Exhibit 10.1

***Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2

Luna Senior Management Incentive Compensation Plan

I. Objectives

 

  •  

Recruiting, incentive, motivation, reward and retention consistent with the
strategic objectives of the company

 

  •  

Establishing stability, re-commitment, clarity, equity

 

  •  

Align motivation to achieve corporate tactical and strategic goals with
incentives

 

  •  

Provide a plan and a set of guidelines for incentive compensation for
performance that may rise above the 2010 budget but be limited to overall
amounts which do not adversely impact minimum liquidity needs or bank covenants

II. 2010 Incentive Plan Parameters:

The incentive compensation program is payable if corporate and individual target
performance are achieved and the costs associated with the program do not impair
the overall liquidity as represented in the budget and required to meet or
exceed all financial performance based covenants to third parties.

Specifically the bonus plan:

 

  •  

Must be self-funding by performance improvement over budget

 

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Payment cannot reduce cash below 2010 budget

 

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Improvement in cash above 2010 budget is available to fund bonuses

 

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Accrual cannot have adverse impact on meeting bank covenants

III. Definitions:

 

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Net cash: Book balance of cash as of December 31, 2010 less the outstanding
balance, if any, of the company’s revolving line of credit.

 

*** Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

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***Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2

 

  •  

Net current liquidity: Cash plus accounts receivable as of December 31, 2010,
less the outstanding balance, if any, under the revolving line of credit and
accounts payable as of that date.

 

  •  

Adjusted EBITDA: Earnings before interest, taxes, depreciation, amortization,
and expenses to be settled in equity issuances. Additionally, management will
review at least quarterly with the Compensation Committee any significant and
unplanned revenues or expenses for determination as to whether such amounts
should reasonably be excluded from the calculation of Adjusted EBITDA in order
to best reflect the measure of the company’s performance against the objectives
of the incentive compensation plan. To the extent practical, management will
review such unplanned items with a value greater than $[***] with the
Compensation Committee prior to the consummation of the related transaction(s).

 

  •  

Quick ratio: As defined in the company’s credit agreement with SVB: Cash plus
accounts receivable minus current liabilities other than deferred revenue.

IV. Bonus Plan:

Net cash above $[***] at year end provides potential for funding incentive
compensation plans. To the extent that net cash exceeds $[***], up to [***]% of
this excess will be available to fund the senior management incentive
compensation plan subject to the threshold criteria below.

 

  •  

Thresholds:

 

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Adjusted EBITDA for 2010, including amounts accrued with respect to the plan,
must be greater than $[***].

 

  •  

Accrual of the expense associated with the plan cannot reduce net current
liquidity below $[***].

 

  •  

Accrual of the plan cannot result in a breach of the adjusted EBITDA covenant in
any quarter. If the plan is limited by the adjusted EBITDA covenant in any
quarter, such shortfall can be made up on a cumulative basis in a subsequent
quarter to the extent that it does not result in a breach of the covenant for
that subsequent quarter.

 

*** Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

--------------------------------------------------------------------------------

 

***Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2

 

  •  

Accrual of the plan cannot result in a quick ratio less than [***].

 

  •  

Funding under the program is capped at the earned payouts under the senior
management incentive plan formula, Exhibit 1, based upon the individual’s annual
salary multiplied by their target incentive percentage.

Payment:

Amounts earned under the Plan will be processed for the next scheduled payroll
following approval of the amounts by the Compensation Committee, such approval
to be determined no later than the next scheduled meeting of the Compensation
Committee following the receipt of earnings clearance from the company’s
independent auditor.

 

*** Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.

--------------------------------------------------------------------------------

 

***Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2

 

Exhibit 1

The participants in the 2010 Senior Management Incentive Plan are initially:

 

Title

   Salary      Target Incentive %  

Chief Executive Officer

   $ 270,000         50 % 

Chief Financial Officer

   $ 205,000         50 % 

Chief Commercialization Officer

   $ 197,000         50 % 

Chief Technology Officer

   $ 197,000         50 % 

[***]

   $ [***]         [***] % 

[***]

   $ [***]         [***] % 

[***]

   $ [***]         [***] % 

[***]

   $ [***]         [***] % 

[***]

   $ [***]         [***] % 

The Company may from time to time add participants to the 2010 Senior Management
Incentive Plan at the discretion of the Compensation Committee.

 

*** Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.