Exhibit 10.2

 

Performance Share Unit Agreement

 

This Performance Share Unit Agreement (this “Agreement”) is made and entered
into as of January 27, 2014 (the “Grant Date”) by and between AudioEye, Inc., a
Delaware corporation (the “Company”) and Paul Arena (the “Grantee”).

 

WHEREAS, the Company has adopted the AudioEye, Inc. 2013 Incentive Compensation
Plan (the “Plan”) pursuant to which Performance Share Units may be granted; and

 

WHEREAS, the Company has determined that it is in the best interests of the
Company and its stockholders to grant the award of Performance Share Units
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 Share Units.
Pursuant to Section 6(h) of the Plan, the Company hereby grants to the Grantee
an Award of up to an aggregate of 1,500,000 Performance Share Units (the “Target
Award”), subject to increase of up to a total of 3,000,000 Performance Share
Units (the “Max Units”) as described on Exhibit A-2 attached hereto.  Each
Performance Share Unit (“PSU”) represents the right to receive one share of
Common Stock, subject to the terms and conditions set forth in this Agreement
and the Plan. The number of PSUs that the Grantee actually earns for a
Performance Period (up to a maximum of 1,500,000 of Max Units) 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 period commencing on February 1 and
ending on the following January 31.  Subject to vesting as provided in
Section 5, there shall be two Performance Periods commencing on February 1, 2014
with the opportunity to earn a full award of Max Units based on achievement of
Performance Goals on a cumulative basis for the two Performance Periods as
described on Exhibit A-2.

 

4.                                      Performance Goals.

 

4.1                               The number of PSUs 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 PSUs 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 thirty (30) 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 PSUs 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 PSUs. The PSUs are subject to
forfeiture until they vest. Except as otherwise provided herein, the PSUs will
vest and become nonforfeitable on the last day of a Performance Period with
respect to the PSUs 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 hereto, and (b) the

 

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Grantee’s Continuous Service from the Grant Date through the last day of the
Performance Period.  The number of PSUs 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 hereto and shall be rounded to
the nearest whole PSU.

 

6.                                      Termination of Continuous Service;
Change of Control.

 

6.1                               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 PSUs have vested, the Grantee’s unvested PSUs 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.

 

6.2                               Notwithstanding Section 6.1, if the Grantee’s
Continuous Service terminates during 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 PSUs 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.

 

6.3                               Notwithstanding Section 6.1 hereof, in the
event that there is a “Change of Control,” as such term is defined in
Section 9(b) of the Plan, unvested PSUs shall vest in accordance with this
Section 6.3.  If the Change of Control occurs during a Performance Period, PSUs
for such Performance Period will vest with the amount so vested being determined
based on the then performance to date relative to plan as of the most recent
quarter end.  With respect to Performance Periods subsequent to the Period when
the Change of Control occurred, then, if the Grantee remains in Continuous
Service, the PSUs for such Performance Periods will be vested at target share
levels on December 31, 2016.  If Grantee’s Continuous Service terminates for any
reason other than for Cause, all remaining PSUs will vest as of the date of the
Change of Control based on target share levels.

 

7.                                      Payment of PSUs. Payment in respect of
the PSUs earned for the Performance Period shall be made in shares of 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 shares of Common Stock equal to the number of vested PSUs.

 

8.                                      Transferability. Subject to any
exceptions set forth in this Agreement or the Plan, the PSUs 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 PSUs subject to all of
the terms and conditions that were applicable to the Grantee immediately prior
to such transfer.

 

9.                                      Rights as Shareholder.

 

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

 

9.2                               Upon and following the vesting of the PSUs and
the issuance of shares, the Grantee shall be the record owner of the shares of
Common Stock underlying the PSUs 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).

 

10.                               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.

 

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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.

 

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

 

12.                               Tax Liability and Withholding.

 

12.1                        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 PSUs 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 PSUs; 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

 

(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 PSUs
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.

 

12.2                        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
PSUs or the subsequent sale of any shares, and (b) does not commit to structure
the PSUs to reduce or eliminate the Grantee’s liability for Tax-Related Items.

 

13.                               Compliance with Law. The issuance and transfer
of shares of Common Stock in connection with the PSUs 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.

 

14.                               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.

 

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15.                               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.

 

16.                               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.

 

17.                               PSUs 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.

 

18.                               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 PSUs may be transferred by will or the laws of descent
or distribution.

 

19.                               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.

 

20.                               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 PSUs in this Agreement does not create
any contractual right or other right to receive any PSUs 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.

 

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

 

22.                               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.

 

23.                               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.

 

24.                               No Impact on Other Benefits. The value of the
Grantee’s PSUs 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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25.                               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.

 

26.                               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 PSUs 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 PSUs 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.

 

27.                               Forfeiture and Company Right to Recover Fair
Market Value of Shares Received Pursuant to PSUs.  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 PSUs 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 PSUs 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 PSUs that shall be forfeited and the percentage of the Fair
Market Value of the shares delivered pursuant to the PSUs 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:

 

 

 

 

 

 

 

 

Paul R. Arena

 

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EXHIBIT A

 

Performance Period

 

Each Performance Period shall commence on February 1 and end on January 31 of
the following year.

 

Performance Measures

 

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

 

(a)                                 Targeted Sales (as to 35%)

 

(b)                                 Targeted Cash Flow (as to 35%) and

 

(c)                                  Board Defined Operations Goals (as to 30%)
for a Performance Period.

 

As used herein, Targeted Sales and Targeted Cash Flow 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.

 

As set forth on Exhibit A-2, there shall be Threshold Units, Target Units,
Target Plus Units and Max Units.

 

Determining PSUs Earned

 

The Grantee earns Performance Units at the rate of (a) 50% of Target Units if
75% of the Performance Goals have been achieved for a Performance Period
(“Threshold Units”), (b) 100% of the Target Units if the Performance Goals have
been achieved for a Performance Period (“Target Units”), (c) 150% of the Target
Units if 125% of the Performance Goals have been achieved for a Performance
Period (“Target Plus Units”), and (c) 200% of the Target Units if 140% of the
Performance Goals have been achieved for a Performance Period (“Max Units”).

 

Awards of PSUs for performance achievement between Threshold Units and Max Units
shall be calculated based on linear interpolation between Threshold to Target,
Target to Target Plus and Target Plus to Max.  As an example of linear
interpolation, if 110% of the Performance Goals have been achieved, the
Performance units earned are 140% of the Target Units and calculated as:

 

1 + (Actual Performance % - Target Goal %) * (Max Payout % - Target Payout %)

(Max Goal % - Target Goal %)

 

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OR:

 

1 + (110% - 100%) * (200% - 100%) = 140%

(125% - 100%)

 

Unearned PSUs

 

Unless Max Units are earned in the first two Performance Periods, any unearned
PSUs may be earned as of the end of the third Performance Period based on the
cumulative achievement of Performance Goals.

 

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EXHIBIT A-1

 

MANAGEMENT SALES & CASH FLOW FORECASTS

 

Management’s forecast of Sales and Cash Flows over the next three years along
with Threshold and Max performance goals will be finalized within thirty days
subject to the approval of Grantee and then filled in on the chart below:

 

 

 

Period 1

 

Period 2

 

Period 3

 

3 yr Cumultive

 

Management Forecast:

 

 

 

 

 

 

 

 

 

Sales

 

$

 

 

$

 

 

$

 

 

$

 

 

Cash Flow

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Performance Goals:

 

 

 

 

 

 

 

 

 

Threshold

 

75

%

75

%

75

%

75

%

Max

 

125

%

125

%

125

%

125

%

 

 

 

 

 

 

 

 

 

 

Sales:

 

 

 

 

 

 

 

 

 

Threshold

 

$

 

 

$

 

 

$

 

 

$

 

 

Target

 

$

 

 

$

 

 

$

 

 

$

 

 

Target Plus

 

$

 

 

$

 

 

$

 

 

$

 

 

Max

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow:

 

 

 

 

 

 

 

 

 

Threshold

 

$

 

 

$

 

 

$

 

 

$

 

 

Target

 

$

 

 

$

 

 

$

 

 

$

 

 

Target Plus

 

$

 

 

$

 

 

$

 

 

$

 

 

Max

 

$

 

 

$

 

 

$

 

 

$

 

 

 

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EXHIBIT A-2

 

EQUITY COMPENSATION FOR PAUL ARENA

 

Breakdown of units granted by metric and year: 2014 GRANT

 

Metric

 

Metric
Weight

 

Period

 

Period
Weight

 

Threshold
Units

 

Target Units

 

Target Plus
Units

 

Max Units

 

Sales Growth

 

35

%

Period 1

 

33.33

%

43,750

 

87,500

 

131,250

 

175,000

 

Period 2

 

33.33

%

43,750

 

87,500

 

131,250

 

175,000

 

Period 3

 

33.33

%

43,750

 

87,500

 

131,250

 

175,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

35

%

Period 1

 

33.33

%

43,750

 

87,500

 

131,250

 

175,000

 

Period 2

 

33.33

%

43,750

 

87,500

 

131,250

 

175,000

 

Period 3

 

33.33

%

43,750

 

87,500

 

131,250

 

175,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOD defined Ops Goals

 

30

%

Period 1

 

33.33

%

37,500

 

75,000

 

112,500

 

150,000

 

Period 2

 

33.33

%

37,500

 

75,000

 

112,500

 

150,000

 

Period 3

 

33.33

%

37,500

 

75,000

 

112,500

 

150,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

375,000

 

750,000

 

1,125,000

 

1,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Metrics

 

 

 

Period 1

 

 

 

250,000

 

500,000

 

750,000

 

1,000,000

 

Period 2

 

 

 

62,500

 

125,000

 

187,500

 

250,000

 

Period 3

 

 

 

62,500

 

125,000

 

187,500

 

250,000

 

 

 

 

 

 

375,000

 

750,000

 

1,125,000

 

1,500,000

 

 

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EXHIBIT A-2

 

EQUITY COMPENSATION FOR PAUL ARENA

 

Breakdown of units granted by metric and year: 2015 GRANT

 

Metric

 

Metric
Weight

 

Period

 

Period
Weight

 

Threshold
Units

 

Target Units

 

Target Plus
Units

 

Max Units

 

Sales Growth

 

35

%

Period 1

 

50.00

%

65,625

 

131,250

 

196,875

 

262,500

 

Period 2

 

50.00

%

65,625

 

131,250

 

196,875

 

262,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

35

%

Period 1

 

50.00

%

65,625

 

131,250

 

196,875

 

262,500

 

Period 2

 

50.00

%

65,625

 

131,250

 

196,875

 

262,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BOD defined Ops Goals

 

30

%

Period 1

 

50.00

%

56,250

 

112,500

 

168,750

 

225,000

 

Period 2

 

50.00

%

56,250

 

112,500

 

168,750

 

225,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

375,000

 

750,000

 

1,125,000

 

1,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Metrics

 

 

 

Period 1

 

 

 

187,500

 

375,000

 

562,500

 

750,000

 

Period 2

 

 

 

187,500

 

375,000

 

562,500

 

750,000

 

 

 

 

 

 

375,000

 

750,000

 

1,125,000

 

1,500,000

 

 

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