EXHIBIT 10.25

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is entered into
effective as of December 5, 2017 (the “Effective Date”), by and between Scott A.
Graeff (the “Employee”) and Luna Innovations Incorporated (the “Company”) and
amends and restates in its entirety the Employment Agreement between the Company
and Employee that was effective as of March 28, 2012.
The Company desires to continue to employ the Employee and, in connection
therewith, to compensate the Employee for Employee’s personal services to the
Company; and
The Employee wishes to continue to be employed by the Company and provide
personal services to the Company in return for certain compensation.
This Agreement supersedes any and all prior and contemporaneous oral or written
employment agreements or arrangements between Employee and the Company or any
predecessor thereof.
Accordingly, in consideration of the mutual promises and covenants contained
herein, the parties agree to the following:
1.EMPLOYMENT BY THE COMPANY.
1.1    At-Will Employment. Employee shall continue to be employed by the Company
on an “at-will” basis, meaning either the Company or Employee may terminate
Employee’s employment at any time, with or without cause or advanced notice. Any
contrary representations that may have been made to Employee shall be superseded
by this Agreement. This Agreement shall constitute the full and complete
agreement between Employee and the Company on the “at-will” nature of Employee’s
employment with the Company, which may be changed only in an express written
agreement signed by Employee and a duly authorized officer of the Company.
Employee’s rights to any compensation following a termination shall be only as
set forth in Section 6.
1.2    Position; Board Role. Subject to the terms set forth herein, the Company
agrees to continue to employ Employee, in the position of President and Chief
Executive Officer, and Employee hereby accepts such continued employment. During
the term of Employee’s employment with the Company, and excluding periods of
vacation and sick leave to which Employee is entitled, Employee shall devote all
business time and attention to the affairs of the Company necessary to discharge
the responsibilities assigned hereunder, and shall use commercially reasonable
efforts to perform faithfully and efficiently such responsibilities. Employee
shall further serve as a Director of the Company’s Board of Directors (the
“Board”) during the term of his employment
1.3    Duties. Employee will report to Board will render such business and
professional services in the performance of his duties, consistent with
Employee’s position as President and Chief Executive Officer, as shall
reasonably be assigned to him by the Board, subject to the oversight and
direction of the Board. Employee shall perform his duties under this Agreement
principally out of the Company’s corporate headquarters, or such other location
as assigned. In addition, the Employee shall make such business trips to such
places as may be reasonably necessary or advisable for the efficient operations
of the Company.
1.4    Company Policies and Benefits. The employment relationship between the
parties shall also be subject to the Company’s personnel policies and procedures
as they may be adopted, revised or deleted from time to time in the Company’s
sole discretion. The Employee will continue to be eligible to participate on the
same basis as similarly situated employees in the Company’s benefit plans in
effect from time to time during his employment. All matters of eligibility for
coverage or benefits under any benefit plan shall be determined in accordance
with the provisions of such plan. The Company reserves the right to change,
alter, or terminate any benefit plan in its sole discretion. Notwithstanding the
foregoing, in the event that the terms of this Agreement differ from or are in
conflict with the Company’s general employment policies or practices, this
Agreement shall control.
2.
COMPENSATION.

2.1    Salary. Effective as of October 1, 2017, Employee shall receive for
Employee’s services to be rendered hereunder an initial annualized base salary
of $325,000, subject to review and adjustment from time to time by the Company
in its sole discretion, payable subject to standard federal and state payroll
withholding requirements in accordance with Company’s standard payroll practices
(“Base Salary”). This increase will be reflected in the Company’s first
regularly scheduled payroll date after the Effective Date.
2.2    Bonus.
(a)    During Employment. Employee shall continue to be eligible to earn an
annual performance bonus with a target of 50%, with a maximum potential of 75%
of the actual salary received in the year in which the bonus is being measured
(an “Annual Bonus” and the target amount of an Annual Bonus, the “Target Bonus”
and the maximum amount of an Annual Bonus, the “Maximum Target Bonus). The
Annual Bonus will be based upon the Board’s assessment of the Employee’s
performance and the Company’s attainment of targeted goals as set by the Board
in its reasonable good faith discretion. The Annual Bonus, if any, will be
subject to applicable payroll deductions and withholdings. Following the close
of each calendar year, the Board will determine whether the Employee has earned
the Annual Bonus, and the amount of any Annual Bonus, based on the set criteria.
No amount of the Annual Bonus is guaranteed, and the Employee must be an
employee in good standing through December 31 of the year in which the Annual
Bonus is being measured to be eligible to receive an Annual Bonus. No partial or
prorated bonuses will be provided. The Annual Bonus, if earned, will be paid no
later than March 15 of the calendar year immediately following the applicable
calendar year for which the Annual Bonus is being measured. The Employee’s
eligibility for an Annual Bonus is subject to change in the discretion of the
Board (or any authorized committee thereof). Employee acknowledges that if the
Company adopts an incentive compensation plan the terms of any such plan may
supersede and replace the provisions of this Section 2.2, as determined by the
Company in its sole discretion
(b)    Upon Termination. Subject to the provisions of Section 6.1(a)(iii), in
the event Employee leaves the employ of the Company for any reason prior to
December 31 of the year in which the Annual Bonus is being measured, he is not
eligible for such Annual Bonus, prorated or otherwise.
2.3    Equity Incentive Awards.
(a)    Prior Equity Incentive Awards. The parties acknowledge that Exhibit A is
a complete and accurate list of Employee’s options to purchase shares of the
Company’s common stock (the “Prior Options”) and restricted shares of the
Company’s common stock (“Prior Restricted Stock Awards”) granted by the Company
to Employee prior to the Effective Date of this Agreement. The Prior Options and
Prior Restricted Stock Awards are subject to the Company’s 2006 Equity Incentive
Plan (the “2006 Plan”) or the Company’s 2016 Equity Incentive Plan (the “2016
Plan”) and individual stock option and restricted stock grant notices and
agreements (“Award Agreements”), as applicable, including but not limited to the
vesting schedules set forth therein.
(b)    Restricted Stock Award. Subject to approval by the Board at its next
regularly scheduled meeting following the Effective Date, the Company will grant
Employee fifty thousand (50,000) restricted shares of the Company’s Common Stock
(the “Restricted Stock Award”). The Restricted Stock Award will be subject to
the terms of the 2016 Plan and a restricted stock grant notice and agreement.
The Restricted Stock Award will vest subject to Employee’s continued employment
in annual installments over a three-year period, whereby one third of the shares
will vest on each of the first, second and third anniversaries of October 1,
2017, in each case subject to Employee’s continued employment through the
applicable vesting dates.
(c)    Acceleration. The Prior Options, Prior Restricted Stock Awards and
Restricted Stock Award may be subject to accelerated vesting in accordance with
Section 6 of this Agreement.
2.4    Expense Reimbursement. The Company will reimburse Employee for reasonable
business expenses in accordance with the Company’s standard expense
reimbursement policy. For the avoidance of doubt, to the extent that any
reimbursements payable to Employee are subject to the provisions of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”): (a) any such
reimbursements will be paid no later than December 31 of the year following the
year in which the expense was incurred, (b) the amount of expenses reimbursed in
one year will not affect the amount eligible for reimbursement in any subsequent
year, and (c) the right to reimbursement under this Agreement will not be
subject to liquidation or exchange for another benefit.
3.PROPRIETARY INFORMATION, INVENTIONS, AND NON-SOLICITATION OBLIGATIONS.
Contemporaneously with this Agreement and as a condition of continued
employment, the parties hereto have entered into a Confidential Information,
Inventions, Non-Competition and Non-Solicitation Agreement (the “Confidential
Information Agreement”), which may be amended by the parties from time to time
without regard to this Agreement. The Confidential Information Agreement
contains provisions that are intended by the parties to survive and do survive
termination or expiration of this Agreement.
  
4.OUTSIDE ACTIVITIES. Except with the prior written consent of the Board, ,
Employee will not, while employed by the Company, undertake or engage in any
other employment, occupation or business enterprise that would interfere with
Employee’s responsibilities and the performance of Employee’s duties hereunder
except for (i) reasonable time devoted to volunteer services for or on behalf of
such religious, educational, non-profit and/or other charitable organization as
Employee may wish to serve, (ii) reasonable time devoted to activities in the
non-profit and business communities consistent with Employee position with the
Company; or (iii) reasonable time serving as trustee, director or advisor to any
family companies or trusts. This restriction shall not, however, preclude the
Employee (x) from owning (A) less than one percent (1%) of the total outstanding
shares of a publicly traded company or (B) equity in real estate holding or
management companies, or (y) from employment or service in any capacity with
Affiliates of the Company. As used in this Agreement, “Affiliates” means an
entity under common management or control with the Company.
5.NO CONFLICT WITH EXISTING OBLIGATIONS. Employee represents that Employee’s
performance of all the terms of this Agreement and as an employee of the Company
do not and will not breach any agreement or obligation of any kind made prior to
Employee’s employment by the Company, including agreements or obligations
Employee may have with prior employers or entities for which Employee has
provided services. Employee has not entered into, and Employee agrees that
Employee will not enter into, any agreement or obligation, either written or
oral, in conflict herewith.

6.TERMINATION OF EMPLOYMENT. The parties acknowledge that Employee’s employment
relationship with the Company is at-will. Either Employee or the Company may
terminate the employment relationship at any time, with or without cause. The
provisions in this Section govern the amount of compensation, if any, to be
provided to Employee upon termination of employment and do not alter this
at-will status.

6.1    Termination by the Company or Resignation by Employee.
(a)    The Company shall have the right to terminate Employee’s employment with
the Company pursuant to this Section 6.1 at any time with or without Cause (as
defined below), by giving notice as described in Section 7.1 of this Agreement.
Likewise, Employee can resign from employment with the Company with or without
Good Reason (as defined below), by giving notice as described in Section 7.1 of
this Agreement. If Employee is terminated by the Company (with or without Cause)
or resigns from employment with the Company (with or without Good Reason), then
Employee shall be entitled to the Accrued Obligations (as defined below), and in
addition, if Employee is terminated without Cause or resigns for Good Reason,
and provided that such termination constitutes a “separation from service” (as
defined under Treasury Regulation Section 1.409A-1(h), without regard to any
alternative definition thereunder, a “Separation from Service”), and further
provided that the Employee executes and allows to become effective a separation
agreement that includes, among other terms, a general release of claims in favor
of the Company and its affiliates and representatives, in a reasonable form
presented by the Company (the “Release”), and subject to Section 6.1(b) (the
date that the Release becomes effective and may no longer be revoked by the
Employee is referred to as the “Release Date”), then the Employee shall be
eligible to receive the following severance benefits (collectively the
“Severance Benefits”):
(i)    An amount equal to twelve (12) months of Employee’s then current Base
Salary, less standard payroll deductions and withholdings, paid in installments
on the Company’s regular payroll dates;
(ii)    provided Employee timely elects continued coverage under COBRA under the
Company’s group health plans following such termination, the portion of the
COBRA premiums that the Company was previously paying, to continue Employee’s
health insurance coverage in effect on the termination date until the earliest
of: (1) twelve (12) months following the termination date (the “COBRA Severance
Period”); (2) the date when Employee becomes eligible for substantially
equivalent health insurance coverage in connection with new employment or
self-employment; or (3) the date Employee ceases to be eligible for COBRA
continuation coverage for any reason, including plan termination (such period
from the termination date through the earlier of (1)-(3), (the “COBRA Payment
Period”). Notwithstanding the foregoing, if at any time the Company determines
that its payment of COBRA premiums on Employee’s behalf would result in a
violation of applicable law (including, but not limited to, the 2010 Patient
Protection and Affordable Care Act, as amended by the 2010 Health Care and
Education Reconciliation Act), then in lieu of paying COBRA premiums pursuant to
this Section, the Company shall pay Employee on the last day of each remaining
month of the COBRA Payment Period, a fully taxable cash payment equal to the
COBRA premium for such month, subject to applicable tax withholding (such
amount, the “Special Severance Payment”), for the remainder of the COBRA Payment
Period. Nothing in this Agreement shall deprive Employee of his rights under
COBRA or ERISA for benefits under plans and policies arising under his
employment by the Company;
(iii)    A lump sum cash payment in an amount equal to the Target Bonus for the
year in which the termination occurs (the “Bonus Severance Payment”), subject to
standard payroll deductions and withholdings, which will be paid when annual
bonuses are otherwise paid, which in no event will be later than March 15 of the
year following the year in which the termination date occurs; and
(iv)    A lump cash payment equal to the value of any unvested 401(k) Company
match amount.
(b)    Employee shall not receive the Severance Benefits pursuant to Section
6.1(a) unless he executes the Release within the consideration period specified
therein, which shall in no event be more than 45 days, and until the Release
becomes effective and can no longer be revoked by Employee under its terms.
Employee’s ability to receive benefits pursuant to Section 6.1(a) is further
conditioned upon his: returning all Company property; complying with his
post-termination obligations under this Agreement and the Confidential
Information Agreement; complying with the Release including without limitation
any non-disparagement and confidentiality provisions contained therein; and
resignation from any other positions he holds with the Company, effective no
later than his Employee’s date of termination (or such other date as requested
by the Board).

(c)    The Company will not make any payments to Employee with respect to any of
the benefits pursuant to Section 6.1(a) prior to the 60th day following
Employee’s date of termination. On the 60th day following Employee’s date of
termination, and provided that Employee has delivered an effective Release, the
Company will make the first payments to Employee under Section 6.1(a)(i) in a
lump sum equal to the aggregate amount of payments that the Company would have
paid Employee through such date had the payments commenced on the Employee’s
date of termination through such 60th day, with the balance of the payments paid
thereafter on the schedule described above, subject to any delay in payment
required by Section 6.7.

(d)    For purposes of this Agreement, “Accrued Obligations” are (i) Employee’s
accrued but unpaid salary and accrued but unused vacation through the date of
termination (which, for purpose of clarity, shall be paid in cash), (ii) any
unreimbursed business expenses incurred by Employee payable in accordance with
the Company’s standard expense reimbursement policies, (iii) benefits owed to
Employee under any qualified retirement plan or health and welfare benefit plan
in which Employee was a participant in accordance with applicable law and the
provisions of such plan; and (iv) any Annual Bonus earned but unpaid for the
prior fiscal year.
(e)    For purposes of this Agreement, “Good Reason” means any of the following
actions taken by the Company without Employee’s consent: (i) a reduction of
Employee’s Base Salary (unless such reduction is made in connection with an
across the board reduction in base salaries of the Company’s senior executives);
(ii) material reduction in Employee’s authority, duties or responsibilities as
President and Chief Executive Officer, provided, however, that the acquisition
of the Company and subsequent conversion of the Company to a division or unit of
the acquiring company will not by itself result in a diminution of Employee’s
position; (iii) a material change in the geographic location of Employee’s
primary work facility or location; provided, that a relocation of fifty (50) or
more miles from downtown Roanoke, Virginia, will be considered a material change
in geographic location; (iv) any material breach by the Company of any of its
obligations hereunder; or (v) a change so that Employee is no longer eligible to
receive an Annual Bonus as described in the first two sentences of Section
2.2(a). In order to resign for Good Reason, Employee must provide written notice
of the event giving rise to Good Reason to the Board within thirty (30) days
after the condition first arises, allow the Company thirty (30) days to cure
such condition, and if the Company fails to cure the condition within such
period, Employee’s resignation from all positions Employee then holds with the
Company must be effective not later than sixty (60) days after the end of the
Company’s cure period.

(f)    For purposes of this Agreement, “Cause” means first, the Employee’s
conviction of any felony or any crime involving fraud, dishonesty or moral
turpitude under the laws of the United States or any state thereof (which, for
purpose of clarity, would exclude traffic offenses). Second, “Cause” means, as
reasonably determined in good faith by the Board, Employee’s willful and
material acts or omissions that constitute the following conduct: (i) commission
or attempted commission of, or participation in, a fraud or act of dishonesty
against the Company; (ii) material violation of any contract or agreement
between the Employee and the Company or of any statutory duty owed to the
Company after Employee is provided with a reasonable opportunity of not less
than thirty (30) days to cure from the date written notice (in reasonable
detail) thereof is given to Employee by the Company; (iii) unauthorized use or
disclosure of the Company’s confidential information or trade secrets; (iv)
gross misconduct or gross negligence causing material injury to the Company; (v)
breach of fiduciary duty, including without limitation concealing information
relevant to the Company from the Board of a nature that senior executives should
disclose to boards of directors in fulfilling such duty; or (vii) refusal to
comply with a lawful directive of the Board after Employee is provided with a
reasonable opportunity of not less than ten (10) days to cure from the date
notice thereof is given to Employee by the Company.
(g)    The benefits provided to Employee pursuant to this Section 6.1 are in
lieu of, and not in addition to, any benefits to which Employee may otherwise be
entitled under any Company severance plan, policy or program.

(h)    Any damages caused by the termination of Employee’s employment without
Cause or for Good Reason would be difficult to ascertain; therefore, the
Severance Benefits for which Employee is eligible pursuant to Section 6.1(a)
above in exchange for the Release is agreed to by the parties as liquidated
damages, to serve as full compensation, and not a penalty.

(i)    If the Company terminates the Employee’s employment for Cause or Employee
resigns from employment with the Company without Good Reason, regardless of
whether or not such termination is in connection with a Change in Control (as
defined below), then Employee shall be entitled to the Accrued Obligations, but
Employee will not receive the Severance Benefits or any other severance
compensation or benefit.

6.2    Resignation by the Employee for Good Reason or Termination by the Company
without Cause (in connection with a Change in Control).
(a)    In the event that the Company terminates Employee’s employment without
Cause or Employee resigns for Good Reason within three months prior to or twelve
(12) months following the effective date of a Change in Control (“Change in
Control Termination Date”), then Employee shall be entitled to the Accrued
Obligations and, subject to Employee’s compliance with Section 6.1(b) above,
including but not limited to the Release requirement and Employee’s continued
compliance with his obligations to the Company under his Confidential
Information Agreement, then:
(i)    Employee shall be eligible to receive the Severance Benefits under the
terms and conditions described in Section 6.1; provided that (A)    the amounts
set forth in clauses (i) and (iv) of Section 6.1(a) shall be paid in lump sums
in accordance with the timing set forth in Section 6.1(a) and not deferred per
such clauses (i) and (iv) and (B) the Bonus Severance Payment shall be equal to
the Maximum Target Bonus as opposed to the Target Bonus; and
(ii)    Effective as of the later of Employee’s Change in Control Termination
Date or the effective date of the Change in Control, the vesting and
exercisability of all outstanding stock options and other stock awards covering
the Company’s Common Stock that are held by Employee as of immediately prior to
the Change in Control Termination Date shall be accelerated (and lapse, in the
case of reacquisition or repurchase rights) in full. Employee’s stock options
and stock awards shall remain outstanding following Employee’s Change in Control
Termination Date if and to the extent necessary to give effect to this Section
6.2(a)(ii) subject to earlier termination under the terms of the equity plan
under which such awards were granted and the original maximum term of the award
(without regard to Employee’s termination).
(b)    As used in this Agreement, “Change in Control” means “Change in Control”
as defined in the Company’s 2016 Equity Incentive Plan.

6.3    Termination by Virtue of Death or Disability of the Employee.
(a)    In the event of Employee’s death while employed pursuant to this
Agreement, all obligations of the parties hereunder and Employee’s employment
shall terminate immediately, and the Company shall, pursuant to the Company’s
standard payroll policies, pay to the Employee’s legal representatives the
Accrued Obligations due to Employee, but the Company will not provide the
Severance Benefits, or any other severance compensation or benefit.
(b)    Subject to applicable state and federal law, the Company shall at all
times have the right, upon written notice to the Employee, to terminate this
Agreement based on the Employee’s Disability (as defined below). Termination by
the Company of the Employee’s employment based on “Disability” shall mean
termination because the Employee is unable due to a physical or mental condition
to perform the essential functions of his position with or without reasonable
accommodation for six (6) months in the aggregate during any twelve (12) month
period or based on the written certification by two licensed physicians of the
likely continuation of such condition for such period. This definition shall be
interpreted and applied consistent with the Americans with Disabilities Act, the
Family and Medical Leave Act, and other applicable law. In the event Employee’s
employment is terminated based on the Employee’s Disability, Employee will be
entitled to the Accrued Obligations, but will not receive the Severance
Benefits, or any other severance compensation or benefit.
6.4    Termination Due to Discontinuance of Business. Anything in this Agreement
to the contrary notwithstanding, in the event the Company’s business is
discontinued because rendered impracticable by substantial financial losses,
lack of funding, legal decisions, administrative rulings, declaration of war,
dissolution, national or local economic depression or crisis or any reasons
beyond the control of the Company, then this Agreement shall terminate as of the
day the Company determines to cease operation with the same force and effect as
if such day of the month were originally set as the termination date hereof. In
the event this Agreement is terminated pursuant to this Section 6.4, Employee
will be entitled to the Accrued Obligations, but will not receive the Severance
Benefits, or any other severance compensation or benefit.
6.5    Cooperation With Company After Termination of Employment. Following
termination of Employee’s employment for any reason, Employee shall reasonably
cooperate with the Company in all matters relating to the winding up of
Employee’s pending work including, but not limited to, any litigation in which
the Company is involved, and the orderly transfer of any such pending work to
such other Employees as may be designated by the Company; provided, however,
that the obligations hereunder shall not interfere with Employee’s efforts to
obtain subsequent employment and/or his obligations to and responsibilities for
a subsequent employer and the obligations hereunder shall end six months after
the termination of the Employee’s employment; and provided further that the
Employee will be paid for his efforts hereunder at an hourly rate determined by
dividing his last Annual Salary by 1,800 hours and that Employee shall be
reimbursed his reasonable expenses.
6.6    Effect of Termination. Employee agrees that should his employment be
terminated for any reason, he shall be deemed to have resigned from any and all
positions with the Company, including, but not limited, to a position on the
Board and all positions with any and all subsidiaries and Affiliates of the
Company.
6.7    Application of Section 409A. It is intended that all of the severance
payments payable under this Agreement satisfy, to the greatest extent possible,
the exemptions from the application of Section 409A of the Code and the
regulations and other guidance thereunder and any state law of similar effect
(collectively, “Section 409A”) provided under Treasury Regulations Sections
1.409A-1(b)(4) and 1.409A-1(b)(9), and this Agreement will be construed in a
manner that complies with Section 409A. If not so exempt, this Agreement (and
any definitions hereunder) will be construed in a manner that complies with
Section 409A, and incorporates by reference all required definitions and payment
terms. No severance payments will be made under this Agreement unless Employee’s
termination of employment constitutes a Separation from Service. For purposes of
Section 409A (including, without limitation, for purposes of Treasury
Regulations Section 1.409A-2(b)(2)(iii)), Employee’s right to receive any
installment payments under this Agreement (whether severance payments or
otherwise) shall be treated as a right to receive a series of separate payments
and, accordingly, each installment payment hereunder shall at all times be
considered a separate and distinct payment. To the extent that any severance
payments are deferred compensation under Section 409A, and are not otherwise
exempt from the application of Section 409A, then, if the period during which
Employee may consider and sign the Release spans two calendar years, the
severance payments will not begin until the second calendar year. If the Company
determines that the severance benefits provided under this Agreement constitutes
“deferred compensation” under Section 409A and if Employee is a “specified
employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i) of
the Code at the time of Employee’s Separation from Service, then, solely to the
extent necessary to avoid the incurrence of the adverse personal tax
consequences under Section 409A, the timing of the Severance will be delayed as
follows: on the earlier to occur of (a) the date that is six months and one day
after Employee’s Separation from Service, and (b) the date of Employee’s death
(such earlier date, the “Delayed Initial Payment Date”), the Company will pay to
Employee a lump sum amount equal to the sum of the severance benefits that
Employee would otherwise have received through the Delayed Initial Payment Date
if the commencement of the payment of the severance benefits had not been
delayed pursuant to this Section 6.7 and (ii) commence paying the balance of the
severance benefits in accordance with the applicable payment schedule set forth
in Section 6.1. No interest shall be due on any amounts deferred pursuant to
this Section 6.7.
6.8    Excise Tax Adjustment. Notwithstanding any of the foregoing to the
contrary in the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Employee (i) constitute “parachute payments”
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the “Code”) and (ii) but for this Section, would be subject to the
excise tax imposed by Section 4999 of the Code (“Excise Tax”), then Employee’s
severance benefits under this Agreement shall be payable either (A) in full, or
(B) as to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Employee on an after-tax basis, of the greatest amount of severance
benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code. Unless the
Company and Employee otherwise agree in writing, any determination required
under this Section shall be made in writing by the Company’s independent public
accountants (the “Accountants”), whose determination shall be conclusive and
binding upon Employee and the Company for all purposes. For purposes of making
the calculations required by this Section, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section. Any reduction in payments and/or
benefits required by this Section shall occur in the following order:
(1) reduction of cash payments; (2) reduction in vesting acceleration of equity
awards; and (3) reduction of other benefits paid or provided to Employee. In the
event that acceleration of vesting of equity awards is to be reduced, such
acceleration of vesting shall be cancelled in the reverse order of the date of
grant for Employee’s equity awards. If two or more equity awards are granted on
the same date, each award will be reduced on a pro-rata basis.
7.GENERAL PROVISIONS.
7.1    Notices. Any notices required hereunder to be in writing shall be deemed
effectively given: (a) upon personal delivery to the party to be notified, (b)
when sent by electronic mail or confirmed facsimile if sent during normal
business hours of the recipient, and if not, then on the next business day, (c)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at its primary office location and to Employee at Employee’s address as listed
on the Company payroll or to Employee’s Company-issued email address, or at such
other address as the Company or Employee may designate by ten (10) days advance
written notice to the other.
7.2    Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
7.3    Waiver. If either party should waive any breach of any provisions of this
Agreement, Employee or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
7.4    Complete Agreement. This Agreement constitutes the entire agreement
between Employee and the Company with regard to the subject matter hereof. This
Agreement is the complete, final, and exclusive embodiment of their agreement
with regard to this subject matter and supersedes any prior oral discussions or
written communications and agreements. This Agreement is entered into without
reliance on any promise or representation other than those expressly contained
herein, and it cannot be modified or amended except in writing signed by
Employee and an authorized officer of the Company. The parties have entered into
a separate Confidential Information Agreement and have or may enter into
separate agreement related to stock awards. These separate agreements govern
other aspects of the relationship between the parties, have or may have
provisions that survive termination of the Employee’s employment under this
Agreement, may be amended or superseded by the parties without regard to this
Agreement and are enforceable according to their terms without regard to the
enforcement provision of this Agreement.
7.5    Counterparts. This Agreement may be executed by electronic transmission
and in separate counterparts, any one of which need not contain signatures of
more than one party, but all of which taken together will constitute one and the
same Agreement.
7.6    Headings. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
7.7    Successors and Assigns. The Company shall assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any company or
other entity with or into which the Company may hereafter merge or consolidate
or to which the Company may transfer all or substantially all of its assets, if
in any such case said company or other entity shall by operation of law or
expressly in writing assume all obligations of the Company hereunder as fully as
if it had been originally made a party hereto, but may not otherwise assign this
Agreement or its rights and obligations hereunder. The Employee may not assign
or transfer this Agreement or any rights or obligations hereunder, other than to
his estate upon his death.
7.8    Choice of Law. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the Commonwealth
of Virginia.
7.9    Resolution of Disputes. The parties recognize that litigation in federal
or state courts or before federal or state administrative agencies of disputes
arising out of the Employee’s employment with the Company or out of this
Agreement, or the Employee’s termination of employment or termination of this
Agreement, may not be in the best interests of either the Employee or the
Company, and may result in unnecessary costs, delays, complexities, and
uncertainty. The parties agree that any dispute between the parties arising out
of or relating to the negotiation, execution, performance or termination of this
Agreement or the Employee’s employment, including, but not limited to, any claim
arising out of this Agreement, claims under Title VII of the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, Section
1981 of the Civil Rights Act of 1966, as amended, the Family Medical Leave Act,
the Employee Retirement Income Security Act, and any similar federal, state or
local law, statute, regulation, or any common law doctrine, whether that dispute
arises during or after employment, shall be settled by binding arbitration in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association; provided however, that this dispute
resolution provision shall not apply to any separate agreements between the
parties that do not themselves specify arbitration as an exclusive remedy. The
location for the arbitration shall be the Roanoke, Virginia area. Any award made
by such panel shall be final, binding and conclusive on the parties for all
purposes and shall be kept confidential, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
arbitrators’ fees and expenses and all administrative fees and expenses
associated with the filing of the arbitration shall be borne by the Company;
provided however, that at the Employee’s option, Employee may voluntarily pay up
to one-half the costs and fees. The parties acknowledge and agree that their
obligations to arbitrate under this Section survive the termination of this
Agreement and continue after the termination of the employment relationship
between Employee and the Company. The parties each further agree that the
arbitration provisions of this Agreement shall provide each party with its
exclusive remedy, and each party expressly waives any right it might have to
seek redress in any other forum, except as otherwise expressly provided in this
Agreement. By election arbitration as the means for final settlement of all
claims, the parties hereby waive their respective rights to, and agree not to,
sue each other in any action in a Federal, State or local court with respect to
such claims, but may seek to enforce in court an arbitration award rendered
pursuant to this Agreement. The parties specifically agree to waive their
respective rights to a trial by jury, and further agree that no demand, request
or motion will be made for trial by jury.         
                
IN WITNESS WHEREOF, the parties have executed this Employment Agreement on the
day and year first written above.
Luna Innovations Incorporated

By: /s/ Richard W. Roedel    
Richard W. Roedel
Chairman of the Board of Directors

Employee:

/s/ Scott A. Graeff                
Scott A. Graeff

    
Prior Option and Prior Restricted Stock Awards
(see attached)

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