LUNA INNOVATIONS INCORPORATED AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

Exhibit 10.8

 

EXECUTION COPY

 

LUNA INNOVATIONS INCORPORATED

 

AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT

 

December 30, 2005

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

 

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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 December 30, 2005, by and among Luna Innovations Incorporated, a Delaware corporation (the “ Company ”), the entity (the “ Investor ”) listed on Exhibit A hereto, and the existing 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 of even date herewith, by and between the Company and the Investor (the “ Purchase Agreement ”), pursuant to which, among other things, Investor is purchasing shares of Class C Common Stock and senior convertible promissory notes (the “ Notes ”).

 

WHEREAS: The Investor, the Company and certain of the Stockholders are parties to that certain Investor Rights Agreement made and entered into as of August 2, 2005 (the “ Prior Agreement ”) entered into in connection with a prior Class C Common Stock financing of the Company (the “ Prior Financing ”);

 

WHEREAS: The Company, the holders of a majority of the Class A Common Stock issued and outstanding as of the date hereof, and the holders of a majority of the Class C Common Stock issued pursuant to the Prior Agreement (the “ Requisite Stockholders ”) desire to amend and restate the Prior Agreement as provided herein;

 

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

 

WHEREAS, in consideration of the Company’s sale and the investor’s purchase of the Notes and the Class C Common Stock under the Purchase Agreement and in the Prior Financing, 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) “ CHS ” shall mean Carilion Health System or its assigns.

 

(b) “ Class A Common Stock ” shall mean shares of the Company’s Class A Common Stock, par value $0.001 per share.

(c) “ Class B Common Stock ” shall mean shares of the Company’s Class B Common Stock, par value $0.001 per share.

 

(d) “ Class C Common Stock ” shall mean shares of the Company’s Class C Common Stock, par value $0.001 per share.

 

(e) “ Class Common Stock ” shall mean the Class A Common Stock, Class B Common Stock and Class C Common Stock of the Company.

 

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

 

(g) “ Common Stock ” shall mean shares of the Company’s Common Stock, par value $0.001 per share.

 

(h) “ Conversion Stock ” shall mean shares of Common Stock issued or issuable, directly or indirectly, upon conversion of the Class Common Stock held by the Holders.

 

(i) “ 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.

 

(j) “ 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.

 

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

 

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

 

(m) “ Initial Public Offering ” 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.

 

(n) “ 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 Class C Common Stock.

 

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

 

(p) “ New Securities ” shall have the meaning set forth in Section 4.1(a) hereto.

 

(q) “ 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.

 

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

 

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(s) “ Purchase Agreement ” shall have the meaning set forth in the Recitals hereto.

 

(t) “ Registrable Securities ” shall mean (i) shares of Common Stock issued or issuable, directly or indirectly, pursuant to the conversion of the Shares or the Notes and (ii) any Class C Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) above; 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.

 

(u) 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.

 

(v) “ 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.

 

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

 

(x) “ 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.

 

(y) “ 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

 

(z) “ Rule 415 ” shall mean Rule 415 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.

 

(aa) “ 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.

 

(bb) “ 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.

 

(cc) “ Shares ” shall mean the Company’s Class Common Stock held by any Holder, whether initially issued pursuant to the Purchase Agreement or pursuant to the Prior Agreement.

 

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(dd) “ 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 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) Prior to the earlier of (x) the Company’s Initial Public Offering or (y) August 2, 2011;

 

(ii) During the one hundred eighty (180) days following the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general public, except upon receipt of the written consent of the applicable underwriter(s);

 

(iii) 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.

 

(iv) 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;

 

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

 

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(vi) 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; or

 

(vii) If the Company, within thirty (30) days of its receipt of the request from the Initiating Holders, provides written notice to all Initiating Holders of its intent to file a registration statement for its Initial Public Offering within ninety (90) days.

 

(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 President 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 one hundred eighty (180) 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 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 (including Section 2.10) . 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 Holder; 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

 

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included in such registration, unless such offering is the Initial Public Offering and such registration does not include shares of any other Holders, in which event any or all of the Registrable Securities of the Initiating Holders may be excluded in accordance with the immediately preceding clause; 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 Holder, 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.

 

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

 

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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 Holder; 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, unless such offering is the Initial Public Offering and such registration does not include shares of any Other Selling Stockholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding clause; 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 Holder, by the other Holders and by any Other Selling Stockholders have been first excluded from the underwriting in their entirety.

 

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) ;

 

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(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 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

 

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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;

 

(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,