D. SMOOT,
JR.        
	 Name:
	 	Scott A. Graeff	 	 	 	 Name:
	 	Raymond D. Smoot, Jr.
	 Title:
	 	Chief Financial Officer	 	 	 	 Title:
	 	COO and Secretary-Treasurer
			
	 Address:
 Luna Innovations Incorporated
 2851 Commerce Street, S.E.
 Blacksburg, VA 24060
 Attention: Dr. Kent Murphy
	 	 	 	 Address:
 Virginia Tech Foundation, Inc.
 Attn: Raymond D. Smoot, Jr.
 VirginiaTech
 312 Burruss
Hall
 Blacksburg, VA 24061

  
 [SIGNATURE PAGE TO
THE WARRANT] 

 EXHIBIT A 
  
 NOTICE OF EXERCISE 

	TO:	Luna Innovations Incorporated 

 2851 Commerce Street
Southeast 
 Blacksburg, VA 24011 
 Attention: President 
  
 1. The undersigned hereby elects
to purchase                      shares of Class B Common Stock of Luna Innovations Incorporated pursuant to the terms of the attached
Warrant. 
  
 2. Method of Exercise (Please initial the applicable
blank): 
  

	 	 ̈	The undersigned elects to exercise the attached Warrant by means of a cash payment, and tenders herewith payment in full for the purchase price of the shares being purchased,
together with all applicable transfer taxes, if any. 

  

	 	 ̈	The undersigned elects to exercise the attached Warrant by means of cancellation of indebtedness or other obligations of the Company and tenders herewith appropriate documentation,
acceptable in form and substance to the Company, of such cancellation. 

  

	 	 ̈	The undersigned elects to exercise the attached Warrant by means of the net exercise provisions of Section 2(b) of the Warrant. 

  
 3. Please issue a certificate or certificates representing said
                     shares of Class B Common Stock in the name of the undersigned or in such other name as is specified below:

  

	
	
	 
	 (Name)

	
	 
	
	 
	 (Address)

 EXHIBIT A-I 
  
 INVESTMENT REPRESENTATION STATEMENT 
  

					
			
	 PURCHASER
	  	:	  	___________________________________________
			
	 SELLER
	  	:	  	LUNA INNOVATIONS INCORPORATED
			
	 COMPANY
	  	:	  	LUNA INNOVATIONS INCORPORATED
			
	 SECURITY
	  	:	  	 CLASS B COMMON STOCK ISSUED UPON EXERCISE OF THE
 CLASS B COMMON STOCK PURCHASE WARRANT

			
	 AMOUNT
	  	:	  	___________ SHARES
			
	 DATE
	  	:	  	_____________________________________________

  
 In connection with the
purchase of the above-listed Securities, I, the Purchaser, represent to the Seller and to the Company the following: 
  
 (a) I am aware of the Company’s business affairs and financial condition, and have acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. I am purchasing these Securities for my own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof for
purposes of the Securities Act of 1933, as amended (the “Securities Act”). 
  
 (b) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand that, in the view of the U.S. Securities and Exchange Commission (the “SEC”), the statutory basis for such exemption may be unavailable if my representation was
predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period
of one year or any other fixed period in the future. 
  
 (c) I
further understand that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. In addition, I understand that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company. 
  
 (d) I am familiar with the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions.

 The Securities may be resold in certain limited circumstances subject to the provisions of Rule 144,
which requires among other things: (1) the availability of certain public information about the Company, (2) the resale occurring not less than one year after the party has purchased, and made full payment for, within the meaning of
Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than two years, (3) the sale being made through a broker in an unsolicited “broker’s transaction”
or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and (4) the amount of securities being sold during any three month period not exceeding the specified limitations stated
therein, if applicable. 
  
 (e) I agree, in connection with the
Company’s initial underwritten public offering of the Company’s securities, (1) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of common stock of the Company held by me
(other than those shares included in the registration) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company’s securities for one hundred eighty (180) days
from the effective date of such registration (or such other period as may be requested in writing by the managing underwriter and agreed to in writing by the Company), and, provided that if I beneficially own 5% or more of the Company’s
outstanding capital stock, for ninety (90) days following the effective date of a follow on registration statement of the Company filed under the Securities Act and (2) I further agree to execute any agreement reflecting (1) above as
may be requested by the underwriters at the time of the public offering; provided, however, that the officers and directors of the Company who own the stock of the Company also agree to such restrictions. 
  
 (f) I further understand that in the event all of the applicable requirements
of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of
the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption
from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. 
  

			
	
	 
	(Signature)
		
	By:	 	 
		
	 Title:
	 	 
		
	 Date:
	 	 

  

 -2- 

 EXHIBIT B 
  
 NOTICE OF TRANSFER 
 (To be signed only upon transfer of Warrant) 
  
 FOR VALUE RECEIVED, the
undersigned hereby sells, assigns and transfers unto
                                        
                                        
                     the right represented by the attached Warrant to purchase
                     shares of Class B Common Stock of Luna Innovations Incorporated, to which the attached Warrant relates, and appoints
                                        
         as Attorney to transfer such right on the books of Luna Innovations Incorporated, with full power of substitution in the premises. 
  
 Dated: _________________________________ 
  

	
	
	 
	(Signature must conform in all respects to the name of the Holder as specified on the face of the Warrant)
	
	 
	
	 
	 (Address)

  
 Signed in the presence of:
______________________________________________ 

 EXHIBIT B-l 
  
 INVESTMENT REPRESENTATION STATEMENT 
  

					
			
	 PURCHASER
	  	:	  	___________________________________________
			
	 TRANSFEROR
	  	:	  	 
			
	 COMPANY
	  	:	  	LUNA INNOVATIONS INCORPORATED
			
	 SECURITY
	  	:	  	CLASS B COMMON STOCK PURCHASE WARRANT
			
	 AMOUNT
	  	:	  	___________ SHARES
			
	 DATE
	  	:	  	_____________________________________________

  
 In connection with the
purchase of the above-listed Securities, I, the Purchaser, represent to the Seller and to the Company the following: 
  
 (a) I am aware of the Company’s business affairs and financial condition, and have acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. I am purchasing these Securities for my own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof for
purposes of the Securities Act of 1933, as amended (the “Securities Act”). 
  
 (b) I understand that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission (the “SEC”), the statutory basis for such exemption may be unavailable if my representation was predicated
solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year
or any other fixed period in the future. 
  
 (c) I further
understand that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. In addition, I understand that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel for the Company. 
  
 (d) I am familiar with the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permits limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions.

 The Securities may be resold in certain limited circumstances subject to the provisions of Rule 144,
which requires among other things: (1) the availability of certain public information about the Company, (2) the resale occurring not less than one year after the party has purchased, and made full payment for, within the meaning of
Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than two years, (3) the sale being made through a broker in an unsolicited “broker’s transaction”
or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three month period not exceeding the specified limitations stated therein, if
applicable. 
  
 (e) I agree, in connection with the Company’s
initial underwritten public offering of the Company’s securities, (1) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of common stock of the Company held by me (other than
those shares included in the registration) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company’s securities for one hundred eighty (180) days from the
effective date of such registration (or such other period as may be requested in writing by the managing underwriter and agreed to in writing by the Company) and provided that if I beneficially own 5% or more of the Company’s outstanding
capital stock, for ninety (90) days following the effective date of a follow on registration statement of the Company filed under the Securities Act, and (2) I further agree to execute any agreement reflecting (1) above as may be
requested by the underwriters at the time of the public offering; provided, however, that the officers and directors of the Company who own the stock of the Company also agree to such restrictions. 
  
 (f) I further understand that in the event all of the applicable requirements
of Rule 144 is not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of
the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption
from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. 
  

			
	 
	 (Signature)

		
	 By:
	 	 
		
	 Title:
	 	 
		
	 Date:
	 	 

  

 - 2 -

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