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%