Exhibit 10.31

 

Performance Option Agreement

 

This Performance Option Agreement (this “Agreement”) is made and entered into as
of ________________ (the “Grant Date”) by and between AudioEye, Inc., a Delaware
corporation (the “Company”) and _____________ (the “Grantee”).

 

WHEREAS, the Board has approved the AudioEye, Inc. _____ Incentive Compensation
Plan (the “Plan”), subject to shareholder approval, pursuant to which
Performance Option Units may be granted; and

 

WHEREAS, the Board has determined that it is in the best interests of the
Company and its stockholders to grant the award of Performance Option provided
for herein.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:

 

1.           Definitions. Capitalized terms that are used but not defined herein
have the meanings ascribed to them in the Plan, a copy of which has been
provided to the Grantee.

 

2.           Grant of Performance Option. Pursuant to Section 6(h) of the Plan,
the Company hereby grants to the Grantee an Award of up to an aggregate of
__________ Performance Options (the “Target Award”), subject to increase of up
to a total of ________________ Performance Options (the “Max Options”) as
described on Exhibit A-2 attached hereto. Each Performance Options (“PO”)
represents the right to receive one Option to purchase one share of Company’s
Common Stock, subject to the terms and conditions set forth in this Agreement
and the Plan. The number of POs that the Grantee actually earns for a
Performance Period (up to a maximum of _________ Options) will be determined by
the level of achievement of the Performance Goals in accordance with Exhibit A-1
attached hereto.

 

3.           Performance Period. For purposes of this Agreement, "Performance
Period" shall be the calendar year commencing on [January 1, _____] and ending
on the following [December 31], of each calendar year. Subject to vesting as
provided in Section 5, there shall be [two] Performance Periods commencing on
[January 1, ____ through December 31, ____, and from January 1, _____ through
December 31, ____], with the opportunity to earn a full award of Max Options
based on achievement of Performance Goals on a cumulative basis for the [two]
Performance Periods as described on Exhibit A-1.

 

4.           Performance Goals.

 

4.1           The number of POs earned by the Grantee for a Performance Period
will be determined at the end of the Performance Period based on the level of
achievement of the Performance Goals in accordance with Exhibit A hereto. All
determinations of whether Performance Goals have been achieved, the number of
POs earned by the Grantee, and all other matters related to this Section 4 shall
be made by the Committee in its sole discretion.

 

 

 

 

4.2           Promptly following completion of a Performance Period (and no
later than forty-five (45) days following the end of such Performance Period),
the Committee will review and certify in writing (a) whether, and to what
extent, the Performance Goals for the Performance Period have been achieved, and
(b) the number of POs that the Grantee shall earn, if any, subject to compliance
with the requirements of Section 5. Such certification shall be final,
conclusive and binding on the Grantee, and on all other persons, to the maximum
extent permitted by law.

 

5.           Vesting of POs. The POs are subject to forfeiture until they vest.
Except as otherwise provided herein, the POs will vest and become nonforfeitable
on the last day of a Performance Period with respect to the POs earned for such
Performance Period in accordance with Section 4.2, subject to (a) the
achievement of the minimum threshold Performance Goals for payout set forth in
Exhibit A-1 hereto, and (b) the Grantee's Continuous Service from the Grant Date
through the last day of the Performance Period. The number of POs that vest and
become payable under this Agreement shall be determined by the Committee based
on the level of achievement of the Performance Goals set forth in Exhibit A-1
hereto and shall be rounded to the nearest whole PO.

 

6.           Option Term and Exercise Price. The Options shall have a term of
[five] years from the date of grant and the exercise price determined by using a
[10-day average closing price] of the Company’s Common Stock over the [ten (10)]
trading days beginning on ______, ______, which the Committee has determined to
be and the Board agrees is an amount that is not less than the fair market value
of a share of the common stock of the Company on such date.

 

7.           Termination of Continuous Service.

 

7.1           Except as otherwise expressly provided in this Agreement, if the
Grantee's Continuous Service terminates for any reason at any time before all of
his POs have vested, the Grantee's unvested POs shall be automatically forfeited
upon such termination of Continuous Service and neither the Company nor any
Affiliate shall have any further obligations to the Grantee under this
Agreement.

 

7.2           Notwithstanding Section 7.1, if the Grantee's Continuous Service
terminates during the Performance Period as a result of the Grantee's death,
Disability or termination by the Company without Cause, or termination by the
Grantee for Good Reason, all of the outstanding POs will vest as to such
Performance Period in accordance with Section 4 subject to achievement of the
Performance Goal(s) for such Performance Period as if the Grantee's Continuous
Service had not terminated.

 

8.           Payment of POs. Payment in respect of the POs earned for the
Performance Period shall be made in Options to purchase shares of the Company’s
Common Stock and shall be issued to the Grantee as soon as practicable following
the vesting date. The Company shall cause the issuance and delivery to the
Grantee of the number of Options to purchase shares of the Company’s Common
Stock equal to the number of vested POs.

 

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9.           Transferability. Subject to any exceptions set forth in this
Agreement or the Plan, the POs or the rights relating thereto may not be
assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by the Grantee, except by will or the laws of descent and
distribution, and upon any such transfer by will or the laws of descent and
distribution, the transferee shall hold such POs subject to all of the terms and
conditions that were applicable to the Grantee immediately prior to such
transfer.

 

10.         Rights as Shareholder.

 

10.1         The Grantee shall not have any rights of a shareholder with respect
to the shares of Common Stock underlying the POs, including, but not limited to,
voting rights and the right to receive or accrue dividends or dividend
equivalents.

 

10.2         Upon and following the vesting and exercise of the POs and the
issuance of Company shares, the Grantee shall be the record owner of the shares
of Common Stock underlying the POs unless and until such shares are sold or
otherwise disposed of, and as record owner, shall be entitled to all rights of a
stockholder of the Company (including voting and dividend rights).

 

11.         No Right to Continued Service. Neither the Plan nor this Agreement
shall confer upon the Grantee any right to be retained in any position, as an
Employee, Consultant or Director of the Company. Further, nothing in the Plan or
this Agreement shall be construed to limit the discretion of the Company to
terminate the Grantee's Continuous Service at any time, with or without Cause.

 

12.         Adjustments. If any change is made to the outstanding Common Stock
or the capital structure of the Company, if required, the POs shall be adjusted
or terminated in any manner as contemplated by Section 10(c) of the Plan.

 

13.         Tax Liability and Withholding.

 

13.1         The Grantee shall be required to pay to the Company, and the
Company shall have the right to deduct from any compensation paid to the Grantee
pursuant to the Plan, the amount of any required withholding taxes in respect of
the POs and to take all such other action as the Committee deems necessary to
satisfy all obligations for the payment of such withholding taxes. The Committee
may permit the Grantee to satisfy any federal, state or local tax withholding
obligation by any of the following means, or by a combination of such means:

 

(a)          tendering a cash payment;

 

(b)          authorizing the Company to withhold shares of Common Stock from the
shares of Common Stock otherwise issuable or deliverable to the Grantee as a
result of the vesting of the POs; provided, however, that no shares of Common
Stock shall be withheld with a value exceeding the minimum amount of tax
required to be withheld by law; or

 

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(c)          delivering to the Company previously owned and unencumbered shares
of Common Stock.

 

In addition, in the Company’s sole discretion and consistent with the Company’s
rules (including, but not limited to, compliance with the Company’s Policy on
Insider Trading) and regulations, the Company may permit the Grantee to pay the
withholding or other taxes due as a result of the vesting of the Grantee’s POs
by delivery (on a form acceptable to the Committee or the Company) of an
irrevocable direction to a licensed securities broker to sell shares and to
deliver all or part of the sales proceeds to the Company in payment of the
withholding or other taxes.

 

13.2         Notwithstanding any action the Company takes with respect to any or
all income tax, social insurance, payroll tax, or other tax-related withholding
(“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and
remains the Grantee's responsibility and the Company (a) makes no representation
or undertakings regarding the treatment of any Tax-Related Items in connection
with the grant, vesting or settlement of the POs or the subsequent sale of any
shares, and (b) does not commit to structure the POs to reduce or eliminate the
Grantee's liability for Tax-Related Items.

 

14.         Compliance with Law. The issuance and transfer of shares of Common
Stock in connection with the POs shall be subject to compliance by the Company
and the Grantee with all applicable requirements of federal and state securities
laws and with all applicable requirements of any stock exchange on which the
Company's shares of Common Stock may be listed. No shares of Common Stock shall
be issued or transferred unless and until any then applicable requirements of
state and federal laws and regulatory agencies have been fully complied with to
the satisfaction of the Company and its counsel.

 

15.         Notices. Any notice required to be delivered to the Company under
this Agreement shall be in writing and addressed to the Secretary of the Company
at the Company's principal corporate offices. Any notice required to be
delivered to the Grantee under this Agreement shall be in writing and addressed
to the Grantee at the Grantee's address as shown in the records of the Company.
Either party may designate another address in writing (or by such other method
approved by the Company) from time to time.

 

16.         Governing Law. This Agreement will be construed and interpreted in
accordance with the laws of the State of Delaware without regard to conflict of
law principles.

 

17.         Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by the Grantee or the Company to the Committee for
review. The resolution of such dispute by the Committee shall be final and
binding on the Grantee and the Company.

 

18.         POs Subject to Plan. This Agreement is subject to the Plan as
approved by the Company's stockholders. The terms and provisions of the Plan as
it may be amended from time to time are hereby incorporated herein by reference.
In the event of a conflict between any term or provision contained herein and a
term or provision of the Plan, the applicable terms and provisions of the Plan
will govern and prevail.

 

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19.         Successors and Assigns. The Company may assign any of its rights
under this Agreement. This Agreement will be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement will be binding upon
the Grantee and the Grantee's beneficiaries, executors, administrators and the
person(s) to whom the POs may be transferred by will or the laws of descent or
distribution.

 

20.         Severability. The invalidity or unenforceability of any provision of
the Plan or this Agreement shall not affect the validity or enforceability of
any other provision of the Plan or this Agreement, and each provision of the
Plan and this Agreement shall be severable and enforceable to the extent
permitted by law.

 

21.         Discretionary Nature of Plan. The Plan is discretionary and may be
amended, cancelled or terminated by the Company at any time, in its discretion.
The grant of the POs in this Agreement does not create any contractual right or
other right to receive any POs or other Awards in the future. Future Awards, if
any, will be at the sole discretion of the Company. Any amendment, modification,
or termination of the Plan shall not constitute a change or impairment of the
terms and conditions of the Grantee's employment with the Company.

 

22.         Amendment. The Committee has the right to amend, alter, suspend,
discontinue or cancel the POs, prospectively or retroactively; provided, that,
no such amendment shall adversely affect the Grantee's material rights under
this Agreement without the Grantee's consent.

 

23.         Section 162(m). All payments under this Agreement are intended to
constitute “qualified performance-based compensation” within the meaning of
Section 162(m) of the Code. This Award shall be construed and administered in a
manner consistent with such intent.

 

24.         Section 409A. This Agreement is intended to comply with Section 409A
of the Code or an exemption thereunder and shall be construed and interpreted in
a manner that is consistent with the requirements for avoiding additional taxes
or penalties under Section 409A of the Code. Notwithstanding the foregoing, the
Company makes no representations that the payments and benefits provided under
this Agreement comply with Section 409A of the Code and in no event shall the
Company be liable for all or any portion of any taxes, penalties, interest or
other expenses that may be incurred by the Grantee on account of non-compliance
with Section 409A of the Code. To the extent required in order to avoid the
imposition of any interest, penalties and additional tax under Section 409A of
the Code, any shares deliverable as a result of the Grantee’s termination of
Continuous Service will be delayed for six months and one day following such
termination of Continuous Service, or if earlier, the date of the Grantee’s
death, if the Grantee is deemed to be a “specified employee” as defined in
Section 409A of the Code and as determined by the Company.

 

25.         No Impact on Other Benefits. The value of the Grantee's POs is not
part of his or her normal or expected compensation for purposes of calculating
any severance, retirement, welfare, insurance or similar employee benefit.

 

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26.         Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together will constitute
one and the same instrument. Counterpart signature pages to this Agreement
transmitted by facsimile transmission, by electronic mail in portable document
format (.pdf), or by any other electronic means intended to preserve the
original graphic and pictorial appearance of a document, will have the same
effect as physical delivery of the paper document bearing an original signature.

 

27.         Acceptance. The Grantee hereby acknowledges receipt of a copy of the
Plan and this Agreement. The Grantee has read and understands the terms and
provisions thereof, and accepts the POs subject to all of the terms and
conditions of the Plan and this Agreement. The Grantee acknowledges that there
may be adverse tax consequences upon the vesting or settlement of the POs or
disposition of the underlying shares and that the Grantee has been advised to
consult a tax advisor prior to such vesting, settlement or disposition.

 

28.         Forfeiture and Company Right to Recover Fair Market Value of Shares
Received Pursuant to POs. If, at any time, the Board or the Committee, as the
case may be, in its sole discretion determines that any action or omission by
the Grantee constituted (a) wrongdoing that contributed to any material
misstatement in or omission from any report or statement filed by the Company
with the U.S. Securities and Exchange Commission or (b) intentional or gross
misconduct, (c) a breach of a fiduciary duty to the Company or a Subsidiary,
(d) fraud or (e) non-compliance with the Company’s Code of Conduct and Business
Ethics, policies or procedures to the material detriment of the Company, then in
each such case, commencing with the first year of the Company during which such
action or omission occurred, the Grantee shall forfeit (without any payment
therefor) up to 100% of any POs that have not been vested or settled and shall
repay to the Company, upon notice to the Grantee by the Company, up to 100% of
the Fair Market Value of the shares at the time such shares were delivered to
the Grantee pursuant to the POs during and after such year. The Board or the
Committee, as the case may be, shall determine in its sole discretion the date
of occurrence of such action or omission, the percentage of the POs that shall
be forfeited and the percentage of the Fair Market Value of the shares delivered
pursuant to the POs that must be repaid to the Company.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

  AUDIOEYE, INC.         By:                                Name:     Title:    
    By:       Name:

 

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EXHIBIT A

 

Performance Period

 

Each Performance Period shall commence on [January 1], and end on [December 31],
of the same calendar year.

 

Performance Measures

 

The number of POs earned shall be determined for a Performance Period by
reference to the Company's actual achievement against the following Performance:

 

I. Operational and Financial

 

(a)         Targeted Cash Contract Bookings (as to [33.33%])

 

(b)         Targeted Net Operating Cash Flow (as to [33.33]%)

 

(c)         Board Defined Operations Goals (as to [33.33]%) for a Performance
Period.

 

BUT ONLY IF:

 

II. Share Price

 

Share price of Common Stock for the [20 trading days] before and including the
end of the Performance Period, is not less than ______ cents.

 

As used herein, Targeted Cash Contract Bookings and Targeted Net Operating Cash
Flows are as set forth on Exhibit A-1. With regard to Board Defined Operations
Goals, the Company’s board of directors or Committee shall in its sole
discretion establish goals as to specific matters and amounts with respect to a
Performance Period. For the [two] years of the Performance Period, the criteria
are attached as Exhibit A-2

 

Determining POs Earned

 

The Grantee earns PO’s at the rate of [(a) 50% of Target Options if 85% of the
Performance Goals have been achieved for a Performance Period (“Threshold
Options”), (b) 100% of the Target Options if the Performance Goals have been
achieved for a Performance Period (“Target Options”), and (c) 150% of the Target
Options if 125% of the Performance Goals have been achieved for a Performance
Period (“Max Options”)].

 

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Exhibit 10.31

 

EXHIBIT A-1

 

MANAGEMENT FORECAST AND TARGET OPTION ACHIEVABLE

 

Management’s forecast of Cash Contract Bookings and Operating Cash Flow over the
next [two] years along with Threshold and Max performance goals:

 

 

 

 

Exhibit 10.31

 

EXHIBIT A-2

 

DISCRETIONARY BONUS CRITERIA FOR _________________

 

Responsibilities ___________     [Major Categories] [Representative Tasks]
Weight                                                                          
                              100%