LUNA INNOVATIONS INCORPORATED NON-EMPLOYEE DIRECTORS? DEFERRED COMPENSATION PLAN

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Exhibit 10.37

LUNA INNOVATIONS INCORPORATED

NON-EMPLOYEE DIRECTORS’ DEFERRED COMPENSATION PLAN

Effective Date: August 9, 2007

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ARTICLE 1

INTRODUCTION

1.1 Establishment . Luna Innovations Incorporated (the “ Company ”) has established this Non-Employee Directors’ Deferred Stock Compensation Plan (the “ Plan ”) for those directors of the Company’s Board of Directors who are not employees of the Company or any of its subsidiaries or affiliates (“ Non-Employee Directors ”). The Plan allows Non-Employee Directors to defer the receipt of cash compensation and to receive such deferred compensation in the form of Shares (as defined herein).

1.2 Purpose . This Plan is intended to advance the interests of the Company and its stockholders by providing a means to attract and retain qualified persons to serve as Non-Employee Directors and to promote equity ownership by Non-Employee Directors, thereby aligning such Directors’ interests more closely with the interests of the stockholders of the Company.

1.3 Effective Date . This Plan is effective as of August 9, 2007 (the “ Effective Date ”).

ARTICLE 2

DEFINITIONS

Wherever used herein, the following terms shall have the meanings set forth below:

“ Administrator ” means the Board, or a committee of the Board appointed to administer the Plan under Article 8.

“ Annual Meeting ” means the annual meeting of stockholders of the Company.

“ Board ” means the Board of Directors of the Company.

“ Change in Control ” means a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, as defined under Section 409A(a)(2)(A)(v) of the Code and the applicable Treasury regulations and other official guidance issued thereunder.

“Code” means the Internal Revenue Code of 1986, as amended.

“ Common Stock ” means the Company’s class of capital stock designed as common stock, par value $0.001 per share, or, in the event that the outstanding shares of common stock are after the Effective Date recapitalized, converted into or exchanged for different stock or securities of the Company, such other stock or securities.

“ Company ” means Luna Innovations Incorporated, a Delaware corporation, or any successor thereto.

“ Deferral Date ” means the date Fees would otherwise have been paid to the Participant.

“ Deferral Election ” means a written election to defer Fees under the Plan.

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“ Director ” means any individual who is a member of the Board.

“ Fair Market Value ” of a share of Common Stock means on a given date (a) if the principal market for the Common Stock is the Nasdaq stock market, a national securities exchange or other recognized national market or service reporting sales, the closing price of a share of Common Stock on the date of the determination on the principal market on which the Common Stock is then listed or admitted to trading, (b) if the Common Stock is not listed on the Nasdaq stock market, a national securities exchange or other recognized national market or service reporting sales, the closing price of a share of Common Stock on the date of the determination as reported by the system then regarded as the most reliable source of such quotations, (c) if the Common Stock is listed on a domestic stock exchange or market or quoted in a domestic market or service, but there are not reported sales or quotations, as the case may be, on the given date, the value determined pursuant to (a) or (b) above using the reported sale prices or quotations on the last previous day on which so reported, or (d) if none of the foregoing clauses apply, the fair market value of a share of Common Stock as determined in good faith by the Board and stated in writing in a notice delivered to the holders of the Common Stock involved.

“ Fees ” means all or part of any retainer or meeting fees payable in cash to a Non-Employee Director in his or her capacity as a Director. Fees shall not include any expenses paid directly or through reimbursement.

“ Non-Employee Director ” means a Director who is not an employee of the Company or any of its subsidiaries or affiliates. For purposes of the Plan, an employee is an individual whose wages are subject to withholding of federal income tax under Section 3401 of the Code.

“ Participant ” means a Non-Employee Director who defers Fees under Article 4 of the Plan.

“ Secretary ” means the Secretary or any Assistant Secretary of the Company.

“ Separation from Service” means the termination of an individual’s service as a Director by reason of death, retirement, or otherwise as defined in Treas. Reg. § 1.409A-1(h).

“ Shares ” means shares of the Common Stock.

“ Stock Units ” means the credits to a Participant’s Stock Unit Account under Article 4 of the Plan, each of which represents the right to receive one Share upon settlement of the Stock Unit Account.

“ Stock Unit Account ” means the bookkeeping account established by the Company pursuant to Section 4.5.

ARTICLE 3

ELIGIBILITY

3.1 Each person who is a Non-Employee Director on a Deferral Date shall be eligible to defer Fees payable on such date in accordance with Article 4 of the Plan. If any Non-Employee Director subsequently becomes an employee of the Company or any of its subsidiaries, but does not incur a Separation from Service, such Director shall continue as a Participant with respect to Fees previously deferred, but shall cease eligibility with respect to all future Fees, if any, earned while an employee.

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ARTICLE 4

DEFERRAL ELECTIONS AND DEFERRED COMPENSATION ACCOUNTS

4.1 General Rule . Each Non-Employee Director may, in lieu of receipt of Fees, defer any or all of such Fees in accordance with this Article 4, provided that such Non-Employee director is eligible under Article 3 of the Plan to defer such Fees at the date any such Fees are otherwise payable. A Director may elect to defer a percentage (in increments of 1%) of his or her Fees.

4.2 Timing of Initial Election . Each Non-Employee Director who is serving on the Board on the Effective Date may make a Deferral Election at any time prior to the Effective Date and up to 30 days thereafter. Any person who is not then serving as a Non-Employee Director may make a Deferral Election within thirty (30) days after the date on which such person initially becomes eligible to participate. A Participant shall not be considered first eligible to participate if on the date he or she becomes a Participant, he or she participates in any other nonqualified plan of the same category which is subject to Section 409A of the Code maintained by the Company or any affiliate of the Company. A Non-Employee Director who does not make a Deferral Election when first eligible to do so may make a Deferral Election at such time before any subsequent calendar year in accordance with administrative procedures established with respect to the Plan.

4.3 Effect and Duration of Election . A Deferral Election shall apply to Fees payable after the date such election is made and shall be irrevocable as of the last day of the calendar year with respect to Fees earned in the immediately following calendar year. Additionally, the Deferral Election shall deemed to be continuing and applicable to all Fees payable in subsequent calendar years, unless the Participant revokes or modifies such election by filing a new Deferral Election at such time before the first day of any subsequent calendar year in accordance with administrative procedures established with respect to the Plan.

4.4 Form of Election . A Deferral Election shall be made in a manner satisfactory to the Administrator (including deferral election notice attached hereto as Appendix I) and submitting such notice to the Secretary or his or her designee within the period described in Section 4.2.

4.5 Establishment of Stock Unit Account . The Company shall establish a Stock Unit Account for each Participant. All Fees deferred pursuant to this Article 4 shall be credited to the Participant’s Stock Unit Account as of the Deferral Date and converted to Stock Units. The number of Stock Units credited to a Par