UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): May 18, 2011
LUNA INNOVATIONS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
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000-52008
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54-1560050
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(Commission File No.)
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(IRS Employer Identification No.)
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1 Riverside Circle, Suite 400
Roanoke, Virginia 24016
(Address of principal executive offices and zip code)
Registrants telephone number, including area code: 540-769-8400
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01.
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Entry into a Definitive Material Agreement.
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Settlement Agreement with Dr. Kent A. Murphy; Amendment to Separation and Consulting Agreement
On May 18, 2011, Luna Innovations Incorporated (the
Company
) entered into a letter agreement (the
Settlement Agreement
) with Dr. Kent A.
Murphy relating to, among other matters, the composition of the Board of Directors (the
Board
) of the Company and Dr. Murphys previously announced intention to nominate one or more directors for election to the
Board at the Companys 2011 annual meeting of stockholders to be held on May 24, 2011 (the
2011 Annual Meeting
). The Settlement Agreement includes the following terms:
Cessation of Proxy Contest
Dr. Murphy has agreed to vote his shares of common stock of the Company at the 2011 Annual Meeting (i) in favor of the three (3) directors nominated by the Board to serve as Class II
directors until the 2014 annual meeting of stockholders and (ii) in favor of the Boards recommendations with respect to all other matters to come before the stockholders at the 2011 Annual Meeting. Dr. Murphy has withdrawn his
previously submitted proposals and notices with respect to nominations and other matters to be brought before the 2011 Annual Meeting.
Increase in Size of Board from Eight (8) to Nine (9) Members; Appointment of Ronald E. Carrier to Fill Resulting Vacancy
The Company has agreed that, at a regular meeting of the Board scheduled for the date of the 2011 Annual Meeting, the Board will take all
actions necessary to increase the authorized size of the Board from eight (8) to nine (9) directors and to appoint Dr. Ronald E. Carrier, president emeritus of James Madison University and a former member of the Companys
advisory board, to fill the resulting vacancy, subject to Dr. Carriers acceptance of the appointment. Upon his election, Dr. Carrier will serve as a Class I director with a term expiring at the Companys 2013 annual meeting of
stockholders (the
2013 Annual Meeting
). The Board will also appoint Dr. Carrier to the Nominating and Governance Committee of the Board.
Standstill
Pursuant to the Settlement Agreement, until the date of the
2014 annual meeting of stockholders (the
Standstill Period
), Dr. Murphy has agreed that, among other things, he will not solicit the votes of other stockholders of the Company, seek to place a director on or remove a
director from the Board, initiate or participate in any proxy contest, seek to amend the Companys charter and bylaws in a manner that would affect the rights and obligations of the parties under the Settlement Agreement, make any stockholder
proposal, cause his shares to be voted other than in accordance with the recommendation of the Board with respect to the election or removal of directors or with respect to any stockholder proposals, or directly or indirectly engage in any tender
offer or other acquisition or restructuring transaction.
Subject to the terms of the Settlement Agreement, the Standstill
Period will cease if the Company materially breaches the Settlement Agreement or if the Board nominates a slate of director nominees for election at the 2013 Annual Meeting that does not include Dr. Murphy as a nominee.
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Mutual Release
Concurrently with the execution of the Settlement Agreement, the Company and Dr. Murphy entered into a mutual release of claims (the
Mutual Release
). Under the Mutual
Release, Dr. Murphy and the Company have agreed to release each other from any claims or other matters arising prior to the date of the Settlement Agreement.
Amendment to Separation and Consulting Agreement
Concurrently with the
execution of the Settlement Agreement, the Company and Dr. Murphy entered into an amendment (the
Consulting Agreement Amendment
) to that certain Separation and Consulting Agreement, dated August 10, 2010, by and
between the Company and Dr. Murphy (the
Separation and Consulting Agreement
). Under the Consulting Agreement Amendment, the Company has agreed to reimburse Dr. Murphy for his healthcare insurance premiums for an
additional six months following the completion of the original 18 month consulting period under the Separation and Consulting Agreement, through August 10, 2012, in an amount not to exceed $1,250 per month. In addition, the Company has agreed
to accelerate an aggregate of $80,000 in payments that would have otherwise been payable to Dr. Murphy pursuant to the Separation and Consulting Agreement in monthly installments through February 10, 2012.
The foregoing descriptions of the Settlement Agreement, the Consulting Agreement Amendment and the Mutual Release (the
Murphy
Agreements
) are qualified in their entirety by reference to the full text of these agreements, which are attached hereto as Exhibits 10.1, 10.2 and 10.3, respectively, and are incorporated herein by reference.
Loan Modification Agreement with Silicon Valley Bank
On May 18, 2011, the Company, the Companys wholly owned subsidiary Luna Technologies, Inc. (treated collectively for purposes of this Current Report as the
Company
)
and Silicon Valley Bank (the
Lender
) entered into a Second Loan Modification Agreement (the
Second Loan Modification Agreement
). Under a prior loan modification agreement (the
First
Loan Modification Agreement
), the maturity date for amounts that are or may become due under the Loan and Security Agreement dated as of February 18, 2010 (the
Loan Agreement
) had been extended until
May 18, 2011.
Term Loan
Under the Second Loan Modification Agreement, the Lender has agreed to make a term loan to the Company in the amount of $6.0 million (the
Term Loan
). The Term Loan is to be
repaid by the Company in 48 monthly installments, plus accrued interest payable monthly in arrears, and, unless earlier terminated, matures on the earlier of (i) May 1, 2015 or (ii) an event of default under the Loan Agreement. The
Term Loan carries a floating annual interest rate equal to the Lenders prime rate then in effect plus 2%.
The Company
may prepay amounts due under the Term Loan for a fee equal to (i) $120,000, if such prepayment is made on or before May 18, 2012; (ii) $60,000, if such prepayment is made after May 18, 2012 but on or before May 18, 2013; or
(iii) zero, if such prepayment is made after May 18, 2013.
Line of Credit
In addition to the terms and conditions of the Term Loan, the Second Loan Modification Agreement reduces the Companys maximum
borrowing capacity under the revolving credit facility (the
Line of Credit
, and together with the Term Loan, the
Credit Facilities
) described in the Loan Agreement from $5.0 million to $1.0 million
and extends its maturity date until May 18, 2012.
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As modified by the Second Loan Modification Agreement, the annual interest rate on the Line
of Credit has been reduced to the Lenders prime rate plus 1.25%, payable monthly in arrears, and the amount of the unused Line of Credit fee has been reduced from one-half of one percent (0.50%), payable quarterly, to one-quarter of one
percent (0.25%), payable monthly. The Company may terminate the Line of Credit for a termination fee of $10,000, which fee would not be payable in the event that the Line of Credit is replaced by another loan facility with the Lender.
Amounts due under the Credit Facilities will continue to be secured by substantially all of the Companys assets, including
intellectual property, personal property and bank accounts.
The Credit Facilities, as modified, continue to require the
Company to observe a number of financial and operational covenants, including maintenance of a specified level of liquidity (defined as unrestricted cash and a portion of accounts receivable); achievement of specified minimum quarterly adjusted
EBITDA levels; protection and registration of intellectual property rights; and customary negative covenants.
The Credit
Facilities, as modified, contain customary events of default, including nonpayment of principal, interest or other amounts, violation of covenants, material adverse changes, an event of default under any subordinated debt documents, incorrectness of
representations and warranties in any material respect, bankruptcy, judgments in excess of a threshold amount, and violations of other agreements in excess of a specified threshold. If any event of default occurs, the Lender may declare due
immediately all borrowings under the Credit Facilities and foreclose on the collateral. Furthermore, an event of default under the Credit Facilities would result in an increase in the annual interest rate on any amounts outstanding to five percent
(5.00%), or 500 basis points, above the rates then in effect.
Except as modified by the Second Loan Modification Agreement,
all terms and conditions of the Line of Credit set forth in the Loan Agreement remain in full force and effect.
The foregoing
summaries of the Credit Facilities are not complete and are qualified in their entirety by reference to the Second Loan Modification Agreement, which will be filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter
ending June 30, 2011, and the Loan Agreement, which is filed as Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as modified by the First Loan Modification Agreement, which is filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on March 9, 2011.
Repayment of Hansen Note
As described in the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 15, 2010, the Company previously issued to Hansen Medical, Inc.
(
Hansen
) a secured promissory note (the
Hansen Note
) in the principal amount of $5.0 million. As a condition to the consummation of the transactions contemplated by the Second Loan Modification
Agreement, on May 18, 2011, the Company and Hansen entered into an Amendment to Secured Promissory Note and Payoff Letter (the
Payoff Letter
).
Under the terms of the Payoff Letter, the Company and Hansen have agreed upon a final payoff in the approximate amount of $3 million as payment in full for all principal and accrued interest under the
Hansen Note. Upon receipt of this final payment, the Security Agreement and the Patent and Trademark Security Agreement, each dated as of January 12, 2010, by and among the Company and Hansen (the
Hansen Security
Agreements
), will be of no further force and effect, and all security interests in the Companys assets held by Hansen as collateral for the Companys obligations under the Hansen Note will be terminated and released.
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The foregoing summary is not complete and is qualified in its entirety by reference to the
Payoff Letter, a copy of which will be filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ending June 30, 2011.
Amendment of Hansen Development and Supply Agreement
Also on
May 18, 2011, the Company and Hansen entered into Amendment No. 3 (the
Third Amendment
) to their Development and Supply Agreement dated January 12, 2010 (as amended to date, the
Hansen Development
and Supply Agreement
). Under the Third Amendment, the parties have agreed to amend certain of the specifications and estimated budget amounts for specified development milestones set forth in the Hansen Development and Supply Agreement
and to provide for additional development milestones and related budget estimates and specifications to be achieved by the Company. Furthermore, Hansen has agreed that certain of the existing milestones have been achieved without penalty.
The Third Amendment provides for a payment structure whereby the Company will share a specified percentage of the development
expenses otherwise payable to the Company in connection with certain of the development milestones, up to a certain cumulative maximum, and changes the mechanism for calculating amounts that Hansen may holdback from being paid to the Company while
such expenses are being shared by the parties. Finally, the Third Amendment adjusts the commercial transfer pricing mechanism for the Companys supply of interrogator products to Hansen.
The foregoing description of the Third Amendment is not complete and is qualified in its entirety by reference to the Third Amendment,
which will be filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ending June 30, 2011.
Item 1.02 Termination of a Material Definitive Agreement.
The information required by this Item 1.02 with respect to the Hansen Note and the Hansen Security Agreements is set forth in Item 1.01 above, which is incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information required by this Item 2.03 with respect to the Term Loan is set forth in Item 1.01 above, which
is incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers.
The information required by this Item 5.02 with
respect to the Murphy Agreements is set forth in Item 1.01 above, which is incorporated herein by reference.
Item 7.01.
Regulation FD Disclosure.
On May 19, 2011, the Company issued a press release announcing the execution of the Third
Amendment with Hansen. On May 23, 2011, the Company issued a press release announcing the Credit Facilities with Silicon Valley Bank. Copies of these press releases are furnished herewith as Exhibits 99.1 and 99.2, respectively, to this report.
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In accordance with general instruction B.2 to Form 8-K, the information in this
Item 7.01, including the press releases furnished as exhibits hereto, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of
that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.
Item 9.01.
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Financial Statements and Exhibits.
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(d) Exhibits
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Exhibit
Number
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Exhibit Description
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10.1
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Letter Agreement, dated as of May 18, 2011, by and between Luna Innovations Incorporated and Dr. Kent A. Murphy.
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10.2
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First Amendment to Separation and Consulting Agreement, dated as of May 18, 2011, by and between Luna Innovations Incorporated and Dr. Kent A. Murphy.
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10.3
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General Release Agreement, dated as of May 18, 2011, by and between Luna Innovations Incorporated and Dr. Kent A. Murphy.
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99.1
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Press Release, dated May 19, 2011, regarding the Third Amendment with Hansen.
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99.2
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Press Release, dated May 23, 2011, regarding the Silicon Valley Bank Credit Facilities.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: May 23, 2011
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L
UNA
I
NNOVATIONS
I
NCORPORATED
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By:
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/s/ Talfourd H. Kemper, Jr.
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Talfourd H. Kemper, Jr.
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Vice President and General Counsel
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EXHIBIT INDEX
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Exhibit
Number
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Exhibit Description
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10.1
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Letter Agreement, dated as of May 18, 2011, by and between Luna Innovations Incorporated and Dr. Kent A. Murphy.
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10.2
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First Amendment to Separation and Consulting Agreement, dated as of May 18, 2011, by and between Luna Innovations Incorporated and Dr. Kent A. Murphy.
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10.3
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General Release Agreement, dated as of May 18, 2011, by and between Luna Innovations Incorporated and Dr. Kent A. Murphy.
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99.1
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Press Release, dated May 19, 2011, regarding Third Amendment with Hansen.
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99.2
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Press Release, dated May 23, 2011, regarding the Silicon Valley Bank Credit Facility.
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