Document:

Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of the 27th day of January, 2014 (the “Effective Date”), by and between AudioEye, Inc., a Delaware corporation with an address at 9070 S Rita Road, Suite 1450, Tucson, Arizona 85747 (the “Company”), and Paul Arena, a natural person (“Executive”).

 

W I T N E S S E T H:

 

WHEREAS, Executive desires to be employed by the Company as its Executive Chairman/Chairman of the Board (the “Position”) and the Company wishes to employ Executive in such capacity;

 

NOW, THEREFORE, in consideration of the foregoing recitals and the respective covenants and agreements of the parties contained in this document, the Company and Executive hereby agree as follows:

 

1.                                      Employment and Duties.  Employer hereby employs Executive as Executive Chairman / Chairman of the Board of the Company.  Subject at all times to the direction of the Board of Directors of the Employer, Executive shall have direct responsibility working in conjunction with the Chief Executive Officer of the company over operations, sales marketing, financial accounting and SEC reporting, operational budgeting, sales costing analysis, billing, and auditor interfacing.  Executive will also perform other services and duties as the Board of Directors shall determine.  Employer agrees that as long as Executive is employed by the Employer, Employer will use its best efforts to cause Executive to be elected as a Director of the Employer.

 

Executive shall confer with the Directors, and other Officers of the Company, regarding ideas and proposals with respect to the overall technological direction of the Company.

 

Responsibilities:

 

·                                          Oversee the preparation of short and long term operation plans for sales, marketing and quality control;

 

·                                          Establish and maintain appropriate systems for measuring necessary aspects of operational management and development;

 

·                                          Monitor, measure and report on operational issues, opportunities and development plans and achievements within agreed formats and timescales;

 

·                                          Manage and develop direct reporting staff;

 

·                                          Oversee the management and control of departmental expenditures within agreed budgets;

 

·                                          Liaise with functional/departmental managers to understand all necessary aspects and needs of operational development;

 

·                                          Maintain awareness and knowledge of contemporary operational development theory and methods and provide suitable interpretation to Directors, Managers and staff within the organization;

 

 

·                                          Contribute to the evaluation and development of operational strategy and performance in cooperation with the executive team;

 

·                                          Oversee the management of financial accounting and SEC reporting; and

 

·                                          Oversee the management of all legal aspects of the company in working with both in-house and outside legal counsel.

 

Except as set forth below, Executive shall devote all of his time, attention, and energies to the business of the Company.  Provided that none of the additional activities materially interfere with the performance of the duties and responsibilities of Executive, nothing in this Section 1 shall prohibit Executive from (a) serving as a director or trustee of any charitable or educational organization or (b) engaging in additional activities in connection with personal investments and community affairs; provided that such activities are not inconsistent with Executive’s duties under this Agreement and do not violate the terms of Section 13.

 

2.                                      Term.  The term of this Agreement shall commence on the Effective Date and shall continue for a period of two (2) years subject to extension upon mutual agreement of the Company and Executive.  “Employment Period” shall mean the initial two (2) year term plus extension periods, if any.

 

3.                                      Place of Employment.  Executive’s job site shall be in Tucson, Arizona and the New York metropolitan area (the “Job Site”).  The parties acknowledge, however, that Executive may be required to travel in connection with the performance of his duties hereunder.

 

4.                                      Base Salary.  For all services to be rendered by Executive pursuant to this Agreement, the Company agrees to pay Executive commencing January 1, 2014 a base salary (the “Base Salary”) at an annual rate of $275,000 during the Employment Period.  The Base Salary shall be paid in periodic installments in accordance with the Company’s regular payroll practices.

 

5.                                      Bonuses.  During the Employment Period, Executive shall be paid the following cash bonuses:

 

(a)                                 signing bonus of $35,000 paid in connection with entry into this Agreement;

 

(b)                                 commencing for the quarter ending March 31, 2014 and ending with the quarter ending December 31, 2014, a cash bonus for recognized revenues (the “Quarterly Bonus”) calculated as follows:

 

(i)                                     a Quarterly Bonus of $50,000 if the annual contract value of the Company’s new sales net of cash (or cash value of equity) commissions or re-seller agreements paid to third parties during such quarter is greater than or equal to $2,000,000;

 

(ii)                                  a Quarterly Bonus of $20,000 if the annual contract value of the Company’s new sales net of cash (or cash value of equity) commissions or re-seller agreements paid to third parties during such quarter is less than $2,000,000 but greater than or equal to $1,500,000 for a calendar year;

 

(iii)                               notwithstanding the foregoing, at the end of the 2014 calendar year, provided the aggregate net sales is at least $8,000,000 for such year, the Company shall apply any amount of net sales for a particular quarter in excess of the target to any quarter where there is a shortfall with the objective to maximize the Quarterly Bonus.  Executive shall be paid any additional Quarterly Bonus within three business days from the date such adjusted amount is so determined; and

 

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(iv)                              for calendar year 2015, the same Quarterly Bonus amount will be payable, but the target net sales amount will be adjusted based on the 2015 budget to be determined by the Company upon consultation with the Executive.

 

(c)                                  the Board or the Compensation Committee of the Board (the “Compensation Committee”) in its sole discretion may grant to Executive additional bonus or bonuses.

 

6.                                      Severance Compensation.  Upon termination of Executive’s employment prior to expiration of the Employment Period unless Executive’s employment is terminated for Cause or Executive terminates his employment without Good Reason, then:

 

(a)                                 Executive shall be entitled to receive any and all reasonable expenses paid or incurred by Executive in connection with and related to the performance of his duties and responsibilities for the Company during the period ending on the termination date, any accrued but unused vacation time through the termination date in accordance with Company policy and an amount equal to Executive’s Base Salary and bonuses, if any, during the prior twelve (12) months (the “Separation Period”), (due and payable subject to Section 15 below) as in effect as of the date of termination (the “Separation Payment”), provided that Executive executes an agreement releasing Company and its affiliates from any liability associated with this Agreement in form and terms satisfactory to the Company and that all time periods imposed by law permitting cancellation or revocation of such release by Executive shall have passed or expired; and subject to anything to the contrary in Section 11(d)(iii), the Separation Payment shall be paid in in accordance with the customary payroll practices of the Company; and

 

(b)                                 Subject to Executive’s (1) timely election of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) with respect to the Company’s group health insurance plans in which the Employee participated immediately prior to the termination date (“COBRA Continuation Coverage”), and (2) continued payment of premiums for such plans at the active employee rate (excluding, for purposes of calculating cost, an employee’s ability to pay premiums with pre-tax dollars), the Company will pay, or reimburse Executive, the cost of COBRA Continuation Coverage for Executive and his eligible dependents until the earliest of (x) Executive or his eligible dependents, as the case may be, ceasing to be eligible under COBRA, and (y) twelve (12) months following the termination date (the benefits provided under this clause (b), the “Medical Continuation Benefits”) or until such time as Executive shall obtain reasonably equivalent benefits from subsequent employment or spousal benefits.

 

7.                                      Equity Awards; Trading of Company Stock.

 

(a)                                 Executive shall be issued warrants to purchase up to 250,000 shares of Company common stock with a grant date that is the same as the Effective Date. The warrants will have a 5-year term, will vest immediately upon grant and will have an exercise price of $0.40 per share.

 

(b)                                 Executive will be issued incentive stock options to purchase up to 1,500,000 shares of Company common stock. The stock options will be issued pursuant to a new incentive compensation plan to be adopted by the Company following the Effective Date. The stock options will vest 1/3rd upon grant, 1/3 if and upon the Company reporting a minimum of $10,000,000 in annualized revenues by the second anniversary of the grant date, and 1/3 if and upon the Company reporting a minimum of $20,000,000 in annualized revenues by the third anniversary of the grant date. The stock options will have a 5-year term and will have an exercise price equal to the greater of (i) $0.40 per share or (ii) the closing stock price per share on the trading day prior to the grant date.

 

(c)                                  Executive shall be eligible for such additional grants of awards under the AudioEye, Inc. 2013 Incentive Compensation Plan (or any successor or replacement plan adopted by the Board and approved by the stockholders of the Company) (the “Plan”) as the Compensation Committee (or the Board, if there is no Compensation Committee) may from time to time determine (the “Share Awards”).  Share Awards

 

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shall be subject to the applicable Plan terms and conditions; provided, however, that Share Awards shall be subject to any additional terms and conditions as are provided herein or in any award agreement, which shall supersede any conflicting provisions governing Share Awards provided under the Plan.

 

(d)                                 With respect to his holdings in Company securities, Executive may not enter into equity swaps, collars or forward sale contracts, but may place shares into exchange funds as a hedge.

 

(e)                                  It is intended that the Company will adopt a 10b5-1 trading plan approved by the Board or the Compensation Committee.  Upon adoption of such plan, any sale of Company shares by Executive will be subject to such plan.  Notwithstanding any plan, Executive shall not sell or otherwise dispose of any shares of the Company’s common stock during the first six months of the term hereof, and then no greater than: $25,000 per month in gross proceeds during the next six months, $50,000 per month for the second year of this Agreement, and $100,000 per month for the third year of this Agreement.  Additionally, after the second anniversary of this Agreement, as long as Executive is employed by the Company, Executive will not sell or otherwise dispose of the Company’s common stock to the extent that any such sales or dispositions will result in the market value of Executive’s holdings in the shares of the Company’s common stock being less than three times Executive’s salary and bonus for the calendar year immediately preceding the date of any proposed sale or disposition of the Company’s common stock.

 

8.                                      Clawback Rights.  All amounts paid to Executive by the Company (other than Executive’s Base Salary and reimbursement of expenses pursuant to paragraph 9 hereof) during the Employment Period and any time thereafter and any and all stock based compensation (such as options and equity awards) granted during the Employment Period and any time thereafter (collectively, the “Clawback Benefits”) shall be subject to “Clawback Rights” as follows: during the period that Executive is employed by the Company and upon the termination or expiration of Executive’s employment and for a period of three (3) years thereafter, if any of the following events occur, Executive agrees to repay or surrender to the Company the Clawback Benefits if a restatement (a “Restatement”) of any financial results from which any Clawback Benefits to Executive shall have been determined (such restatement resulting from material non-compliance of the Company with any financial reporting requirement under the federal securities laws and shall not include a restatement of financial results resulting from subsequent changes in accounting pronouncements or  requirements which were not in effect on the date the financial statements were originally prepared), then Executive agrees to immediately repay or surrender upon demand by the Company any Clawback Benefits which were determined by reference to any Company financial results which were later restated, to the extent the Clawback Benefits amounts paid exceed the Clawback Benefits amounts that would have been paid, based on the restatement of the Company’s financial information  All Clawback Benefits amounts resulting from such Restatements shall be retroactively adjusted by the Compensation Committee (or the Board, if there is no Compensation Committee) to take into account the restated results and if any excess portion of the Clawback Benefits resulting from such restated results is not so repaid or surrendered by Executive within ninety (90) days of the revised calculation being provided to Executive by the Company following a publicly announced restatement, the Company shall have the right to take any and all action to effectuate such adjustment.

 

The amount of Clawback Benefits to be repaid or surrendered to the Company shall be determined by the Compensation Committee (or the Board, if there is no Compensation Committee) and applicable law, rules and regulations.  All determinations by the Compensation Committee (or the Board, if there is no Compensation Committee) with respect to the Clawback Rights shall be final and binding on the Company and Executive.  The parties acknowledge it is their intention that the foregoing Clawback Rights as relates to Restatements conform in all respects to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd Frank Act”) and requires recovery of all “incentive-based” compensation, pursuant to the provisions of the Dodd Frank Act and any and all rules and regulations promulgated thereunder from time to time in effect.  Accordingly, the terms and provisions of this Agreement shall be deemed automatically amended from time to time to assure compliance with the Dodd Frank Act and such  rules and regulation as hereafter may be adopted and in effect.

 

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Notwithstanding the foregoing, if any amounts subject to clawback have been deferred pursuant to the terms of a nonqualified deferred compensation plan, such amounts shall be forfeited under such plan, and such forfeiture shall be considered a repayment or surrender of such amount for purposes hereof.

 

9.                                      Expenses.  Executive shall be entitled to prompt reimbursement by the Company for all reasonable ordinary and necessary travel, entertainment, and other expenses incurred by Executive while employed (in accordance with the policies and procedures established by the Company for its senior executive officers) in the performance of his duties and responsibilities under this Agreement; provided, that Executive shall properly account for such expenses in accordance with Company policies and procedures.

 

10.                               Other Benefits; Vacation.  During the term of this Agreement, Executive shall be eligible to participate in incentive, stock purchase, savings, retirement (401(k)), and welfare benefit plans, including, without limitation, health, medical, dental, vision, life (including accidental death and dismemberment) and disability insurance plans (collectively, “Benefit Plans”), in substantially the same manner and at substantially the same levels as the Company makes such opportunities available to the Company’s managerial or salaried executive employees.  Family medical insurance coverage for Executive is to commence March 1, 2014. During the term of this Agreement, Executive shall be entitled to accrue, on a pro rata basis, fifteen (15) paid vacation days per year, which if not taken will accrue and be carried forward. Vacation shall be taken at such times as are mutually convenient to Executive and the Company and no more than ten (10) consecutive days shall be taken at any one time without the advance approval of the Board.

 

11.                               Termination of Employment.

 

(a)                                 Death.  If Executive dies during the Employment Period, this Agreement and Executive’s employment with the Company shall automatically terminate and the Company shall have no further obligations to Executive or his heirs, administrators or executors with respect to compensation and benefits accruing thereafter, except for the obligation to pay to Executive’s heirs, administrators or executors any earned but unpaid Base Salary, unpaid pro rata annual or quarterly Bonuses for the current year through the date of death,  reimbursement of any and all reasonable expenses paid or incurred by Executive in connection with and related to the performance of his duties and responsibilities for the Company during the period ending on the termination date and any accrued but unused vacation time through the termination date in accordance with Company policy.  The Company shall deduct, from all payments made hereunder, all applicable taxes, including income tax, FICA and FUTA, and other appropriate deductions.  In addition, Executive’s spouse and minor children shall be entitled to Medical Continuation Benefits.

 

(b)                                 Disability.  In the event that, during the term of this Agreement Executive shall be prevented from performing his duties and responsibilities hereunder to the full extent required by the Company by reason of Disability (as defined below), this Agreement and Executive’s employment with the Company shall automatically terminate and the Company shall have no further obligations or liability to Executive or his heirs, administrators or executors with respect to compensation and benefits accruing thereafter, except for the obligation to pay Executive or his heirs, administrators or executors any earned but unpaid Base Salary, unpaid pro rata annual or quarterly Bonuses for the current year accrued through Executive’s last date of employment with the Company, reimbursement of any and all reasonable expenses paid or incurred by Executive in connection with and related to the performance of his duties and responsibilities for the Company during the period ending on the termination date and any accrued but unused vacation time through the termination date in accordance with Company policy. The Company shall deduct, from all payments made hereunder, all applicable taxes, including income tax, FICA and FUTA, and other appropriate deductions through the last date of Executive’s employment with the Company. In addition, Executive and Executive’s spouse and minor children shall be entitled to Medical Continuation Coverage.  For purposes of this Agreement, “Disability” shall mean a physical or mental disability that prevents the performance by Executive, with or without reasonable accommodation, of his duties and responsibilities hereunder for a period of not less than an aggregate of three (3) months during any twelve (12) consecutive months.  Notwithstanding the foregoing, the

 

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rights of the Executive under the equity awards described in Section 6 following his termination of employment shall be governed by the terms of such awards.

 

(c)                                  Cause.

 

(i)                                     At any time during the Employment Period, the Company may terminate this Agreement and Executive’s employment hereunder for Cause. For purposes of this Agreement, “Cause” shall consist of a termination due to the following, as specified in the written notice of termination (and in each case following written notice a failure by Executive to cure within thirty (30) days of such notice except as to clauses (E) or (F) which shall not be subject to cure: (A) Executive’s failure to substantially perform the fundamental duties and responsibilities associated with Executive’s position, including Executive’s failure or refusal to carry out reasonable instructions; (B) Executive’s material breach of any material written Company policy; (C) Executive’s gross misconduct in the performance of Executive’s duties for the Company; (D) Executive’s material breach of the terms of this Agreement; (E) being arrested or charged with any fraudulent or felony criminal offense or any other criminal offense which reflects adversely on the Company or reflects conduct or character that the Board reasonably concludes is inconsistent with continued employment; or (F) any criminal conduct that is a “statutory disqualifying event” (as defined under federal securities laws, rules and regulations).

 

(ii)                                  Prior to any termination for Cause, Executive will be given five (5) business days written notice specifying the alleged Cause event and will be entitled to appear (with counsel) before the full Board to present information regarding his views on the Cause event, and after such hearing, there is at least a majority vote of the full Board (other than Executive) to terminate him for Cause.  After providing the notice in foregoing sentence, the Board may suspend Executive with full pay and benefits until a final determination pursuant to this Section 11(c) has been made.

 

(iii)                               Upon termination of this Agreement for Cause, the Company shall have no further obligations or liability to Executive or his heirs, administrators or executors with respect to compensation and benefits thereafter, except for the obligation to pay Executive any earned but unpaid Base Salary, reimbursement of any and all reasonable expenses paid or incurred by Executive in connection with and related to the performance of his duties and responsibilities for the Company during the period ending on the termination date, and any accrued but unused vacation time through the termination date in accordance with Company policy.  The Company shall deduct, from all payments made hereunder, all applicable taxes, including income tax, FICA and FUTA, and other appropriate deductions.

 

(d)                                 Good Reason and Without Cause.

 

(i)                                     At any time during the term of this Agreement, subject to the conditions set forth in Section 11(d)(ii) below, Executive may terminate this Agreement and Executive’s employment with the Company for “Good Reason.”  For purposes of this Agreement, “Good Reason” shall mean any of the following actions taken by the Company or a successor corporation or entity without Executive’s consent: (A) material reduction of Executive’s base compensation; (B) material reduction in Executive’s title, authority, duties or responsibilities; (C) failure or refusal of a successor to the Company to materially assume the Company’s material obligations under this Agreement in the event of a Change of Control; (D) relocation of Executive’s Job Site that results in an increase in Executive’s one-way driving distance by more than fifty (50) miles from Executive’s then-current principal residence; or (E) any other material breach by the Company of this Agreement.

 

(ii)                                  Executive shall not be entitled to terminate this Agreement for Good Reason unless and until he or she shall have delivered written notice to the Company within ninety (90) days of the date upon which the facts giving rise to Good Reason occurred of his intention to terminate this Agreement and his employment with the Company for Good Reason, which notice specifies in reasonable detail the circumstances claimed to provide the basis for such termination for Good Reason, and the Company shall not

 

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have eliminated the circumstances constituting Good Reason within thirty (30) days of its receipt from Executive of such written notice.

 

(iii)                               In the event that Executive terminates this Agreement and his employment with the Company for Good Reason or the Company terminates this Agreement and Executive’s employment with the Company without Cause, the Company shall pay or provide to Executive (or, following his death, to Executive’s heirs, administrators or executors) the Separation Payment amount.  The Company shall deduct, from all payments made hereunder, all applicable taxes, including income tax, FICA and FUTA, and other appropriate deductions. Notwithstanding anything herein to the contrary, the benefits to Executive under this Agreement shall be reduced by the amount of any insurance proceeds payable to Executive.

 

(iv)                              Without “Good Reason” by Executive.  At any time during the term of this Agreement, Executive shall be entitled to terminate this Agreement and Executive’s employment with the Company without Good Reason by providing prior written notice of at least thirty (30) days to the Company.  Upon termination by Executive of this Agreement or Executive’s employment with the Company without Good Reason, the Company shall have no further obligations or liability to Executive or his heirs, administrators or executors with respect to compensation and benefits thereafter, except for the obligation to pay Executive any earned but unpaid Base Salary, reimbursement of any and all reasonable expenses paid or incurred by Executive in connection with and related to the performance of his duties and responsibilities for the Company during the period ending on the termination date, and any accrued but unused vacation time through the termination date in accordance with Company policy. The Company shall deduct, from all payments made hereunder, all applicable taxes, including income tax, FICA and FUTA, and other appropriate deductions.  .  Notwithstanding the foregoing, the rights of the Executive under the equity awards described in Section 7 following his termination of employment shall be governed by the terms of such awards.

 

(e)                                  Change of Control.  For purposes of this Agreement, “Change of Control” shall mean the occurrence of any one or more of the following: (i) the accumulation (if over time, in any consecutive twelve (12) month period), whether directly, indirectly, beneficially or of record, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of 50.1% or more of the shares of the outstanding common stock of the Company, whether by merger, consolidation, sale or other transfer of shares of Company common stock (other than a merger or consolidation where the stockholders of the Company prior to the merger or consolidation are the holders of a majority of the voting securities of the entity that survives such merger or consolidation), (ii) a sale of all or substantially all of the assets of the Company or (iii) during any period of twelve (12) consecutive months, the individuals who, at the beginning of such period, constitute the Board, and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the 12-month period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; provided, however, that the following acquisitions shall not constitute a Change of Control for the purposes of this Agreement: (A) any acquisitions of Company common stock or securities convertible, exercisable or exchangeable into Company common stock directly from the Company, or (B) any acquisition of Company common stock or securities convertible, exercisable or exchangeable into Company common stock by any employee benefit plan (or related trust) sponsored by or maintained by the Company.

 

(f)                                   Any termination of Executive’s employment by the Company or by Executive (other than termination by reason of Executive’s death) shall be communicated by written Notice of Termination to the other party of this Agreement. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, provided, however, failure to provide timely notification shall not affect the employment status of Executive.

 

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12.                               Confidential Information.

 

(a)                                 Disclosure of Confidential Information. Executive recognizes, acknowledges and agrees that he or she has had and will continue to have access to secret and confidential information regarding the Company, its subsidiaries and their respective businesses (“Confidential Information”), including but not limited to, its products, methods, formulas, software code, patents, sources of supply, customer dealings, data, know-how, trade secrets and business plans, provided such information is not in or does not hereafter become part of the public domain, or become known to others through no fault of Executive.  Executive acknowledges that such information is of great value to the Company, is the sole property of the Company, and has been and will be acquired by him in confidence.  In consideration of the obligations undertaken by the Company herein, Executive will not, at any time, during or after his employment hereunder, reveal, divulge or make known to any person, any information acquired by Executive during the course of his employment, which is treated as confidential by the Company, and not otherwise in the public domain. The provisions of this Section 12 shall survive the termination of Executive’s employment hereunder for a period of three (3) years. Information will not be deemed to be Confidential Information if: (i) the information was in Executive’s possession or within Executive’s knowledge before the Company disclosed it to Executive; (ii) the information was or became generally known to those who could take economic advantage of it; (iii) Executive obtained the information from a third party that was not known by Executive to be bound by a confidentiality agreement or other obligation of confidentiality to the Company or any other party with respect to such information; or (iv) Executive is required to disclose the information pursuant to legal process (e.g. a subpoena), provided that Executive notifies the Company promptly upon receiving or becoming aware of such legal process.

 

(b)                                 Executive affirms that he or she will not rely upon the protected trade secrets or confidential or proprietary information of any prior employer(s) in providing services to the Company or its subsidiaries.

 

(c)                                  In the event that Executive’s employment with the Company terminates for any reason, Executive shall deliver forthwith to the Company any and all originals and copies, including those in electronic or digital formats, of Confidential Information; provided, however, Executive shall be entitled to retain (i) papers and other materials of a personal nature, including, but not limited to, photographs, correspondence, personal diaries, calendars and rolodexes, personal files and phone books, (ii) information showing his compensation or relating to reimbursement of expenses, (iii) information that he or she reasonably believes may be needed for tax purposes and (iv) copies of plans, programs and agreements relating to his employment, or termination thereof, with the Company.

 

13.                               Non-Competition and Non-Solicitation.

 

(a)                                 Executive agrees and acknowledges that the non-competition restrictions set forth herein are reasonable and necessary and do not impose undue hardship or burdens on Executive. Executive also acknowledges that the products and services developed or provided by the Company, its affiliates and/or its clients or customers are or are intended to be sold, provided, licensed and/or distributed to customers and clients primarily in and throughout the United States (the “Territory”) (to the extent the Company comes to operate, either directly or through the engagement of a distributor or joint or co-venturer, or sell a significant amount of its products and services to customers located, in areas other than the United States during the term of the Employment Period, the definition of Territory shall be automatically expanded to cover such other areas), and that the Territory, scope of prohibited competition, and time duration set forth in the non-competition restrictions set forth below are reasonable and necessary to maintain the value of the Confidential Information of, and to protect the goodwill and other legitimate business interests of, the Company, its affiliates and/or its clients or customers.  The provisions of this Section 13 shall survive the termination of Executive’s employment hereunder.

 

(b)                                 Executive hereby agrees and covenants that he or she shall not without the prior written consent of the Company, directly or indirectly, in any capacity whatsoever, including, without

 

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limitation, as an employee, employer, consultant, principal, partner, shareholder, officer, director or any other individual or representative capacity (other than (i) as a holder of less than ten (10%) percent of the outstanding securities of a Company whose shares are traded on any national securities exchange or (ii) as a limited partner, passive minority interest holder in a venture capital fund, private equity fund or similar investment entity which holds or may hold an equity or debt position in portfolio companies that are competitive with the Company; provided however, that Executive shall be precluded from serving as an operating partner, general partner, manager or governing board designee with respect to such portfolio companies), or whether on Executive’s own behalf or on behalf of any other person or entity or otherwise howsoever, during the Employment Period and the Separation Period and thereafter to the extent described below, within the Territory:

 

(i)                                     Engage, own, manage, operate, control, be employed by, consult for, participate in, or be connected in any manner with the ownership, management, operation or control of any business in competition with the business of the Company;

 

(ii)                                  Recruit, solicit or hire, or attempt to recruit, solicit or hire, any employee, or independent contractor of the Company to leave the employment (or independent contractor relationship) thereof, whether or not any such employee or independent contractor is party to an employment agreement, for the purpose of competing with the business of the Company;

 

(iii)                               Attempt in any manner to solicit or accept from any customer of the Company, with whom Executive had significant contact during Executive’s employment by the Company (whether under this Agreement or otherwise), business of the kind or competitive with the business done by the Company with such customer or to persuade or attempt to persuade any such customer to cease to do business or to reduce the amount of business which such customer has customarily done or might do with the Company, or if any such customer elects to move its business to a person other than the Company, provide any services of the kind or competitive with the business of the Company for such customer, or have any discussions regarding any such service with such customer, on behalf of such other person; or

 

(iv)                              Interfere with any relationship, contractual or otherwise, between the Company and any other party, including, without limitation, any supplier, distributor, co-venturer or joint venturer of the Company, for the purpose of soliciting such other party to discontinue or reduce its business with the Company.

 

With respect to the activities described in Paragraphs (1), (2), (3) and (4) above, the restrictions of this Section 13(b) shall continue during the Employment Period and until one (1) year following the termination of this Agreement or of Executive’s employment with the Company (including upon expiration of this Agreement), whichever occurs later; provided, however, that if this Agreement or Executive’s employment is terminated by Executive for Good Reason or by the Company without Cause, then the restrictions of this Section 13(b) shall terminate concurrently with the termination and shall be of no further effect.  In the event that any provision of this Section 13 is determined by a court to be unenforceable, such provision shall not render the entire Section unenforceable but, to the extent possible, shall be appropriately adjusted to render such provision enforceable.

 

14.                               Inventions.  All systems, inventions, discoveries, apparatus, techniques, methods, know-how, formulae or improvements made, developed or conceived by Executive during Executive’s employment by the Company that (i) are directly relevant to the Company’s business as then constituted, (ii) are developed as a part of the tasks and assignments that are the duties and responsibilities of Executive, and (iii) were created using substantially the Company’s resources, such as time, materials and space, shall be and continue to remain the Company’s exclusive property, without any added compensation or any reimbursement for expenses to Executive, and upon the conception of any and every such invention, process, discovery or improvement and without waiting to perfect or complete it, Executive promises and agrees that Executive will immediately disclose it to the Company and to no one else and thenceforth will treat it as the property and

 

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secret of the Company. Executive will also execute any instruments requested from time to time by the Company to vest in it complete title and ownership to such invention, discovery or improvement and will, at the request of the Company, do such acts and execute such instruments as the Company may require, but at the Company’s expense to obtain patents, trademarks or copyrights in the United States and foreign countries, for such invention, discovery or improvement and for the purpose of vesting title thereto in the Company, all without any reimbursement for expenses (except as provided in Section 9 or otherwise) and without any additional compensation of any kind to Executive.

 

15.                               Section 409A.

 

The provisions of this Agreement are intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and any final regulations and guidance promulgated thereunder (“Section 409A”) and shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.  The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.

 

To the extent that Executive will be reimbursed for costs and expenses or in-kind benefits, except as otherwise permitted by Section 409A, (a) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit, (b) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year; provided that the foregoing clause (b) shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (c) such payments shall be made on or before the last day of the taxable year following the taxable year in which the expense was incurred.

 

A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits that are subject to Section 409A upon or following a termination of employment unless such termination constitutes a “Separation from Service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement references to a “termination,” “termination of employment” or like terms shall mean Separation from Service.

 

Each installment payable hereunder shall constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b), including Treasury Regulation Section 1.409A-2(b)(2)(iii).  Each payment that is made within the terms of the “short-term deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)(4) is intended to meet the “short-term deferral” rule.  Each other payment is intended to be a payment upon an involuntary termination from service and payable pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii), et. seq., to the maximum extent permitted by that regulation, with any amount that is not exempt from Code Section 409A being subject to Code Section 409A.

 

Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive’s termination, then only that portion of the severance and benefits payable to Executive pursuant to this Agreement, if any, and any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”), which (when considered together) do not exceed the Section 409A Limit (as defined herein) may be made within the first six (6) months following Executive’s termination of employment in accordance with the payment schedule applicable to each payment or benefit.  Any portion of the Deferred Compensation Separation Benefits in

 

10

 

excess of the Section 409A Limit otherwise due to Executive on or within the six (6) month period following Executive’s termination will accrue during such six (6) month period and will become payable in one lump sum cash payment on the date six (6) months and one (1) day following the date of Executive’s termination of employment.  All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if Executive dies following termination but prior to the six (6) month anniversary of Executive’s termination date, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to each payment or benefit.

 

For purposes of this Agreement, “Section 409A Limit” will mean a sum equal (x) to the amounts payable prior to March 15 following the year in which Executive terminates plus (y) the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Company’s taxable year preceding the Company’s taxable year of Executive’s termination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any IRS guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated.

 

16.                               Miscellaneous.

 

(a)                                 Executive acknowledges that the services to be rendered by him under the provisions of this Agreement are of a special, unique and extraordinary character and that it would be difficult or impossible to replace such services.  Furthermore, the parties acknowledge that monetary damages alone would not be an adequate remedy for any breach by Executive of Section 12 or Section 13 of this Agreement. Accordingly, Executive agrees that any breach by Executive of Section 12 or Section 13 of this Agreement shall entitle the Company, in addition to all other legal remedies available to it, to apply to any court of competent jurisdiction to seek to enjoin such breach. The parties understand and intend that each restriction agreed to by Executive hereinabove shall be construed as separable and divisible from every other restriction, that the unenforceability of any restriction shall not limit the enforceability, in whole or in part, of any other restriction, and that one or more or all of such restrictions may be enforced in whole or in part as the circumstances warrant. In the event that any restriction in this Agreement is more restrictive than permitted by law in the jurisdiction in which the Company seeks enforcement thereof, such restriction shall be limited to the extent permitted by law. The remedy of injunctive relief herein set forth shall be in addition to, and not in lieu of, any other rights or remedies that the Company may have at law or in equity.

 

(b)                                 Neither Executive nor the Company may assign or delegate any of their rights or duties under this Agreement without the express written consent of the other; provided, however, that the Company shall have the right to delegate its obligation of payment of all sums due to Executive hereunder, provided that such delegation shall not relieve the Company of any of its obligations hereunder.

 

(c)                                  During the term of this Agreement, the Company (i) shall indemnify and hold harmless Executive and his heirs and representatives as, and to the extent, provided in the Company’s bylaws and (ii) shall cover Executive under the Company’s directors’ and officers’ liability insurance on the same basis as it covers other senior executive officers and directors of the Company.

 

(d)                                 This Agreement constitutes and embodies the full and complete understanding and agreement of the parties with respect to Executive’s employment by the Company, supersedes all prior understandings and agreements, whether oral or written, between Executive and the Company, and shall not be amended, modified or changed except by an instrument in writing executed by the party to be charged (it being understood that, pursuant to Section 7, Share Awards shall govern with respect to the subject matter thereof).

 

11

 

The invalidity or partial invalidity of one or more provisions of this Agreement shall not invalidate any other provision of this Agreement. No waiver by either party of any provision or condition to be performed shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.

 

(e)                                  This Agreement shall inure to the benefit of, be binding upon and enforceable against, the parties hereto and their respective successors, heirs, beneficiaries and permitted assigns.

 

(f)                                   The headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.

 

(g)                                  All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when personally delivered, sent by registered or certified mail, return receipt requested, postage prepaid, or by reputable national overnight delivery service (e.g. Federal Express) for overnight delivery to the Company at its principal executive office or to Executive at his address of record in the Company’s records, or to such other address as either party may hereafter give the other party notice of in accordance with the provisions hereof.  Notices shall be deemed given on the sooner of the date actually received or the third business day after deposited in the mail or one business day after deposited with an overnight delivery service for overnight delivery.

 

(h)                                 This Agreement shall be governed by and construed in accordance with the internal laws of the State of Arizona without reference to principles of conflicts of laws and each of the parties hereto irrevocably consents to the jurisdiction and venue of the federal and state courts located in the County of Pima, State of Arizona.

 

(i)                                     This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one of the same instrument. The parties hereto have executed this Agreement as of the date set forth above.

 

(j)                                    Executive represents and warrants to the Company that he or she has the full  power and authority to enter into this Agreement and to perform his obligations hereunder and that the execution and delivery of this Agreement and the performance of his obligations hereunder will not conflict with any agreement to which Executive is a party.

 

(k)                                 The Company represents and warrants to Executive that it has the full power and authority to enter into this Agreement and to perform its obligations hereunder and that the execution and delivery of this Agreement and the performance of its obligations hereunder will not conflict with any agreement to which the Company is a party.

 

[Remainder of page intentionally left blank; signature page follows.]

 

12

 

IN WITNESS WHEREOF, Executive and the Company have caused this Executive Employment Agreement to be executed as of the date first above written.

 

 

	
 
    	
THE   COMPANY:
    
	
 
    	
 
    
	
 
    	
AUDIOEYE, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
EXECUTIVE:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Paul   R. Arena
    

 

13Exhibit 10.2

 

Performance Share Unit Agreement

 

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

 

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

 

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

 

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

 

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

 

2.                                      Grant of Performance Share Units. Pursuant to Section 6(h) of the Plan, the Company hereby grants to the Grantee an Award of up to an aggregate of 1,500,000 Performance Share Units (the “Target Award”), subject to increase of up to a total of 3,000,000 Performance Share Units (the “Max Units”) as described on Exhibit A-2 attached hereto.  Each Performance Share Unit (“PSU”) represents the right to receive one share of Common Stock, subject to the terms and conditions set forth in this Agreement and the Plan. The number of PSUs that the Grantee actually earns for a Performance Period (up to a maximum of 1,500,000 of Max Units) will be determined by the level of achievement of the Performance Goals in accordance with Exhibit A-1 attached hereto.

 

3.                                      Performance Period. For purposes of this Agreement, “Performance Period” shall be the period commencing on February 1 and ending on the following January 31.  Subject to vesting as provided in Section 5, there shall be two Performance Periods commencing on February 1, 2014 with the opportunity to earn a full award of Max Units based on achievement of Performance Goals on a cumulative basis for the two Performance Periods as described on Exhibit A-2.

 

4.                                      Performance Goals.

 

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

 

4.2                               Promptly following completion of a Performance Period (and no later than thirty (30) days following the end of such Performance Period), the Committee will review and certify in writing (a) whether, and to what extent, the Performance Goals for the Performance Period have been achieved, and (b) the number of PSUs that the Grantee shall earn, if any, subject to compliance with the requirements of Section 5. Such certification shall be final, conclusive and binding on the Grantee, and on all other persons, to the maximum extent permitted by law.

 

5.                                      Vesting of PSUs. The PSUs are subject to forfeiture until they vest. Except as otherwise provided herein, the PSUs will vest and become nonforfeitable on the last day of a Performance Period with respect to the PSUs earned for such Performance Period in accordance with Section 4.2, subject to (a) the achievement of the minimum threshold Performance Goals for payout set forth in Exhibit A hereto, and (b) the

 

 

Grantee’s Continuous Service from the Grant Date through the last day of the Performance Period.  The number of PSUs that vest and become payable under this Agreement shall be determined by the Committee based on the level of achievement of the Performance Goals set forth in Exhibit A hereto and shall be rounded to the nearest whole PSU.

 

6.                                      Termination of Continuous Service; Change of Control.

 

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

 

6.2                               Notwithstanding Section 6.1, if the Grantee’s Continuous Service terminates during Performance Period as a result of the Grantee’s death, Disability or termination by the Company without Cause, or termination by the Grantee for Good Reason, all of the outstanding PSUs will vest as to such Performance Period in accordance with Section 4 subject to achievement of the Performance Goal(s) for such Performance Period as if the Grantee’s Continuous Service had not terminated.

 

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

 

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

 

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

 

9.                                      Rights as Shareholder.

 

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

 

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

 

10.                               No Right to Continued Service. Neither the Plan nor this Agreement shall confer upon the Grantee any right to be retained in any position, as an Employee, Consultant or Director of the Company.

 

2

 

Further, nothing in the Plan or this Agreement shall be construed to limit the discretion of the Company to terminate the Grantee’s Continuous Service at any time, with or without Cause.

 

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

 

12.                               Tax Liability and Withholding.

 

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

 

(a)                                 tendering a cash payment;

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

[SIGNATURE PAGE FOLLOWS]

 

5

 

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

 

 

	
 
    	
AUDIOEYE, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Paul   R. Arena
    

 

6

 

EXHIBIT A

 

Performance Period

 

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

 

Performance Measures

 

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

 

(a)                                 Targeted Sales (as to 35%)

 

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

 

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

 

As used herein, Targeted Sales and Targeted Cash Flow are as set forth on Exhibit A-1. With regard to Board Defined Operations Goals, the Company’s board of directors or Committee shall in its sole discretion establish goals as to specific matters and amounts with respect to a Performance Period.

 

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

 

Determining PSUs Earned

 

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

 

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

 

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

(Max Goal % - Target Goal %)

 

7

 

OR:

 

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

(125% - 100%)

 

Unearned PSUs

 

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

 

8

 

EXHIBIT A-1

 

MANAGEMENT SALES & CASH FLOW FORECASTS

 

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

 

	
 
    	
 
    	
Period 1
    	
 
    	
Period 2
    	
 
    	
Period 3
    	
 
    	
3 yr Cumultive
    	
 
    
	
Management Forecast:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Sales
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
Cash Flow
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Performance Goals:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Threshold
    	
 
    	
75
    	
%
    	
75
    	
%
    	
75
    	
%
    	
75
    	
%
    
	
Max
    	
 
    	
125
    	
%
    	
125
    	
%
    	
125
    	
%
    	
125
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Sales:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Threshold
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
Target
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
Target Plus
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
Max
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Cash Flow:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Threshold
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
Target
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
Target Plus
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    
	
Max
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    	
$
    	
 
    	
 
    

 

 

EXHIBIT A-2

 

EQUITY COMPENSATION FOR PAUL ARENA

 

Breakdown of units granted by metric and year: 2014 GRANT

 

	
Metric
    	
 
    	
Metric
   Weight
    	
 
    	
Period
    	
 
    	
Period
   Weight
    	
 
    	
Threshold
   Units
    	
 
    	
Target Units
    	
 
    	
Target Plus
   Units
    	
 
    	
Max Units
    	
 
    
	
Sales Growth
    	
 
    	
35
    	
%
    	
Period 1
    	
 
    	
33.33
    	
%
    	
43,750
    	
 
    	
87,500
    	
 
    	
131,250
    	
 
    	
175,000
    	
 
    
	
Period 2
    	
 
    	
33.33
    	
%
    	
43,750
    	
 
    	
87,500
    	
 
    	
131,250
    	
 
    	
175,000
    	
 
    
	
Period 3
    	
 
    	
33.33
    	
%
    	
43,750
    	
 
    	
87,500
    	
 
    	
131,250
    	
 
    	
175,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating Cash Flow
    	
 
    	
35
    	
%
    	
Period 1
    	
 
    	
33.33
    	
%
    	
43,750
    	
 
    	
87,500
    	
 
    	
131,250
    	
 
    	
175,000
    	
 
    
	
Period 2
    	
 
    	
33.33
    	
%
    	
43,750
    	
 
    	
87,500
    	
 
    	
131,250
    	
 
    	
175,000
    	
 
    
	
Period 3
    	
 
    	
33.33
    	
%
    	
43,750
    	
 
    	
87,500
    	
 
    	
131,250
    	
 
    	
175,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
BOD defined Ops Goals
    	
 
    	
30
    	
%
    	
Period 1
    	
 
    	
33.33
    	
%
    	
37,500
    	
 
    	
75,000
    	
 
    	
112,500
    	
 
    	
150,000
    	
 
    
	
Period 2
    	
 
    	
33.33
    	
%
    	
37,500
    	
 
    	
75,000
    	
 
    	
112,500
    	
 
    	
150,000
    	
 
    
	
Period 3
    	
 
    	
33.33
    	
%
    	
37,500
    	
 
    	
75,000
    	
 
    	
112,500
    	
 
    	
150,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
375,000
    	
 
    	
750,000
    	
 
    	
1,125,000
    	
 
    	
1,500,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
All Metrics
    	
 
    	
 
    	
 
    	
Period 1
    	
 
    	
 
    	
 
    	
250,000
    	
 
    	
500,000
    	
 
    	
750,000
    	
 
    	
1,000,000
    	
 
    
	
Period 2
    	
 
    	
 
    	
 
    	
62,500
    	
 
    	
125,000
    	
 
    	
187,500
    	
 
    	
250,000
    	
 
    
	
Period 3
    	
 
    	
 
    	
 
    	
62,500
    	
 
    	
125,000
    	
 
    	
187,500
    	
 
    	
250,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
375,000
    	
 
    	
750,000
    	
 
    	
1,125,000
    	
 
    	
1,500,000
    	
 
    

 

 

EXHIBIT A-2

 

EQUITY COMPENSATION FOR PAUL ARENA

 

Breakdown of units granted by metric and year: 2015 GRANT

 

	
Metric
    	
 
    	
Metric
   Weight
    	
 
    	
Period
    	
 
    	
Period
   Weight
    	
 
    	
Threshold
   Units
    	
 
    	
Target Units
    	
 
    	
Target Plus
   Units
    	
 
    	
Max Units
    	
 
    
	
Sales Growth
    	
 
    	
35
    	
%
    	
Period 1
    	
 
    	
50.00
    	
%
    	
65,625
    	
 
    	
131,250
    	
 
    	
196,875
    	
 
    	
262,500
    	
 
    
	
Period 2
    	
 
    	
50.00
    	
%
    	
65,625
    	
 
    	
131,250
    	
 
    	
196,875
    	
 
    	
262,500
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Operating Cash Flow
    	
 
    	
35
    	
%
    	
Period 1
    	
 
    	
50.00
    	
%
    	
65,625
    	
 
    	
131,250
    	
 
    	
196,875
    	
 
    	
262,500
    	
 
    
	
Period 2
    	
 
    	
50.00
    	
%
    	
65,625
    	
 
    	
131,250
    	
 
    	
196,875
    	
 
    	
262,500
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
BOD defined Ops Goals
    	
 
    	
30
    	
%
    	
Period 1
    	
 
    	
50.00
    	
%
    	
56,250
    	
 
    	
112,500
    	
 
    	
168,750
    	
 
    	
225,000
    	
 
    
	
Period 2
    	
 
    	
50.00
    	
%
    	
56,250
    	
 
    	
112,500
    	
 
    	
168,750
    	
 
    	
225,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
375,000
    	
 
    	
750,000
    	
 
    	
1,125,000
    	
 
    	
1,500,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
All Metrics
    	
 
    	
 
    	
 
    	
Period 1
    	
 
    	
 
    	
 
    	
187,500
    	
 
    	
375,000
    	
 
    	
562,500
    	
 
    	
750,000
    	
 
    
	
Period 2
    	
 
    	
 
    	
 
    	
187,500
    	
 
    	
375,000
    	
 
    	
562,500
    	
 
    	
750,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
375,000
    	
 
    	
750,000
    	
 
    	
1,125,000
    	
 
    	
1,500,000
    	
 
    

 

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00225-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00225-of-00352.parquet"}]]