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Luna Innovations Inc. has reached a tentative settlement that would reduce a $36.3 million jury verdict to a sum that no longer endangers the Roanoke-based company.

The high-tech firm and Hansen Medical Inc. "have developed a framework for settlement," attorneys on both sides of the case wrote in a letter Thursday to bankruptcy court Judge William Stone.

Although terms of the preliminary settlement were not made public, it appears to offer Luna an escape route from a potentially crushing loss in a trade secrets lawsuit.

"This is part of a plan that has Luna emerging from bankruptcy and all of our creditors being paid 100 cents on the dollar," said Scott Graeff, the company's chief operating officer.

Just two weeks ago, Graeff testified at a bankruptcy hearing that Luna was teetering on the brink of failure after the $36.3 million verdict from a California jury forced it to file for Chapter 11 protection.

"This is a big step for us," Graeff said.

After more than a week of intense talks, the two companies came to terms about 3 a.m. Thursday, Graeff said.

Attorneys for Hansen, a California-based company that specializes in robotic surgery, did not return calls this week. A company spokeswoman said, "We are discussing a resolution with Luna and have no other comment at this time."

In 2006, the two companies explored an arrangement in which Luna would apply its shape-sensing technology using fiber optics to assist Hansen in developing catheters used for heart surgery.

The deal fell though, with Hansen accusing Luna of sharing its trade secrets with a third company. In April, a jury in Santa Clara County, Calif., found that Luna breached its contract with Hansen and misappropriated trade secrets.

However, court filings and other indicators suggested that the tentative sum agreed to Thursday is far less than what the jury awarded.

Luna has said all along it cannot pay the multimillion-dollar verdict, and as part of the bankruptcy proceedings asked Stone to set a much lower figure -- in the $1.2 million range.

In a Sept. 14 letter to Hansen's attorney, Stone wrote that in his preliminary opinion, a $26 million portion of the verdict -- awarded to Hansen for future lost profits -- "would not ultimately prevail."

Luna had argued that Hansen could not recover lost profits because such damages were prohibited by the contract between the companies.

Claims for lost profits "are based on a contractual provision that is unenforceable under clear Virginia law and are in any event expressly barred by a damages limitation clause in the very contract that Hansen alleges Luna breached," the company said in court briefs.

In addition to suggesting that he might trim the verdict by more than half, Stone also implored Hansen to consider the financial wherewithal of Luna, which has said it could not pay much more than $1.3 million.

"Only in retrospect can one be sure of the farthest point of high tide and it will always be true that what seems to be within reach often somehow just barely eludes one's grasp," the judge wrote.

Had a settlement not been reached, Stone would have either sent the case back to California for post-trial proceedings or decided himself how much Luna should pay.

At an earlier hearing, an attorney for Hansen said Luna was improperly trying to retry the California case in bankruptcy court -- seeking an outcome that would pay Hansen just 3 cents on the dollar.

"This case smells of bad faith, and the court should take that into consideration," attorney Benjamin Ackerly told Stone at a Sept. 11 hearing.

Because Luna filed for bankruptcy, a final judgment was never entered in the California case. But if the case had been sent back to Santa Clara County Superior Count, post-trial proceedings and appeals would likely have dragged on for years.

Handling the case in bankruptcy court offered a faster and more definitive way to resolve Hansen's claims, Luna argued.

"We're not in a position to pay a big chuck of money to Hansen, so we needed to come up with something that would compensate Hansen but we could both agree to," Graeff said.

Much was at stake -- and not just for Luna.

The company, which has about 200 employees in Roanoke and three other locations, has been touted as the bellwether of the region's future economic development based on high-tech biomedical companies.

Carilion Clinic owns 20 percent of Luna's outstanding shares, and the company was the first tenant to move into the health system's Riverside Center complex along Reserve Avenue in Roanoke.

Jay Foster, president of Soft Solutions and a leader in the regional technology community, said Luna's continued presence at Riverside Center shows that the complex is more than just a Carilion venture.

"That's extremely important for Roanoke to have that critical mass and build more momentum around that," Foster said.

Luna stock closed at $1.12 Thursday, after dipping below a dollar after the bankruptcy filing in July. On April 21, the last close before the verdict was announced, shares were selling at $1.83.

"I couldn't see how they could pay the original judgment and still survive," said Raman Kumar, a finance professor at Virginia Tech who has followed the case. "So this was a positive development."

In their letter to Stone on Thursday, attorneys in the case requested "additional time to negotiate and enter into definitive settlement agreements." A new deadline of Oct. 8 was set.

Graeff said it's always possible -- but not likely -- that the deal could fall apart.

"We have to explode it into a 50- or 60-page document," he said of the preliminary settlement. "But the attorneys have their marching orders: We've agreed to this."