EXECUTION VERSION

ASSET TRANSFER AND LICENSE AGREEMENT

by and between

Coherent, Inc.

and

Luna Innovations Incorporated

Dated December 12, 2006

TABLE OF CONTENTS

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ASSET TRANSFER AND LICENSE AGREEMENT

This Asset Transfer and License Agreement (this Agreement) is entered into as of December 12, 2006 (the Effective Date) by and between Coherent, Inc., a Delaware corporation with a place of business at 5100 Patrick Henry Drive, Santa Clara, California 95054 (Coherent) and Luna Innovations Incorporated, a Delaware corporation with offices at 1703 S. Jefferson Street, SW, Suite 400, Roanoke, Virginia 24014 (Luna) (each, a Party; together, the Parties).

RECITALS

A. Coherent operates a Clean Room (as defined below) where it manufactures certain swept-tunable Lasers (as defined below) (the Business).

B. Luna wishes to have its Contract Manufacturer (as defined below) assume the manufacture of the Transferred Lasers (as defined below) using certain of the equipment and technology currently employed by Coherent in the Business.

C. After visiting and performing a detailed technical review of the Clean Room and other due diligence by Luna, Luna has determined the specific items of equipment it wishes to purchase from Coherent, and acknowledges that the equipment it has selected may not be all of the equipment and technology used by Coherent to manufacture the Lasers.

D. Coherent is willing to sell to Luna, and Luna is willing to purchase the Transferred Assets (as defined below).

E. Coherent is willing to grant to Luna, and Luna is willing to accept, a royalty bearing license to manufacture and sell Lasers based upon the Coherent technology.

F. Coherent wishes to have the right to purchase Lasers from Luna.

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises contained in this Agreement, the Parties hereby agree as follows:

1. CONSTRUCTION AND DEFINITIONS

1.1 Definitions. The following capitalized terms have the meanings set forth below:

(a) Affiliate means any entity that controls, is controlled by or is under common control with a Party. An entity shall be regarded as in control of another entity, if it owns or possesses, directly or indirectly: (i) voting shares or other securities, representing more than fifty percent (50%) of the outstanding shares or securities entitled to vote for the election of the board of directors or similar managing authority of such controlled entity; or (ii) if such controlling entity does not have voting shares or other securities, more than fifty percent (50%) of the ownership interest that represents the right to make decisions, including the election of directors, for such controlled entity.

(b) Assumed Liabilities has the meaning set forth in Section 2.4.

(c) Business Day means any day other than a Saturday, Sunday or a legal holiday under the federal laws of the United States or any other day on which banking institutions located in California are authorized or required by law or other governmental action to close.

(d) Change of Control means a transaction or series of related transactions that would directly or indirectly: (i) result in or have the effect of a third party obtaining legal or beneficial ownership of more than fifty percent (50%) of the voting shares (or other voting interests) of a Party (even if the Party is the surviving entity, such as in the case of a reverse triangular merger); or (ii) result in the sale, transfer, assignment, mortgage, exclusive license or other disposition of all or substantially all of a Partys assets.

(e) Clean Room Schedule means Schedule 1.1(e) hereto, the list of material equipment in the Clean Room as of the date hereof that is used by Coherent in the manufacture of the Transferred Lasers in the Clean Room, but excluding commercially available portable maintenance, calibration and test equipment and commercially available computers and network equipment.

(f) Clean Room means the Coherent Clean Room located at 1870 Lundy Avenue, San Jose, California.

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