Document:

Exhibit 10.1

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

This Note and Warrant
Purchase Agreement (this “Agreement”) is made and entered into as of October 9, 2015, by and among AudioEye,
Inc., a Delaware corporation (the “Company”), and the investors set forth on Exhibit A attached
hereto (each an “Investor” and collectively, the “Investors”).

 

RECITALS

 

The Company desires
to sell to the Investors, and the Investors desire to purchase from the Company, (i) Secured Convertible Promissory Notes (the
“Notes”), in the form attached as Exhibit B hereto, in the aggregate principal amount (including
in respect of any additional Notes that may be purchased by the Investors at their election in accordance with Section 1.4(b))
of up to $3,750,000 on the terms and conditions set forth in this Agreement and (ii) Warrants to purchase the Company’s Common
Stock (as defined below) (the “Warrants”), in the form attached as Exhibit C hereto (the “Financing”).

 

AGREEMENT

 

In consideration of
the foregoing recitals and the mutual promises set forth in this Agreement, the parties to this Agreement agree as follows:

 

Section 1.          AUTHORIZATION
AND SALE.

 

1.1  Authorization.  The
Company has duly authorized the issuance and sale, pursuant to the terms of this Agreement, of the Notes and Warrants against payment
of the purchase price therefor.

 

1.2  Subscription.  Upon
the terms and subject to the conditions set forth in this Agreement, each Investor, severally and not jointly, hereby irrevocably
subscribes for and agrees to purchase, and the Company hereby agrees to issue and sell to the Investors, at the Closing (as defined
below), Notes in the aggregate principal amount indicated opposite such Investor’s name on Exhibit A in the column
captioned “Principal Amount” (the “Investor’s Commitment”) and Warrants with an aggregate
exercise price equal to the Principal Amount opposite such Investor’s name on Exhibit A.  Each Investor
shall pay the Investor’s Commitment in full by wire transfer of immediately available funds to the Company at the Closing.  Notwithstanding
anything in this Agreement to the contrary, the Company shall have no obligation to issue any Notes or Warrants, or shares of common
stock, $0.00001 par value per share, of the Company (“Common Stock”) into which the Notes are convertible
or the Warrants are exercisable (collectively, the “Issuable Shares,” and together with the Notes and
Warrants, the “Securities”) to any person who is a resident of a jurisdiction in which the issuance of
any of the Securities would constitute a violation of the securities, “blue sky” or other similar laws of such jurisdiction
(collectively referred to as the “State Securities Laws”).

 

1.3  Closing.  The
initial closing of the purchase and sale of the Notes and Warrants hereunder (the “Initial Closing”)
shall take place at the offices of DLA Piper LLP (US), 401 Congress Avenue, Suite 2500, Austin, Texas 78701, on or about the date
hereof, or at such other time and place as the Company and the Investors mutually agree upon (which time and place are referred
to in this Agreement as the “Initial Closing Date”).

 

1.4  Additional
Closings.  

 

(a)          From
and after the Initial Closing, the Company shall have the right to sell up to the balance of the remaining Notes and Warrants pursuant
to this Agreement at one or more additional closings occurring within 30 days of the Initial Closing Date (each, an “Additional
Closing”), and to add additional entities and persons as “Investors” hereunder and as parties hereto.

 

     

     

    

 

(b)          Upon
the election of any Investor within the three-year period immediately following the Initial Closing, any Investor may purchase
an additional Note in the principal amount equal to the “Option Principal Amount” set forth opposite such Investor’s
name on Exhibit A and an additional Warrant with an aggregate exercise price equal to such Investor’s Option Principal
Amount.  Any such optional sale and issuance (each, an “Option Closing”) must take place on
or before the three-year anniversary of the Initial Closing (the date of any such Closing, an “Option Closing Date”).

 

(c)          The
aggregate principal amount of Notes issued in any Additional Closings that are not Option Closings shall not exceed the amount
equal to the difference of $2,500,000 minus the aggregate principal amount of Notes sold by the Company in the Initial Closing
and all previous Additional Closings (the “Remaining Principal Amount”).  Each Additional Closing
shall take place at the offices of DLA Piper LLP (US), 401 Congress Avenue, Suite 2500, Austin, Texas 78701, on a date or dates
determined by the Company and the Investors purchasing additional Notes and Warrants at such Additional Closing (each such date,
an “Additional Closing Date”).  Any Notes and Warrants issued pursuant to this Section 1.4
shall be deemed to be “Notes” and “Warrants,” respectively, for all purposes under this Agreement.  The
Initial Closing, each Option Closing and each Additional Closing shall constitute and be treated as a “Closing”
hereunder, and the Initial Closing Date, each Option Closing Date  and each Additional Closing Date shall constitute
and be treated as a “Closing Date” hereunder.  At the Initial Closing, each Option Closing
and each Additional Closing, the Company shall deliver to the Investors participating in such Closing the Notes and the Warrants,
each registered in the name of such Investors, against payment to the Company of the purchase price therefor.  

 

1.5  Separate
Sales.  The Company’s agreement with each of the Investors is a separate agreement, and the sale of the
Notes and the Warrants to each of the Investors is a separate sale.

 

1.6  Use
of Proceeds. The Company shall use the proceeds from the sale of the Notes and Warrants set forth herein solely for working
capital and other general corporate purposes.

 

Section 2.          REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.  The Company represents and warrants to each of the Investors that:

 

2.1  Organization,
Good Standing and Qualification.  The Company has been duly incorporated and organized, and is validly existing
and in good standing, under the laws of the State of Delaware.  The Company has all requisite corporate power and authority
to execute, deliver, and perform its obligations under this Agreement, the Notes, the Warrants, the Security Agreement (as defined
below) (this Agreement, the Notes, the Warrants and the Security Agreement are referred to collectively in this Agreement as the
“Transaction Agreements”), and any other agreements contemplated by Transaction Agreements, to own and
operate its properties and assets, and to carry on its business as currently conducted and as presently proposed to be conducted.  The
Company is presently qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the Company’s assets or financial condition.

 

2.2  Due
Authorization.  All corporate action on the part of the Company, its directors and stockholders necessary for
the authorization, execution, delivery, and performance of all obligations of the Company under the Transaction Agreements, the
authorization, issuance, reservation for issuance, and delivery of all of the Issuable Shares has been taken or shall be taken
prior to the Closing, and this Agreement constitutes, and the Notes when executed and delivered shall constitute, valid and legally
binding obligations of the Company, enforceable in accordance with their respective terms, except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization, or other laws of general application relating to or affecting the enforcement of creditors’
rights generally and (ii) the effect of rules of law governing the availability of equitable remedies, and shall be free of any
liens, encumbrances, or restrictions on transfer (other than those created or contemplated by the Transaction Agreements or under
applicable state and/or federal securities laws).

 

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2.3  Valid
Issuance of Securities.  The Notes and Warrants, when issued and paid for as provided in this Agreement, shall
be duly authorized and validly issued, fully paid, and nonassessable.  The Issuable Shares have been duly and validly
reserved for issuance, and upon issuance in accordance with the Notes and Warrants, shall be duly authorized and validly issued,
fully paid, and nonassessable.  

 

2.4  Governmental
Consents.  No consent, approval, order, or authorization of or registration, qualification, designation, declaration,
or filing with, any federal, state, or local governmental authority is required on the part of the Company in order to enable the
Company to execute, deliver, and perform its obligations under the Transaction Agreements except for such qualifications or filings
under applicable securities laws as may be required in connection with the transactions contemplated by this Agreement, which qualifications
or filings have been made or will be made promptly following the applicable Closing Date, in accordance with applicable law .  

 

2.5  Noncontravention.  The
execution, delivery, and performance of the Transaction Agreements and the consummation of the transactions contemplated by this
Agreement and by the Transaction Agreements shall not result in any such violation or default or be in conflict with or result
in a violation or breach of, with or without the passage of time or the giving of notice or both, the Company’s certificate
of incorporation or bylaws, any judgment, order, or decree of any court or arbitrator to which the Company is a party or is subject,
any agreement or contract of the Company, or, to the Company’s knowledge, a violation of any statute, law, regulation, or
order, or an event which results in the creation of any lien, charge, or encumbrance upon any asset of the Company.

 

2.6  SEC
Documents. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by
the Company with the SEC since January 1, 2014, pursuant to Sections 13(a), 14(a) and 15(d) of the of the Securities and Exchange
Act of 1934, as amended (the “Exchange Act”) (collectively, the “SEC Documents”).  As
of its respective filing date, each SEC Document complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder applicable to such SEC Document, and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not misleading.  Except to the extent that information
contained in any SEC Document has been revised or superseded by a later filed SEC Document, none of the SEC Documents as of the
date hereof contains any untrue statement of a material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  As
of the date of this Agreement, to the knowledge of the Company, none of the SEC Documents is the subject of any ongoing review
by the SEC.  The audited consolidated financial statements and the unaudited quarterly financial statements (including,
in each case, the notes thereto) of the Company included in the SEC Documents when filed complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, have been prepared in all material respects in accordance
with United States generally accepted accounting principles (except, in the case of unaudited quarterly statements, as permitted
by Form 10-Q of the SEC or other rules and regulations of the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end adjustments).

 

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Section 3.          REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS.  Each Investor represents and warrants to, and agrees with the Company, severally
and not jointly and only with respect to itself, that:

 

3.1  Authorization.  The
Investor has full power and authority to enter into this Agreement and this Agreement constitutes the Investor’s valid and
legally binding obligation, enforceable in accordance with its terms except (i) as may be limited by applicable bankruptcy, insolvency,
reorganization, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally,
and (ii) as may be limited by the effect of rules of law governing the availability of equitable remedies.

 

3.2  Purchase
for Own Account.  The Securities shall be acquired for investment for the Investor’s own account, not as
a nominee or agent, and not with a view to the public resale or distribution of the Securities within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”) and the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same.  If other than an individual, the Investor also represents
that it has not been formed for the specific purpose of acquiring the Securities.

 

3.3  Exempt
Offering.  The Investor acknowledges that the Securities have not been registered under the Securities Act and
are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the representations
of the Investors contained in this Agreement.

 

3.4  Disclosure
of Information.  The Investor believes that it has received all the information it considers necessary or appropriate
for deciding whether to purchase any Notes or Warrants pursuant to this Agreement.  The Investor has had an opportunity
to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Notes and the Warrants
and the business, properties, prospects, and financial condition of the Company and to obtain additional information (to the extent
the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information
furnished to the Investor or to which the Investor had access.  

 

3.5  Investment
Experience.  The Investor has experience as an investor in securities of companies in the development stage and
acknowledges that it is able to fend for itself, can bear the economic risk of its investment in the Securities, and has such knowledge
and experience in financial or business matters that it is capable of evaluating the merits and risks of this investment in the
Notes and the Warrants.

 

3.6  Accredited
Investor Status.  The Investor is an “accredited investor” within the meaning of Securities and Exchange
Commission (“SEC”) Rule 501 of Regulation D, as presently in effect.

 

3.7  Restricted
Securities.  The Investor understands that the Securities are characterized as “restricted securities”
under the Securities Act inasmuch as they are being (or shall be) acquired from the Company in a transaction not involving a public
offering and that under the Securities Act and applicable regulations under the Securities Act such Securities may be resold without
registration under the Securities Act only in certain limited circumstances.  In this connection, the Investor represents
that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed by SEC Rule 144 and
by the Securities Act.  The Investor understands that the Company is under no obligation to register any of the Securities
sold under this Agreement except as provided pursuant to Section 5.1.  The Investor understands that no market
now exists for any of the Securities, and that it is uncertain whether a market, public or otherwise, shall ever exist for the
Securities.

 

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3.8  Further
Limitations on Disposition.  Without in any way limiting the representations set forth above, the Investor further
agrees not to make any disposition of all or any portion of the Securities unless and until:

 

(a)          there
is then in effect a Registration Statement (as defined below) covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or

 

(b)          the
Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and, if reasonably requested by the Company, the Investor shall, at the expense
of the Investor or its transferee, furnish the Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition shall not require registration of such Securities under the Securities Act.

 

Notwithstanding the
provisions of Subsections (a) and (b) above, no such Registration Statement or opinion of counsel shall be required
for:  any transfer of any Securities by an Investor (i) pursuant to a transaction exempt from the registration requirements
of the Securities Act or (ii) to any affiliate of such Investor, to a family member of such Investor, or to any trust, partnership,
limited liability company or custodianship established for estate-planning purposes for the primary benefit of such Investor or
his or her family members; provided that in each of the foregoing cases the transferee shall, prior to giving effect to
such transfer, agree in writing to be subject to the terms of this Section to the same extent as if the transferee were an original
Investor under this Agreement.

 

3.9  Legends.  It
is understood that the instruments evidencing the Securities shall bear legends substantially similar to the legends set forth
below (in addition to any legend required under applicable state securities laws):

 

(a)          “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY
NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE SECURITIES BE
TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL OR
STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE OPTION OF THE COMPANY, TO BE
EVIDENCED BY AN OPINION OF SHAREHOLDER’S COUNSEL, IN A FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF SUCH REGISTRATION
PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.”

 

(b)          Any
other legends required by State Securities Laws applicable to any individual Investor or under any agreement to which the Investor
is a party to with the Company.

 

(c)          The
legend set forth in Section 3.9(a) shall be removed and the Company shall issue a certificate (or issue in an uncertificated
form) without such legend or any other legend to the Investors if (a) such Securities are sold pursuant to an effective Registration
Statement (provided that each of the Investors agrees to only sell such Securities during such time that the Registration Statement
is effective and not withdrawn or suspended, and only as permitted by the Registration Statement), (b) such Securities are sold
or transferred pursuant to, and in accordance with all requirements of, Rule 144 (including, if applicable, the volume, manner-of-sale
and notice filing provisions of Rule 144), or (c) such Securities are eligible for sale under Rule 144, without the requirement
for the Company to be in compliance with the current public information required under Rule 144 as to such Securities and without
volume or manner-of-sale restrictions. The Company shall bear all costs incurred by it or an Investor relating to the removal of
the legend in accordance with this Section 3.9(c), provided that the Company shall not be liable for any transfer taxes
relating to the issuance of a new certificate or statement in the name of any person other than the relevant Investor and its affiliates.

 

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Section 4.          CONDITIONS.  

 

4.1  Conditions
to the Obligations of the Investors at Closing.  The obligation
of each of Investor to purchase a Note and Warrant at any Closing is subject to the fulfillment, or the waiver by such Investor,
of the following conditions on or before such Closing.

 

(a)          The
representations and warranties in Section 2 shall be true at and as of the Closing in all material respects with the same
effect as though such representations and warranties had been made on and as of the date of the Closing.

 

(b)          The
Company shall have performed and complied with all agreements and conditions in this Agreement required to be performed or complied
with by the Company prior to or at the Closing.

 

(c)          All
corporate and other proceedings in connection with the transactions contemplated in this Agreement and the Transaction Agreements
and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Investor,
or counsel to the Investors, and the Investor or its special counsel shall have received all such counterpart originals or certified
or other copies of such documents as they may reasonably request.

 

(d)          Approvals
of the appropriate governing authority of each Investor necessary for performance of the transactions contemplated by the Transaction
Agreements shall have been obtained.

 

(e)          The
Company shall have executed and delivered the (i) the Notes, (ii) the Warrants, and (iii) the Security Agreement in the form attached
hereto as Exhibit D (the “Security Agreement”).

 

(f)          No
statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated
by this Agreement.

 

(g)          The
Common Stock shall not have been suspended, as of such Closing Date, by the SEC.

 

(h)          There
shall have been no material adverse effect on the Company.

 

4.2  Conditions
to the Obligations of the Company at Closing.  The obligations
of the Company to issue and sell Notes and Warrants to an Investor at any Closing are subject to the fulfillment, or the waiver
by the Company, of the following condition on or before such Closing.

 

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(a)          The
representations and warranties of the Investors in Section 3 shall be true at and as of the Closing in all material respects
with the same effect as though such representations and warranties had been made on and as of the date of the Closing.

 

(b)          The
Company shall have obtained all necessary permits and qualifications, or shall have the availability of exemptions therefrom, required
by any state for the offer and sale of the Securities.

 

(c)          Approvals
of the Board (as defined below) necessary for performance of the transactions contemplated by the Transaction Agreements shall
have been obtained.

 

(d)          With
respect to the Initial Closing, the aggregate Investor Commitments shall be at least $2,000,000.

 

Section 5.          POST-CLOSING
COVENANTS.

 

5.1  Registration
Rights. The Company will use its reasonable best efforts to prepare and file with the SEC registration statements, including
the prospectuses, for offerings to be made on a continuous basis pursuant to Rule 415 of the Securities Act, on Form S-3 (or on
such other form appropriate for such purpose) (collectively, the “Registration Statements”) (a) by the
90th day following each Closing Date covering the resale by the Investors of the Issuable Shares, and (b) by the 90th
day following the Initial Closing Date covering the resale by the Investors of (i) any Common Stock previously issued to the Investors,
and (ii) any Common Stock into which any convertible promissory notes previously issued to the Investors are convertible or any
warrants to purchase Common Stock previously issued to the Investors are exercisable (the securities set forth in clauses (a) and
(b), the “Shares”), and, in each case set forth in clauses (a) and (b), naming the Investors as “Selling
Stockholders” therein.  The Company will use its reasonable best efforts to cause the Registration Statements to
be declared effective under the Securities Act as soon as possible but, in any event, no later than the 120th day following
each Closing Date, and shall use its reasonable best efforts to keep the Registration Statements continuously effective during
their respective entire Effectiveness Periods.  For purposes hereof, an “Effectiveness Period”
shall mean the period commencing on the date on which a Registration Statement is first declared effective by the SEC (the “Effective
Date”) and ending on the earliest to occur of (a) the second anniversary of such Effective Date, (b) such time as
all of the Shares covered by such Registration Statement have been publicly sold by the Investors pursuant to such Registration
Statement, or (c) such time as all of the Shares covered by such Registration Statement may be sold by the Investors without volume
restrictions pursuant to Rule 144 of the Securities Act, in each case as determined by the counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Investors.  

 

5.2  Indemnification
of Investors.  The Company will indemnify and hold each Investor and its shareholders, members, partners, direct
and indirect investors, directors, managers, officers, employees, affiliates and agents (and any other persons with a functionally
equivalent role of a person holding such titles notwithstanding a lack of such title or any other title), each person who controls
such Investor (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the shareholders,
members, partners, direct and indirect investors, directors, managers, officers, employees, affiliates and agents (and any other
persons with a functionally equivalent role of a person holding such titles notwithstanding a lack of such title or any other title)
of such controlling persons (each, a “Investor Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, penalties, fees, damages, fines, charges, contingencies, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and disbursements and costs of investigation,
defending or preparing to defend  that any such Investor Party may suffer or incur (irrespective of whether any such
Investor Party is a party to the action, claim, suit, investigation or proceeding (including, without limitation, an investigation
or partial proceeding, such as a deposition), whether commenced or threatened (each, a “Proceeding”)
for which indemnification hereunder is sought) as a result of or relating to (a) any misrepresentation or any breach of any of
the representations, warranties, obligations, covenants or agreements made by the Company in this Agreement or in any other Transaction
Agreement and (b) any Proceeding instituted against an Investor in any capacity, or any of them or their respective affiliates,
with respect to any of the transactions contemplated by the Transaction Agreements (unless such Proceeding is based upon a misrepresentation
by such Investor or a breach of such Investor’s representations, warranties, obligations, covenants or agreements under any
Transaction Agreement or any agreements or understandings such Investor may have with any such shareholder or any violations by
such Investor of state or federal securities laws or any conduct by such Investor which constitutes fraud, gross negligence or
willful misconduct).  The indemnity agreements contained herein shall not be an exclusive remedy but shall be in addition
to any cause of action or similar right in law or in equity of any Investor Party against the Company or others, and any liabilities
the Company may be subject to pursuant to law.

 

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5.3  Indemnification
of the Company.  Each Investor, severally and not jointly with the other Investor, will indemnify and hold harmless
the Company, and its officers, directors, controlling persons, agents, advisors, representatives and employees (each, a “Company
Party”), from any and losses, liabilities, obligations, claims, contingencies, penalties, fees, damages, fines, charges,
contingencies, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’
fees and disbursements and costs of investigation, defending or preparing to defend that any such Company Party may suffer or incur
(irrespective of whether any such Company Party is a party to the Proceeding for which indemnification hereunder is sought) as
a result of or relating to any misrepresentation or any breach of any of the representations, warranties, obligations, covenants
or agreements made by such Investor in this Agreement or in any other Transaction Agreement to which it is a party. The indemnity
agreements contained herein shall not be an exclusive remedy but shall be in addition to any cause of action or similar right in
law or in equity of the Company against such Investor or others and any liabilities such Investor may be subject to pursuant to
law.

 

5.4  Furnishing
of Information.  In order to enable the Investors to sell the Securities under Rule 144, for a period of twelve
(12) months from each Closing Date, the Company shall use its commercially reasonable efforts to timely file (or obtain extensions
in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act. During such twelve (12) month periods, if the Company is not required to file reports pursuant
to the Exchange Act, it will prepare and furnish to the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Securities under Rule 144.

 

5.5  Securities
Laws Disclosure; Publicity; Confidentiality.  By 5:30 P.M., New York City time, on or prior to the fourth (4th)
trading day immediately following the date hereof, the Company shall issue a press release (the “Press Release”)
disclosing all material terms of the transactions contemplated hereby and file a Current Report on Form 8-K with the SEC describing
the terms of the Transaction Agreements.  Each Investor, severally and not jointly with the other Investors, covenants
that until such time as the transactions contemplated by this Agreement are required to be publicly disclosed by the Company as
described in this Section 5.5, such Investor will maintain the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this transaction).

 

5.6  Board
of Directors. If the Company increases the size of its Board of Directors (the “Board”) to seven
or more members prior to the Maturity Date (as defined in the Notes), the Company shall use its reasonable best efforts to cause
the Board to, by the vote of a majority of the Board fill one vacancy thereby created on the Board with a designee of [__________________].

 

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Section 6.          GENERAL
PROVISIONS.

 

6.1  Successors
and Assigns.  Except as otherwise provided in this Agreement, the provisions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted assigns of the parties to this Agreement (including
permitted transferees of any Securities).  

 

6.2  Third
Parties.  Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the
parties to this Agreement and their respective successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.

 

6.3  Governing
Law.  This Agreement shall be governed by and construed exclusively in accordance with the internal laws of the
State of Delaware.

 

6.4  Counterparts.  This
Agreement may be executed in two or more counterparts (including, without limitation, facsimile counterparts), each of which shall
be deemed an original, but all of which together shall constitute one and the same agreement.

 

6.5  Headings.  The
headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting
this Agreement.  All references in this Agreement to sections, subsections, exhibits, and schedules shall, unless otherwise
provided, refer to sections and subsections of this Agreement and exhibits and schedules attached to this Agreement, all of which
exhibits and schedules are incorporated in this Agreement by this reference.

 

6.6  Notices.  All
notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered personally
or by facsimile transmission or by nationally recognized overnight delivery service or by first class certified or registered mail,
return receipt requested, postage prepaid:

 

If to the Company,
at 5210 E Williams Circle, Tucson, Arizona 85711, Attention: Chief Executive Officer, or at such other address or addresses as
may have been furnished by giving five days advance written notice to all other parties, with a copy (which shall not constitute
notice) to DLA Piper LLP (US), 401 Congress Avenue, Suite 2500, Austin, Texas 78701, Attention: Paul Hurdlow.

 

If to an Investor,
at its address set forth on Exhibit A, or at such other address or addresses as may have been furnished to the Company
by giving five days advance written notice.

 

Notices provided in
accordance with this Section shall be deemed delivered upon personal delivery (including confirmed facsimile) or three business
days after deposit in the mail.

 

6.7  No
Finder’s Fees.  Each party represents that it neither is nor shall be obligated for any finder’s
or broker’s fee or commission in connection with the transactions contemplated by this Agreement.  Each Investor,
severally and not jointly, agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation
in the nature of a finder’s or broker’s fee (and any asserted liability) for which such Investor or any of its officers,
partners, employees, or representatives is responsible.  The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a finder’s or broker’s fee (and any asserted
liability) in connection with this Financing for which the Company is responsible.

 

    	9 

     

    

 

6.8  Attorneys’
Fees and Expenses.  Each party to this Agreement agrees to pay its own fees and expenses arising in connection
with the negotiation and execution of this Agreement and consummation of the transactions contemplated in this Agreement; provided,
however, that the Company shall reimburse the lead investor for the lead investor’s fees and expenses (including attorneys’
fees), such reimbursement amount not to exceed $15,000 in the aggregate. If any action, suit, or other proceeding is instituted
concerning or arising out of this Agreement or any transaction contemplated under this Agreement, the prevailing party shall recover
all of such party’s costs and attorneys’ fees incurred in each such action, suit, or other proceeding, including any
and all appeals or petitions from such action, suit or other proceeding.

 

6.9  Amendments
and Waivers.  Any term of this Agreement may be amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent
of the Company and the Investors holding a majority in interest of the aggregate principal amount of the Notes.  Any
amendment or waiver effected in accordance with this Section shall be binding upon each Investor and the Company.

 

6.10 Severability.  If
one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.

 

6.11 Entire
Agreement.  This Agreement, together with all exhibits and schedules to this Agreement, constitutes the entire
agreement and understanding of the parties with respect to the subject matter of this Agreement and supersedes any and all prior
negotiations, correspondence, agreements, understandings, duties, or obligations between the parties with respect to the subject
matter of this Agreement.

 

6.12 Further
Assurances.  From and after the date of this Agreement, upon the request of the Investors or the Company, the
Company and the Investors shall execute and deliver such instruments, documents, or other writings as may be reasonably necessary
or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.

 

6.13 Delays
or Omissions.  No delay or omission to exercise any right, power, or remedy accruing to any Investor upon any
breach or default of the Company under this Agreement shall impair any such right, power, or remedy of such Investor nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default therefore
or thereafter occurring.  Any waiver, permit, consent, or approval of any kind or character on the part of any Investor
of any breach or default under this Agreement or any waiver on the part of any Investor of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing.  All
remedies, either under this Agreement or by law or otherwise afforded to any Investor, shall be cumulative and not alternative.

 

6.14 Confidentiality.  Except
as required by law, each Investor agrees that it shall keep confidential and shall not disclose or divulge any confidential, proprietary,
or secret information which such Investor may obtain from the Company pursuant to financial statements, reports, and other materials
submitted by the Company to such Investor pursuant to this Agreement or otherwise, or pursuant to visitation or inspection rights
granted under this Agreement or in the Transaction Agreements, unless such information is known, or until such information becomes
known, to the public, other than as a result of the failure by any Investor to comply with this provision; provided that
an Investor may disclose such information to its attorneys, accountants, and financial advisors to the extent necessary to obtain
their services in connection with its investment in the Company.

 

    	10 

     

    

 

6.15 Survival.
The representations, warranties and covenants contained herein shall continue and survive the execution of this Agreement.

 

[Signature Pages Follow]

 

    	11 

     

    

 

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

 

	 	AUDIOEYE, INC.
	 	 
	 	By:	                        
	 	 	 
	 	Name:	 
	 	 	 
	 	Title:	 

 

Signature
Page to AudioEye, Inc.

Note and Warrant Purchase Agreement

 

     

     

    

 

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

 

 

	 	INVESTOR	 
	 	 	 
	 	If Entity:	 
	 	 	 
	 	Entity Name: 	 

 

	 	By:	 
	 	 	 
	 	Name:	 
	 	 	 
	 	Title:	 

 

	 	If Individual:
	 	 	 
	 	Name: 	 
	 	 	 
	 	Signature:	 

 

Purchase Amount: $____________________

 

Signature
Page to AudioEye, Inc.

Note and Warrant Purchase Agreement

 

     

     

    

 

EXHIBIT A

 

SCHEDULE OF INVESTORS

 

Initial Closing

 

	INVESTORS	 	 	Principal Amount 	 	 	 	Option Principal

 Amount	 
	 	 	 	 	 	 	 	 	 
	 	 	 	$________	 	 	 	$_________	 
	 	 	 	 	 	 	 	 	 
	Total:	 	 	$________	 	 	 	$_________	 

 

     

     

    

 

EXHIBIT B

 

FORM OF CONVERTIBLE PROMISSORY NOTE

 

     

     

    

 

EXHIBIT C

 

FORM OF WARRANT

 

     

     

    

 

EXHIBIT D

 

FORM OF SECURITY AGREEMENTExhibit 10.2

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT
is made as of October 9, 2015 by AudioEye, Inc., a Delaware corporation having its principal office at 5210 E Williams Cir, Tucson,
Arizona 85711 (the “Debtor”) in favor of [__________________________] (in such capacity, the “Agent”)
as security agent for the parties listed on Exhibit A attached hereto (together with the Agent, each individually a “Secured
Party” and collectively, the “Secured Parties”).

 

RECITALS

 

A.           Simultaneously
with the execution of this Security Agreement, the Secured Parties have loaned the Debtor an aggregate of the principal sum of
up to ($3,750,000.00) pursuant to those certain secured convertible promissory notes dated as of the date hereof (the “Notes”)
issued pursuant to that certain Note and Warrant Purchase Agreement by and among the Debtor and the Secured Parties, dated as of
the date hereof (the “Purchase Agreement”).

 

B.           It
is a condition to the willingness of each of the Secured Parties to enter into the aforesaid loan transaction that Debtor shall
have granted to the Agent for the benefit of the Secured Parties the liens and security interests contemplated by this Security
Agreement. 

 

AGREEMENT

 

NOW, THEREFORE,
in order to induce each of the Secured Parties to enter into the aforesaid loan transaction and to make said loan to the Debtor
and in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Debtor hereby covenants and agrees as follows:

 

Section
1.          Definitions. All capitalized terms used herein or in
any certificate, report or other document delivered pursuant hereto shall have the meanings assigned to them below (unless otherwise
defined). Except as otherwise defined, terms defined in the Uniform Commercial Code shall have the meanings set forth therein.
Terms not otherwise defined but used herein shall have the meanings ascribed to them in the Purchase Agreement.

 

“Collateral”
shall have the meaning set forth in Section 2 hereof.

 

“Obligations”
shall mean (i) the performance of all obligations, indebtedness and liabilities of the Debtor under the Transaction Agreements;
(ii) the due and punctual payment of all amounts due under the Notes and/or the Purchase Agreement, including, without limitation,
principal and all interest payable thereon, at the interest rates provided in the Notes, regardless of the extent allowed as a
claim in any proceeding in respect of the bankruptcy, reorganization or insolvency of the Debtor (a “Reorganization”);
(iii) the payment and performance of all indebtedness, liabilities and obligations of the Debtor under this Security Agreement;
and (iv) the payment of all other future advances with respect to the Transaction Agreements, including, without limitation, any
future loans and advances made to the Debtor by any of the Secured Parties prior to, during or following any Reorganization, and
any and all other indebtedness, liabilities and obligations of the Debtor to the Secured Party of every kind and description, direct,
indirect or contingent, now or hereafter existing under the Transaction Agreements.

 

     

     

    

 

“Permitted
Liens” means the following: (a) statutory liens for current taxes or other governmental charges not yet due and payable
or the amount or validity of which is being contested in good faith, (b) mechanics', carriers', workers', repairers' and similar
statutory liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being
contested by appropriate proceedings, (c) zoning, entitlement, building and other land use regulations imposed by governmental
authorities having jurisdiction over such person's owned or leased real property, which are not violated by the current use and
operation of such real property, (d) covenants, conditions, restrictions, easements and other similar non-monetary matters of record
affecting title to such person's owned or leased real property, which do not materially impair the occupancy or use of such real
property for the purposes for which it is currently used in connection with such Person's businesses, (e) any right of way or easement
related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes
for which it is currently used in connection with such Person's businesses, (f) liens arising under workers' compensation, unemployment
insurance, social security, retirement and similar legislation, (g) licenses of Intellectual Property to third parties, (h) non-consensual
liens arising by operation of law, arising in the ordinary course of business, and for amounts that are not overdue for a period
of more than 30 days or that are being contested in good faith by appropriate proceedings, and (i) liens created pursuant to this
agreement.

 

“Uniform
Commercial Code” shall mean the Uniform Commercial Code as in effect in the State of Delaware, as amended from time to
time.

 

Section
2.          Grant. To secure the payment and performance of the
Obligations, the Debtor hereby assigns and pledges to the Agent, for the benefit of the Secured Parties all of the Debtor's rights,
title and interest in, and grants to the Agent, for the benefit of the Secured Parties a continuing security interest in, the following
described property, all whether now owned or existing or hereafter arising or acquired (hereinafter collectively called the “Collateral”):

 

All tangible and
intangible personal property and all fixtures of the Debtor, whether now owned or hereafter acquired by the Debtor or in which
the Debtor may now have or hereafter acquire an interest, and wherever located, including without limitation:

 

(a)          all
properties and assets of every type used or useful in connection with the ownership or operation of the Debtor, whether now owned
or hereafter acquired by the Debtor or in which the Debtor may now have or hereafter acquire an interest;

 

(b)          all
equipment (as defined in the Uniform Commercial Code) including, without limitation, all machinery, manufacturing equipment, data
processing equipment, computers, office equipment, furniture, furnishings, appliances, fixtures and tools, whether now owned or
hereafter acquired by the Debtor or in which the Debtor may now have or hereafter acquire an interest;

 

(c)          all
accounts, bank deposits, deposit accounts, checking accounts, certificates of deposit, cash, money, accounts receivable, intercompany
receivables, payment intangibles, other receivables, rights to proceeds of letters of credit, letter-of-credit rights, rights to
receive payments of money, commercial tort claims, chattel paper, electronic chattel paper and supporting obligations of every
type and description, whether now owned or hereafter acquired by the Debtor or in which the Debtor may now have or hereafter acquire
an interest;

 

(d)          all
general intangibles, payment intangibles and software, whether now owned or hereafter acquired by the Debtor or in which the Debtor
may now have or hereafter acquire an interest, including, without limitation:

 

(i)          all
contracts, contract rights, leases, policies and certificates of insurance, agreements, instruments and indentures in any form,
and portions thereof, as the same may from time to time be amended, supplemented or otherwise modified;

 

(ii)         all
goodwill, going concern value, blueprints, designs, product lines, research and development;

 

    	- 2 -

     

    

 

(iii)        all
intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation,
(1) all copyrights, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof,
and all applications in connection therewith, the right to obtain all renewals thereof, any written agreement naming the Debtor
as licensor or licensee, granting any right under any copyright, including, without limitation, the grant of rights to manufacture,
distribute, exploit and sell materials derived from any copyright (collectively, “Copyrights”), (2) all
patents, all reissues and extensions thereof and all goodwill associated therewith, all patent applications, continuations and
continuations-in-part and all rights to obtain any reissues or extensions of the foregoing, all agreements, whether written or
oral, providing for the grant by or to the Debtor of any right to manufacture, use or sell any invention covered in whole or in
part by a patent, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right
to receive all proceeds and damages therefrom (collectively, “Patents”), and (3) all trademarks, trade
names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other
source or business identifiers, and all goodwill associated therewith, all registrations and recordings thereof, and all applications
in connection therewith, all common-law rights related thereto, the right to obtain all renewals thereof, and any agreement, whether
written or oral, providing for the grant by or to the Debtor of any right to use any of the foregoing (collectively, “Trademarks”,
and together with Copyrights and Patents, “Intellectual Property”);

 

(iv)        all
of the Debtor’s rights under all present and future licenses heretofore or hereafter granted or assigned to the Debtor by
the any public utilities commission or any other public governmental authority for the operation and ownership of the Debtor (excluding,
however, such licenses to the extent, and only to the extent, it is unlawful to grant a security interest in such licenses pursuant
to the applicable laws, but including within the definition of Collateral, to the maximum extent permitted by law, all rights incident
or appurtenant to such licenses, including, without limitation, the right to receive all proceeds derived or arising from or in
connection with the sale, assignment or transfer of such licenses);

 

(v)         all
rights of Debtor to receive moneys due and to become due to it under or in connection with any of the foregoing, including, without
limitation, all insurance proceeds, insurance premium refunds, unearned premiums, choses in action, refunds of any tax assessed
against or paid by Debtor, loss or carryback tax refunds, and all of the Debtor’s rights to receive payments of money as
a tenant under any and all leases; all rights of the Debtor to damages arising under any of the foregoing; and all rights of the
Debtor to perform and to exercise all remedies under any of the foregoing;

 

(e)          all
investment property, securities, securities entitlements, securities accounts and all equity interests now or hereafter held by
or issued to the Debtor, including, without limitation, all shares of stock, warrants, participations, options, investment contracts,
interests in trusts, partnership interests and membership interests in limited liability companies, including without limitation
(i) all rights of the Debtor as a stockholder, limited partner, general partner or member to participate in the operation or management
of any corporation, any partnership or limited liability company in which the Debtor holds an equity interest, (ii) all rights
of the Debtor to the property, assets, partnership interests, membership interests, stockholder interests and distributions under
the applicable partnership agreement, limited liability company agreement, operating agreement, by-laws or other organizational
documents, (iii) all present and future rights of the Debtor to receive payment of money or other distributions or payments arising
out of or in connection with any such equity interests of the Debtor and its rights under all articles or certificates of incorporation,
partnership agreements, operating agreements, and other constituent documents governing or establishing such business entities,
and (iv) all other general intangibles relating thereto and proceeds resulting therefrom, whether now owned or hereafter acquired
by the Debtor or in which the Debtor may now have or hereafter acquire an interest;

 

(f)          all
instruments and documents of title, whether now owned or hereafter acquired by the Debtor or in which the Debtor may now have or
hereafter acquire an interest;

 

    	- 3 -

     

    

 

(g)          all
goods and all inventory, including, without limitation, all merchandise, raw materials, work in process, finished goods and supplies,
whether now owned or hereafter acquired by the Debtor or in which the Debtor may now have or hereafter acquire an interest;

 

(h)          all
books, records, documents, computer tapes and discs relating to all of the foregoing, whether now owned or hereafter acquired by
the Debtor or in which the Debtor may now have or hereafter acquire an interest; and

 

(i)          
all accessions, additions or improvements to, all replacements, substitutions and parts for, and all proceeds and products of,
and all distributions and dividends relating to, all of the foregoing, including without limitation proceeds of insurance, whether
now owned or hereafter acquired by the Debtor or in which the Debtor may now have or hereafter acquire an interest.

 

Section
3.          Representations, Warranties and Covenants.
The Debtor hereby (a) makes the following representations and warranties and (b) agrees to the following covenants, each of which
representations, warranties and covenants shall be continuing and in force so long as this Security Agreement is in effect:

 

3.1           Name; Debtor/Collateral Location; Changes.

 

(a)          The
name of the Debtor set forth on the first page hereof is the true and correct legal name of the Debtor, and within the last five
years the Debtor has not done business as or used any other name other than AudioEye, Inc., a Delaware corporation.

 

(b)          The
address of the Debtor set forth in the Preamble to this Agreement is the Debtor's chief executive office, principal place of business
and the place where its business records are kept. All tangible Collateral other than securities and items in transit in the ordinary
course of business is located at such address.

 

(c)          The
Debtor will not change its jurisdiction of incorporation, name, identity or organizational structure or chief executive office
or place where its business records are kept, or move any tangible Collateral (other than securities and items in transit in the
ordinary course of business) to a location other than those set forth in Section 3.1(b) hereof, or merge into or consolidate
with any other entity, unless consented to by the Agent.

 

3.2           Ownership of Collateral; Absence of Liens and
Restrictions. The Debtor is, and in the case of property acquired after the date hereof, will be, the sole legal and equitable
owner of the Collateral, holding good and marketable title to the same free and clear of all encumbrances except for the security
interests granted hereunder and Permitted Liens, and has good right and legal authority to assign, deliver, and create a security
interest in the Collateral in the manner herein contemplated.

 

3.3           Security
Interest. This Security Agreement, together with the filing of Uniform Commercial Code financing statements in the appropriate
offices, create in favor of the Agent, for the benefit of the Secured Parties, a valid and continuing lien on and perfected security
interest in the Collateral (except for property located in the United States in which a security interest may not be perfected
by filing under the Uniform Commercial Code), and, subject to Permitted Liens, such security interest is prior to all other encumbrances,
and is enforceable as such against creditors of the Debtor. Except as set forth on Exhibit B, no financing statement under
the Uniform Commercial Code of any state or other instrument evidencing an encumbrance that names the Debtor as debtor is on file
in any jurisdiction and the Debtor has not signed any such document or any agreement authorizing the filing of any such financing
statement or instrument. 

 

    	- 4 -

     

    

 

3.4           Maintenance;
Taxes; Sales; Encumbrances; Insurance. Other than expressly consented to by the Agent, such consent not to be unreasonably
withheld or delayed, the Debtor will: (a) keep the Collateral in good order and repair, ordinary wear and tear excepted; (b) not
use the Collateral in violation of law or any policy of insurance thereon; (c) pay promptly when due all taxes and assessments
on the Collateral or on its use or operation; (d) other than Permitted Liens, not sell, grant, assign or transfer any interest
in, or permit to exist any encumbrances on, any of the Collateral; and (e) defend its title to, and the Agent’s interest
in, the Collateral against all claims and take any action necessary to remove any encumbrances and defend the right, title and
interest of the Agent in and to any of the Debtor's rights in the Collateral.

 

3.5           Further Assurances.
Upon the written request of the Agent, and at the sole expense of the Debtor, the Debtor will promptly execute and deliver such
further instruments and documents and take such further actions as the Agent may reasonably deem desirable to obtain the full benefits
of this Security Agreement and of the rights and powers herein granted, including, without limitation, filing of any financing
statement under the Uniform Commercial Code; all in form and substance reasonably satisfactory to the Agent; and transfer of Collateral
to the Secured Party possession to the extent necessary to perfect the same. The Debtor authorizes the Secured Party to file any
such financing statement without the signature of the Debtor to the extent permitted by applicable law. The Debtor hereby further
authorizes the Agent to file filings with the United States Patent and Trademark Office or United States Copyright Office (or any
successor office or any similar office in any other country), including this Agreement, or other documents for the purpose of perfecting,
confirming, continuing, enforcing or protecting the security interest granted by the Debtor hereunder, without the signature of
the Debtor, and naming the Debtor, as debtor, and the Agent, for the benefit of the Secured Parties, as secured party.

 

3.6           Insurance.
The Debtor will maintain valid policies of insurance with respect to the Collateral of the kinds and in the amounts not less than
is customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated,
including, without limitation, insurance against loss, damage, fire, theft, public liability and other risks.

 

3.7           Further
Identification of Collateral. The Debtor shall, as soon as reasonably practicable, furnish to the Agent, for the benefit of
the Secured Parties, such statements and schedules further identifying and describing the Collateral, and such other reports in
connection with the Collateral, as the Agent may from time to time reasonably request.

 

3.8           Instruments;
Documents of Title; Chattel Paper. As soon as reasonably practicable upon request from time to time by the Agent, the Debtor
shall deliver to the Agent, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance
as the Agent may reasonably request, any and all instruments, documents of title and chattel paper included in or relating to the
Collateral as the Agent may specify in its request.

 

3.9           Control
Agreements. The Debtor shall deliver to the Agent any and all security certificates any and all such documents, agreements,
instruments and other materials as may be required from time to time to give the Agent control over any investment property or
deposit accounts that form a part of the Collateral.

 

3.10         Partnerships,
Limited Liability Companies. The Debtor shall ensure that the terms of any interest in a partnership or limited liability company
that is Collateral shall expressly provide that such interest is a “security” for the purposes of the UCC.

 

3.11         Future
Subsidiaries. In the event that the Debtor establishes any subsidiaries from time to time, the Debtor shall cause such subsidiaries
to deliver to the Agent, for the benefit of the Secured Parties, a guarantee of the Obligations, and a security agreement in substantially
the form hereof.

 

3.12         Inspection
and Audit. Upon five (5) business days’ advance notice, the Debtor shall give the Secured Parties and their agents and
advisor(s) reasonable access during normal business hours to its premises to inspect the Collateral.

 

    	- 5 -

     

    

 

Section
4.          General Authority. To the extent permitted
by law, the Debtor hereby appoints the Agent, for the benefit of the Secured Parties, as the Debtor’s lawful attorney in
fact, with full power of substitution, in the name of the Debtor, the Secured Parties, or otherwise, for the sole use and benefit
of the Secured Parties, but at the Debtor’s expense, to exercise, all or any of the following powers with respect to all
or any of the Collateral during the occurrence of any Event of Default (which power shall be in addition and supplemental to any
powers, rights and remedies of the Secured Parties described herein or otherwise available to the Secured Parties under applicable
law):

 

(a)          to
demand, sue for, collect, receive and give acquittance for any and all monies due or to become due;

 

(b)          to
receive, take, endorse, assign and deliver all checks, note, drafts, documents and other negotiable and non-negotiable instruments
and chattel paper taken or received by the Agent or any Secured Party;

 

(c)          to
settle, compromise, initiate, prosecute or defend any action or proceeding with respect thereto;

 

(d)          to
sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof or any related goods securing the
Collateral, as fully and effectually as if the Secured Party was the absolute owner thereof;

 

(e)          to
extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; and

 

(f)          to
discharge any taxes, liens, security interests or other encumbrances at any time placed thereon.

 

Such appointment as
attorney is irrevocable and coupled with an interest.

 

 

Section
5.          Agent’s Rights and Remedies. All
rights granted to the Agent pursuant to this Section 5 shall be exercised by the Agent on behalf of the Secured Parties.

 

(a)          So
long as any Event of Default shall have occurred and be continuing, the Agent shall have all of the rights and remedies listed
below in this Section 5(a).

 

(i)          The
Agent may, at its option, without notice or demand, cause all of the Obligations to become immediately due and payable and take
immediate possession of the Collateral, and for that purpose the Agent may, so far as the Debtor can give authority therefor, enter
upon any premises on which any of the Collateral is situated and remove the same therefrom or remain on such premises and in possession
of such Collateral for purposes of conducting a sale or enforcing the rights of the Agent and the Secured Parties.

 

(ii)         The
Debtor will, upon demand, assemble the Collateral and make it available to the Agent at such places and times designated by the
Agent that are reasonably convenient to both parties.

 

(iii)        The
Agent may collect and receive all income and proceeds in respect of the Collateral and exercise all rights of the Debtor with respect
thereto.

 

    	- 6 -

     

    

 

(iv)        The
Agent may sell, lease or otherwise dispose of the Collateral at a public or private sale, with or without having the Collateral
at the place of sale, and upon such terms and in such manner as the Agent may determine, and the Secured Parties may purchase any
Collateral at any such sale. Unless the Collateral threatens to decline rapidly in value or is of the type customarily sold on
a recognized market, the Agent shall send to the Debtor prior written notice (which, if given within ten days of any sale, shall
be deemed to be reasonable) of the time and place of any public sale of the Collateral or of the time after which any private sale
or other disposition thereof is to be made. The Debtor agrees that upon any such sale the Collateral shall be held by the purchaser
free from all claims or rights of every kind and nature, including any equity of redemption or similar rights, and all such equity
of redemption and similar rights are hereby expressly waived and released by the Debtor. In the event any consent, approval or
authorization of any governmental agency is necessary to effectuate any such sale, the Debtor shall execute all applications or
other instruments as may be required.

 

(v)         In
any jurisdiction where the enforcement of its rights hereunder is sought, the Agent shall have, in addition to all other rights
and remedies, the rights and remedies of a secured party under the Uniform Commercial Code.

 

(b)          So
long as any Event of Default shall have occurred and be continuing, prior to any disposition of Collateral pursuant to this Security
Agreement, the Agent may, at its option, cause any of the Collateral to be repaired or reconditioned (but not upgraded unless mutually
agreed) in such manner and to such extent as to make it salable.

 

(c)          So
long as any Event of Default shall have occurred and be continuing, the Agent shall be entitled to retain and to apply the proceeds
of any disposition of the Collateral, first, to its reasonable expenses of retaking, holding, protecting and maintaining, and preparing
for disposition and disposing of, the Collateral, including reasonable attorneys' fees and other legal expenses incurred by it
in connection therewith; and second, to the payment of the Obligations and any other obligations under other issued and outstanding
note in such order of priority as the Agent shall determine in good faith. Any surplus remaining after such application shall be
paid to the Debtor or to whomever may be legally entitled thereto, provided that in no event shall the Debtor be credited with
any part of the proceeds of the disposition of the Collateral until such proceeds shall have been received in cash by the Agent.
The Debtor shall remain liable for any deficiency to the extent provided under applicable law.

 

Section
6.          Waivers. The Debtor waives presentment, demand, notice,
protest, notice of acceptance of this Security Agreement, notice of any loans made, credit or other extensions granted, collateral
received or delivered or any other action taken in reliance hereon and all other demands and notices of any description,. With
respect to both the Obligations and the Collateral, the Debtor assents to any extension or postponement of the time of payment
or any other forgiveness or indulgence, to any substitution, exchange or release of Collateral, to the addition or release of any
party or person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromise or
adjustment of any thereof, all in such manner and at such time or times as the Agent may deem advisable. Upon the occurrence of
an Event of Default that remains continuing, Agent, for the benefit of the Secured Parties, may exercise its rights with respect
to the Collateral without resorting, or regard, to other among collateral or sources of reimbursement for Obligations. The Secured
Parties shall not be deemed to have waived any of their rights with respect to the Obligations or the Collateral unless such waiver
is in writing and signed by the Secured Parties. No delay or omission on the part of the Secured Parties in exercising any right
shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not bar or waive the exercise of
any right on any future occasion. All rights and remedies of the Secured Parties in the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, are cumulative and not exclusive of any remedies provided by law or any
other agreement, and may be exercised separately or concurrently. Neither the execution and delivery of this Agreement nor the
provision of any financial accommodation by any Secured Party shall oblige any Secured Party to make any financial accommodation
or further financial accommodation available to the Debtor or any other person or entity.

 

    	- 7 -

     

    

 

Section
7.          Expenses.

 

(a)          The
Debtor shall, on demand, pay or reimburse the Secured Parties for all reasonable expenses (including reasonable attorneys’
fees of outside counsel paid by the Secured Parties in connection with the enforcement of this Security Agreement, and any other
amounts permitted to be expended by the Secured Parties hereunder, including such expenses as are incurred to preserve the value
of the Collateral and the validity, perfection, priority and value of any security interest created hereby, the collection, sale
or other disposition of any of the Collateral or the exercise by the Secured Parties of any of the rights conferred upon them hereunder).

 

(b)          The
Debtor shall indemnify the Secured Parties against, and hold the Secured Parties harmless from, any and all losses, claims, cost
recovery actions, damages, expenses and liabilities of whatsoever nature or kind and all reasonable out-of-pocket expenses and
all applicable taxes to which any Secured Party may become subject arising out of or in connection with (i) the execution or delivery
of this Agreement and the performance by the Debtor of its obligations hereunder, (ii) any actual claim, litigation, investigation
or proceeding relating to this Agreement or the Obligations, whether based on contract, tort or any other theory, to which the
Secured Party is a party, or (iii) the enforcement of the Secured Parties’ rights hereunder and any related investigation,
defence, preparation of defence, litigation and enquiries; provided that such indemnity shall not, as to any Secured Party, be
available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross negligence (it being acknowledged that ordinary
negligence does not necessarily constitute gross negligence) or wilful misconduct of or material breach of this Agreement by such
Secured Party.

 

(c)          The
Debtor shall not assert, and hereby waives (to the fullest extent permitted by applicable law), (i) any claim against any Secured
Party (or any director, officer or employee thereof), on any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, and (ii)
all of the rights, benefits and protections given by any present or future statute that imposes limitations on the rights, powers
or remedies of a secured party or on the methods of, or procedures for, realization of security, including any “seize or
sue” or “anti-deficiency” statute or any similar provision of any other statute.

 

(d)          All
amounts due under this Section shall be payable to the Agent for the benefit of the applicable Secured Parties not later than three
(3) business days after written demand therefor.

 

Section
8.          Rights of Agent; Limitations on Agent’s Obligations.

 

(a)          Limitations
on Liability of Secured Parties. Neither the Agent nor any Secured Party shall be liable to the Debtor or any other person
or entity for any failure or delay in exercising any of the rights of the Debtor under this Agreement (including any failure to
take possession of, collect, sell, lease or otherwise dispose of any Collateral, or to preserve rights against prior parties).
Neither the Agent, any other Secured Party, any receiver, nor any agent thereof (including any sheriff) is required to take, or
shall have any liability for any failure to take or delay in taking, any steps necessary or advisable to preserve rights against
other persons under any Collateral in its possession. Neither the Agent, any other Secured Party, any receiver, nor any agent thereof
shall be liable for any, and the Debtor shall bear the full risk of all, loss or damage to any and all of the Collateral (including
any Collateral in the possession of the Agent, any other Secured Party, any receiver, or any agent thereof) caused for any reason
other than the gross negligence or wilful misconduct of the Agent, such other Secured Party, such receiver or such agent thereof.

 

    	- 8 -

     

    

 

(b)          Debtor
Remains Liable under Accounts and Contracts. Notwithstanding any provision of this Agreement, the Debtor shall remain liable
under each of the documents giving rise to the Accounts of the Debtor and under each of its contracts to observe and perform all
the conditions and obligations to be observed and performed by the Debtor thereunder, all in accordance with the terms of each
such document and contract. Neither the Agent nor any other Secured Party shall have any obligation or liability under any account
of the Debtor (or any document giving rise thereto) or any contract of the Debtor by reason of or arising out of this Agreement
or the receipt by the Agent of any payment relating to such account or contract pursuant hereto, and in particular (but without
limitation), neither the Agent nor any other Secured Party shall be obligated in any manner to perform any of the obligations of
the Debtor under or pursuant to any account (or any document giving rise thereto) or under or pursuant to any contract of the Debtor
to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency
of any performance by any party under any Account (or any document giving rise thereto) or under any contract, to present or file
any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned
to it or to which it may be entitled at any time.

 

(c)          Collections
on Accounts and Contracts. The Debtor shall be authorized to, at any time that an Event of Default is not continuing and has
not been continuing for 30 days, collect its Accounts and payments under the contracts of the Debtor in the normal course of the
business of the Debtor and for the purpose of carrying on the same. At the Agent’s request, so long as any Event of Default
shall have occurred and be continuing, the Debtor shall deliver to the Agent any documents evidencing and relating to the agreements
and transactions which gave rise to its accounts and contracts, including all original orders, invoices and shipping receipts.

 

(d)          Use
of Agents. The Agent may perform any of its rights or duties under this Agreement by or through agents and is entitled to retain
counsel and to act in reliance on the advice of such counsel concerning all matters pertaining to its rights and duties under this
Agreement.

 

(e)          Realization
Standards. To the extent that applicable law imposes duties on the Agent to exercise remedies in a commercially reasonable
manner and without prejudice to the ability of the Agent to dispose of the Collateral in any such manner, the Debtor acknowledges
and agrees that it is not commercially unreasonable for the Agent to (or not to) (a) incur expenses reasonably deemed significant
by the Agent to prepare the Collateral for disposition or otherwise to complete raw material or work in process into finished goods
or other finished products for disposition, (b) fail to obtain third party consents for access to the Collateral to be disposed
of, (c) fail to exercise collection remedies against account debtors or other persons obligated on the Collateral or to remove
liens against the Collateral, (d) exercise collection remedies against account debtors and other persons obligated on the Collateral
directly or through the use of collection agencies and other collection specialists, (e) dispose of Collateral by way of public
auction, public tender or private contract, with or without advertising and without any other formality, (f) contact other persons,
whether or not in the same business of the Debtor, for expressions of interest in acquiring all or any portion of the Collateral,
(g) hire one or more professional auctioneers to assist in the disposition of the Collateral, whether or not the Collateral is
of a specialized nature or an upset or reserve bid or price is established, (h) dispose of the Collateral by utilizing internet
sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing
so, or that match buyers and sellers of assets, (i) dispose of assets in wholesale rather than retail markets, (j) disclaim disposition
warranties, such as title, possession or quiet enjoyment, (k) purchase insurance or credit enhancements to insure the Agent against
risks of loss, collection or disposition of the Collateral or to provide to the Agent a guaranteed return from the collection or
disposition of the Collateral, (l) to the extent deemed appropriate by the Agent, obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Agent in the collection or disposition of any of the Collateral, (m)
dispose of Collateral in whole or in part, (n) to dispose of Collateral to a customer of the Agent, and (o) establish an upset
or reserve bid price with respect to Collateral.

 

(f)          Pledged
Shares. Following the occurrence of an Event of Default that is continuing, the Agent may, in respect of any investment property
that forms a part of the Collateral (i) cause such investment property to be registered in the name of the agent; (ii) vote and
exercise other rights in respect of such investment property; (iii) receive dividends in respect of such investment property for
the benefit of the Secured Parties, and (iv) transfer such investment property.

 

    	- 9 -

     

    

 

(g)          Dealings
by Agent. The Agent shall not be obliged to exhaust its recourse against the Debtor or any other person or against any other
security it may hold with respect to the Obligations or any part thereof before realizing upon or otherwise dealing with the Collateral
in such manner as the Agent may consider desirable. The Agent and the other Secured Parties may grant extensions of time and other
indulgences, take and give up security, accept compositions, grant releases and discharges and otherwise deal with the Debtor and
any other person, and with any or all of the Collateral, and with other security and sureties, as they may see fit, all without
prejudice to the Obligations or to the rights and remedies of the Agent under this Agreement. The powers conferred on the Agent
under this Agreement are solely to protect the interests of the Agent in the Collateral and shall not impose any duty upon the
Agent to exercise any such powers.

 

Section
9.          Merger. If the Debtor is a corporation, the Debtor
acknowledges that if it merges with any other corporation or corporations, then (i) the Collateral and the security interests established
hereby shall extend to and include all the property and assets of the surviving corporation and to any property or assets of the
surviving corporation thereafter owned or acquired, (ii) the term “Debtor”, where used in this Agreement, shall extend
to and include the surviving corporation, and (iii) the term “Obligations”, where used in this Agreement, shall extend
to and include the Obligations of the surviving corporation.

 

Section
10.         Notices. All notices, demands, requests or other communications
given hereunder or in connection herewith shall be in writing and either mailed, sent by nationally recognized overnight courier
service, or personally delivered, addressed to the party to receive such notice at its address set forth below or at such other
address as such party may hereafter designate by notice given in like fashion:

 

If to a Secured Party,
at their address as set forth on Exhibit A attached hereto.

 

If to the Agent:

 

_____________________

_____________________

 

If to the Debtor:

 

AudioEye,
Inc.

5210 E Williams
Cir, Tucson, AZ 85711

Attn: Chief
Executive Officer

Facsimile:
_____________________

 

with a copy
which shall not constitute notice to:

 

DLA Piper LLP (US)

401 Congress Avenue, Suite 2500

Austin, Texas 78701

Attn: Paul Hurdlow

Facsimile: (512) 457-7001

 

or, as to each party, at such other address
as shall be designated by such parties in a written notice to the other party complying as to delivery with the terms of this Section
10. All such notices, requests, demands and other communication shall be deemed given upon receipt by the party to whom such
notice is directed.

 

    	- 10 -

     

    

 

Section
11.          General. This Agreement may not be amended or modified
except by a writing signed by the Debtor and the Agent, nor may the Debtor assign any of its rights hereunder. Section headings
are for convenience of reference only and are not a part of this Agreement. This Agreement shall be binding upon the Debtor, its
successors and assigns, and shall inure to the benefit of and be enforceable by each of the Secured Parties and the successors
and assigns. The Debtor may not assign this Agreement, or any of its rights or obligations under this Agreement. Upon prior written
notice to the Debtor, each Secured Party, including the Agent, may assign this Agreement and any of their rights and obligations
hereunder to any person or entity that replaces it in its capacity as such.

 

Section
12.         Governing Law; Consent To Jurisdiction; Waiver Of Trial By Jury.

 

(a)          THIS
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER SEAL AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF DELAWARE (WITHOUT GIVING REFERENCE TO ANY CONFLICTS OF LAW PROVISIONS THEREIN) EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF A SECURITY INTEREST GRANTED HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE REQUIRED
TO BE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF DELAWARE.

 

(b)          THE
DEBTOR AND EACH OF THE SECURED PARTIES AGREE THAT NEITHER IT NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY COLLATERAL OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN DEBTOR AND THE SECURED PARTIES HEREUNDER OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION
IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES
HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NONE OF THE SECURED PARTIES NOR DEBTOR HAVE AGREED WITH OR REPRESENTED
TO ANY OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.

 

(c)          THE
DEBTOR AND EACH OF THE SECURED PARTIES EACH HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE UNITED
STATES DISTRICT COURT FOR THE STATE OF DELAWARE, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL MAY BE TAKEN
OR OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF
THE DEBTOR'S OBLIGATIONS UNDER OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND EXPRESSLY
WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS.

 

Section
13.         Paramountcy. In the event of any conflict or inconsistency
between the provisions of this Agreement and the provisions of the Note Purchase Agreement then, notwithstanding anything contained
in this Agreement, the provisions contained in the Note Purchase Agreement shall prevail to the extent of such conflict or inconsistency
and the provisions of this Agreement shall be deemed to be amended to the extent necessary to eliminate such conflict or inconsistency,
it being understood that the purpose of this Agreement is to add to, and not detract from, the rights granted to the Agent (for
its own benefit and for the benefit of the other Secured Parties) under the Purchase Agreement. If any act or omission of the Debtor
is expressly permitted under the Purchase Agreement but is expressly prohibited under this Agreement, such act or omission shall
be permitted. If any act or omission is expressly prohibited under this Agreement, but the Purchase Agreement does not expressly
permit such act or omission, or if any act is expressly required to be performed under this Agreement but the Purchase Agreement
does not expressly relieve the Debtor from such performance, such circumstance shall not constitute a conflict or inconsistency
between the applicable provisions of this Agreement and the provisions of the Note Purchase Agreement.

 

    	- 11 -

     

    

 

Section
14.         Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such prohibition or unenforceability
and shall be severed from the balance of this Agreement, all without affecting the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.

 

Section
15.         Acknowledgment of Receipt/Waiver. The Debtor acknowledges
receipt of an executed copy of this Agreement.

 

Section
16.         Enforcement by Agent. This Agreement and the security interests
created hereby may be enforced only by the action of the Agent acting on behalf of the Secured Parties and no other Secured Party
shall have any rights individually to enforce or seek to enforce this Agreement or any of the security interests, it being understood
and agreed that such rights and remedies may be exercised by the Agent for the benefit of the Secured Parties upon the terms of
this Agreement and any intercreditor agreement between the Secured Parties.

 

Section
17.         Counterparts. This Security Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall constitute but one and the same Security Agreement.
Delivery of an executed signature page hereof by facsimile transmission or .pdf shall be effective as an in-hand delivery of an
original executed counterpart hereof.

 

[Remainder of page intentionally left
blank]

 

    	- 12 -

     

    

 

IN WITNESS WHEREOF,
the parties have caused this Security Agreement to be duly executed as an instrument under seal as of the date first written above.

 

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

 

     

     

    

 

IN WITNESS WHEREOF,
the parties have caused this Security Agreement to be duly executed as an instrument under seal as of the date first written above.

 

	 	SECURED PARTY:
	 	 
	 	If Entity:
	 	 
	 	Entity Name: 	               

 

	 	By:	               
	 	 	 
	 	Name:	 
	 	 	 
	 	Title:	 

 

	 	If Individual:
	 	 
	 	Name:	               
	 	 	 
	 	Signature:	 

 

Signature Page to Security Agreement

 

     

     

    

 

EXHIBIT A

 

[investor names and addresses]

 

     

     

    

 

EXHIBIT B

 

Liens

 

	
        Name of Secured 

        Party
	 	Address of Secured Party	 	File Number	 	File Date

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