UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONProxy Statement Pursuant to Section 14(a) ofthe Securities Exchange Act of 1934 (Amendment No. )Filed by the Registrant x |
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AudioEye, Inc. |
(Name of Registrant as Specified In Its Charter) |
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Preliminary Proxy Statement
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Soliciting Material under §240.14a-12
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April 3, 2019
10, 2024
Dear
Stockholder:Stockholders:
On behalf of the Board of Directors (the “Board”), it is my pleasure to invite you to attend the
20192024 Virtual Annual Meeting of Stockholders
(the “Annual Meeting”) of AudioEye, Inc.
(“AudioEye” or the “Company”), to be held
at 730 Third Avenue, 18th Floor, New York, NY 10017, on Friday, May
10, 2019,24, 2024, at 10:00 a.m., Eastern Time.
At Because of our desire for continued expanded access to the meeting and a lower cost to our stockholders, this year’s Annual Meeting will again be held in a virtual-only meeting format. You will be able to attend the Annual Meeting virtually and to vote on aand submit questions during the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/AEYE2024 and entering the 16-digit control number of important matters. Please take the time to carefully read each of the proposals describedprovided in the attachedyour proxy statement relating to:
materials.The electionAnnual Meeting is being held for the purpose of four directors;considering and taking action with respect to the following:
The approval•
To elect five persons to serve as directors on our Board of Directors until the next Annual Meeting of Stockholders or until their successors have been duly elected and qualified;
•
To hold an advisory vote on AudioEye’s executive compensation;
The approval of an advisory vote on the frequency of future advisory votes on executive compensation;
The approval of•
To approve amendments to the AudioEye, Inc. 20192020 Equity Incentive Plan to increase the number of shares of common stock authorized for issuance under the Equity Plan, and the number of such shares that can be delivered in respect of incentive stock options, by 1,500,000 shares, and to extend the term of the Equity Plan;
•
To approve an amendment to our Restated Certificate of Incorporation to eliminate or limit the personal liability of officers to the extent permitted by the Delaware General Corporation Law; and
The ratification of
•
To ratify the appointment of MaloneBailey, LLP as AudioEye’s independent registered public accounting firm for the fiscal year ending December 31, 2019.2024.
Regardless of whether you choose to attend the
virtual Annual Meeting, please
either vote
electronically usingprior to the
Internet (ifAnnual Meeting by following the instructions contained in the accompanying Proxy Statement and in other proxy materials. Voting prior to the Annual Meeting does not deprive you
are a holder of
our common stock) or mark, date, signyour right to attend the virtual Annual Meeting and
return the proxy card included with these materials at your earliest convenience to
ensurevote your shares
will be represented and voted at the Annual Meeting.
| Sincerely, |
| |
| DR. CARR BETTIS
Executive Chairman |
/s/ DR. CARR BETTIS
Dr. Carr Bettis
Executive Chairman
5210 E. Williams Circle, Suite 750Tucson, Arizona 85711 NOTICE OF VIRTUAL ANNUAL MEETING OF STOCKHOLDERSTO BE HELD MAY 10, 2019
| | TIME AND DATE | | | LOCATION | |
| | Friday, May 24, 2024
10:00 a.m. Eastern Time | | | Online Meeting Only — No Physical Meeting Location
Virtual Meeting Site: www.virtualshareholdermeeting.com/AEYE2024 | |
NOTICE HEREBY IS GIVEN that the 20192024 Virtual Annual Meeting of Stockholders (the “Annual Meeting”) of AudioEye, Inc. will be held at 730 Third Avenue, 18th Floor, New York, NY 10017, on Friday, May 10, 2019,24, 2024, at 10:00 a.m., Eastern Time,Time. The following matters will be considered and voted upon at the Annual Meeting:
1.
A proposal to elect the five nominees named in the accompanying Proxy Statement to serve as directors until the 2025 Annual Meeting of Stockholders or until their successors have been duly elected and qualified;
2.
A proposal to approve, on an advisory basis, AudioEye’s 2023 executive compensation;
3.
To approve amendments to the AudioEye, Inc. 2020 Equity Incentive Plan to increase the number of shares of common stock authorized for issuance under the Equity Plan, and the number of such shares that can be delivered in respect of incentive stock options, by 1,500,000 shares, and to extend the term of the Equity Plan;
4.
To approve an amendment to our Restated Certificate of Incorporation to eliminate or limit the personal liability of officers to the extent permitted by the Delaware General Corporation Law; and
5.
A proposal to ratify the appointment of MaloneBailey, LLP as the independent registered public accounting firm of AudioEye, Inc. for the purposefiscal year ending December 31, 2024.
The foregoing items of
considering and voting upon: | 1. | A proposal to elect the four nominees named in the attached Proxy Statement to serve as directors until the 2020 Annual Meeting of Stockholders; |
| 2. | A proposal to approve, on an advisory basis, AudioEye’s executive compensation; |
| 3. | A proposal to approve, on an advisory basis, the frequency of future advisory votes on executive compensation; |
| 4. | A proposal to approve the AudioEye, Inc. 2019 Equity Incentive Plan; |
| 5. | A proposal to ratify the appointment of MaloneBailey, LLP as the independent registered public accounting firm of AudioEye, Inc. for the fiscal year ending December 31, 2019; and |
| 6. | Such other business as properly may come before the Annual Meeting or any adjournments thereof. The Board of Directors is not aware of any other business to be presented to a vote of the stockholders at the Annual Meeting. |
Information relating to the above matters is set forthbusiness are more fully described in the attached Proxy Statement.proxy statement accompanying this Notice. The Annual Meeting will be virtual and will be held entirely online via live webcast at www.virtualshareholdermeeting.com/AEYE2024. There will not be an option to attend the meeting in person. Stockholders will have the same opportunities to participate in the Annual Meeting as they would at an in-person meeting if they enter the 16-digit control number provided in their proxy materials, including having the ability to vote and the opportunity to submit questions during the meeting using the directions on the meeting website.
The Board of Directors has fixed the close of business on March 28, 2024 as the record date for the Annual Meeting. Only stockholders of record at the close of business on March 20, 2019 are entitled to receive notice of and tothat date may vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
/s/ JAMES SPOLAR
James Spolar
General Counsel and Secretary
Tucson, Arizona
April 10, 2024
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on May 24, 2024 — this Proxy Statement, the Notice of Annual Meeting, the Form of Proxy and any adjournments thereof. | By order of the Board of Directors |
| |
| AudioEye’s Annual Report on Form 10-K for the year ended December 31, 2023 are available at www.proxyvote.com. SEAN BRADLEY
President, Chief Strategy Officer and Secretary
|
Tucson, Arizona
April 3, 2019
PLEASE READ THE ACCOMPANYING PROXY STATEMENT AND 2018 ANNUAL REPORT ON FORM 10-K.10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023. WE RECOMMEND THAT YOU SUBMIT YOUR PROXY TO VOTE YOUR SHARES AS SOON AS POSSIBLE USING ONE OF THE CONVENIENT PROXY VOTING METHODS DESCRIBED UNDER THE “HOW DO I VOTE AT THE ANNUAL MEETING” SECTION OF THE PROXY STATEMENT BEGINNING ON PAGE 2.BELOW. YOUR VOTE IS VERY IMPORTANT TO US.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY 10, 2019
THIS PROXY STATEMENT AND OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018 ARE AVAILABLE FOR VIEWING, PRINTING AND DOWNLOADING AT:www.audioeye.com/investors/proxy
INFORMATION ON OUR WEBSITE DOES NOT CONSTITUTE PART OF THIS PROXY STATEMENT OR OF OUR ANNUAL REPORT ON FORM 10-K.
A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018,2023, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING EXHIBITS, WILL ALSO BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN OR ORAL REQUEST TO AUDIOEYE, INC., ATTENTION LONNY STERNBERG, CHIEF OPERATING OFFICER,JAMES SPOLAR, GENERAL COUNSEL AND CORPORATE SECRETARY, AUDIOEYE, INC., 5210 E. WILLIAMS CIRCLE, SUITE 750, TUCSON, ARIZONA 85711, USA; TELEPHONE (866) 331-5324.
| | Internet | | | Telephone | | | Mail | | | Webcast | |
| | | | | | | | | | | | |
| | Visit the Web site noted on your proxy card or your Notice of Internet Availability to vote via the Internet. | | | Use the toll-free telephone number on your proxy card to vote by telephone. | | | Sign, date and return your proxy card in the enclosed envelope to vote by mail, if you have requested or receive paper copies of the proxy materials. | | | Participate in the meeting and vote electronically at
www.virtualshareholdermeeting.com/AEYE2024. | |
Our Board of Directors is soliciting proxies from our stockholders in connection with AudioEye’s 20192024 Annual Meeting of Stockholders. When used in this Proxy Statement, the terms “we,” “us,” “our,” “the Company” and “AudioEye” refer to AudioEye, Inc. and itsany consolidated subsidiaries. ThisOn or about April 10, 2024, a Notice of Internet Availability of Proxy Statement and our 2018 Annual Report areMaterials (the “Notice”) is first being mailed to our stockholders of record as of the Record Date, and made availableour proxy materials are first being posted on April 10, 2019.
the website referenced in the Notice and this Proxy Statement.
This summary highlights information contained in the Proxy Statement. It does not include all of the information that you should consider prior to voting, and we encourage you to read the entire document prior to voting. For more complete information regarding our 20182023 financial performance, please review our Annual Report on Form 10-K for the year ended December 31, 2018,2023, as filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2019.7, 2024.
Stockholders are being asked to vote on the following matters at the
20192024 Annual Meeting of Stockholders:
| | | | Our Board’s
Recommendation |
| | |
ITEM 1. Election of Directors (page 8)7) | | | | |
TheOur Board of Directors (the “Board”) and the Nominating and Corporate Governance Committee of the Board believe that the fourfive director nominees possess the necessary qualifications, attributes, skills and experiences to provide quality advice and counsel to our management and effectively oversee the business and the long-term interests of our stockholders. | | | FOR each
Director Nominee |
| | |
ITEM 2. Advisory Vote to Approve Executive Compensation (page 17)29) | | | | |
We seek a non-binding advisory vote to approve the compensation of our named executive officers as described in the Executive Compensation section of the Proxy Statement beginning on page 28.19. The Board values our stockholders’ opinions, and the Compensation Committee of the Board will take into account the outcome of the advisory vote when considering future executive compensation decisions. | | FOR |
| | FOR | |
ITEM 3. Advisory Vote to Approve Frequency of Future Advisory Votes on Executive CompensationIncrease in Shares under the 2020 Equity Incentive Plan (page 18)30) | | | | |
We seek a non-binding advisory votestockholder approval of amendments to approve the frequency2020 Equity Incentive Plan to increase the number of shares authorized for issuance under the 2020 Equity Incentive Plan and the number of such shares that can be delivered in respect of incentive stock options, from 2,500,000 shares to 4,000,000 shares, and to extend the term of the advisory vote on executive compensation. The Board values stockholders’ opinions2020 Equity Incentive Plan. This will provide us a share reserve that will enable us to continue to provide a competitive mix of compensation to key employees and believes an annual advisory vote to approve executive compensation provides the appropriate opportunity for stockholders to communicate with the Board regarding our executive compensation program.potential new employees. | | ONE YEAR |
| | FOR | |
ITEM 4. ApprovalAdvisory Vote to Approve an Amendment to our Certificate of the AudioEye, Inc. 2019 Equity Incentive PlanIncorporation (page 19)40) | | | | |
We seek stockholder approval of an amendment to our Restated Certificate of Incorporation to eliminate or limit the AudioEye, Inc. 2019 Equity Incentive Plan (a copypersonal liability of which is attachedofficers to this Proxy Statement asAnnex A). The Board believes approval of the 2019 Equity Incentive Plan is appropriate and inextent permitted by the best interest of AudioEye and its stockholders; andDelaware General Corporation Law. | | | FOR | |
| | | | Our Board’s
Recommendation | |
ITEM 5. Ratification of the Appointment of MaloneBailey, LLP, as AudioEye’s Independent Registered Public Accounting Firm (page 26)44) | | | | |
The Audit Committee of the Board believes that the retention of MaloneBailey, LLP, to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 20192024, is in the best interest of AudioEye and its stockholders. As a matter of good corporate governance, stockholders are being asked to ratify the Audit Committee’s selection of the independent registered public accounting firm. | | FOR |
QUESTIONS AND ANSWERS ABOUT THE VIRTUAL ANNUAL MEETING AND VOTINGWhen and where is
How can I participate in the Virtual Annual Meeting?
Like last year, our Annual Meeting this year will be a completely virtual meeting. There will be no physical meeting location.
To participate in the Annual
Meeting?When: | Friday, May 10, 2019, at 10:00 a.m., Eastern Time |
Where: | 730 Third Avenue, 18th Floor, New York, NY 10017 |
Meeting, visit www.virtualshareholdermeeting.com/AEYE2024 and enter the 16-digit control number included on your Notice, on your proxy card, or on the instructions that accompanied your proxy materials. You may begin to log into the meeting platform beginning at 9:30 a.m., Eastern Time (“ET”), on May 24, 2024. The meeting will begin promptly at 10:00 a.m. ET on May 24, 2024.
If you wish to submit a question during the meeting, log into the virtual meeting platform at www.virtualshareholdermeeting.com/AEYE2024 and follow the instructions in the virtual meeting platform for submitting a question. Questions pertinent to meeting matters will be answered during the Annual Meeting, subject to time constraints and rules of conduct. Questions regarding personal matters, including those related to employment, product issues or suggestions for product innovations, are not pertinent to meeting matters and therefore will not be answered.
If you encounter any technical difficulties with the virtual meeting platform on the day of the Annual Meeting either during the check-in or meeting time, please call the technical support number that will be posted on the virtual meeting platform login page.
Who is entitled tocan vote at the Annual Meeting? You are entitled to vote at the Annual Meeting if you owned shares of our common stock, par value $0.00001 per share or Series A Convertible Preferred Stock, par value $0.00001 per share, as of the close of business on March 20, 201928, 2024 (the “Record Date”). Each share of our common stock entitles the holder of such share on the Record Date to one vote on each matter submitted to the stockholders at the Annual Meeting.
On
each such matter submitted to the
stockholders, each holder of our Series A Convertible Preferred Stock is entitled to cast a number of votes that is equal to the number of wholeRecord Date, 11,658,146 shares of common stock
into which the holder’s shares of Series A Convertible Preferred Stock are convertible on the Record Date.On the Record Date, 7,623,227 shares of common stock and 105,000 shares of Series A Convertible Preferred Stock were outstanding and eligible to be voted at the Annual Meeting. Such shares of Series A Convertible Preferred Stock were convertible as of such date into a total of 285,998 shares of common stock.
The presence, in personvirtually or by proxy, of the holders of a majority of the voting power of our outstanding common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. The holders
Am I a stockholder of our common stock and Series A Convertible Preferred Stock will vote as a single classrecord?
If at the close of business on the
matters submitted to the stockholders at the Annual Meeting.How do I vote at the Annual Meeting?
Holders of Common Stock
If you own common stock andRecord Date, your shares arewere registered directly in your name with the Company’s transfer agent, then you are the record holdera stockholder of therecord.
What if my shares and you may vote by mail,are not registered directly in person at the Annual Meeting or online. If your sharesmy name but are held in street name?
If at the nameclose of business on the Record Date, your shares were held in an account at a brokerage firm, bank, dealer, or other nominee,similar organization, then you are considered the beneficial owner“beneficial owner” of shares held in street name,“street name” and the proxy materials are being forwarded to you shouldby that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account.
What does it mean if I receive instructions from your brokerage firm, bankmore than one proxy card or other nominee that must be followed in order forvoting instruction form?
If you received more than one proxy card or voting instruction form, your shares
to be voted based on your instructions. Brokerage firms, banks and other nominees typically have a process for their beneficial holders to provideare registered in more than one name or are registered in different accounts. Please follow the voting instructions
online or by telephone.
Voting by Mail. If you are the record holderincluded in each proxy card and voting instruction form to ensure that all of your shares youare voted.
If I am a stockholder of record of common stock, how do I cast my vote?
Voting by Mail. You may vote your shares by proxy via mail. By marking, signing and dating the enclosed proxy card and returning it in the postage-prepaid and addressed envelope enclosed with these proxy materials, you
are authorizing the individuals named on the proxy card (known as “proxies”) to vote your shares at the Annual Meeting in the manner you indicate. We encourage you to sign and return the proxy card even if you plan to attend the Annual Meeting virtually so that your shares will be voted even if you later find yourself unable to attend the Annual Meeting. If you receive more than one proxy card, it is an indication that your shares are held in multiple accounts. Please sign and return all proxy cards that you receive to ensure that all of your shares are voted.
Voting in Person at the Annual Meeting. If you are the record holder of your shares and you plan to attend the Annual Meeting and to vote in person,during the meeting, we will provide you with aan online ballot atduring the Annual Meeting. If your shares are registered directly in your name, you haveMeeting through the right to vote in personvirtual stockholder meeting platform at the Annual Meeting. However, if you beneficially own your shares and you wish towww.virtualshareholdermeeting.com/AEYE2024. To vote at the Annual Meeting, you will need to bring tomeeting, please follow the Annual Meeting proof ofinstructions on your ownership of your shares as of the Record Date, such as an account statement, and a form of personal identification for admission to the Annual Meeting. You will also need a legal proxy from your broker, bankcard or other nominee authorizing you to vote those shares.Notice. We recommend you vote by proxy even if you plan to attend the Annual Meeting. You can always change your vote at the meeting.
Voting by Telephone. If you are the beneficial holder of your shares, toTo vote by proxy over the telephone, please follow the voting instructions that you receive fromand use the toll-free telephone number on your brokerage firm, bank or other nominee.proxy card. You may submit your proxy over the phone 24 hours a day until 11:59 p.m. ET on the day before the meeting date. If you are thea record holder of your shares,and you will not be able to vote by telephone.
proxy over the telephone, you do not need to complete and mail a proxy card.
Voting Online. If you are the record holder of shares of common stock and you wish to vote those sharesby proxy online, please follow the instructions included on your proxy card.card or Notice to obtain your records and to create an electronic voting instruction form. You may submit your proxy online 24 hours a day until 11:59 p.m. ET on the day before the meeting date. If you are a record holder and you vote by proxy online, you do not need to complete and mail youra proxy card.
If I am a beneficial owner of the Company’s shares, how do I vote?
If you are
thea beneficial
holderowner of
your shares
of common stock, to vote online please follow the voting instructions that you receive from yourheld in street name through a brokerage firm, bank,
dealer, or other
nominee.similar organization, you will receive instructions from that organization, which you must follow to vote your shares. Brokerage firms, banks, dealers and other nominees typically have a process for their beneficial holders to provide voting instructions online or by telephone. If you
are the holder ofhold your shares
of our Series A Convertible Preferred Stock, you will not be ablein street name and wish to vote
those shares online. Holders of Series A Convertible Preferred Stock
If you own Series A Convertible Preferred Stock, you may vote in one of two ways: by completing and returning the enclosed proxy card via regular mail or via email. Specific instructions for using these methods are set forth on the enclosed proxy card.
Proxy Deadline
All properly executed proxies received by AudioEye by 11:59 p.m., Eastern Time, on Thursday, May 9, 2019, and not revoked will be voted at the virtual Annual Meeting, in accordance withplease obtain instructions on how to vote at the directions noted on the proxy card. If anymeeting from your broker, bank or other matters properly come before the Annual Meeting, the persons named as proxies will vote upon such matters accordingnominee, including how to their judgment.
obtain a legal proxy.
Can I change my vote?Any stockholder of record delivering avote after submitting my proxy?
Yes. You can revoke your proxy has the power to revoke it at any time before it is voted by: (i) givingthe final vote at the Annual Meeting. If you are a stockholder of record, you may revoke your proxy in any one of three ways:
•
You may timely submit a later-dated proxy via the Internet, by telephone or by mail;
•
You may send a written notice that you are revoking your proxy to AudioEye, Inc., Attention: Lonny Sternberg, Chief Operating Officer,James Spolar, General Counsel, 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711; (ii) submitting a proxy card bearing a later date, including a proxy card submitted online (if you are a holder of common stock) or by email (if you are a holder of Series A Convertible Preferred Stock); or (iii) voting in person
•
You may attend and vote your shares at the Annual Meeting. Simply attending the Annual Meeting will not, by itself, revoke your proxy.
Please note, however, that any beneficial owner of our common stock whose shares are held in street name may (a) revoke
his or herthe beneficial owner’s proxy and (b) attend and vote
his or herthe beneficial owner’s shares
in person at the Annual Meeting only in accordance with applicable rules and procedures that may then be employed by such beneficial owner’s brokerage firm,
bank, dealer, or
bank.other similar organization.
What Proposals am I being asked tovoting on?
The following proposals are scheduled for a vote
on at the Annual
Meeting and what is required to approve each proposal?You are being asked to vote on five proposals:
Meeting: Proposal 1 – election— To elect the five nominees named in this Proxy Statement to serve as directors until the 2025 Annual Meeting of four proposed nominees as directors;Stockholders or until their successors have been duly elected and qualified;
Proposal 2 – approval, in a non-binding— To approve, on an advisory vote, ofbasis, AudioEye’s 2023 executive compensation;
Proposal 3 – approval, in a non-binding advisory vote, of— To approve amendments to the frequency of future advisory votes on executive compensation;2020 Equity Incentive Plan;
Proposal 4 – approval— To approve an amendment to our Restated Certificate of the AudioEye, Inc. 2019 Equity Incentive Plan;Incorporation; and
Proposal 5 – ratification of— To ratify the appointment of ourMaloneBailey, LLP as the independent registered public accounting firm.firm of AudioEye, Inc. for the fiscal year ending December 31, 2024.
How many votes are needed to approve each proposal?
In voting with regard to Proposal 1, you may vote
in favor of each nominee,for or withhold authority to vote in favor of
one or more nominees, or abstain from voting.each nominee. Directors will be elected by a plurality of the votes cast by holders of our shares present
in personvirtually or represented by proxy at the Annual Meeting and entitled to vote on Proposal 1, provided a quorum is present.
AbstentionsWithhold votes will have no effect on the election of directors.
In voting with regard to Proposal 2, you may vote
in favor offor the proposal, against the proposal, or abstain from voting. The vote required to approve Proposal 2 is a majority of the voting power of our shares present
in personvirtually or represented by proxy at the Annual Meeting and entitled to vote on Proposal 2, provided a quorum is present. Abstentions will be considered in determining the number of votes required to obtain the necessary majority vote for the proposal and
therefore will have the same legal effect as votes against the proposal.
In voting with regard to Proposal 3, you may vote for the proposal, against the proposal, or abstain from voting. The vote required to approve Proposal 3 is a frequency of one, two or three years. The frequency (every one, two or three years) receiving the greatest number of votesmajority of the voting power of our shares present in personvirtually or represented by proxy at the Annual Meeting and entitled to vote on Proposal 3, provided a quorum is present,present. Abstentions will be considered in determining the frequency preferred by stockholders. Abstentionsnumber of votes required to obtain the necessary majority vote for the proposal and therefore will have nothe same legal effect on this vote.
as votes against the proposal.
In voting with regard to Proposal 4, you may vote
in favor offor the proposal, against the proposal, or abstain from voting. The vote required to approve Proposal 4 is a majority of the voting power of our shares
present in person or represented by proxy at the Annual Meetingoutstanding and entitled to vote on Proposal 4, provided a quorum is present. Abstentions will be considered in determining the number of votes required to obtain the necessary majority vote for the proposal and therefore will have the same legal effect as votes against the proposal.
In voting with regard to Proposal 5, you may vote
in favor offor the proposal, against the proposal, or abstain from voting. The vote required to approve Proposal 5 is a majority of the voting power of our shares present
in personvirtually or represented by proxy at the Annual Meeting and entitled to vote on Proposal 5, provided a quorum is present. Abstentions will be considered in determining the number of votes required to obtain the necessary majority vote for the proposal and therefore will have the same legal effect as votes against the proposal.
AudioEye is
We are not aware, as of the date hereof, of any matters to be voted upon at the Annual Meeting other than those stated in this Proxy Statement. If any other matters are properly brought before the Annual Meeting, your proxy gives discretionary authority to the persons named as proxies to vote the shares represented thereby in their discretion.
What happens
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will separately count votes “For” and “Against” (or, with respect to the election of directors, “For” and “Withhold”), abstentions and, if
I don’t return my proxy card orapplicable, broker non-votes. A “broker non-vote” occurs when a stockholder of record, such as a broker, holding shares for a beneficial owner does not vote
my shares?If you hold your shares directly, your shareson a particular item because the stockholder of record does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner. Broker non-votes will not be votedcounted for the purpose of determining if you do not return your proxy card or vote in person at the Annual Meeting.a quorum is present. If your shares are held in thestreet name of a bank or brokerage firm (in “street name”) and you do not vote your shares, your bank or brokerage firm can only vote your shares in their discretion for proposals which are considered “routine” proposals. Proposal 5, the ratification of the appointment of our independent registered public accounting firm, is considered a routine proposal, and therefore we do not expect any “broker non-votes” (as defined below)broker non-votes on Proposal 5.
Brokers are prohibited from exercising discretionary authority for beneficial owners who have not provided voting instructions to the broker for proposals which are considered “non-discretionary” (a “broker non-vote”). Proposals 1, 2, 3 and 4 are non-discretionary proposals. Broker“non-routine” proposals, and therefore there may be broker non-votes will be counted for the purpose of determining if a quorum is present but will not be considered as shares entitledwith respect to vote on Proposals 1, 2, 3 and 4. Broker non-votes will have no effect onnot affect the outcome of those proposals.
the vote on Proposals 1, 2 or 3, but broker non-votes will have the same effect as votes cast “Against” Proposal 4.
What happens if I sign, date and return mya proxy card but do not specify how tomake specific choices?
If you complete and submit a proxy before the meeting, the persons named as proxies will vote my shares?the shares represented by your proxy in accordance with your instructions. If you submit a signed proxy card is received which does not specify a vote or an abstention,without making any voting selections, then the shares represented by that proxy card will be voted
FORthe election of all fourfive director nominees,FOR the approval of AudioEye’s 2023 executive compensation,FOR annual non-binding approvals of executive compensation,FOR the approval ofamendments to the AudioEye, Inc. 20192020 Equity Incentive Plan, FOR the amendment to our Restated Certificate of Incorporation eliminating or limiting the personal liability of officers to the extent permitted by the Delaware General Corporation Law, andFOR the ratification of the appointment of MaloneBailey, LLP as our independent registered public accounting firm for the year ending December 31, 2019.Who pays for2024.
What are the costcosts of this proxy solicitation?We will bear the cost of preparing, printing and filing the Proxy Statement and related proxy materials. In addition to soliciting proxies through the mail, we may solicit proxies through our directors, officers and employees, in person and by telephone, email and facsimile. Our directors, officers and other employees will not receive compensation for such services other than regular director or employee compensation. Brokerage firms, nominees, custodians and fiduciaries also may be requested to forward proxy materials to the beneficial owners of shares held of record by them. these proxies?
We will pay all
expenses incurredof the costs of soliciting these proxies. Our officers, directors and employees may solicit proxies in
connection with the solicitation ofperson or by telephone, fax or email. We will pay these officers, directors and employees no additional compensation for these services. We will ask banks, brokers and other institutions, nominees and fiduciaries to forward these proxy materials to their principals and to obtain authority to execute proxies.
We will then reimburse them for their expenses.
When will voting results be made available? We will announce the final voting results in a Current Report on Form 8-K that will be filed with the
Securities and Exchange Commission (the “SEC”)SEC within four business days following the Annual Meeting (i.e., on or before
Friday, May
16, 2019)31, 2024).
SECURITY OWNERSHIPTABLE OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENTWe have two classes of voting securities outstanding, namely our: (1) common stock, par value $0.00001 per share, of which 7,623,227 shares were outstanding as of the close of business on the Record Date (i.e., March 20, 2019), and (2) Series A Convertible Preferred Stock, par value $0.00001 per share, of which 105,000 shares were outstanding as of the close of business on the Record Date. As of the Record Date, our outstanding shares of Series A Convertible Preferred Stock were convertible into an aggregate of 285,998 shares of common stock.
Each share of our common stock entitles the holder to one vote on all matters put to a vote of stockholders at the Annual Meeting. On all such matters, each holder of shares of our Series A Convertible Preferred Stock is entitled to cast a number of votes equal to the number of whole shares of common stock into which such holder’s shares of Series A Convertible Preferred Stock are convertible on the Record Date.
The following table sets forth information regarding the beneficial ownership of our common stock and Series A Convertible Preferred Stock as of March 20, 2019 by:
| · | each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock or Series A Convertible Preferred Stock; |
| · | each of our directors and named executive officers; and |
| · | all of our directors and executive officers as a group. |
The following table also sets forth, as of the Record Date and for the beneficial owners listed in the table, their respective percentages of the Company’s total voting power on the Record Date. Such percentages are based on our shares of common stock and Series A Convertible Preferred Stock outstanding as of the close of business on the Record Date.
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock and Series A Convertible Preferred Stock beneficially owned by them, subject to community property laws where applicable.
For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3(d) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to which a person is deemed to have beneficial ownership of any shares of common stock and Series A Convertible Preferred Stock that such stockholder has the right to acquire within 60 days after March 20, 2019. The inclusion of any securities in the following table does not constitute an admission of beneficial ownership by the persons named below.
| | | Common Stock | | | Series A Convertible
Preferred Stock | | | | |
| Name of Beneficial Owner | | Number of
Shares
Beneficially
Owned (1) | | | Percentage
Beneficially
Owned
(1)(2) | | | Number of
Shares
Beneficially
Owned on an
As-Converted
Basis | | | Percentage
Beneficially
Owned(3) | | | Percentage
of
Total
Voting
Power | |
| | | | | | | | | | | | | | | | |
| 5% Owners | | | | | | | | | | | | | | | | | | | | |
| David Moradi (4) | | | 2,994,478 | (5) | | | 34.01 | % | | | 137,127 | | | | 47.62 | % | | | 24.63 | % |
| | | | | | | | | | | | | | | | | | | | | |
| KTK Capital Inc. (6) | | | 614,662 | (7) | | | 7.90 | | | | 27,426 | | | | 9.52 | | | | 6.13 | |
| | | | | | | | | | | | | | | | | | | | | |
| Officers and Directors | | | | | | | | | | | | | | | | | | | | |
| Dr. Carr Bettis (8) | | | 935,130 | (9) | | | 11.89 | | | | 27,426 | (10) | | | 9.52 | | | | 8.97 | |
| | | | | | | | | | | | | | | | | | | | | |
| Todd Bankofier | | | 92,810 | (11) | | | 1.20 | | | | - | | | | - | | | | * | |
| | | | | | | | | | | | | | | | | | | | | |
| Sean Bradley | | | 265,812 | (12) | | | 3.45 | | | | 11,264 | | | | 3.91 | | | | 2.54 | |
| | | | | | | | | | | | | | | | | | | | | |
| Anthony Coelho | | | 77,704 | (13) | | | 1.01 | | | | - | | | | - | | | | * | |
| | | | | | | | | | | | | | | | | | | | | |
| Ernest Purcell (14) | | | 481,162 | (15) | | | 6.16 | | | | 27,426 | | | | 9.52 | | | | 4.09 | |
| | | | | | | | | | | | | | | | | | | | | |
| Alexandre Zyngier (16) | | | 203,830 | (17) | | | 2.63 | | | | - | | | | - | | | | * | |
| | | | | | | | | | | | | | | | | | | | | |
| All directors and executive officers as a group (7 persons) | | | 2,077,087 | (18) | | | 23.65 | | | | 66,116 | | | | 23.12 | | | | 35.34 | |
* Less than 1%
Unless otherwise indicated, the business address of each of the individuals is c/o AudioEye, Inc., 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711.
| (1) | Shares of common stock beneficially owned and the respective percentages of beneficial ownership of common stock assume the exercise or conversion of all options, warrants and convertible securities beneficially owned by such person or entity that are exercisable or convertible as of, or become exercisable or convertible within 60 days after, March 20, 2019, inclusive of the effect of additional dividend accruals in the case of shares of our Series A Convertible Preferred Stock. Shares of common stock issuable pursuant to the exercise of stock options or warrants or pursuant to the conversion of convertible securities as of or within 60 days after March 20, 2019 are deemed outstanding and held by the holder of such options, warrants or convertible securities for the purpose of computing the percentage of outstanding common stock beneficially owned by such person but are not deemed outstanding for computing the percentage of outstanding common stock beneficially owned by any other person. |
| (2) | These percentages have been calculated based on 7,623,227 shares of the Company’s common stock outstanding on March 20, 2019. |
| (3) | Shares of Series A Convertible Preferred Stock beneficially owned and the respective percentages of beneficial ownership of Series A Convertible Preferred Stock assume the conversion of all such shares beneficially owned by such person or entity into common stock within 60 days after March 20, 2019, inclusive of the effect of additional dividend accruals. These percentages have been calculated based on 105,000 shares of the Company’s Series A Convertible Preferred Stock outstanding on March 20, 2019, which shares were convertible as of such date into an aggregate of 285,998 shares of common stock. |
| (4) | David Moradi’s business address is c/o Sero Capital LLC, 119 Washington Avenue, Suite 406, Miami Beach, Florida 33139. |
| (5) | Based solely on a Schedule 13G filed with the SEC by Sero Capital LLC (“Sero Capital”) and David Moradi on February 5, 2019, includes (i) 155,169 shares of common stock and warrants to purchase 117,584 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, all held by Mr. Moradi, and (ii) 1,656,740 shares of common stock and warrants to purchase 927,858 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, all held by Sero Capital, an entity for which David Moradi is deemed the beneficial owner. Also includes 137,127 shares of common stock that are issuable as of or become issuable within 60 days after March 20, 2019 upon conversion of 50,000 shares of Series A Convertible Preferred Stock held by Mr. Moradi. |
| (6) | KTK Capital’s business address is 100 South Pointe Drive #1610, Miami Beach, Florida 33139. |
| (7) | Based solely on a Schedule 13G filed with the SEC on February 26, 2019 by Keith Kosow and KTK Capital, Inc. (“KTK Capital”), includes (i) 172,703 shares of common stock held by Mr. Kosow and (ii) 285,158 shares of common stock and warrants to purchase 129,375 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, all held by KTK Capital, a company controlled by Mr. Kosow for which he is deemed the beneficial owner. Also includes 27,426 shares of common stock that are issuable as of or become issuable within 60 days after March 20, 2019 upon conversion of 10,000 shares of Series A Convertible Preferred Stock held by KTK Capital. |
| (8) | Dr. Bettis’ business address is c/o Reach4Partners, 16211 N. Scottsdale Road, Suite A6A-628, Scottsdale, Arizona 85254. |
| (9) | Comprised of (i) 110,000 shares of common stock, options to purchase 92,000 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, and warrants to purchase 109,705 shares of common stock that are exercisable or become exercisable within 60 days after March 20, 2019, all held by Dr. Bettis; (ii) 508,988 shares of common stock and warrants to purchase 11,680 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, all held by CSB IV US Holdings LLC, an entity for which Mr. Bettis is deemed a beneficial owner; (iii) 18,600 shares of common stock held by Carr Bettis IRA, an account for which Mr. Bettis is deemed the beneficial owner; and (iv) 54,856 shares of common stock, warrants to purchase 1,875 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, and 27,426 shares of common stock that are issuable as of or become issuable within 60 days after March 20, 2019 upon conversion of 10,000 shares of Series A Convertible Preferred Stock, all held by J. Carr & Stephanie V. Bettis Revocable Trust, dated January 1, 2003, an entity for which Mr. Bettis is deemed a beneficial owner. |
| (10) | Comprised of 27,426 shares of common stock that are issuable as of or within 60 days after March 20, 2019 upon conversion of 10,000 shares of Series A Convertible Preferred Stock held by J. Carr & Stephanie V. Bettis Revocable Trust, dated January 1, 2003, an entity for which Mr. Bettis is deemed a beneficial owner. |
| (11) | Comprised of 12,010 shares of common stock, options to purchase 80,000 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, and warrants to purchase 800 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019. |
| (12) | Comprised of (i) 15,965 shares of common stock, options to purchase 64,719 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, and 11,264 shares of common stock that are issuable as of or become issuable within 60 days after March 20, 2019 upon conversion of 4,107 shares of Series A Convertible Preferred Stock, all held by Sean Bradley, and (ii) 173,864 shares of common stock held by Banyon Tree LLC, an entity for which Mr. Bradley is deemed the beneficial owner. |
| (13) | Comprised of 9,704 shares of common stock and options to purchase 68,000 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019. |
| (14) | Mr. Purcell’s business address is 1395 Brickell Avenue, Suite 1130, Miami, Florida 33131. |
| (15) | Comprised of (i) 239,202 shares of common stock, options to purchase 110,000 shares of common stock that are exercisable or become exercisable within 60 days after March 20, 2019, warrants to purchase 47,200 shares of common stock that are exercisable or become exercisable within 60 days after March 20, 2019, and 27,426 shares of common stock that are issuable as of or become issuable within 60 days after March 20, 2019 upon conversion of 10,000 shares of Series A Convertible Preferred Stock, all held by Ernest Purcell, and (ii) 57,334 shares of common stock held by Ernest W. Purcell & Anne M. Purcell JT TEN, an account for which Mr. Purcell is deemed a beneficial owner. |
| (16) | Mr. Zyngier’s business address is 286 Madison Ave, 8th Floor, New York New York 10017. |
| (17) | Comprised of (i) options to purchase 70,000 shares of common stock that are currently exercisable or exercisable within 60 days after March 20, 2019; (ii) 63,430 shares of common stock and warrants to purchase 60,000 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019, all held by Equity Trust Custodian, FBO Alexandre Zyngier IRA, an account for which Mr. Zyngier is deemed the beneficial owner; and (iii) 10,400 shares of common stock held by HZ Investments Family LP, an entity for which Mr. Zyngier is deemed the beneficial owner. |
| (18) | Comprised of (i) an aggregate of 1,274,353 shares of common stock; (ii) options to purchase an aggregate of 505,358 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019; (iii) warrants to purchase an aggregate of 231,260 shares of common stock that are exercisable as of or become exercisable within 60 days after March 20, 2019; and (iv) an aggregate of 66,116 shares of common stock that are issuable as of or become issuable within 60 days after March 20, 2019 upon conversion of an aggregate of 24,107 shares of Series A Convertible Preferred Stock. |
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
Our
Proposal No. 1 is a proposal to elect five persons to serve as directors on our Board currently consists of four members, allDirectors. Each director will hold office until the next Annual Meeting of whom areStockholders and until his or her successor is elected annually. and qualified, or his or her earlier resignation or removal. All of the Board’s director nominees have consented to be named in this Proxy Statement and to serve as a director, if elected.
The Board, based on the recommendation of the Nominating and Corporate Governance Committee, has nominated each of Dr. Carr Bettis, Anthony Coelho, Ernest PurcellDr. Katherine Fleming, David Moradi and Alexandre Zyngier, each a current director of AudioEye,Jamil Tahir for re-election as directors at the 20192024 Annual Meeting.
Proxies cannot be voted for a greater number of persons than five, which is the number of nominees named in this Proxy Statement. If elected,
each of the
five nominees will serve a one-year term expiring at the
20202025 Annual Meeting of
Stockholders and until his or her successor has been duly elected and qualified.Each ofStockholders.
If, prior to the
nominees has consented to serve another term as a director if re-elected. IfAnnual Meeting, any of the nominees should be unavailable to serve for any reason,
(which is not anticipated), the Board may
(i) designate a substitute nominee or nominees (in which event the persons named on the enclosed proxy card will vote the shares represented by all valid proxy cards for the election of such substitute nominee or nominees),
(ii) allow the
vacanciesvacancy(ies) to remain open until a suitable candidate or candidates are located, or
(iii) by resolution provide for a lesser number of directors.
The Board has no reason to believe that any of its nominees will be unable to serve.
Directors are elected by a plurality of the votes cast by holders of our shares present virtually or represented by proxy at the Annual Meeting and entitled to vote on Proposal 1, provided a quorum is present. Stockholders do not have the right to cumulate their votes in the election of directors or with respect to any other proposal or matter. Assuming a quorum is present, the five validly nominated individuals receiving the highest number of votes cast at the Annual Meeting will be elected directors.
All five of the director nominees were elected at our 2023 Annual Meeting of Stockholders. Messrs. Moradi and Tahir were initially appointed by the Board in November 2019 following the exercise of director designation rights by Sero Capital LLC, a significant stockholder of the Company (“Sero Capital”), pursuant to the terms of a Letter Agreement dated as of August 14, 2019 between the Company and Sero Capital (the “Letter Agreement”). Mr. Moradi is the Chief Executive Officer and beneficial owner of Sero Capital. In the Letter Agreement, the Company agreed that, upon the request of Sero Capital and subject to the terms and conditions provided therein, the Company would take all action necessary to cause two individuals designated by Sero Capital to be appointed to the Board. The number of designees will be reduced to one at such time as Sero Capital and its affiliates collectively own less than 30% of the Company’s voting power. At such time as such ownership falls below 5%, Sero Capital will cease to have the right to designate any directors. Although Sero Capital did not designate any directors for election at the 2024 Annual Meeting, the Board is nominating Messrs. Moradi and Tahir for reelection.
Nominees for DirectorSet forth
Summarized below is certain information concerning the persons who are nominated by the Board for election to the Board, including a brief account as of April 1, 2019, of the education and business experience of each nominee for director during at least the past five years, indicating each nominee’s principal occupation during the period and the name and principal business of the organization by which he was employed.years. There are no family relationships among our directorsbetween any director, executive officer, or executive officers.
person nominated to become a director.
The Board recommends that stockholders vote FOR each of the five director nominees named below to constitute the Board. If not otherwise specified, proxies will be voted “FOR” each of the five nominees for director. Dr. Carr BettisBettis.. Dr. Bettis, age 55,60, has served as a director since December 2012 and previously served as a director from July 2007 to April 2010. Dr. Bettis has served as Executive Chairman/Chairman of the Board since March 2015. Dr. Bettis foundedserved as our principal financial officer and has been the Chief Architectprincipal accounting officer from May 2021 until August 2021. He is a founder, chairman and chief architect of numerous financial science and technology innovations and businesses over the last 15 years that have been acquired by Merrill Lynch, Thomson Financial (now LSEG/Refinitiv), Primark/Disclosure (now LSEG/Refinitiv), Institutional Shareholder Services (ISS) and Advanced Equities/Greenbook Financial. From 1996 to 2011,others. Dr. Bettis was thejointly owns intellectual property with LSEG/Refinitiv via his IP firm CB Partners and is co-founder and Chairman and Founder of Gradient Analytics, one of the largest independent equity research firms in the United States. He has served as Chairman and Co-Founder of Verus Analytics, a 25+ year quantitative analytics and financial technology firm, since 1996.company. He currently sits on the First Contact Entertainment board and was Executive Chairman of Emmersive
Entertainment, Inc when its assets were sold in 2021. He also serves as
the Executive Chairman and interim CEOan advisor to other private businesses across a range of
Formulus Black Corporation, a New Jersey founded technology company. Dr. Bettis also manages his family’s private equity portfolio. Dr. Bettis is a former tenured professor andindustries. He maintains a
clinical-affiliationclinical affiliation with Arizona State University as Research Professor of Finance
at the W. P. Carey School of Business. He has been frequently cited in national and
international financial media.is an Executive Mentor for Columbia University’s Center for Technology Management. His research has been published in academic and professional journals, such as the Journal of Financial Economics, Review of Financial Studies, Journal of Accounting and Economics, Journal of Financial and Quantitative Analysis,
Financial Management and the Financial Analyst Journal.
Dr. Bettis holds undergraduate degrees in finance and accounting andHe received his Ph.D. from Indiana University in 1992. We believe that Dr. Bettis’ extensive education and background in finance make him qualified to serve as our Executive Chairman/Chairman of the Board and as a director.
Anthony Coelho. Mr. Coelho, age 76,81, has served as a director since June 2014. Mr. Coelho was a member of the U.S. House of Representatives from 1978 to 1989, where he authored the Americans Withwith Disabilities Act (ADA)of 1990 (“ADA”). After leaving Congress, he joined Wertheim Schroder & Company, an investment banking firm in New York, and became President and CEO of Wertheim Schroder Financial Services, and a member of the bank’s executive committee, from 1990 to 1995. From 1995 to 1997, he served as Chairman and CEO of an education and training technology company that he established and subsequently sold. In 1998, President Clinton appointed him as the U.S. Commissioner General for the World’s Fair in Lisbon, Portugal. He served as general chairman of the presidential campaign of former Vice President Al Gore from April 1999 until June 2000. Since2000.Since 1997, Mr. Coelho has worked independently as a business and political consultant. Mr. Coelho also served as Chairman of the President’s Committee on Employment of People with Disabilities from 1994 to 2001. He previously served as Chairman of the Board of the Epilepsy Foundation and Chairman of the Board for the American Association Forfor People Withwith Disabilities. Mr. Coelho has served on a number of boards, including those of Circus Circus, Warren Resources, Kaiser Resources and Cyberonics. Since 1991, he has been a member of the Board of Service Corporation International (NYSE:SCI), a publicly traded company, as its Lead Director. Mr. Coelho is also currently a member of the Board of Esquire Financial Holdings, Inc. (Nasdaq: ESQ), a publicly traded company, as its Chairman. Mr. Coelho earned a Bachelor of Arts degree in Political Science from Loyola Marymount University in 1964.We believe that Mr. Coelho’s political acumen and contacts, as well as his extensive executive, financial and business experience, qualify him to serve as a director.
Ernest PurcellDr. Katherine E. Fleming.. Mr. Purcell, Dr. Fleming, age 67,58, has over fifteen years’ experience in arts and education leadership. Currently the CEO and President of the J. Paul Getty Trust, she served as a director since March 2014. Mr. Purcell has more than two decadesProvost of experience inNew York University from 2016-2022. At Getty she oversees the Trust’s endowment, the activities of its programs, and its strategic priorities. At NYU, she was responsible for allocating financial servicesresources and advisory industrieshad oversight of all Deans and has been involved in providing fairness and solvency opinions on numerous U.S. and European transactions. He has technical expertise in financial due diligence, strategic business valuation, financial restructurings and divestitures.Directors. From 1997 to December of 2017, Mr. Purcell was employed by Houlihan Lokey, Inc., where he2012- 2016 she served as a Senior Managing Director,President of the Board of the University of Piraeus, Greece, and from 2007-2011 she directed the Institut Remarque at the Ecole Normale Superieure in Paris. Dr. Fleming was a member of the Board of Directors of their European and Asian subsidiaries, and the Head of International Financial Advisory Services. Houlihan Lokey is an international investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring and valuation. The firm serves corporations, institutions, and governments worldwide with offices in the United States, Europe and Asia. Houlihan Lokey is ranked as the No. 1 global restructuring advisor, the No. 1 M&A fairness opinion advisor for U.S. transactions over the past 10 years, and the No. 1 M&A advisor for U.S. transactions under $3 billion, according to Thomson Reuters. Mr. Purcell was based in Houlihan Lokey’s Miami office, having returned to the U.S. after serving more than six years in the London office. He officially retired from the firm at the end of 2017. With significant experience in the valuation of securitized vehicles and structured investment vehicles, Mr. Purcell has advised numerous hedge fund and private equity sponsors on the valuation of their portfolio assets. He has structured, negotiated and closed complex financial and capital transactions in many industries, including transportation, financial services, telecommunications, energy, aviation, consumer products and industrial products. From 1989 to 1996, Mr. Purcell served inAdvent Technologies Holdings, Inc. (Nasdaq:ADN), a number of positions with Valuemetrics, Inc. / VM Equity Partners, where he specialized in the valuation of publicly owned and privately held companies, strategic financial planning and bankruptcy analysis. Mr. Purcelltraded company, until June 2022. A historian by training, Dr. Fleming earned a bachelor’s degree in Economics and FinanceB.A. from theBarnard College of Columbia University, of Florida in 1973 and earned his MBA, with concentrations in Finance and Statistics, from the University of Chicago. He is a member of the Institute of Directors, British American Business and the Corporate Development Association. He is also a member of the Valuation Special Interest Group of the Institute of Chartered Financial Accountants in England and Wales, the Society of Share and Business Valuers and the Business Valuation Association.
We believe that Mr. Purcell’s extensive education and background in finance qualify him to serve as a director.
Alexandre Zyngier. Mr. Zyngier, age 49, has served as a director since September 2015. Mr. Zyngier founded Batuta Advisors in 2013 to pursue high return investment opportunities in the distressed and turnaround sectors. Mr. Zyngier has over 20 years of investment, strategy and business operations experience. He is a director and member of the audit committees of each of Applied Minerals Inc., Torchlight Energy Resources and Atari SA. Mr. Zyngier currently serves as the Chairman of the Audit Committees of each of Applied Minerals Inc. and Torchlight Energy Resources. He has worked as a Portfolio Manager, investing in public and private opportunities, at Alden Global Capital, Goldman Sachs & Co. and Deutsche Bank Co. Mr. Zyngier was also a strategy consultant at McKinsey & Company and a technical brand manager at Procter & Gamble. Mr. Zyngier holds an MBA in Finance and AccountingM.A. from the University of Chicago and a BSc.Ph.D. from the University of California, Berkeley. She is an elected member of the American Academy of Arts and Sciences, a Chevalier in Chemical Engineeringthe French Legion of Honor, and holds the Silver Cross in the Greek Order of Beneficence. We believe that Dr. Fleming’s extensive financial and scholastic experience qualify her to serve as a director.
David Moradi. Mr. Moradi, age 48, has served as Chief Executive Officer (“CEO”) since January 2022, served as Interim Chief Executive Officer and Chief Strategy Officer from UNICAMPAugust 2020 to January 2022, and has served as a director since November 2019. Mr. Moradi is an entrepreneur, investor, and advisor to numerous technology companies. In September 2018, Mr. Moradi founded and became Chief Executive Officer of Sero Capital LLC, a private investment firm that focuses on growth opportunities in Brazil.the technology sector. Sero Capital LLC is a principal stockholder of the Company. He founded and was Chief Executive Officer of Anthion Management, a technology-focused investment fund. Prior to founding Anthion Management, Mr. Moradi was a portfolio manager at Pequot Capital Management and, prior to that, an analyst and portfolio manager for Soros Fund Management. Mr. Moradi started his career as a special situations analyst for Imperial Capital LLC. Mr. Moradi is also the founder and chairman of the David Moradi Foundation, a charitable foundation that supports education and veterans. He graduated with a B.A. in psychology from the University of California, Los Angeles. We believe that Mr. Zyngier’sMoradi’s extensive education and background in finance,executive, investment, strategic planningfinancial and business operations, as well as his service as a director of new technology companies and on the boards of directors and compensation and audit committees of public companies,experience qualify him to serve as a director.
Executive Officers
Set forth below
Jamil Tahir. Mr. Tahir, age 47, has served as a director since November 2019 and the lead independent director since July 2020. Mr. Tahir is a brief account asco-founder and managing member of April 1, 2019, of the business experience of each of our executive officers during at least the past five years, indicating each officer’s principal occupation during the period and the name and principal business of the organization by which heTurnMark Capital LLC, a private investment firm that was employed. Our officers are appointed by our Board of Directors and hold office until their death, resignation or removal from office. There are no family relationships among our directors or executive officers.
Dr. Carr Bettis. Dr. Bettis’ biography can be found under “Nominees for Director” above.
Todd Bankofier. founded in 2008. Mr. Bankofier, 59 was a principal in Fairmont Capital Group (FCG) from 2008 to April 2015. In that role, Mr. Bankofier was responsible for day-to-day oversight of multiple asset holdings, including strategic planning, revenue generation, technology evolution, operational effectiveness and public relations for all FCG entities. Mr. Bankofier served as General Manager of Ensynch, which at the time was one of Arizona’s largest Information Technology services companies. He was President and CEO of the Arizona Technology Council (ATC) from 2002 to 2006. Before joining the ATC, he spent four years as Vice President of National Sales for XO Communications, a national telecommunications company, where he managed a national sales team to fourTahir has over 25 years of record sales growthpublic stock and bond investing experience. Prior to founding TurnMark Capital, Mr. Tahir managed the research team for thatCannell Capital LLC, an asset management company. Mr. Bankofier also servedTahir began his career as an investment banking analyst in Washington, D.C. for four years asthe Financial Entrepreneurs Group of Salomon Smith Barney, New York. He graduated from the University of California at Berkeley in 1999 earning a lobbyist for the Department of EnergyB.S. in Business Administration and served as Chief of Staff for Maricopa County Supervisor, Jim Bruner. He serves on the Advisory Board of Mutual of Omaha Bank, and he has served on the Arizona Governor’s Council for Innovation and Technology. He received a gubernatorial appointment to the State Board of Education where he served from 1998 to 2002.
B.A. in Economics. We believe that Mr. Bankofier’sTahir’s extensive experience investing in leadership rolespublicly traded companies and in technology companies, as well as his experience in overseeing diverse holdings,asset management and investment banking qualify him to serve as our Chief Executive Officer.
a director.
Sean Bradley9. Mr. Bradley, age 38, has been involved
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE
Stockholder Communications with us from our founding in 2005the Board of Directors
Stockholders of the Company wishing to send a written communication to the
present and has served as Secretary since April 2010, as Vice President from April 2010 to April 2015, asBoard, a
director from August 2012 to June 2014, as Chief Technology Officer from August 2012 to February 2019, as Chief Strategy Officer since February 2019, and as President since April 2015. Mr. Bradley co-founded several technology companies, including Kino Digital, LLC and Kino Communications, LLC, from 1999 to 2005. Over the past ten years, he has led an international teamcommittee of
software developers, has produced global webcasting technologies and planned, designed and managed the fulfillment of intellectual property assets, including the next generation mobile marketing solutions for industry leading Hipcricket. In the past, Mr. Bradley was chief architect of AdLife, BoomBox® Video and Audio Platforms for Augme Technologies, Inc. Mr. Bradley is proficient in several programming and web development languages and has engineered online communications systems for IBM, General Dynamics, Avnet and many others. In 2005, he was recognized by Arizona State’s W. P. Carey School of Business as a leader in his field for work he completed for the Arizona Department of Health and Human Services.Mr. Bradley is a former managing member of Bradley Brothers, LLC, an Arizona-based investment company. In 2003, Mr. Bradley obtained his BA from Arizona International College at the University of Arizona, graduating summa cum laude and with highest academic distinction for all eight undergraduate semesters. We believe that Mr. Bradley’s extensive education and background in business and technology qualify him to serve as our President, Chief Strategy Officer and Secretary.
Lonny Sternberg. Mr. Sternberg, age 38, joined the Company in October 2014 as Operations Manager. He held that position until October 2015, at which time he became Director of Operations. Mr. Sternberg served as Director of Operations from October 2015 through December 2016, and subsequently served as Vice President of Operations from January 2017 until January 2018. In January 2018, Mr. Sternberg was promoted to the position of Chief Operating Officer and, in February 2019, the Board designated him asor an executive officer in that position. Prior to joiningindividual director should send the written communication to: AudioEye, Mr. Sternberg had most recently served as Director of SalesInc., Attention: Corporate Secretary, 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711. Any such communication should include the stockholder’s name and Marketing of Simply Bits, a business technology solutions company. Mr. Sternberg is a BS cum laude graduate of the University of Arizona. We believe that Mr. Sternberg’s experience maximizing operational efficiencies, program developmentaddress and strategic planning qualify him to serve as our Chief Operating Officer.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors conducts its business through meetings of the full Board and throughidentify any individual directors or committees of the Board consisting of an Audit Committee, a Compensation Committeeto which the stockholder would like to have the written communication sent. The Corporate Secretary, or their designee, will, in such manner as the Corporate Secretary deems appropriate, collect and a Nominatingorganize such stockholder communications and Corporate Governance Committee. Our Board held nine meetings in 2018 and acted four times by unanimous written consent. Our Corporate Governance Guidelines provide that all directors are expectedperiodically forward them to rigorously prepare for, attend and participate in all Board and committee meetings, and to attend our Annual Meetings of Stockholders either in person or telephonically. In 2018, each director attended at least 75% of the total number of meetings of the Board and the committees of the Board onor a committee or individual director, as applicable. The Corporate Secretary may refuse to forward material which he served. We did not hold an Annual Meeting of Stockholdersthey determine in 2018.
The following directors are independent:
| · | Anthony Coelho |
| · | Ernest Purcell |
| · | Alexandre Zyngier |
The independent directors of the Board meet in executive session periodically, but no less than two times per year or such greater number as required under the NASDAQ listing standards. The Company’s Corporate Governance Guidelines adopted by the Nominating and Corporate Governance Committee in February 2019 provide that when the Chairman of the Board is not an independent director, executive sessions of the independent directors will be chaired by a lead independent director. The independent directors did not meet in executive session during 2018. In March 2019 and in accordance with our Corporate Governance Guidelines, the Nominating and Corporate Governance Committee designated Ernest Purcell as the Lead Independent Director. For certain information regarding the role and responsibilities of our Lead Independent Director, please refer to our Corporate Governance Guidelines that are available atwww.audioeye.com/investors/governance-documents. Please also see below under “Board Leadership Structure and Role in Risk Oversight.”
Audit Committee
Our Board of Directors has established an Audit Committee, which represents and assists the Board of Directors in fulfilling its oversight responsibility relating to our financial statements and financial reporting process. Our Audit Committee is currently comprised of Anthony Coelho, Ernest Purcell and Alexandre Zyngier, all of whom satisfy the “independence” requirements of NASDAQ and the Exchange Act. Mr. Purcell is the chairman of our Audit Committee and qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, based on his extensive experience as an investment banker analyzing and evaluating financial statements. The Audit Committee met four times in 2018. The Audit Committee is responsible for, among other things:
selecting the independent registered public accounting firm and approving the fees for the independent registered public accounting firm;
reviewing and discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent registered public accounting firm, our interim and year-end operating results;
reviewing our financial statements and our critical accounting policies and estimates;
overseeing compliance with our Code of Business Conduct and Ethics;
reviewing related party transactions; and
pre-approving all audit and all permissible non-audit servicesgood faith to be performed by the independent registered public accounting firm.
Our Audit Committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the NASDAQlisting standards. The charter is available on our website atwww.audioeye.com/investors/governance-documents.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is currently comprised of Anthony Coelho, Ernest Purcell and Alexandre Zyngier, each of whom meets the requirementscommercial, frivolous or otherwise inappropriate for independence under the NASDAQ listing standards and SEC rules and regulations. Mr. Coelho is the chairman of our Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee did not meet during 2018. Our Nominating and Corporate Governance Committee is responsible for, among other things:
identifying, evaluating and selecting, or making recommendations to our Board of Directors regarding, nominees for election to our Board of Directors and its committees;
overseeing the evaluation of the performance of our Board of Directors and of individual directors;
overseeing our corporate governance practices; and
developing and making recommendations to our Board of Directors regarding corporate governance guidelines and matters.
Our Nominating and Corporate Governance Committee operates under a written charter that satisfies the applicable NASDAQ listing standards. The charter is available on our website atwww.audioeye.com/investors/governance-documents.
Compensation Committee
Our Compensation Committee is currently comprised of Anthony Coelho, Ernest Purcell and Alexandre Zyngier, each of whom meets the requirements for independence under the NASDAQ listing standards and SEC rules and regulations. Mr. Zyngier is the chairman of the Compensation Committee. Each member of our Compensation Committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, or Rule 16b-3. The Compensation Committee met five times in 2018 and acted two times by unanimous written consent. Our Compensation Committee is responsible for, among other things:
reviewing, approving and determining, or making recommendations to our Board of Directors regarding, the compensation of our executive officers, including our CEO;
reviewing, approving and administering our incentive compensation and equity compensation plans; and
making recommendations regarding non-employee director compensation to our full Board of Directors.
Our Compensation Committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the NASDAQ listing standards. The charter is available on our website atwww.audioeye.com/investors/governance-documents.
CORPORATE GOVERNANCE
Director Independence
Our Board has undertaken a review of the independence of each director. Based on information provided by each director concerning his background, employment and affiliations, our Board of Directors has determined that Anthony Coelho, Ernest Purcell and Alexandre Zyngier do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the NASDAQ listing standards. In making these determinations, our Board considered the current and prior relationships that each non-employee director has or has had with our Company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”
Board Leadership Structure and Role in Risk Oversight
Dr. Bettis serves as Executive Chairman of the Board of Directors. In accordance with the Company’s Corporate Governance Guidelines, the Board has also designated a Lead Independent Director of the Board. In that position, the Lead Independent Director presides over executive sessions of the directors between meetings of the Board and serves as a liaison among the independent directors, the Executive Chairman and the Chief Executive Officer of the Company on various matters, including determining agenda items for Board meetings. Currently,
Ernest PurcellJamil Tahir serves as Lead Independent Director; however, the individual designated as Lead Independent Director may rotate from time to time. The Board believes that its current leadership structure is appropriate for
AudioEyethe Company and its stockholders at this time. The structure allows our Executive Chairman to provide leadership to our Board and to our business, while also allowing Mr.
PurcellTahir as our Lead Independent Director to help us ensure independent oversight.
The Board oversees the risk management activities of management directly and through the committees of the Board by discussing with management the policies and practices utilized by management in assessing and managing risks and by providing input on those policies and practices. Each committee reports to the full Board on a regular basis, including reports with respect to the respective committee’s risk oversight activities as appropriate. Certain key risks and related mitigation plans are also reviewed more in depth throughout the year either by the Board or its committees. Management and the Board regularly review and discuss appropriate strategies to monitor and assess the effectiveness of risk treatment for long-term success.
Director Independence
Our Board has undertaken a review of the independence of each director. Based on information provided by each director concerning their background, employment and affiliations, our board has determined that Messrs. Coelho and Tahir, and Dr. Fleming, do not have relationships with the Company that would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director, and therefore have been determined to be independent as that term is defined by the Nasdaq Stock Market Rules. The Board has determined that Dr. Bettis and Mr. Moradi are not independent under the Nasdaq Stock Market Rules. In making these determinations, our Board considered the current and prior relationships that each non-employee director has or has had with our Company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director and the transactions (if any) involving them and described in the section of this Proxy Statement titled “Certain Relationships and Related Party Transactions.”
The independent directors of the Board meet in executive session periodically, but no less than two times per year or such greater number as required under the Nasdaq Stock Market Rules.
Meetings and Committees of the Board of Directors
The Board of Directors is involved inconducts its business through meetings of the oversight of risks that could affect the Company. While this oversight is performed in partfull Board and through committees of the Board, consisting of an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Our Board held six meetings in 2023. Our Corporate Governance Guidelines provide that all directors are expected to prepare for, attend and participate in all Board meetings
and meetings of committees on which they serve, and to attend our Annual Meetings of Stockholders either in person or telephonically. In 2023, each director attended at least 75% of the fulltotal number of meetings of the Board and the committees of the Board on which he or she served. Three of the five Board members standing for election attended our 2023 Annual Meeting of Stockholders.
Audit Committee
Our Board of Directors has retainedestablished an Audit Committee, which represents and assists the Board of Directors in fulfilling its oversight responsibility relating to our financial statements and financial reporting process. Our Audit Committee is comprised of Jamil Tahir (Chair), Anthony Coelho and Dr. Katherine Fleming, each of whom meets the requirements for independence under the Nasdaq Stock Market Rules and the Exchange Act. Mr. Tahir qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, based on his extensive history of investing in publicly traded companies and in asset management and investment banking, as a result of which he has obtained extensive knowledge and expertise in financial and accounting matters. The Audit Committee met six times in 2023. The Audit Committee is responsible for, among other things:
•
selecting the Company’s independent registered public accounting firm and approving the fees for the general oversightindependent registered public accounting firm;
•
reviewing and discussing the scope and results of
risks.Nominationthe annual audit with the independent registered public accounting firm and reviewing with management and the independent registered public accounting firm our interim and year-end operating results;
•
reviewing our financial statements and our critical accounting policies and estimates;
•
discussing guidelines and policies to govern the process by which risk assessment and management is undertaken and handled, including discussing with management the Company’s major financial risk exposures, including financial, operational, data privacy, cyber and data security and legal and regulatory risks, and the steps management has taken to monitor and control such exposures;
•
overseeing compliance with our Code of Business Conduct and Ethics;
•
reviewing related party transactions in accordance with our Related Party Transactions Policies and Procedures; and
•
pre-approving all audit and all permissible non-audit services to be performed by the independent registered public accounting firm.
Our Audit Committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the Nasdaq Stock Market Rules. The charter is available on our website at www.audioeye.com/governance-documents.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is comprised of Anthony Coelho (Chair), Dr. Katherine Fleming and Jamil Tahir, each of whom meets the requirements for independence under the Nasdaq Stock Market Rules and SEC rules and regulations. The Nominating and Corporate Governance Committee met twice during 2023. Our Nominating and Corporate Governance Committee is responsible for, among other things:
•
identifying, evaluating and selecting, or making recommendations to our Board of Directors
regarding, nominees for election to our Board of Directors and its committees;
•
overseeing the evaluation of the performance of our Board of Directors and of individual directors;
•
overseeing our corporate governance practices; and
•
developing and making recommendations to our Board of Directors regarding corporate governance guidelines and matters.
Our Nominating and Corporate Governance Committee operates under a written charter that satisfies the applicable Nasdaq Stock Market Rules. The charter is available on our website at www.audioeye.com/governance-documents.
Compensation Committee
Our Compensation Committee is comprised of Jamil Tahir (Chair), Anthony Coelho and Dr. Katherine Fleming, each of whom meets the requirements for independence under the Nasdaq Stock Market Rules and SEC rules and regulations. Each member of our Compensation Committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act. The Compensation Committee met five times in 2023. Our Compensation Committee is responsible for, among other things:
•
reviewing, approving and determining, or making recommendations to our Board of Directors regarding, the compensation of our executive officers, including our CEO;
•
reviewing, approving and administering our incentive compensation and equity compensation plans; and
•
making recommendations regarding non-employee director compensation to our Board of Directors.
Our Compensation Committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the Nasdaq Stock Market Rules. The Compensation Committee may, from time to time and to the extent permitted by law and by the Company’s compensation plans, delegate any or all of its responsibilities as provided in the charter. The charter is available on our website at www.audioeye.com/governance-documents.
Director Qualifications, Board Diversity and Stockholder Nominations for Directors
The Board of Directors is responsible for approving candidates for Board membership. The Board has delegated the responsibility for evaluating, selecting and recommending director nominees to the Nominating and Corporate Governance Committee. In evaluating candidates and existing directors for service on the Board, the Nominating and Corporate Governance Committee considers certain minimum qualifications, including:
•
the highest professional and personal ethics and values, consistent with our Code of Business Conduct and Ethics;
•
broad experience and demonstrated excellence in theirthe prospective nominee’s field;
•
relevant expertise upon which to be able to offer advice and guidance to management and be committed to enhancing stockholder value;
•
sufficient time to devote to AudioEye’s affairs and to carry out theirthe prospective nominee’s duties as a director and/or committee member, as applicable;
•
the ability to exercise sound business judgment and to provide insight and practical wisdom based on experience;
•
service on other Boards of public companies that is limited to a number that permits them,the candidates, given theirthe individual circumstances, to perform responsibly all director duties; and
•
the ability to represent the interests of all stockholders.
Specific additional criteria may be added with respect to specific searches for new Board members. An acceptable candidate may not fully satisfy all of the criteria, but is expected to satisfy nearly all of them.
Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the Nominating and Corporate Governance Committee considers age, skills, education, and such other factors as it deems appropriate given the current needs of the Board, its committees and the Company, to maintain a balance of knowledge, experience and capability. Although we do not have a specific Board diversity policy, the Nominating and Corporate Governance Committee looks at the diversity of experience, background and Board composition in recommending director candidates as required by the Nominating and Corporate Governance Committee’s charter. The following table sets forth diversity information related to the current members of our Board of Directors.
| | Board Diversity Matrix (As of March 28, 2024) | |
| | Total Number of Directors | | | 5 | |
| | | | Female | | | Male | | | Did Not
Disclose
Gender | |
| Part I: Gender Identity | | | | | | | | | | |
| Directors | | | 1 | | | 3 | | | 1 | |
| Part II: Demographic Background | | | | | | | | | | |
| White | | | 1 | | | 4 | | | — | |
| LGBTQ+ | | | 1 | |
| Did Not Disclose Demographic Background | | | — | |
| Directors with Disabilities | | | 1 | |
| Directors who identify as Middle Eastern/North African | | | 2 | |
In the case of incumbent directors whose terms of office are set to expire, the Board reviews such directors’ overall service to the Company during their term, including the number of meetings attended, level of participation, quality of performance, and any relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Board also determines whether the nominee must be independent for purposes of the
NASDAQ listing standards.Nasdaq Stock Market Rules. The Board does not have term limits or a mandatory retirement age for directors.
The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating nominees for director. The Board periodically reviews the appropriate size of the Board, which may vary to accommodate the availability of suitable candidates and the needs of the Company. In the event that vacancies are anticipated or otherwise arise, the Nominating and Corporate Governance Committee will seek to identify director candidates based on input provided by a number of sources,
including: (i)including committee
members; (ii)members, other directors of
AudioEye; (iii)AudioEye, management of
AudioEye;AudioEye and
(iv) stockholders of AudioEye. The Nominating and Corporate Governance Committee also has the authority to consult with or retain consultants, legal counsel, accounting or other advisors as appropriate to perform its duties.
The Nominating
and Corporate Governance Committee will consider nominees recommended by stockholders as candidates for election to the Board. To recommend a nominee, a stockholder may write to the Nominating
and Corporate Governance Committee c/o
Sean Bradley, President, Chief Strategy OfficerJames Spolar, General Counsel and
Corporate Secretary, AudioEye, Inc., 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711. Any such recommendation should include:
•
the name and address of the stockholder and a representation thatabout whether the stockholder is a holder of record of shares of our common stock;
•
a brief biographical description for the nominee, including his or herthe nominee’s name, age, business and residence addresses, occupation for at least the last five years and a statement of the qualifications of the candidate, taking into account the qualification requirements set forth above;
•
a description of all arrangements or understandings between the stockholder and each nominee; and
•
the candidate’s consent to serve as a director if elected.
All five current directors were elected at our 2023 Annual Meeting of Stockholders. Messrs. Moradi and Tahir were appointed by the Board in November 2019 following the exercise of director designation rights by Sero Capital, a significant stockholder of the Company, pursuant to the terms of the Letter Agreement dated as of August 14, 2019 between the Company and Sero Capital. Mr. Moradi is the Chief Executive Officer and beneficial owner of Sero Capital. In the Letter Agreement, the Company agreed that, upon the request of Sero Capital and subject to the terms and conditions provided therein, the Company would take all action necessary to cause two individuals designated by Sero Capital to be appointed to the Board. The Nominating Committee hasnumber of designees will be reduced to one at such time as Sero Capital and its affiliates collectively own less than 30% of the Company’s voting power. At such time as such ownership falls below 5%, Sero Capital will cease to have the
right to designate any directors. Although Sero Capital did not
receiveddesignate any
nominations from stockholdersdirectors for
election at the
20192023 Annual
Meeting.Meeting, the Board is nominating Messrs. Moradi and Tahir for reelection.
Corporate Governance Policies We have adopted the Corporate Governance Guidelines that guide the Company and the Board on matters of corporate governance, including director responsibilities, Board committees and their charters, director independence, director qualifications, director evaluations, director orientation and education, director access to management, Board access to independent advisors, and management development and succession planning. The Corporate Governance Guidelines are available on our website atwww.audioeye.com/investors/governance-documents. Code of Business Conduct and Ethics The Company maintains a Code of Business Conduct and Ethics applicable to all directors, and to all officers and other employees of the Company. The Code of Business Conduct and Ethics is available without charge upon request in writing to Sean Bradley, President, Chief Strategy OfficerJames Spolar, General Counsel and Corporate Secretary, AudioEye, Inc., 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711. We intend to disclose any amendments to our Code of Business Conduct and Ethics, or waivers of its requirements granted to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, on our website atwww.audioeye.com/investors/governance-documents or in filings with the SEC under the Exchange Act as required by applicable law. The Code of Business Conduct and Ethics is available on our website at www.audioeye.com/governance-documents.
DIRECTOR COMPENSATION FOR FISCAL YEAR 2023
Prior to April 1, 2023, our non-employee director compensation program consisted of the following:
•
each non-employee director receives an annual equity award of RSUs with a value of $85,000;
•
the Lead Independent Director receives an additional annual equity award of RSUs with a value of $42,500;
•
each non-employee director receives a quarterly equity award of RSUs with a value of $10,000;
•
each Chair of the Compensation Committee, Nominating and Corporate Governance Committee and Audit Committee receives an additional quarterly equity award of RSUs with a value of $3,000; and
•
the Lead Independent Director receives an additional quarterly equity award of RSUs with a value of $5,000.
The number of RSUs in each award is determined by dividing the applicable value by the volume-weighted average price of the Company’s common stock on the Nasdaq Capital Market over the 20 consecutive trading days immediately prior to the date of grant.
Effective April 1, 2023, our non-employee director compensation program was amended to consist of the following:
•
each non-employee director receives an annual equity award of 5,667 RSUs;
•
the Lead Independent Director receives an additional annual equity award of 2,833 RSUs;
•
each non-employee director receives a quarterly equity award of 667 RSUs;
•
each Chair of the Compensation Committee, Nominating and Corporate Governance Committee and Audit Committee receives an additional quarterly equity award of 200 RSUs; and
•
the Lead Independent Director receives an additional quarterly equity award of 333 RSUs.
The annual RSUs are granted on the date of the annual meeting of stockholders in each year and vest on the earlier of (a) one year following the date of grant or (b) immediately prior to the next annual meeting of stockholders following the date of grant, provided the director’s service has not terminated prior to such date. Any of these vested RSUs are settled on the earlier of (i) the 7th anniversary of the grant date, (ii) immediately prior to the closing of a change in control, but in no case later than 90 days following the change in control, or (iii) the calendar year following the year of death, with payment made no later than the end of the year following the year of death.
The quarterly RSUs are granted in advance on the first day of each calendar quarter and vest on the grant date. These vested RSUs are settled on the earlier of (i) the 3rd anniversary of the grant date, (ii) immediately prior to the closing of a change in control, but in no case later than 90 days following the change in control, or (iii) the calendar year following the year of death, with payment made no later than the end of the year following the year of death.
2023 Compensation. The following table sets forth summary information concerning the compensation paid to our non-employee directors for the fiscal year ended December 31, 2023. Compensation paid to or earned by Dr. Carr Bettis and David Moradi, each of whom was a director and a named executive officer during the fiscal year ended December 31, 2023, is set forth in the Summary Compensation Table in the section below titled “Executive Compensation — Summary Compensation Table.”
| Director Name | 14 | | Fees Earned
or
Paid in Cash
($) | | | Stock
Awards
($)(1)(2) | | | Total
($) | |
| Anthony Coelho | | | | | — | | | | | | 61,761(3) | | | | | | 61,761 | | |
| Dr. Katherine Fleming | | | | | — | | | | | | 54,007(4) | | | | | | 54,007 | | |
| Jamil Tahir | | | | | — | | | | | | 95,803(5) | | | | | | 95,803 | | |
| Marc Lehmann | | | | | — | | | | | | 14,617(6) | | | | | | 14,617 | | |
Stockholder Communications
(1)
Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for stock granted during the reported fiscal year. For additional information regarding the assumptions we used to calculate the amounts in this column, please refer to Note 2 to our audited consolidated financial statements included in our 2023 Annual Report filed with the BoardSEC on March 7, 2024.
(2)
On May 19, 2023, each of
DirectorsStockholdersMr. Coelho and Dr. Fleming was granted 5,667 RSUs as the annual equity grant to non-employee directors, and Mr. Tahir was granted 8,500 RSUs as the aggregate annual equity grant to non-employee directors and the annual equity grant to the Lead Independent Director. Each such award will vest on the earlier of the Company wishing to send a written communicationfirst anniversary of the grant date or immediately prior to the Board,next annual meeting of stockholders, provided the director’s service does not terminate prior to such date. In addition, on March 24, 2023, Dr. Fleming was granted 1,233 RSUs upon becoming a Board committee or an individual director should sendas the written communication to: AudioEye, Inc., Attention: Corporate Secretary, 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711. Any such communication should includeprorated annual equity grant to non-employee directors, which vested on May 19, 2023. The settlement date for any RSUs that become vested will be the stockholder’s name and address and identify any individual director or committeefirst to occur of (x) the 7th anniversary of the Board to which the stockholder would like to have the written communication sent. The Corporate Secretary, or his or her designee, will, in such manner as he or she deems appropriate, collect and organize such stockholder communications and periodically forward themgrant date, (y) immediately prior to the closing of a change in control, but in no case later than 90 days following the change in control, or (z) the calendar year following the year of death, with payment made no later than the end of the year following the year of death.
(3)
During 2023, Mr. Coelho received quarterly equity awards aggregating 5,955 RSUs. These vested RSUs are settled on the earlier of (i) the 3rd anniversary of the grant date, (ii) immediately prior to the closing of a change in control, but in no case later than 90 days following the change in control, or (iii) the calendar year following the year of death, with payment made no later than the end of the year following the year of death. As of December 31, 2023, Mr. Coelho held the following stock awards that had been granted to him as compensation for services provided to us in his capacity as a director: (i) 93,272 RSUs that had vested but not yet settled and (iii) 5,667 unvested RSUs.
(4)
During 2023, Dr. Fleming received quarterly equity awards aggregating 2,230 RSUs. These vested RSUs are settled on the earlier of (i) the 3rd anniversary of the grant date, (ii) immediately prior to the closing of a change in control, but in no case later than 90 days following the change in control, or (iii) the calendar year following the year of death, with payment made no later than the end of the year following the year of death. As of December 31, 2023, Dr. Fleming held the following stock awards that had been granted to her as compensation for services provided to us in her capacity as a director: (i) 3,463 RSUs that had vested but not yet settled and (iii) 5,667 unvested RSUs.
(5)
During 2023, Mr. Tahir received quarterly equity awards aggregating 9,617 RSUs. These vested RSUs are settled on the earlier of (i) the 3rd anniversary of the grant date, (ii) immediately prior to the closing of a change in control, but in no case later than 90 days following the change in control, or (iii) the calendar year following the year of death, with payment made no later than the end of the year following the year of death. As of December 31, 2023, Mr. Tahir held the following stock and awards that had been granted to him as compensation for services provided to us in his capacity as a director: (i) 93,535 RSUs that had vested but not yet settled and (ii) 8,500 unvested RSUs.
(6)
Mr. Lehmann did not stand for re-election at the 2023 Annual Meeting and retired from the Board
on May 19, 2023. During 2023, Mr. Lehmann received quarterly equity awards aggregating 3,247 RSUs. These vested RSUs are settled on the earlier of (i) the 3rd anniversary of the grant date, (ii) immediately prior to the closing of a change in control, but in no case later than 90 days following the change in control, or
(iii) the calendar year following the year of death, with payment made no later than the end of the year following the year of death. As of December 31, 2023, Mr. Lehmann held 45,054 RSUs that had vested but not yet settled, which had been granted to him as compensation for services provided to us in his capacity as a
committee or individual director, as applicable. The Corporate Secretary may refuse to forward material which he or she determines in good faith to be commercial, frivolous or otherwise inappropriate for delivery.director.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSOn August 10, 2017, the Company, following consideration of a report prepared by Farient Advisors LLC, granted 16,600 RSUs to each of Alexandre Zyngier and Ernest Purcell for their continuing service on the Board of Directors. On the same date, the Company also granted 1,600 RSUs to each of Alexandre Zyngier and Ernest Purcell for their continued service as the chairs of committees of the Board of Directors. The total fair value of such RSU awards at the grant date for each director was $75,079. All such RSUs vested on April 30, 2018. The settlement date for the RSUs is the earlier of (i) April 30, 2024 or (ii) the date on which the Company undergoes a change of control (within the meaning of Section 409A of the Code).
In 2017, in a private placement, the Company issued to David Moradi, a principal stockholder of the Company, convertible notes in the aggregate principal amount of $762,500 and warrants to acquire 305,000 shares of the Company’s common stock. The warrants have a term of five years and an exercise price of $1.75 per share. Upon issuance, the convertible note immediately and automatically converted into 453,869 shares of the Company’s common stock at a conversion rate of $1.68 per share.
In 2017, the Company sold to Anthion Partners II, LLC, an entity under the control of Mr. Moradi, in a private placement 214,286 shares of the Company’s common stock for an aggregate purchase price of $750,000.
In 2017, the Company issued to David Moradi 729,028 shares of the Company’s common stock upon the net exercise of warrants to purchase 734,133 shares at an exercise price of $0.025 per share for an aggregate purchase price of $18,353.
In August 2018, in a private placement, the Company sold shares of its common stock for a purchase price of $0.25 per share and entered into a Securities Purchase Agreement and Registration Rights Agreement with each investor. The investors included CSB IV US Holdings, LLC, of which Dr. Bettis is deemed a beneficial owner, which acquired 16,000 shares for an aggregate purchase price of $100,000; Anthion Partners II, LLC, an affiliate of Mr. Moradi, which acquired 1,000,000 shares for an aggregate purchase price of $250,000 (which shares were thereafter transferred to Sero Capital LLC); and Mr. Purcell, who acquired 32,000 shares for an aggregate purchase price of $200,000.
On September 26, 2018, pursuant to a Note and Warrant Purchase dated as of October 9, 2015 between Equity Trust Custodian FBO Alexandre Zyngier IRA (the “Zyngier IRA”) and the Company, as amended, the Zyngier IRA acquired from the Company a $50,000 convertible note and warrants to acquire 20,000 shares of the Company’s common stock having a term of five years and an exercise price of $2.50 per share. Alexandre Zyngier, a member of the Company’s board of directors, is deemed a beneficial owner of the Zyngier IRA. On October 29, 2018, upon the Zyngier IRA’s conversion of this note, including accrued interest, the Company issued 13,384 shares of common stock to the Zyngier IRA at a conversion rate of $3.75 per share.
Approval of Related Party Transactions The charter of the Audit Committee requires that the Audit Committee review and approve any transactions that would require disclosure under SEC rules and regulations. The Board has also adopted Related Party Transaction Policies and Procedures that provide forset forth the procedures to be followed by the Audit Committee in reviewing actual or potential related party transactions. Those procedures include consideration of the material terms and conditions of the transaction, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, and the extent of the related party’s interest in the transaction. The Related Party Transaction Policies and Procedures also identify certain types of related party transactions that are to be deemed pre-approved.
In addition, on an annual basis, each director and executive officer completes a questionnaire that requires disclosure of any potential related party transactions with the Company. Based on its review of applicable materials, the Audit Committee determined that there are no related party transactions that are required to be disclosed in this Proxy Statement.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the Board of Directors. As of March 28, 2024, our executive officers were:
•
Dr. Carr Bettis, Chairman of the Board;
•
David Moradi, Chief Executive Officer; and
•
Kelly Georgevich, Chief Financial Officer.
Information regarding Dr. Bettis and Mr. Moradi is set forth above under “Election of Directors (Proposal No. 1) — Nominees for Director.” Below is information regarding Ms. Georgevich.
Kelly Georgevich, 41, has served as the Chief Financial Officer of the Company since June 2021. Ms. Georgevich has over 15 years of experience with high-growth companies with a specific focus on software-as-a-service and technology. Prior to joining the Company, Ms. Georgevich served as the chief financial officer of sticky.io, Inc., an e-commerce platform, since September 2018, and as vice president of finance from March 2015 until September 2018. Prior to sticky.io, Kelly served as controller at Fuzebox Software Corporation where she supported the company through a successful acquisition. She also served on the Board of Directors for Girls in Tech as secretary and treasurer from 2015 until 2020.
EXECUTIVE COMPENSATION
Executive Summary
Prior Year Say-on-Pay Results
The Board values the opinions of our stockholders and carefully reviews and considers the outcome of our Say-on-Pay vote, along with other relevant factors, in evaluating the compensation program for our named executive officers. In 2023, approximately 89% of the votes cast were in favor of our executive compensation. The Compensation Committee devotes time and resources to understanding stockholder feedback and analyzing the executive compensation programs. In evaluating potential changes, the Compensation Committee also takes into consideration market practices and the Company’s overarching compensation philosophy of attracting and retaining exceptional leaders and enabling them to behave like owners. Our current programs are materially the same as the programs approved at our 2023 Annual Meeting. We believe our programs effectively align with the interests of our stockholders.
Compensation Discussion and Analysis
This compensation discussion and analysis is intended to provide an overview of the compensation awarded to, earned by, or paid to our named executive officers for 2023, including the material elements of the compensation paid to our named executive officers as outlined in the compensation tables included in this Proxy Statement. Our “named executive officers” or “NEOs” for 2023 are:
| Name | 15 | | Title | |
| David Moradi | | | Chief Executive Officer | |
| Kelly Georgevich | | | Chief Financial Officer | |
| Dr. Carr Bettis | | | Executive Chairman | |
| Dominic Varacalli(1) | | | Former Chief Operating Officer | |
Mr. Varacalli resigned as Chief Operating Officer as of August 18, 2023, remained an employee of ours until September 30, 2023, and served as a consultant to us until November 15, 2023.
Compensation Objectives and Philosophy
The primary objective of our executive compensation program is to attract and retain exceptional leaders and enable them to behave like owners. When setting executive compensation, we apply a consistent approach for all executive officers and intend that the combination of compensation elements closely aligns the executives’ financial interests with those of our stockholders. The program is primarily designed to:
•
Attract, motivate and retain a highly capable and performance-focused executive team;
•
Promote a culture of employee owners whose financial interests are aligned with those of our stockholders;
•
Pay for performance such that total compensation reflects the individual performance of executives and the Company’s performance;
•
Promote a focus on equity value by tying executive compensation to the long-term enhancement of stockholder value;
•
Permit the Compensation Committee to exercise independent judgment and approval authority with respect to establishing executive compensation programs, performance measures, and awards; and
•
Consider the potential stock dilution, cash flow, tax and reported earnings implications of executive compensation, consistent with the other objectives of the program.
Target total compensation consists of an appropriate balance of cash and equity and is divided into three core elements: base salary, annual cash incentive compensation, and long-term equity incentive compensation. The Compensation Committee offers long-term equity incentive opportunities that encourage stock ownership. Generally, the amount of compensation realizable from prior compensation does not directly
impact the level at which future pay opportunities are set. However, when granting equity awards, the Compensation Committee reviews and considers the number of outstanding and previously granted equity awards. In addition to promoting share ownership, our executive compensation objectives and philosophy focus on rewarding performance. This means that stockholder returns along with corporate and individual performance, both short-term and long-term, determine a significant portion of the executives’ pay opportunity.
Role of the Compensation Committee
The Compensation Committee oversees the administration of the executive compensation program and determines the compensation of our executive officers. The Compensation Committee is solely composed of non-management directors, all of whom meet the independence requirements of applicable Nasdaq rules.
Process for Determining Executive Compensation
The Compensation Committee reviews executive total compensation levels, including equity grants, during the first quarter of each fiscal year. Our CEO’s target total compensation package is set by the Compensation Committee during an executive session, where the CEO is not present, based on the Compensation Committee’s review of competitive information and assessment of the CEO’s individual performance in conjunction with the Company’s financial and operating performance. Target total compensation recommendations for other executive officers are made by the CEO who works closely with the Compensation Committee, after reviewing the executive’s and the Company’s performance in conjunction with the executive’s responsibilities and experience when compared to competitive information. The Compensation Committee then determines the compensation of these executive officers.
Anti-Hedging Policy
Our anti-hedging policy prohibits the purchase of any financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds), or otherwise engaging in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s common stock. The foregoing restriction applies to all shares of the Company’s common stock owned directly or indirectly by directors, officers, employees or agents (such as consultants or independent contractors) of the Company and entities (such as trusts, limited partnerships and corporations) over which such individuals have or share voting or investment control, as well as their respective family members and others in their households and their designees, including shares granted to an individual by the Company as part of their compensation and all other shares held, directly or indirectly, by such individual.
Compensation Recovery Policy
Effective October 2023, our Board of Directors adopted a Compensation Recovery Policy, sometimes referred to as a “Clawback Policy,” in accordance with the Nasdaq Stock Market Rules. The Compensation Recovery Policy applies to all incentive-based compensation, which is any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure, received by our executive officers, including our named executive officers.
The Compensation Recovery Policy applies in the case of an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. The Compensation Recovery Policy provides that promptly following such an accounting restatement, the Compensation Committee will determine the amount of the erroneously awarded compensation, which is the excess of the amount of incentive-based compensation received by current and former executive officers during the three completed fiscal years immediately preceding the required restatement date over the amount of incentive-based compensation that otherwise would have been received had it been determined based on the restated amounts, computed without regard to any taxes paid. The Company will provide each such executive officer with a written notice of such amount and a demand for repayment or return. If such repayment or return is not made within a reasonable time, the Compensation Recovery Policy provides that the Company will recover
the erroneously awarded compensation in a reasonable and prompt manner using any lawful method, subject to limited exceptions as permitted by Nasdaq Stock Market Rules.
Equity Incentive Plans
A key component of an executive officer’s compensation is equity incentive awards, which are critical to focusing our executives on the Company’s long-term growth and creating stockholder value. The AudioEye, Inc. 2019 Equity Incentive Plan, as amended (the “2019 Plan”), and the AudioEye, Inc. 2020 Equity Incentive Plan (the “2020 Equity Plan”) are designed to attract and retain exceptional leaders and enable them to behave like owners. In 2022, we granted restricted stock unit awards, or RSUs, and performance stock units, or PSUs, to our executive officers. An RSU is a right to receive the fair market value of a specified number of shares of our common stock, payable in cash, shares, or a combination of both, that vests at such times, in such installments and subject to such conditions as may be determined by the Compensation Committee. A PSU is a right to receive the fair market value of a specified number of shares of our common stock, payable in cash, shares, or a combination of both, that is earned if and to the extent certain performance goals established by the Compensation Committee are achieved and will vest at such times and in such installments as determined by the Compensation Committee. Until it vests, an RSU and a PSU is subject to restrictions and the possibility of forfeiture. Following the vesting of an RSU or a PSU, settlement of the award and payment to the participant will be made at such time as determined by the Compensation Committee. RSUs and PSUs will be subject to such terms and conditions, consistent with the other provisions of the 2019 Plan or 2020 Equity Plan, as applicable, as may be determined by the Compensation Committee. The Compensation Committee may provide for the payment of dividend equivalents on RSUs and other stock-based awards, but any such dividend equivalents will be subject to the same restrictions and risk of forfeiture as the underlying units or other share equivalents to which such dividend equivalents relate.
Summary Compensation Table for Fiscal Year 2023
The table below summarizes the compensation paid to or earned by our named executive officers for the fiscal years ended December 31, 2023 and December 31, 2022.
| Name and Principal Position | | | Year | | | Salary
($) | | | Bonus
($) | | | Stock
Awards(1)
($) | | | All Other
Compensation
($) | | | Total
($) | |
David Moradi
Chief Executive Officer and Director | | | | | 2023 | | | | | | 1 | | | | | | — | | | | | | — | | | | | | — | | | | | | 1 | | |
| | | | 2022 | | | | | | 1 | | | | | | — | | | | | | 1,292,000(2) | | | | | | — | | | | | | 1,292,001 | | |
Kelly Georgevich
Chief Financial Officer | | | | | 2023 | | | | | | 334,115 | | | | | | 62,753 | | | | | | 85,817(3) | | | | | | — | | | | | | 482,685 | | |
| | | | 2022 | | | | | | 325,000 | | | | | | 50,000 | | | | | | 168,098(4) | | | | | | — | | | | | | 543,098 | | |
Dr. Carr Bettis(5)
Executive Chairman | | | | | 2023 | | | | | | 36,000 | | | | | | — | | | | | | 64,484(6) | | | | | | — | | | | | | 100,484 | | |
Dominic Varacalli(7)
Chief Operating Officer | | | | | 2023 | | | | | | 225,000 | | | | | | — | | | | | | 217,750(8) | | | | | | 62,500(9) | | | | | | 505,250 | | |
| | | | 2022 | | | | | | 289,583 | | | | | | 20,000 | | | | | | 149,200(10) | | | | | | — | | | | | | 458,783 | | |
(1)
Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 (“ASC 718”) for stock awards granted during the reported fiscal years, plus the incremental fair value of any modified or canceled award, computed as of the modification or cancellation date in accordance with ASC 718. For additional information regarding the assumptions we used to calculate the amounts in these columns, please refer to Note 2 to our audited consolidated financial statements included in our 2023 Annual Report filed with the SEC on March 7, 2024. The grant date fair value of performance stock units (“PSUs”) for which performance goals were established was based on the assumption that the maximum performance is achieved.
(2)
On May 20, 2022, Mr. Moradi received an award of RSUs with respect to 400,000 shares of the Company’s common stock, of which 111,706 RSUs vested on January 20, 2023 and 111,706 RSUs vested on January 20, 2024. The remaining RSUs are scheduled to vest as follows: (i) 111,706 RSUs on January 20, 2025; and (ii) 64,882 RSUs on August 20, 2025, subject to his continued employment.
(3)
On June 21, 2021, Ms. Georgevich received an award of PSUs with respect to 28,852 shares of the Company’s common stock scheduled to vest over the three years following the grant based upon performance goals to be established by the Compensation Committee. On August 3, 2022, Ms. Georgevich received an additional award of PSUs with respect to 20,000 shares of the Company’s common stock scheduled to vest over three years based upon performance goals to be established by the Compensation Committee for calendar years 2023 through 2025. The grant date fair value of 9,617 PSUs from the 2021 grant and 6,667 PSUs from the 2022 grant that have been determined to have been earned with respect to 2023 performance are included in the amount shown for 2023. The performance goals with respect to the remaining 4,506 PSUs from the 2021 grant and the remaining 13,333 PSUs from the 2022 grant have not yet been established.
(4)
On August 3, 2022, Ms. Georgevich received an award of RSUs with respect to 20,000 shares of the Company’s common stock, of which 6,667 RSUs vested on June 21, 2023, and the remaining are scheduled to vest as follows: (i) 6,667 RSUs on June 21, 2024, and (ii) 6,666 RSUs on June 21, 2025, provided that Ms. Georgevich is continuously employed on each of those vesting dates. The grant date fair value of those RSUs is included in the amount shown. Because the performance goals relating to the 2022 PSUs referenced in footnote (3) had not yet been established, no grant date fair value had been determined or included in the amount shown for 2022. The amount shown for 2022 also includes the grant date fair value of 9,617 PSUs awarded to Ms. Georgevich in 2021, as described in footnote (3), that have been determined to have been earned with respect to 2022 performance.
(5)
Dr. Bettis was not a named executive officer in 2022.
(6)
Includes monthly awards of fully vested shares of common stock of the Company as follows: (i) a prorated portion of $139,000 in annual equity grant through March 31, 2023; and (ii) a monthly award of 772 shares for the remainder of the year.
(7)
Mr. Varacalli served as Chief Operating Officer of the Company from September 2021 to August 2023.
(8)
On January 9, 2023, Mr. Varacalli received an award of RSUs with respect to 25,000 shares of the Company’s common stock that were scheduled to vest over a three-year period on each January 1, 2024, January 1, 2025, and January 1, 2026, subject to continued employment on each of those vesting dates. This RSU grant was subsequently modified such that Mr. Varacalli vested in 18,863 RSUs on November 15, 2023 and forfeited the remaining RSUs. The amount included in the table related to such RSUs granted in 2023 represent (i) $99,000 in grant date fair value of 25,000 RSUs, plus (ii) $89,599 in incremental fair value associated with the modification of 18,863 RSUs to vest on November 15, 2023. Total stock compensation expense recognized in connection with such RSUs awarded in 2023 totaled $89,599. The amount shown also includes the grant date fair value of 6,137 PSUs awarded in 2020 to Mr. Varacalli that were modified to vest in 2023 based on service instead of performance.
(9)
Mr. Varacalli received a severance payment of $62,500 in connection with his termination.
(10)
On August 3, 2022, Mr. Varacalli received an award of RSUs with respect to 15,000 shares of the Company’s common stock that were scheduled to vest over a three-year period on each June 1, 2023, June 1, 2024, and June 1, 2025, subject to continued employment on each of those vesting dates. The grant date fair value of those RSUs is included in the amount shown for 2022. The grant date fair value of 10,000 PSUs awarded in 2020 with respect to Mr. Varacalli’s 2022 performance is included in the amount shown and 9,200 of such PSUs were certified as vested on March 13, 2023.
Summary of Compensatory Arrangements with Named Executive Officers, including in connection with a Termination or a Change in Control
Employment Agreement with David Moradi. On August 20, 2020, Mr. Moradi and the Company entered into an Employment Agreement (the “Moradi Employment Agreement”), which provided that Mr. Moradi received an annual salary of $1. On April 5, 2022, Mr. Moradi and the Company entered into the Restated Moradi Agreement, which is substantially similar to the Moradi Employment Agreement, including retaining the annual base salary of $1, other than providing for a grant of 400,000 RSUs to Mr. Moradi. On December 26, 2023, Mr. Moradi and the Company entered into an amendment to the Moradi Employment Agreement, which provides that Mr. Moradi will receive an annual base salary of $400,000, beginning January 1, 2024.
On August 20, 2020, Mr. Moradi received 260,000 PSUs that were granted under the 2019 Plan, as amended. Each PSU represents a contingent right to receive a share of the Company’s common stock upon vesting of the PSU. The PSUs will vest based on the Company’s achievement of performance conditions relating to its monthly recurring revenue and stock price as follows:
| Performance Condition | | | Number of Performance
Stock Units Vesting if
Performance Condition
Achieved | |
| Monthly recurring revenue greater than or equal to $3.0 million for two consecutive calendar months | | | | | 55,000 | | |
| Monthly recurring revenue greater than or equal to $5.0 million for two consecutive calendar months | | | | | 50,000 | | |
Volume Weight Average Price (“VWAP”) greater than or equal to $25 on The Nasdaq
Stock Market LLC (“Nasdaq”) over 20 consecutive trading days | | | | | 55,000 | | |
| VWAP greater than or equal to $50 on Nasdaq over 20 consecutive trading days | | | | | 50,000 | | |
| VWAP greater than or equal to $100 on Nasdaq over 20 consecutive trading days | | | | | 50,000 | | |
Any PSUs that have not vested on or prior to August 20, 2025 will be forfeited. Mr. Moradi must be serving as the Company’s Chief Executive Officer as of the date the applicable performance condition is achieved for the related PSUs to vest. On January 15, 2021, 55,000 PSUs vested as a result of the 20-VWAP for our common stock on Nasdaq being greater than $25.
On May 20, 2022, following the 2022 Annual Meeting of Stockholders at which an increase in the number of shares authorized for issuance under the 2020 Equity Plan was approved, Mr. Moradi received 400,000 RSUs, of which 111,706 RSUs vested on January 20, 2023 and 111,706 RSUs vested on January 20, 2024. The remaining RSUs are scheduled to vest as follows: (i) 111,706 RSUs on January 20, 2025; and (ii) 64,882 RSUs on August 20, 2025, subject to his continued employment. The Restated Moradi Agreement provides that, in the event of a Change in Control that involves a Corporate Transaction (each as defined in the 2020 Equity Plan), the RSUs will become fully vested immediately prior to the effective time of such Change in Control.
The Restated Moradi Agreement provides that any unvested RSUs and PSUs granted thereunder will become fully vested if, on or prior to August 20, 2025, Mr. Moradi’s employment is terminated by the Company without cause or upon his death. The Restated Moradi Agreement also provides that the Company will pay Mr. Moradi a gross-up payment for any excise tax imposed under Section 4999 of the Code and any interest or penalties with respect to such excise tax, plus the amount necessary to put Mr. Moradi in the same after-tax position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code, in the event that any payments, rights, benefits, distributions, or entitlements provided or to be provided by the Company or any of its affiliates to Mr. Moradi or for his benefit pursuant to the terms of the Restated Moradi Agreement, the PSU agreement, the RSU agreement or otherwise would constitute parachute payments within the meaning of Section 280G of the Code.
Employment Agreement with Kelly Georgevich. In connection with her employment, the Company and Ms. Georgevich executed an Executive Employment Agreement (the “Georgevich Employment Agreement”) on June 10, 2021. Beginning on the commencement of employment, Ms. Georgevich became part-time employee until July 26, 2021, at which point she became a full-time employee of the Company. Under the employment agreement, Ms. Georgevich will receive a base annual salary of $325,000 (pro-rated during her part-time employment). She shall also be eligible to receive an annual performance bonus of $50,000 (pro-rated for calendar year 2021 based on June 21, 2021 (the “Commencement Date”)). Effective August 21, 2023, the Compensation Committee approved an increase to Ms. Georgevich’s base salary raising it to $350,000 and an increase to Ms. Georgevich’s potential annual bonus raising it to $85,000.
Under the Georgevich Employment Agreement, if the Company terminates Ms. Georgevich’s employment for a reason other than death, disability, or Cause (as defined in the Georgevich Employment Agreement), or if Ms. Georgevich terminates her employment for Good Reason (as defined in the Georgevich Employment Agreement), then the Company shall pay or provide all of the following: (i) reimbursement of any and all reasonable business expenses paid or incurred through the termination date; (ii) receipt of any
accrued but unused vacation through the termination date in accordance with Company policy; (iii) receipt of any earned but unpaid base salary and performance bonus accrued through her last date of employment with the Company; and (iv) subject to Ms. Georgevich’s satisfying certain release conditions described in the Employment Agreement, receipt of an amount equal to a portion of the her base salary as set forth below and certain medical benefits as described below (the “Separation Payment”).
The base salary portion of the Separation Payment described above shall be, (i) in the event Ms. Georgevich’s separation of employment prior to the one-year anniversary of the Commencement Date, 12 months of her base salary; and, (ii) in the event her separation of employment at any time on or after the first anniversary of the Commencement Date, six months of her base salary (in each case, at the rate that was in effect at the time of termination). Additionally, subject to Ms. Georgevich’s 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 she participated immediately prior to the termination date (“COBRA Continuation Coverage”), the Company will pay the cost of COBRA Continuation Coverage for Ms. Georgevich and her eligible dependents until the earliest of (i) Ms. Georgevich and her eligible dependents, as the case may be, ceasing to be eligible under COBRA; (ii) the date upon which she and her eligible dependents become covered under similar plans; (iii) in the case of her employment termination prior to the one-year anniversary of the Commencement Date, 12 months following the termination date; or (iv) in the case of her termination on or after the one-year anniversary of the Commencement Date, six months following the termination date.
Arrangements with Carr Bettis. As the Executive Chairman of the Board, Dr. Carr Bettis is an employee of the Company, and his compensation is provided pursuant to the terms of an Executive Employment Agreement, dated July 1, 2015 between Dr. Bettis and the Company, as amended by the Amendment to Executive Employment Agreement dated May 18, 2021. Prior to an amendment to the agreement on March 25, 2023, Dr. Bettis received $175,000 in annual base salary for his service as Executive Chairman, of which $36,000 was paid in cash and $139,000 was paid in the form of fully vested shares of common stock of the Company. On March 25, 2023, Mr. Bettis’ Executive Employment Agreement was further amended (as amended, the “Bettis Employment Agreement”) to provide that Dr. Bettis’ base salary for his service as Executive Chairman consists of an annual cash amount of $36,000 and a monthly award of 772 fully vested shares of common stock of the Company.
Arrangements with Dominic Varacalli. The Company and Mr. Varacalli were parties to an Executive Employment Agreement effective as of August 13, 2020, as amended on September 17, 2021, which provided for an annual base salary of $275,000, and did not provide for a minimum term or any severance payments or benefits upon a termination. On August 21, 2023, the Company and Mr. Varacalli entered into a Transition and Separation Agreement (“Separation Agreement”) pursuant to which Mr. Varacalli resigned as Chief Operating Officer effective as of August 18, 2023. Under the Separation Agreement, Mr. Varacalli agreed to provide transition assistance as an employee to the Company at the same base salary rate through September 30, 2023, after which his employment would terminate. The Separation Agreement also provided that following his termination, subject to certain customary conditions such as execution of a release, Mr. Varacalli would receive $62,500 in cash severance, which was paid following his termination. The Separation Agreement also provides that, for a period of one year following September 30, 2023, Mr. Varacalli will be prohibited from competing against the Company.
On August 21, 2023, the Company and Mr. Varacalli also entered into a Consulting Agreement effective as of September 30, 2023, pursuant to which Mr. Varacalli agreed to continue to provide transition assistance as a consultant until November 15, 2023, in exchange for the modification in vesting terms for 23,863 RSUs and 6,137 PSUs. All other outstanding equity awards held by Mr. Varacalli were forfeited as of November 15, 2023.
Health, Welfare and Retirement Benefits. Our named executive officers are eligible to participate in our broad-based employee benefit plans, including a tax-qualified Section 401(k) savings plan, that are generally provided for all of our full-time employees. Our executive officers may participate in such plans on the same basis as all of our other full-time employees.
Outstanding Equity Awards at 2023 Fiscal Year End
The following table sets forth summarycertain information concerning the compensation paid to our non-employee directors for the fiscal year endedas of December 31, 2018 for services provided2023 concerning outstanding equity awards, including both awards subject to us in their capacitymarket-based and performance conditions and time-based awards, held as directors. Compensation paid to or earnedof such date by Dr. Carr Bettis, who is a director and aour named executive officer, forofficers:
| | | | Stock Awards | |
| Name | | | Number of
shares or
units of
stock that
have not
vested (#) | | | Market value
of shares or
units of stock that
have not
vested ($)(1) | | | Equity Incentive
Plan Awards:
Number of
unearned
shares, units
or other
rights that
have not
vested (#)(2) | | | Equity Incentive
Plan Awards:
Market or
payout value
of unearned
shares, units
or other rights
that have not
vested ($)(1) | |
| David Moradi | | | | | 288,294(3) | | | | | | 1,562,553 | | | | | | 205,000(4) | | | | | | 1,111,100 | | |
| Kelly Georgevich | | | | | 18,141(5) | | | | | | 98,324 | | | | | | 17,839(6) | | | | | | 96,687 | | |
| Dr. Carr Bettis | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
Dominic Varacalli(7) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
(1)
The market value of unvested stock awards is calculated using a value of $5.42 per share, which was the fiscal year endedclosing price of our common stock on the Nasdaq Capital Market on December 29, 2023, the last trading day of 2023.
(2)
Reflects PSUs that are subject to achievement of performance goals that had not been earned as of December 31, 20182023. The number of PSUs shown assumes maximum performance is achieved.
(3)
On May 20, 2022, Mr. Moradi received an award of RSUs with respect to 400,000 shares of the Company’s common stock of which 111,706 RSUs vested on January 20, 2023. The amount shown includes 111,706 RSUs that vested on January 20, 2024, 111,706 RSUs scheduled to vest on January 20, 2025, and 64,882 RSUs scheduled to vest on August 20, 2025, subject to his continued employment.
(4)
On August 20, 2020, the Compensation Committee granted Mr. Moradi PSUs with respect to 260,000 shares of the Company’s common stock, for which vesting terms and performance conditions are described above in connection with Mr. Moradi’s employment agreement. Any PSUs that have not vested on or prior to August 20, 2025 will be forfeited. As of December 31, 2023, 205,000 of these PSUs remained unearned and are included in this table.
(5)
On August 3, 2022, Ms. Georgevich received an award of RSUs with respect to 20,000 shares of the Company’s common stock, of which 6,667 RSUs vested on June 21, 2023. The amount shown includes 6,667 RSUs scheduled to vest on June 21, 2024, and 6,666 RSUs scheduled to vest on June 21, 2025, provided that Ms. Georgevich is continuously employed on each of those vesting dates. On June 21, 2021, Ms. Georgevich received an award of RSUs with respect to 28,852 shares of the Company’s common stock that vests over a three-year period as follows: one-third shall vest on the first anniversary of the grant date and the remaining two-thirds shall vest quarterly over the next two years, in equal installments, starting at the end of the first quarter occurring after the first anniversary of the grant date, subject to her continued employment. The amount shown includes 4,808 RSUs from this grant that have not yet vested.
(6)
On August 3, 2022, Ms. Georgevich received an award of PSUs with respect to 20,000 shares of the Company’s common stock scheduled to vest over three years based upon performance goals to be established by the Compensation Committee for calendar years 2023 through 2025. On June 21, 2021, Ms. Georgevich received an award of PSUs with respect to 28,852 shares of the Company’s common stock scheduled to vest over the three-years following the grant based upon performance goals to be established by the Compensation Committee. As of December 31, 2023, 17,839 of these PSUs awarded in 2021 and 2022 remained unearned and are included in the amount shown.
(7)
Mr. Varacalli served as Chief Operating Officer of the Company from September 2021 to August 2023. As of December 31, 2023, Mr. Varacalli had no equity awards outstanding.
Additional Potential Payments for Accelerated Equity Awards
The 2019 Plan provides for accelerated vesting of time-based equity awards and the 2020 Equity Plan provides for vesting of time-based equity awards or performance-based equity awards based on both (1) the occurrence of a change in control and (2) an accompanying involuntary termination of service without cause or a termination for good reason, within 12 months after the change in control (other than in the event awards are not continued, assumed, or replaced in connection with a corporate transaction, in which case they will accelerate upon the change in control, or in the event the award agreement provides otherwise). For a change in control not involving a corporate transaction, both the 2019 Plan and the 2020 Equity Plan provide Compensation Committee with discretion to accelerate vesting of outstanding equity awards. Pursuant to the terms of the PSU award agreements, in the event of either type of change of control, the number of units that will accelerate will be based on actual performance through the date of the change in control or termination of employment, as applicable. In addition, the terms of the PSUs granted to Mr. Moradi in August 2020 provide that any unvested PSUs under that award will become fully vested if, on or prior to August 20, 2025, Mr. Moradi’s employment is terminated by the Company without cause.
If any such accelerated vesting had occurred on December 31, 2023, then each of our NEOs serving on such date would have had RSUs and PSUs accelerate having the values set forth in the table below, assuming that any performance goals related to the period ended December 31, 2023 were deemed to have been satisfied as the target level of performance. No other equity awards held by our NEOs as of such date would have had any value upon acceleration. The value of the accelerated RSUs and PSUs set forth in the table is based on the $5.42 closing price of our stock on December 29, 2023, the last trading day of 2023.
| Name | | | Value of
Accelerated
RSUs and
PSUs ($) | |
| David Moradi | | | | | 2,673,653 | | |
| Kelly Georgevich | | | | | 98,324 | | |
Pay Versus Performance Table
The following table sets forth additional compensation information of our CEO (referred to as our “PEO” in this section) and of the average of our other NEOs (the “Non-PEO NEOs”) along with total shareholder return and net income (loss) performance results for 2023, 2022 and 2021:
| Year | | | Summary
Compensation
Table Total for
PEO(1)
($) | | | Compensation
Actually Paid to
PEO(2)
($) | | | Average
Summary
Compensation
Table Total for
Non-PEO
NEOs(1)
($) | | | Average
Compensation
Actually Paid to
Non-PEO
NEOs(2)
($) | | | Value of Initial
Fixed $100
Investment
Based on: Total
Shareholder
Return(3)
($) | | | Net Income
(Loss)
($ in thousands) | |
| 2023 | | | | | 1 | | | | | | 785,902 | | | | | | 362,806 | | | | | | 342,404 | | | | | | 20.98 | | | | | | (5,872) | | |
| 2022 | | | | | 1,292,001 | | | | | | 878,051 | | | | | | 500,941 | | | | | | 407,056 | | | | | | 14.83 | | | | | | (10,433) | | |
| 2021 | | | | | 2,773,501 | | | | | | (3,964,399) | | | | | | 1,317,218 | | | | | | 599,653 | | | | | | 27.18 | | | | | | (14,209) | | |
(1)
For 2021, the PEO was Mr. Moradi and the Non-PEO NEOs were Ms. Georgevich and Christopher Hundley, Former President. For 2022, the PEO was Mr. Moradi and the Non-PEO NEOs were Ms. Georgevich and Mr. Varacalli. For 2023, the PEO was Mr. Moradi and the Non-PEO NEOs were Ms. Georgevich, Dr. Bettis, and Mr. Varacalli, who served as Chief Operating Officer through August 2023.
(2)
A reconciliation of Total Compensation from the Summary Compensation Table (“SCT”) to Compensation Actually Paid to our PEO and our Non-PEO NEOs (as an average) for 2023 is shown below:
| | | | 2023 | |
| Adjustments | | | PEO
($) | | | Average of
Non-PEO NEOs
($) | |
| Total Compensation from SCT | | | | | 1 | | | | | | 362,806 | | |
| Adjustments for stock and option awards: | | | | | | | | | | | | | |
| (Subtraction): Stock Awards amounts | | | | | — | | | | | | (122,684) | | |
| Addition: Fair value at year-end of awards granted during the covered fiscal year that are outstanding and unvested at year-end | | | | | — | | | | | | — | | |
| Addition (Subtraction): Year-over-year change in fair value of awards granted in any prior fiscal year that are outstanding and unvested at covered year end | | | | | 784,337 | | | | | | 9,615 | | |
| Addition: Vesting date fair value of awards granted and vesting during the covered year | | | | | — | | | | | | 87,434 | | |
Addition (Subtraction): Change as of the vesting date (from the end
of the prior fiscal year) in fair value of awards granted in any prior
fiscal year for which vesting conditions were satisfied during the
covered year | | | | | 1,564 | | | | | | 18,000 | | |
| (Subtraction): Fair value at end of prior year of awards granted in any prior fiscal year that fail to meet the applicable vesting conditions during the covered year | | | | | — | | | | | | (12,767) | | |
| Addition: Dividends or other earnings paid on stock or option awards in the covered year prior to vesting if not otherwise included in the total compensation for the covered year | | | | | — | | | | | | — | | |
| Compensation Actually Paid (as calculated) | | | | | 785,902 | | | | | | 342,404 | | |
Fair value or change in fair value, as applicable, of equity awards in the
section below titled “Executive Compensation–Summary Compensation Table.”| Name | | Fees Earned
or Paid in
Cash ($) | | | Stock
Awards ($)(1)(2) | | | Total ($) | |
| Anthony Coelho | | | - | | | | 96,444 | | | | 96,444 | |
| Ernest Purcell | | | - | | | | 96,444 | | | | 96,444 | |
| Alexandre Zyngier | | | - | | | | 96,444 | | | | 96,444 | |
| Total: | | | - | | | | 289,332 | | | | 289,332 | |
| (1) | Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for stock awards granted during the reported fiscal year. For additional information regarding the assumptions we used to calculate the amounts in this column, please refer to Note 11 to our audited consolidated financial statements included in our 2018 Annual Report filed with the SEC on March 27, 2019. In December 2018, the Compensation Committee granted each of our non-employee directors an award of RSUs with respect to 11,280 shares of the Company’s common stock. Each such award will vest in full on the first to occur of (i) April 30, 2019, provided the director’s service with us has not terminated prior to such date, and (ii) the date of a stockholder meeting at which such director, being willing and available to serve as a director, is nominated for election but is not re-elected by our stockholders. The settlement date for any RSUs that become vested will be the first to occur of (x) April 30, 2025 or (y) the date on which the Company undergoes a change of control (as defined in the award agreements). |
| (2) | As of December 31, 2018, our non-employee directors and their respective affiliates held the following stock awards and option awards that had been granted to them as compensation for services provided to us in their capacity as directors: Anthony Coelho held (i) vested stock options to purchase a total of 68,000 shares, (ii) 16,600 RSUs that had vested but not yet settled and (iii) 11,280 unvested RSUs; Ernest Purcell held (i) vested stock options to purchase a total of 120,000 shares, (ii) 18,200 RSUs that had vested but not yet settled and (iii) 11,280 unvested RSUs; and Alexandre Zyngier held (i) stock options to purchase a total of 70,000 shares, (ii) 18,200 RSUs that had vested but not yet settled and (iii) 11,280 unvested RSUs. See Footnote (1) above for additional information regarding the unvested RSUs.
|
The above table does not include warrants acquired“Compensation Actually Paid” columns, which includes RSUs and PSUs, was determined by any director in any private placementreference to the closing price on the applicable year-end date(s) or similar transaction.
The Company’s non-employee directors do not receive any cash retainers or meeting attendance fees. Their compensation typically consiststhe applicable vesting date and was based on the assumption that the maximum performance is achieved.
(3)
Total shareholder return as calculated is based on a fixed investment of
periodic grants of equity awards.Recommendationone hundred dollars measured from the market close on December 31, 2020 through and including the end of the Board
fiscal year for each year reported in the table.
Relationship between Pay and Performance
The Board unanimously recommends thatcharts below present a graphical comparison of Compensation Actually Paid to our PEO and the stockholders vote “FOR”average Compensation Actually Paid to our Non-PEO NEOs set forth in the election of each of Dr. Carr Bettis, Anthony Coelho, Ernest PurcellPay Versus Performance Table above, as compared against the following performance measures: our (1) total shareholder return (“TSR”) and Alexandre Zyngier as directors for a one-year term expiring at(2) net loss.
Compensation Actually Paid versus TSR
Compensation Actually Paid versus Net Loss
We believe the
Company’s 2020 Annual Meeting of Stockholders and until their successors have been duly elected and qualified. If not otherwise specified, proxies will be voted “FOR”Compensation Actually Paid in each of the
four nominees for director.years reported above and over the three-year cumulative period are reflective of the Compensation Committee’s emphasis on “pay-for-performance” as the “Compensation Actually Paid” fluctuated year-over-year, primarily due to the result of our stock performance and our varying levels of achievement of conditions established in awards with market and individual performance goals.
ADVISORY VOTE ON EXECUTIVE COMPENSATION (PROPOSAL NO. 2) Proposal No. 2 is a proposal to approve, on an advisory basis, the 2023 compensation of the Company’s named executive officers as disclosed in this Proxy Statement.
In accordance with Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Section 14A of the
Securities Exchange Act,
of 1934, as amended (the “Exchange Act”), requires that we
include in this proxy statement a proposal forare providing our stockholders the opportunity to vote on a non-binding,
stockholder vote onadvisory resolution to approve the 2023 compensation of our
named executive
compensationofficers as described in this
proxy statementProxy Statement (commonly referred to as a “Say-on-Pay” vote).
In accordance with the recommendation of the Board and the preference expressed by our stockholders at the 2019 Annual Meeting, the Company holds an advisory vote on executive compensation annually.
Our executive compensation program has been designed to pay for performance and align our compensation programs with business strategies focused on long-term growth and creating value for stockholders while also paying competitively and focusing on total compensation. Our executive compensation programs are designed to attract, motivate and retain highly qualified executive officers who are able to achieve corporate objectives and create stockholder value. The Compensation Committee believes that our executive compensation program reflects a strong pay-for-performance philosophy without promoting excessive risk and is well aligned with our stockholders’ long-term interests.
The Board strongly endorses our executive compensation program and recommends that stockholders vote in favor of the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K in the Proxy Statement for the Company’s
20192024 Annual Meeting of Stockholders, including the compensation tables and narrative discussion, be, and hereby is, approved.
Because the vote on this proposal is advisory, it will not be binding on the Board of Directors or the Compensation Committee, and neither the Board of Directors nor the Compensation Committee will be required to take any action as a result of the outcome of the vote on this proposal. However, the Compensation Committee will consider the outcome of the vote when determining future executive compensation arrangements.
Recommendation of the Board
The Board
of Directors unanimously recommends that
you vote FOR Proposal No. 2 to approve, on an advisory basis, the
stockholders2023 compensation of
the Company vote “FOR” the approval of AudioEye’sour named executive
compensation. officers as disclosed in this Proxy Statement. If not otherwise specified, proxies will be voted
“FOR”“FOR” the approval of AudioEye’s executive compensation.
ADVISORY VOTE ON FREQUENCYTABLE OF ADVISORY VOTECONTENTS
ON EXECUTIVE COMPENSATION
APPROVAL OF AMENDMENTS TO THE 2020 EQUITY PLAN (PROPOSAL NO. 3)Enacted legislation requires that we include in this proxy statement a proposal for a separate non-binding stockholder vote on whether the Company’s Say-on-Pay vote should occur every one, two or three years (commonly referred
Proposal No. 3 is to
as “Say-on-Frequency”). You have the option to vote for any one of the three options, or to abstain from voting on the matter.The Board has determined that an advisory vote on executive compensation every one year is the best approach for AudioEye based on a number of considerations, including the following:
An advisory vote on executive compensation every year will provide our stockholders the opportunity to provide us with their direct input on our compensation policies, philosophy and practices as disclosed in our proxy statement every year.
An annual vote cycle will maximize stockholder communication by providing a direct, clear means for AudioEye to receive and evaluate investor sentiment concerning our executive compensation philosophy and program.
Without annual stockholder input, it could be difficult for us to understand whether a stockholder vote pertainsapprove amendments to the compensation year being discussed in that year’s proxy statement, or pay practices from previous years. An annual vote enables the Compensation Committee to better understand the implications of each vote regarding our executive compensation and to respond accordingly.
Although the vote is advisory and non-binding, our Board of Directors will take into account the outcome of the vote when making future decisions about our executive compensation policies and programs. Our stockholders also have the opportunity to provide additional feedback on important matters involving executive compensation. In addition, the NASDAQ listing standards require us to seek stockholder approval for new employee equity compensation plans and material revisions thereto.
We expect that our next vote on the advisory Say-on-Frequency proposal will occur at our 2025 Annual Meeting of Stockholders.
Recommendation of the Board
The Board of Directors unanimously recommends that the stockholders vote to conduct an advisory vote on executive compensation every “ONE YEAR.”If not otherwise specified, proxies will be voted in favor of conducting the advisory vote on executive compensation every “ONE YEAR.”
APPROVAL OF THE AUDIOEYE, INC. 2019 EQUITY INCENTIVE PLAN
(PROPOSAL 4)
The AudioEye, Inc. 20192020 Equity Incentive Plan (the “2019 Plan”) is a comprehensiveto increase the number of shares of Common Stock authorized for issuance under the 2020 Equity Plan, and the number of such shares that can be delivered in respect of incentive compensation plan that provides forvarious types of equity-based compensation, including incentive and nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance share awards, cash awardsby 1,500,000 shares, and other equity-based awards. The purposeto extend the term of the 2019 Plan is to enable us to attract and retain2020 Equity Plan.
On October 29, 2020, the
types of employees, consultants and directors who will contribute to our long range success; provide incentives that align the interests of our employees, consultants and directors with those of our stockholders; and promote the success of our business.UponBoard, at the recommendation of the Compensation Committee, our Board of Directors unanimously approved the 20192020 Equity Plan, and on December 9, 2020, our stockholders approved the 2020 Equity Plan at a special meeting of stockholders. On April 2, 2019 (the “Effective Date”),4, 2022, the Board, at the recommendation of the Compensation Committee, approved, and on May 20, 2022, our stockholders approved, amendments to the 2020 Equity Plan to increase the number of shares of Common Stock authorized for issuance under the 2020 Equity Plan, and the number of such shares that can be delivered in respect of incentive stock options, by 1,500,000 shares.
On March 29, 2024, the Board, based on the recommendation of the Compensation Committee, approved the following amendments to the 2020 Equity Plan, subject to stockholder approval. Theapproval:
•NASDAQ listing standards require
an increase in the maximum number of shares that we submitmay be delivered under the 20192020 Equity Plan by an additional 1,500,000 shares, from 2,500,000 shares to our stockholders for approval. In addition,4,000,000 shares;
•
a corresponding increase in the Internal Revenue Codemaximum number of 1986,shares that may be delivered with respect to incentive stock options granted under the 2020 Equity Plan by an additional 1,500,000 shares, from 2,500,000 shares to 4,000,000 shares; and
•
an extension of the term of the 2020 Equity Plan by an additional ten years from the date of stockholder approval of the amendments;
(collectively, the “Plan Amendments”). A copy of the 2020 Equity Plan, as proposed to be amended, (the “Code”), requires that weis attached to this Proxy Statement as Appendix A and is marked to show the proposed Plan Amendments.
Stockholder Approval and Board Recommendation
Stockholder approval of the Plan Amendments is being sought in order to (i) satisfy the stockholder approval requirements of the Nasdaq Stock Market and (ii) obtain stockholder approval of the 2019 Plan in ordernumber of shares that may be subject to be able to issue incentive stock options under Internal Revenue Code (“Code”) Section 422.
As of March 28 2024, 224,764 shares remained available for issuance as new awards under the 20192020 Equity Plan. If we do not increase the shares available for issuance under the 2020 Equity Plan, based on historical share usage rates and compensation practices, we may not have a sufficient number of shares authorized to grant equity awards in fiscal 2024. In that event, we would lose an important compensation tool aligned with stockholder interests to attract, motivate and retain highly qualified talent.
As is customary for high growth technology companies like ours, providing equity compensation to key employees and advisors has been an essential compensation tool to attract talented service providers, who expect to share in the value they create for our stockholders. Equity compensation continues to be a key component of providing competitive compensation needed to attract and retain top talent in the technology industry and grow the Company.
In the event the Plan Amendments are not approved by our stockholders,
do not approve the 2019 Plan, then the 2019 Plan will not become effective,we would lose an important compensation tool aligned with stockholder interests to attract, motivate and
any grants made under the 2019 Plan will be void. If our stockholders approve the 2019 Plan, then our 2012 Incentive Compensation Plan, 2013 Incentive Compensation Plan, 2014 Incentive Compensation Plan, 2015 Incentive Compensation Plan, 2016 Incentive Compensation Plan and 2016 Incentive Compensation Plan, as amended (collectively, the “Prior Plans”) will terminate as of the date of the Annual Meeting, and no awards will be granted under the Prior Plans on or after the date of the Annual Meeting.Reasons to Vote for Proposal 4
Each year, the Compensation Committee and our management review our overall compensation strategy and determine the allocations of cash and equity compensation in light of our pay for performance philosophy.retain highly qualified talent. We believe that equity compensation is critical in motivating key employees and that it effectively aligns employee compensation with stockholder interests. We are also committed to effectively managing our share reserves for equity compensation while minimizing stockholder dilution. If the 2019 Plan isAmendments are not approved and we are unable to grant equity compensation in the future, we may need to consider other compensation alternatives, such as increasing cash compensation, and we would be at a severe disadvantage if we could not use stock-basedequity awards covering a meaningful number of shares to recruit and retain key talent in this competitive market for human capital.
Responsible Features of
The Board recommends that our stockholders vote FOR the 2019 PlanThe 2019 Amendments because the 2020 Equity Plan includes a number of provisionsfeatures that we believe are consistent with the interests of our stockholders and
sound corporate governance practices, and will provide us with a share reserve that will enable us to continue to provide a competitive mix of compensation to key employees and potential new employees, and with an extended duration of the plan.
Factors Considered in Setting Size of Requested Share Reserve Increase
In determining the proposed number of shares by which to increase the number of shares available under the 2020 Equity Plan, our Compensation Committee considered a number of factors as described below.
Awards Outstanding and Shares Available for Grant
As of March 28, 2024, 1,100,979 shares were reserved for issuance of outstanding awards and 224,764 shares were available for future grant under the 2020 Equity Plan.
As of March 28, 2024, there were 11,658,146 shares of our common stock issued and outstanding. The closing sale price of a share of our common stock on that date was $10.01.
Importance of Long-Term Equity Incentives
Long-term equity incentives play a critical role in our executive compensation program, motivating executives to make decisions that focus on long-term shareholder value creation, aligning executives’ interests with the interests of shareholders, and serving as an effective retention device. Our ability to continue to provide a competitive level of long-term equity incentives is considered to be very important to our Company.
We need to have the flexibility to grant, and may continue to grant, restricted stock to additional non-executive key employees, which is particularly important during down cycles of a cyclical business and industry, as cash bonuses may not otherwise be available to reward performance. All of these recent and anticipated factors result in the need for additional shares to be made available for equity awards.
Historical Equity Granting Practices
The Compensation Committee considered the burn rate with respect to previously-granted equity awards under the 2020 Equity Plan. Burn rate is calculated as the total number of shares subject to awards granted to participants in a single year expressed as a percentage of our basic weighted average common shares outstanding for that year. Our three-year average burn rate was approximately 6.15% for fiscal years 2021 through 2023. We believe this burn rate reflects the Compensation Committee’s judicious and responsible approach to equity grant practices. The Compensation Committee noted that despite our stock repurchases during this period, our three-year average burn rate percentage is below the suggested burn-rate benchmark published by a leading proxy advisory service for our industry classification. The Compensation Committee believes that our equity compensation and repurchase practices have been in our and our shareholders’ best interests, noting in particular that our stock repurchase program has mitigated dilution attributable to our compensation program while somewhat raising our burn rate percentage.
Estimated Duration
We expect that the shares available for future awards, including the additional shares if the Plan Amendments are approved, would be sufficient for future awards for approximately two to three years.
Expectations regarding future share usage under the 2020 Equity Plan are based on a number of assumptions, and there are a number of factors that could impact our future equity share usage. Among the factors that will impact our share usage are: changes in the number of eligible recipients, the rate of future compensation increases/changes in market grant values, the rate at which shares are returned to the 2020 Equity Plan reserve through forfeitures, cancellations, and the like, the level at which performance-based awards pay out, changes in the structure of our long-term incentive programs, and our future stock price performance. While the Compensation Committee believes that the assumptions utilized are reasonable, future share usage will differ to the extent that actual events differ from our assumptions.
Current and Projected Dilution
As of March 28, 2024, the 224,764 shares of our common stock not subject to outstanding awards under the 2020 Equity Plan and available for future awards represented approximately 1.7% of the fully-diluted
number of our common shares outstanding. The 1,500,000 shares proposed to be added by approval of the Plan Amendments would increase the dilution percentage to approximately 12.9%.
Key Compensation Practices
The 2020 Equity Plan includes a number of features that we believe are consistent with the interests of our stockholders and sound corporate governance practices, including the following:
•
No repricing of underwater options or stock appreciation rights without stockholder approval. The 2020 Equity Plan prohibits, without stockholder approval, actions to reprice, replace, or repurchase options or stock appreciation rights (“SARs”) when the exercise price per share of an option or SAR exceeds the fair market value of the underlying shares.
•
No discounted option or SAR grants. The 2020 Equity Plan requires that the exercise price of options or SARs be at least equal to the fair market value of our common stock on the date of grant (except in the limited case of “substitute awards” as described below).
•
No liberal share recycling. We may not add back to the 2020 Equity Plan’s share reserve any shares that are designeddelivered or withheld to protect our stockholders’ interestspay the exercise price of an option award or to satisfy a tax withholding obligation in connection with any awards, shares that we repurchase using option exercise proceeds and shares subject to reflecta SAR award that are not issued in connection with the stock settlement of that award upon its exercise.
•
No liberal definition of “change in control.” No change in control would be triggered by stockholder approval of a business combination transaction, the announcement or commencement of a tender offer or any Board assessment that a change in control may be imminent.
•
“Double trigger” acceleration of equity awards upon a change in control. The 2020 Equity Plan provides for vesting of time-based equity awards or performance-based equity awards based on both (1) the occurrence of a change in control and (2) an accompanying involuntary termination of service without cause or a termination for good reason, within 12 months after the change in control (other than in the event awards are not continued, assumed, or replaced in connection with a corporate governance best practices, including: | · | Stockholder approval required for additional shares. The 2019 Plan does not contain an annual “evergreen” provision that provides for automatic increases of shares on an ongoing basis. The 2019 Plan instead authorizes a fixed number of shares, and stockholder approval is required for any increase in the number of shares. |
| · | Minimum vesting requirements. In general, no award under the 2019 Plan may vest, in the ordinary course, prior to the first anniversary of the date of grant of the award; provided, however, that up to 5% of the share reserve may be subject to awards that do not meet such vesting requirements. |
| · | Reasonable compensation limits. The 2019 Plan provides that the maximum number of shares of common stock subject to awards granted during a single fiscal year to any non-employee director, together with any cash fees paid to such director during the fiscal year, may not exceed a total value of $400,000 (calculating the value of any awards based on the grant date fair value for financial reporting purposes). In addition, the maximum number of shares of common stock subject to awards granted during a single fiscal year to any employee or consultant who is not a director during the fiscal year may not exceed a total value of $5,000,000 (calculating the value of any awards based on the grant date fair value for financial reporting purposes). |
| · | No repricings. The 2019 Plan expressly prohibits the repricing of equity awards without prior stockholder approval. |
transaction, in which case they will accelerate upon the change in control, or in the event the award agreement provides otherwise). | · | No liberal share recycling. In general, when awards terminate or are cancelled, the shares reserved for those awards are returned to the share reserve and become available for future awards. However, shares of common stock subject to an award shall not again be made available for issuance or delivery under the 2019 Plan if such shares are (a) shares tendered in payment of an option, (b) shares delivered or withheld to satisfy any tax withholding obligation, or (c) shares covered by a stock-settled stock appreciation right or other awards that were not issued upon the settlement of the award. |
| · | Fungible share reserve. The 2019 Plan has a fungible share reserve, under which the share reserve is depleted at a higher multiple for RSUs, restricted stock and other “full-value awards,” in order to minimize stockholder dilution. |
| · | No payment of dividends prior to the vesting of an award.The 2019 Plan provides that no dividends will be paid with respect to any shares subject to an award prior to the vesting of such award. Any dividends that may be attributable to any particular share of restricted stock or any particular RSU or deferred stock unit shall only be distributed upon the release of restrictions on such share of restricted stock or the settlement of such RSU or deferred stock unit, as applicable, and the award holder shall have no right to such dividends if such award is forfeited. |
| · | Specific change in control vesting treatment. The 2019 Plan specifies the vesting treatment for outstanding time- and performance-based awards upon a change in control. |
| · | Clawback provisions. Awards under the 2019 Plan will be subject to forfeiture, cancellation, reimbursement or recoupment to the extent provided in any applicable clawback policy adopted by AudioEye or otherwise required pursuant to applicable law. |
| · | No reload options. The 2019 Plan expressly prohibits options with automatic “reload” rights. |
Summary
•
Limits on dividends and dividend equivalents. The 2020 Equity Plan prohibits the payment of dividend equivalents on stock options and SARs and requires that any dividends and dividend equivalents payable or credited on unvested awards other than options and SARs (“full value awards”) must be subject to the same restrictions and risk of forfeiture as the underlying shares or share equivalents.
Description of the 20192020 Equity Plan The
descriptionmajor features of the
20192020 Equity Plan
set forth beloware summarized below. The summary is qualified in its entirety by reference to the
applicable provisionsfull text of the
plan document,2020 Equity Plan, which is attached
asAnnex Ato this
proxy statement.
Proxy Statement as Appendix A and is marked to show the proposed Plan Amendments.
Shares SubjectEligible Participants. Employees, consultants and advisors of the Company or any subsidiary, as well as non-employee directors of the Company, will be eligible to receive awards under the 2020 Equity Plan. As of March 28, 2024, there were 114 employees, three non-employee directors and an indeterminate number of consultants and advisors who are eligible to receive awards under the 2020 Equity Plan.
Administration. The 2020 Equity Plan is administered by the Compensation Committee. To the extent not inconsistent with applicable law or stock exchange rules, the Compensation Committee may delegate its duties, power and authority under the 2020 Equity Plan to any one or more of its members, or, with respect to awards to participants who are not themselves our directors or executive officers, to one or more of our directors or executive officers or to a committee of the Board comprised of one or more directors. The Compensation Committee may also delegate non-discretionary administrative responsibilities in connection with the 2020 Equity Plan to such other persons as it deems advisable. The full Board will perform the duties and have the responsibilities of the Committee with respect to awards under the 2020 Equity Plan that are made to our non-employee directors.
The Compensation Committee has the authority to determine the persons to whom awards will be granted, the timing, type and number of shares covered by each award, and the terms and conditions of the awards. There is no minimum vesting period required for awards granted under the 2020 Equity Plan. The Compensation Committee may also establish and modify rules to administer the 2020 Equity Plan, adopt sub-plans applicable to certain awards, interpret the 2020 Equity Plan and any related award agreement, cancel or suspend an award, accelerate the vesting of an award, extend the exercise period of an award and otherwise modify or amend the terms of outstanding awards to the extent permitted under the 2020 Equity Plan. Unless an amendment to the terms of an award is necessary to comply with applicable laws or stock exchange rules or any compensation recovery policy, a participant whose rights would be materially impaired by such an amendment must consent to it.
Except in connection with equity restructurings and other situations in which share adjustments are specifically authorized, the 2020 Equity Plan prohibits us from repricing any outstanding option or SAR awards without the prior approval of our stockholders. For these purposes, a “repricing” includes amending the terms of an option or SAR award to lower the exercise price, canceling an option or SAR award in conjunction with granting a replacement option or SAR award with a lower exercise price, canceling an option or SAR award in exchange for cash, other property or grant of a new full value award at a time when the per share exercise price of the option or SAR award is greater than the fair market value of a share of our common stock, or otherwise making an option or SAR award subject to any action that would be treated under accounting rules as a “repricing.”
Available Shares and Limitations on Awards. Currently, a maximum of 2,500,000 shares of our common stock may be the subject of awards and issued under the 2020 Equity Plan. The aggregate number ofPlan Amendments would increase that amount by an additional 1,500,000 shares. The shares of common stock that may be issued pursuant to awards grantedissuable under the 2019 Plan will not exceed 1,000,000 shares. The number of shares of common stock that may be issued pursuant to incentive stock options under the 2019 Plan is also limited to 1,000,000 shares. Shares of common stock available for distribution under the 20192020 Equity Plan may consist, in whole or in part, ofcome from authorized and unissued shares or treasury shares or shares reacquired by AudioEye in any manner. The closing price of our common stock on NASDAQ on March 29, 2019 was $9.01.Any shares of common stock granted in connection withshares. Full value awards, options and stock appreciation rightsSARs granted under the 2020 Equity Plan will be countedcount as one share against the 2020 Equity Plan’s authorized share reserve. The share limitations under the 2020 Equity Plan are subject to adjustment for every one optionchanges in our corporate structure or stock appreciation right awarded. Any shares, of common stock granted in connection with awards other than options and stock appreciation rights shall be counted against this limit as two shares of common stock for every one share of common stock granted in connection with such award. described below.
Any shares of common stock subject to an award under the 2020 Equity Plan that expires, is canceled or forfeited, or is canceled, forfeited,settled for cash will, to the extent of such expiration, cancellation, forfeiture or terminated without issuance ofcash settlement, automatically replenish the full number of shares of common stock to which the award related will again be available for issuance under the 2019 Plan. Any shares of common stock that again2020 Equity Plan share reserve and become available for future grants shall be added back as one share if suchawards. Any shares were subject to options or stock appreciation rights and as two shares if such shares were subject to other awards. Shares of common stock subject to an award shall not again be made available for issuance or delivery under the 2019 Plan if such shares are (a) shares tendered in payment of an option, (b) shares delivered or withheld to pay the exercise price or satisfy anya tax withholding obligation in connection with any award, any shares repurchased by the Company using option exercise proceeds, and any shares subject to a SAR award that are not issued in connection with the stock settlement of that award upon its exercise shall not become available for future awards or (c)replenish the 2020 Equity Plan share reserve.
Awards that may be settled solely in cash will not reduce the share reserve. Awards granted or shares
coveredof our common stock issued under the 2020 Equity Plan upon the assumption of, or in substitution or exchange for, outstanding equity awards previously granted by
an entity acquired by us or any of our subsidiaries (referred to as “substitute awards”) will not reduce the share reserve under the 2020 Equity Plan. Additionally, if a
stock-settled stock appreciation rightcompany acquired by us or
otherany of our subsidiaries has shares available under a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition, the shares available for grant pursuant to the terms of that pre-existing plan may be used for awards
thatunder the 2020 Equity Plan and will supplement the share reserve under the 2020 Equity Plan, but only if the awards are made to individuals who were not
issued upon the settlementemployed by or providing services to us or any of
the award.
Eligibility. Participation in the 2019 Plan is limitedour subsidiaries immediately prior to employees, directors and consultants of AudioEye and its affiliated entities. As of March 20, 2019, there were three non-employee directors, approximately 65 employees, and approximately two consultants of AudioEye that would be eligible for grants under the 2019 Plan.
such acquisition.
Maximum Award AmountsLimits on Awards to Non-Employee Directors.. The maximum number of shares of common stock subject to awards granted during a single fiscal year to any non-employee director who is not an employee or consultant during the fiscalany calendar year, together with any cash fees paid to such non-employee director during the fiscalsuch calendar year, may not exceed a total value of $400,000 (calculating$400,000.
Share Adjustment Provisions. If certain transactions with our stockholders occur that cause the per share value of our common stock to change, such as stock splits, spin-offs, stock dividends, rights offerings or certain recapitalizations (referred to as “equity restructurings”), the Compensation Committee will make such adjustments as it deems equitable and appropriate to: (i) the aggregate number and kind of shares or other securities issued or reserved for issuance under the 2020 Equity Plan, (ii) the number and kind of shares or other securities subject to outstanding awards, (iii) the exercise price of outstanding options and SARs, and (iv) award limitations prescribed by the 2020 Equity Plan. Other types of transactions may also affect our common stock, such as reorganizations, mergers, consolidations or liquidations. If there is such a transaction and the Compensation Committee determines that adjustments of the type previously described in connection with equity restructurings would be appropriate to prevent any dilution or enlargement of benefits under the 2020 Equity Plan, the Compensation Committee will make such adjustments as it may deem equitable.
Types of Awards. The 2020 Equity Plan permits us to award stock options, SARs, restricted stock awards, basedstock unit awards, and other stock-based awards and cash incentive awards to eligible recipients. These types of awards are described in more detail below.
Options. Employees of our Company or any subsidiary may be granted options to purchase common stock that qualify as “incentive stock options” within the meaning of Section 422 of the Code, and any eligible recipient may be granted options to purchase common stock that do not qualify as incentive stock options, referred to as “nonqualified stock options.” The per share exercise price to be paid by a participant at the time an option is exercised may not be less than 100% of the fair market value of one share of our common stock on the date of grant, unless the option is granted as a substitute award as described earlier, and except that the exercise price of an incentive stock option granted to any employee who owns more than 10% of the voting power of all classes of stock in our company or a subsidiary shall not be less than 110% of the fair market value of one share of our common stock on the date of grant. “Fair market value” under the 2020 Equity Plan as of any date means the closing sale price of a share of our common stock on the Nasdaq Capital Market on that date. As of March 28, 2024, the closing sale price of a share of our common stock on the Nasdaq Capital Market was $10.01.
The total purchase price of the shares to be purchased upon exercise of an option will be paid by the participant in cash unless the Compensation Committee allows exercise payments to be made, in whole or in part, (i) by means of a broker-assisted sale and remittance program, (ii) by delivery to us (or attestation as to ownership) of shares of common stock already owned by the participant, or (iii) by a “net exercise” of the option in which a portion of the shares otherwise issuable upon exercise of the option are withheld by us. Any shares delivered or withheld in payment of an exercise price will be valued at their fair market value for financial reporting purposes).on the exercise date.
An option will vest and become exercisable at such time, in such installments and subject to such conditions as may be determined by the Compensation Committee, and no option may have a term greater than 10 years from its date of grant, provided that the term of an incentive stock option granted to any employee who owns more than 10% of the voting power of all classes of stock in our company or a subsidiary shall not be more than 5 years. No dividends or dividend equivalents may be paid or credited with respect to shares subject to an option award.
The aggregate fair market value of shares of our common stock with respect to which incentive stock options granted to any participant may first become exercisable during any calendar year may not exceed $100,000. Any incentive stock options that become exercisable in excess of this amount will be treated as nonqualified stock options. The maximum number of shares
of common stock subject to awards granted during a single fiscal year to any employee or consultant who is not a director duringthat may be issued upon the
fiscal year may not exceed a total valueexercise of
$5,000,000 (calculating the value of any awards based on the grant date fair value for financial reporting purposes).
Substitute Awards. Awards may, in the sole discretion of the plan administrator, be granted under the 2019 Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by AudioEye or with which AudioEye combines (“Substitute Awards”). Substitute Awards shall not be counted against the share reserve, provided that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as incentive stock options shall be counted against the ISO limit. Subject to applicable stock exchange requirements, available shares under a stockholder-approved plan of an entity directly or indirectly acquired by AudioEye or with which AudioEye combines (as appropriately adjusted to reflect such acquisition or transaction) may be used foroption awards under the 20192020 Equity Plan is currently 2,500,000 and shall not count toward the total share reserve.
Minimum Vesting Requirements. In general, no award under the 2019 Plan may vest, in the ordinary course, prioris proposed to be increased by an additional 1,500,000 shares pursuant to the first anniversaryPlan Amendments.
Stock Appreciation Rights. A SAR award provides the right to receive a payment from us equal to the difference between (i) the fair market value as of the date of grantexercise of the award; provided, however,number of shares of our common stock as to which the SAR is being exercised, and (ii) the aggregate exercise price of that up to 5%number of shares. The Compensation Committee determines whether payment will be made in shares of our common stock, cash or a combination of both. The exercise price per share of a SAR award will be determined by the Compensation Committee, but may not be less than 100% of the totalfair market value of one share reserveof our common stock on the date of grant, unless the SAR is granted as a substitute award as described earlier. No
dividends or dividend equivalents may
be paid or credited with respect to shares subject to a SAR award. A SAR award may not have a term greater than 10 years from its date of grant and will be subject to
awards that do not meet such
vesting requirements. The one-year minimum vesting requirement does not apply to the substitute awards described in the immediately preceding section.
Administration. The Board has delegated authority to administer the 2019 Plan to the Compensation Committee. Subject toother terms and conditions, consistent with the terms of the 20192020 Equity Plan, as may be determined by the Compensation Committee,Committee.
Restricted Stock Awards. A restricted stock award is an award of our common stock that vests at such times and in such installments as plan administrator, has full authority to determine participants andmay be determined by the type, terms and conditions and number ofCompensation Committee. Until it vests, the shares subject to awardsthe award are subject to restrictions on transferability and to construe and interpret the 2019 Plan and awards.possibility of forfeiture. The Compensation Committee may delegate administrationimpose such restrictions or conditions to the vesting of restricted stock awards as it deems appropriate, including that the participant remain continuously in our service for a certain period or that we, or any of our subsidiaries or business units, satisfy specified performance goals. Any dividends or distributions payable with respect to shares that are subject to the unvested portion of a restricted stock award will be subject to the same restrictions and risk of forfeiture as the shares to which such dividends or distributions relate. Unless otherwise provided in an award agreement, participants are entitled to vote restricted shares prior to the time they vest.
Stock Unit Awards. A stock unit award is a right to receive the fair market value of a specified number of shares of our common stock, payable in cash, shares, or a combination of both, that vests at such times, in such installments and subject to such conditions as may be determined by the Compensation Committee, including the satisfaction of specified performance goals. Until it vests, a stock unit award is subject to restrictions and the possibility of forfeiture. Following the vesting of a stock unit award, settlement of the 2019award and payment to the participant will be made at such time as determined by the Compensation Committee. Stock unit awards will be subject to such terms and conditions, consistent with the other provisions of the 2020 Equity Plan, as may be determined by the Compensation Committee. The Compensation Committee may provide for the payment of dividend equivalents on stock unit awards and other stock-based awards, but any such dividend equivalents will be subject to a committeethe same restrictions and risk of forfeiture as the underlying units or committeesother share equivalents to which such dividend equivalents relate.
Other Stock-Based Awards. The Compensation Committee may grant awards of common stock and other awards that are valued by reference to and/or payable in shares of our common stock under the 2020 Equity Plan. The Compensation Committee has discretion in determining the terms and conditions of such awards.
Cash Incentive Awards. Cash incentive awards are performance-based awards, the payment of which are contingent upon the achievement of one or more membersspecified performance goals over a specified performance period. The Compensation Committee has discretion in determining the dollar-denominated amounts, terms and conditions of such awards. Payment of the Board.
No Repricing without Stockholder Approval. The 2019 Plan provides that stockholder approval is required beforesettlement amount of a repricing is effective.
Typescash incentive award may be made in the form of Awards Available for Grantcash, shares of our common stock under the 2019 Plan. The plan administrator has the authority to grant the following types2020 Equity Plan, other forms of awards under the 2019 Plan. All awards shall2020 Equity Plan or any combination of the foregoing.
Transferability of Awards. In general, no right or interest in any award under the 2020 Equity Plan may be evidencedassigned, transferred, exchanged or encumbered by a participant, voluntarily or involuntarily, except by will or the laws of descent and distribution. However, the Compensation Committee may provide that an award agreement and shall(other than an incentive stock option) may be transferable by gift to a participant’s family member or pursuant to a domestic relations order. Any permitted transferee of such an award will remain subject to suchall the terms and conditions not inconsistent with the 2019 Plan as may be reflected inof the award agreement. | · | Options. The plan administrator may grant options to purchase shares of common stock that are exercisable at a price per share not less than the fair market value, determined in accordance with the 2019 Plan, per share of common stock on the date that the option is awarded. Such options may be either incentive stock options or non-qualified stock options. A 10% stockholder may not be granted an incentive stock option unless the exercise price is at least 110% of the fair market value of the common stock on the grant date and the option is not exercisable after the expiration of five years from the grant date. The plan administrator may permit an option exercise price to be paid in cash or any form of legal consideration specified by the plan administrator, including by the delivery of previously-owned shares of common stock, through a cashless exercise executed through a broker or by having a number of shares of common stock otherwise issuable at the time of exercise withheld. The maximum term of any option is ten years. |
| · | Stock Appreciation Rights. The plan administrator may grant stock appreciation rights either separately or in connection with another award under the 2019 Plan. The maximum term of any stock appreciation right is 10 years. The plan administrator may provide that stock appreciation rights are exercisable at the discretion of the holder or that they will be paid at a time or times certain or upon the occurrence or non-occurrence of certain events. |
| · | Restricted Stock and Restricted Stock Units. The plan administrator may grant shares of restricted common stock or RSUs representing the right to receive common stock in the future, subject to such restrictions and conditions, if any, as the plan administrator shall determine. No shares of common stock shall be issued at the time an RSU is granted, and AudioEye will not be required to set aside funds for the payment of any such award. The plan administrator may also grant RSUs with a deferral feature (“deferred stock units”), whereby settlement is deferred beyond the vesting date until the occurrence of a future payment date or event set forth in an award agreement. At the discretion of the plan administrator, each RSU or deferred stock unit (representing one share of common stock) may be credited with dividend equivalents in an amount equalapplicable to the participant.Change in Control. If a change in control of the Company that involves a corporate transaction occurs, then the consequences will be as described below, unless otherwise provided in an applicable award agreement or another written agreement between the participant and the Company. If outstanding awards are continued, assumed or replaced by the surviving or successor entity in connection with a corporate transaction, and if within 12 months after the corporate transaction a participant’s employment or other service is involuntarily terminated without cause or the participant voluntarily terminates his or her employment or other service for good reason, (i) each of the participant’s outstanding options and SARs will become exercisable in full and remain exercisable for one year, and (ii) each of the participant’s unvested full value awards will fully vest. For these purposes, a performance-based full value award will be considered fully vested if the performance goals are deemed to have been satisfied at the target level of performance and the vested portion of the award at that
level of performance is proportionate to the portion of the performance period elapsed prior to the cash and stock dividends paid by AudioEye in respect of one share of common stock. Dividend equivalents shall be withheld by AudioEye and credited to the participant’s account, and interest may be credited on the amount of cash dividend equivalents credited to the participant’s account at a rate and subject to such terms as determined by the plan administrator. Dividend equivalents credited to a participant’s account and attributable to any particular RSU or deferred stock unit (and earnings thereon, if applicable) shall be distributed in cash or, at the discretion of the plan administrator, in shares of common stock having a fair market value (as determined under the 2019 Plan) equal to the amount of such dividend equivalents and earnings, if applicable, to the participant upon settlement of such RSU or deferred stock unit and, if such RSU or deferred stock unit is forfeited, the participant shall have no right to such dividend equivalents. |
| · | Performance Share Awards. The plan administrator may grant performance share awards and determine (i) the number of shares of common stock or stock-denominated units subject to a performance share award granted to any participant; (ii) the performance period applicable to any award; (iii) the conditions that must be satisfied for a participant to earn an award; and (iv) the other terms, conditions and restrictions of the award. The number of performance shares earned by a participant will depend on the extent to which the performance goals established by the plan administrator are attained within the applicable performance period, as determined by the plan administrator. |
| · | Other Equity-Based and Cash Awards. Cash awards and other equity-based awards may be granted in such numbers and may be subject to such conditions or restrictions as the plan administrator shall determine and shall be payable in cash or shares of common stock, as the plan administrator may determine. |
Deferrals. The plan administrator may establish one or more programs under the 2019 Plan to permit selected participants the opportunity to elect to defer receipt of consideration upon exercise of an award, satisfaction of performance criteria, or other event that absent the election would entitle the participant to payment or receipt of shares of common stock or other consideration under an award. The plan administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the plan administrator deems advisable for the administration of any such deferral program.
Exercisability and Vesting upon Death or Disability. The plan administrator has the power to accelerate the time at which an award may first be exercised or the time during which an award or any part thereof will vest on a participant’s termination of employment or other service.
If any outstanding award is not continued, assumed or replaced in connection with a change in control involving a corporate transaction, then (i) all outstanding options and SARs will become fully exercisable for a period of time prior to the effective time of the corporate transaction and will then terminate at the effective time of the corporate transaction, and (ii) all full value awards will fully vest immediately prior to the effective time of the corporate transaction. In this scenario, performance-based full value awards will be considered fully vested in the same manner as described above, except that the proportionate vesting amount will be determined with respect to the portion of the performance period that elapsed prior to the corporate transaction. Alternatively, if outstanding awards are not continued, assumed or replaced, the Committee may elect to cancel such awards in exchange for a payment with respect to each award in an amount equal to the excess, if any, between the fair market value of the shares subject to the award immediately prior to the effective date of such corporate transaction (which may be the fair market value of the consideration to be received in the corporate transaction for the same number of shares) over the aggregate exercise price (if any) for the shares subject to such award (or, if there is no excess, such award may be terminated without payment).
Unless otherwise provided in an applicable award agreement or another written agreement between the participant and the Company, if a change in control of the Company occurs that does not involve a corporate transaction, all awards will continue with their terms; provided, however, if within 12 months after the change of control, a participant is involuntarily terminated from service for reasons other than cause or voluntarily terminates his or her service for good reason, then (i) outstanding options and SARs that are not yet fully exercisable shall immediately become exercisable in full and shall remain exercisable for one year following the participation’s termination, and (ii) each of the participant’s unvested full value awards will fully vest. For these purposes, a performance-based full value award will be considered fully vested if the performance goals are deemed to have been satisfied at the target level of performance and the vested portion of the award at that level of performance is proportionate to the portion of the performance period elapsed prior to the participant’s termination of employment or other service.
For purposes of the 2020 Equity Plan, the following terms have the meanings indicated:
“Cause” with respect to any participant will have the meaning specified in the participant’s award agreement or, in the absence of any definition in the award agreement, will have the equivalent meaning or the same meaning as “cause” or “for cause” set forth in any employment, consulting, or other agreement for the performance of services between the participant and us or, in the absence of any such agreement or any such definition in such agreement, such term shall mean (i) the participant’s failure to substantially perform the fundamental duties and responsibilities associated with the participant’s position for any reason other than a physical or mental disability, including the participant’s failure or refusal to carry out reasonable instructions; (ii) the participant’s material breach of any material written Company policy; (iii) the participant’s gross misconduct in the performance of the participant’s duties for the Company; (iv) the participant’s material breach of the terms of his or her employment, consulting or other similar agreement with us; (v) 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 (vi) any criminal conduct that is a “statutory disqualifying event” (as defined under federal securities laws, rules and regulations).
“Change in control” generally refers to a corporate transaction (as defined above), the acquisition by a person or group of beneficial ownership of more than 80% of the combined voting power of our stock, or our “continuing directors” ceasing to constitute a majority of our Board.
“Corporate transaction” generally means (i) a sale or other disposition of all or substantially all of the assets of the Company, or (ii) a merger, consolidation, share exchange or similar transaction involving the Company.
“Good reason” with respect to any participant will have the meaning specified in the participant’s award agreement or, in the absence of any definition in the award agreement, will have the equivalent meaning or the same meaning as “good reason” or “for good reason” set forth in any employment, consulting, or other agreement for the performance of services between the participant and us or, in the absence of any such
agreement or any such definition in such agreement, such term shall mean (i) the assignment to the participant of any duties inconsistent in any material respect with the participant’s duties or responsibilities as assigned by us, or any other action by us which results in a material diminution in such duties or responsibilities, excluding an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by us promptly after receipt of notice thereof given by the participant; or (ii) any material failure by us to comply with our obligations to the participant as agreed upon, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by us promptly after receipt of notice thereof given by the participant.
Effect of Termination of Employment. Unless otherwise set forth in an applicable agreement, if a participant ceases to be employed by or provide other services to us and our subsidiaries, awards under the 2020 Equity Plan will be treated as set forth in the 2020 Equity Plan. Upon termination for cause, all unexercised option and SAR awards and all unvested portions of any other outstanding awards will be immediately forfeited without consideration. Upon termination for any other reason, all unvested and unexercisable portions of any outstanding awards will be immediately forfeited without consideration. Upon termination for any reason other than cause, death or disability, the currently vested and exercisable portions of option and SAR awards may be exercised for a period of three months after the date of termination; however, if the participant dies during such three-month period, the vested and exercisable portions of the option and SAR awards may be exercised for a period of one year after the date of such termination. Upon termination due to death or disability, notwithstanding the provisions in the award stating the time at which itcurrently vested and exercisable portions of option and SAR awards may first be exercised orfor a period of one year after the time during which it will vest.
date of termination.
RecapitalizationsEffective Date and Reorganizations. The number of shares of common stock reserved for issuance in connection with the grant or settlement of awards or to which an award is subject, and the exercise price of each option and stock appreciation right are subject to, adjustment in the event of any recapitalization of AudioEye or similar event effected without receipt of consideration by AudioEye.
Change in Control. The 2019 Plan provides that, in the event of a change in control (as defined in the 2019 Plan) of AudioEye, outstanding awards will have the following vesting treatment:
| · | In the event of the award holder’s termination of continuous service without cause or for good reason (as each such term is defined in the 2019 Plan) during the 12-month period following a change in control, all outstanding options and stock appreciation rights shall become immediately exercisable with respect to 100% of the shares subject to such options or stock appreciation rights, and/or any restricted period shall expire immediately with respect to 100% of the outstanding shares of restricted stock or RSUs as of the date of such termination of continuous service. |
| · | With respect to performance share awards and cash awards, all incomplete performance periods in respect of such awards in effect on the date a change in control occurs shall end on the date of such change in control, and the plan administrator shall (i) determine the extent to which performance goals with respect to each such performance period have been met based upon such audited or unaudited financial information that is then available as it deems relevant and (ii) cause to be paid to the applicable award holder partial or full awards with respect to performance goals for each such performance period based upon the plan administrator’s determination of the degree of attainment of performance goals or, if not determinable, assuming that the applicable target levels of performance have been attained, or on such other basis as may be determined by the plan administrator. |
In addition, the plan administrator may cancel any outstanding awards and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such awards based upon the price per share of common stock received or to be received by other stockholdersTerm of the Company in2020 Equity Plan. The 2020 Equity Plan became effective on December 9, 2021, the change in control. In the case of any option or stock appreciation right with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the change in control, the plan administrator may cancel the option or stock appreciation right without the payment of consideration therefor.
Transferability. Awards are not generally transferable or assignable, unless the plan administrator provides otherwise.
Forfeiture and Clawbacks. Awards will be subject to forfeiture, cancellation, reimbursement or recoupment to the extent provided in any applicable clawback policy adopted by AudioEye or otherwise required pursuant to applicable law.
Amendment or Termination. The 2019 Plan may be amendeddate it was approved by the Board of Directors, but stockholder approval for any amendment shall be required that (except as provided above regarding recapitalizations and reorganizations) toCompany’s stockholders. Unless terminated earlier, the extent stockholder approval is necessary to satisfy applicable law or stock exchange rules. The plan administrator may amend outstanding awards subject to the terms of the 20192020 Equity Plan but in general may not take away a participant’s rights without the participant’s consent. The 2019 Plancurrently will terminate automatically on the tenth anniversary of that effective date, but if the date asPlan Amendments are approved by our stockholders, then the 2020 Equity Plan will terminate on the tenth anniversary of whichsuch approval date. Awards outstanding under the 20192020 Equity Plan was adopted byat the Board.
time it is terminated will continue in accordance with their terms and the terms of the 2020 Equity Plan unless otherwise provided in the applicable agreements. The Board may suspend or terminate the 2020 Equity Plan at any time.
Amendment of the Plan. The Board may amend the 2020 Equity Plan from time to time, but no amendments to the 2020 Equity Plan will be effective without stockholder approval if such approval is required under applicable laws, regulations or stock exchange rules. No termination, suspension or amendment of the 2020 Equity Plan may materially impair the rights of any participant under a previously granted award without the consent of the affected participant, unless such action is necessary to comply with applicable laws or stock exchange rules.
U.S. Federal Income Tax Consequences of Awards under the 2019 Plan The following discussion outlines generallyis a summary of the principal United States federal income tax consequences ofto the Company and to participants subject to U.S. taxation with respect to awards that may be granted under the 2019 Plan. Individual circumstances may vary2020 Equity Plan, based on current statutes, regulations and eachinterpretations.
Non-Qualified Stock Options. If a participant should rely on his or her own tax counsel for advice regarding federal income tax treatmentis granted a non-qualified stock option under the plan. To2020 Equity Plan, the extent that a participant recognizeswill not recognize taxable income upon the grant of the option. Generally, the participant will recognize ordinary income at the time of exercise in an amount equal to the difference between the fair market value of the shares acquired at the time of exercise and the exercise price paid. The participant’s basis in the circumstances described below, AudioEyecommon stock for purposes of determining gain or loss on a subsequent sale or disposition of such shares generally will be the fair market value of our common stock on the date the option was exercised. Any subsequent gain or loss will be taxable as a short-term or long-term capital gain or loss (depending on the applicable holding period). The Company will generally be entitled to a correspondingfederal income tax deduction.deduction at the time and for the same amount as the participant recognizes as ordinary income.
Incentive Stock Options. If a participant is our employee orgranted an employee of one of our affiliates, any income recognized will be subject to employment and withholding taxes.
Non-Qualified Options. Aincentive stock option under the 2020 Equity Plan, the participant will generally not recognize taxable income upon the grant of an option orthe option. Additionally, if applicable holding period requirements (a minimum of two years from the date of grant and one year from the date of exercise) are met, the participant will not recognize taxable income at any time prior to the exercise of the option or a portion thereof. At the time the participant exercises a non-qualified option or portion thereof, he or she will recognize compensation taxable as ordinary income in an amount equal toof exercise. However, the excess of the fair market value of the common stock onshares acquired at the date the option is exercisedtime of exercise over the aggregate exercise price paidis an
item of tax preference income potentially subject to the alternative minimum tax. If shares acquired upon exercise of an incentive stock option are held for the
common stock. Depending uponholding period described above, the
period shares of common stock are held after exercise, the sale or other taxable disposition of shares acquired through the exercise of a non-qualified option generally will result in a short- or long- term capital gain or loss
(in an amount equal to the difference between
the amount realized on such disposition and the fair market value of such shares when the non-qualified option was exercised.
Incentive Stock Options. A participant who exercises an incentive stock option will generally not be taxed at the time he or she exercises the option or a portion thereof. Instead, he or she will be taxed at the time he or she sells the common stock purchased pursuant to the option. The participant will be taxed on the difference between the price he or she paid for the stock and the amount for which he or she sells the stock. If the participant does not sell the stock prior to two years from the date of grant of the option and one year from the date the stock is transferred to him or her, the participant will be entitled to capital gain or loss treatment based upon the difference between the amount realized on the disposition and the aggregate exercise price and AudioEye will not get a corresponding deduction. If the participant sells the stock at a gain prior to that time, the difference between the amount the participant paid for the stock and the lesser of the fair market value on the date of sale and the exercise orprice) upon disposition of the amount for which the stock is sold,shares will be taxedtreated as a long-term capital gain or loss, and the Company will not be entitled to any deduction. Except in the event of death, if the holding period requirements are not met, there will be a “disqualifying disposition.” As a result of a disqualifying disposition, the participant will have ordinary income in an amount equal to the difference between the fair market value of the shares acquired at the time of exercise and the exercise price paid (and the Company will generally be entitled to a federal income tax deduction at the time and for the same amount as the participant recognizes as ordinary income; ifincome); and the stock is sold for an amount in excess ofparticipant will have capital gain (which may be long term or short term) to the extent the fair market value on the date of exercise, the excess amount is taxed as capital gain.disqualifying disposition exceeds the fair market value of the shares acquired at the time of exercise. If the participant sellsfair market value of the stock forshares at the time of a disqualifying disposition are less than the amount he or sheexercise price paid, for the stock prior to the one or two year periods indicated, no amount will be taxed as ordinary income and the loss will be taxed as a capital loss. Exercise of an incentive option may subject a participant to, or increase a participant’s liability for, the alternative minimum tax.
Restricted Stock. A participant will generally not be taxed upon the grant of a restricted stock award if such award is not transferable by the participant or is subject to a “substantial risk of forfeiture,” as defined in the Internal Revenue Code. However, when the shares of common stock that are subject to the stock award are transferable by the participant or are no longer subject to a substantial risk of forfeiture,then the participant will recognize compensation taxable as ordinaryhave a capital loss, which may be subject to limitations.
Other Awards. The current federal income tax consequences of other awards authorized under the 2020 Equity Plan generally follow certain basic patterns. An award of restricted stock results in income recognition by a participant in an amount equal to the fair market value of the stock subject to the stock award, less any amount paid for such stock, and AudioEye will then be entitled to a corresponding deduction. However, if a participant so electsshares received at the time of receipt of a stock award in accordance withthe restrictions lapse and the shares vest, unless the participant elects under Code Section 83(b) to accelerate income recognition and the taxability of the Code, he or she may include the fair market value of the stock subjectaward to the stock award, less any amount paid for such stock,date of grant. Stock unit awards generally result in income at that time.
Restricted Stock Units. Arecognition by a participant will generally not be taxed upon the grant of an award of RSUs. The participant generally will be subject to tax at ordinary income rates on the fair market value of unrestricted common shares on the date that such shares are transferred to the participant under the RSUs (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.
Other Stock-Based Awards. A participant will generally not recognize income upon the grant of any other stock-based award. Generally, at the time a participant receives payment under any other stock-basedof such an award he or she will recognize compensation taxable as ordinary incomeis made in an amount equal to the amount paid in cash or the then-current fair market value of the common stock received.
Section 280G. Sections 280G and 4999shares received, as applicable. SAR awards result in income recognition by a participant at the time such an award is exercised in an amount equal to the amount paid in cash or the then-current fair market value of the Code provide that executive officers and directors, stockholders who hold significant equity interests, and certain other service providers may beshares received by the participant, as applicable. In each of the foregoing cases, the Company will generally have a corresponding deduction at the time the participant recognizes ordinary income, subject to significant additional taxes if they receive payments or benefitsCode Section 162(m) with respect to covered employees.
Section 162(m) of the Code. Code Section 162(m) denies a deduction to any publicly-held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that exceed certain prescribed limits in connection with a changecompensation to the covered employee exceeds $1,000,000.
Section 409A of controlthe Code. The foregoing discussion of a company, andtax consequences of awards under the 2020 Equity Plan assumes that the company (oraward discussed is either not considered a successor) may forfeit a deduction on the amounts“deferred compensation arrangement” subject to this additional tax.
Section 409A. Section 409A of the Code imposes additional income taxes for certain types ofor has been structured to comply with its requirements. If an award is considered a deferred compensation that do notarrangement subject to Section 409A but fails to comply, with Section 409A. AudioEye attempts in good faith to structure awards under the 2019 Plan so that such awards either conformoperation or form, with the requirements of or qualify for an exemption under, Section 409A. However, neither AudioEye nor the plan administrator has any obligation to take any action to prevent the assessment of any additional tax or penalty on any participant under Section 409A, of the Codeaffected participant would generally be required to include in income when the award vests the amount deemed “deferred,” would be required to pay an additional 20% income tax on such amount, and neither AudioEye nor the plan administrator will have any liabilitywould be required to any participant for such tax or penalty.
Section 162(m). Section 162(m) of the Internal Revenue Code generally places a limit of $1 million per yearpay interest on the amounttax that would have been paid but for the deferral.
Awards Under the 2020 Equity Plan and New Plan Benefits
Because the Compensation Committee, in its discretion, will select the participants who receive awards and the timing, size and types of deductible compensation paidthose awards, we cannot currently determine the awards that will be made to certain “covered employees,” which includes our named executive officers. Section 162(m) exempted from this limitation “qualified performance-based compensation”particular individuals or groups under the 2020 Equity Plan, as proposed to be amended, other than with respect to taxable years beginning on or before December 31, 2017. Recent changesnon-employee directors, whose compensation arrangements are set forth above under “Director Compensation for Fiscal Year 2023.”
For illustrative purposes only, the following table sets forth the awards granted to the
Code provide for a transition rule that continues to exempt qualified performance-based compensation that is payable pursuant to a binding written agreement in effect on November 2, 2017 but otherwise generally repeals the exemption for performance-based compensation.New Plan Benefitsindividuals and groups listed below, net of any forfeitures, under the 20192020 Equity Plan
Future awards under the 2019 Plan will be subject to the discretion of the Compensation Committee and will depend on a variety of factors, including the value of our common stock at the time of grant, as well as Company, divisional, and individual performance. Accordingly, it is not possible to determine the benefits that would be received under the 2019 Plan.
during 2023:
| Name | | | Number of
Shares
Subject to
Awards (#) | |
| David Moradi, Chief Executive Officer | | | | | — | | |
| Dr. Carr Bettis, Executive Chairman | | | | | 12,001 | | |
| Kelly Georgevich, Chief Financial Officer | | | | | — | | |
| All current executive officers as a group | | | | | 12,001 | | |
| All non-employee directors as a group | | | | | 42,116 | | |
| All employees, other than executive officers, as a group | | | | | 447,032 | | |
| All consultants, as a group | | | | | 42,517 | | |
Equity Compensation Plan InformationWe currently maintain equity compensation plans that provide for the issuance of our common stock to our officers, employees, directors and consultants upon the vesting and exercise of stock options, the vesting and settlement of RSUs, and pursuant to certain other types of equity awards. These plans are our:
| · | 2012 Incentive Compensation Plan; |
| · | 2013 Incentive Compensation Plan; |
| · | 2014 Incentive Compensation Plan; |
| · | 2015 Incentive Compensation Plan; |
| · | 2016 Incentive Compensation Plan; and |
| · | 2016 Incentive Compensation Plan, as amended. |
All of these equity incentive plans, other than our 2016 Incentive Compensation Plan, as amended, have been approved by our stockholders. The following table summarizes the information about outstanding options and RSUs, and available shares, under our equity compensation plans as of December 31, 2018:
| | | | | | | | | (c) | |
| | | | | | | | | Number of securities | |
| | | | | | | | | remaining available for | |
| | | (a) | | | (b) | | | future issuance under | |
| | | Number of securities to | | | Weighted-average | | | equity compensation | |
| | | be issued upon exercise | | | exercise price of | | | plans (excluding | |
| | | of outstanding options, | | | outstanding options, | | | securities reflected in | |
| Plan Category | | warrants and rights | | | warrants and rights(1) | | | column (a)) | |
| Equity compensation plans approved by security holders | | | 1,100,149 | (2) | | $ | 4.67 | | | | 45,180 | |
| Equity compensation plans not approved by securityholders | | | 120,352 | (3) | | | - | | | | 103,414 | |
| Total | | | 1,220,501 | | | | - | | | | 148,594 | |
| Plan Category | | | (a)
Number of securities to
be issued upon exercise
of outstanding options
or settlement of
outstanding RSUs
and PSUs | | | (b)
Weighted-average
exercise price of
outstanding options(1) | | | (c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) | |
| Equity compensation plans approved by security holders | | | | | 1,881,110(2) | | | | | $ | 10.17 | | | | | | 794,411(3) | | |
| Equity compensation plans not approved by securityholders | | | | | — | | | | | | — | | | | | | — | | |
| Total | | | | | 1,881,110 | | | | | $ | 10.17 | | | | | | 794,411 | | |
| (1) | (1)
The weighted average exercise price of outstanding options does not take into account outstanding RSUs since they do not have an exercise price. |
| (2) | Represents 997,989 shares of common stock issuable upon the exercise of outstanding stock options and 102,160 shares of common stock issuable upon the vesting and/or settlement of outstanding RSUs under our 2012, 2013, 2014, 2015 and 2016 Incentive Compensation Plans.
|
| | |
| (3) | Represents shares of common stock issuable upon the vesting and/or settlement of outstanding RSUs under our 2016 Incentive Compensation Plan, as amended. |
Recommendation of outstanding options does not take into account outstanding RSUs and PSUs since they do not have an exercise price.
(2)
Represents 112,279 shares of common stock issuable upon the
Boardexercise of outstanding stock options, 1,387,033 shares of common stock issuable upon the vesting and settlement, or settlement, as applicable, of outstanding RSUs, and 381,798 shares of common stock issuable upon the vesting and settlement, or settlement, as applicable of outstanding PSUs (at maximum level of performance) under our stockholder-approved equity incentive plans.
(3)
Represents 309,895 shares of common stock available for future equity awards under the 2020 Equity Plan and 484,516 shares of common stock for future issuance under the AudioEye, Inc. Employee Stock Purchase Plan.
The Board of Directors unanimously recommends that you vote “FOR” Proposal No. 3 to approve the stockholders vote “FOR” the approval ofamendments to the AudioEye, Inc. 20192020 Equity Incentive Plan. If not otherwise specified, proxies will be voted “FOR”“FOR” the amendments to the 2020 Equity Incentive Plan.
APPROVAL OF AN AMENDMENT TO OUR RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE OR LIMIT THE PERSONAL LIABILITY OF OFFICERS (PROPOSAL NO. 4)
Background
In August 2022, the State of Delaware, which is our state of incorporation, amended Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”) to permit a corporation to eliminate or limit the personal liability of certain officers to the corporation or its stockholders for breaches of the fiduciary duty of care as an officer in certain limited circumstances. We sometimes refer to this elimination or limitation of personal liability as “exculpation” in this Proxy Statement.
Prior to amended DGCL Section 102(b)(7), Delaware law authorized such exculpation for directors but not for officers. An exculpation provision is one of three tools, in addition to indemnification and directors’ and officers’ (“D&O”) liability insurance, that can be used by directors and officers to protect themselves from personal liability incurred as a result of serving as a director or officer of a corporation. In general, exculpation provisions seek to prevent liability attaching to directors or officers in the first instance, while indemnification and D&O insurance seek to compensate and hold directors and officers harmless when they have incurred liability or are faced with defending liability claims. The Board believes it is important to provide not only its directors but also its officers protection from certain liabilities and expenses that may discourage prospective or current officers from serving as officers of the Company.
Accordingly, on March 29, 2024, the Board approved, subject to stockholder approval, a proposed amendment to our Restated Certificate of Incorporation to eliminate or limit the personal liability of our officers to the extent permitted by the DGCL (the “Officer Exculpation Charter Amendment”), as provided below. The full text of the Officer Exculpation Charter Amendment is provided in the form of Certificate of Amendment to the Restated Certificate of Incorporation (the “Certificate of Amendment”) attached as Appendix B to this Proxy Statement.
Proposed Officer Exculpation Charter Amendment
In accordance with amended Section 102(b)(7) of the DGCL, the officers who would be covered by the Officer Exculpation Charter Amendment include any officer who, during the course of conduct alleged to be wrongful, (i) is or was the Company’s president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer, or chief accounting officer; (ii) is or was identified in the Company’s public filings with the SEC as one of the most highly compensated officers of the Company; or (iii) has, by written agreement with the Company, consented to being identified as an officer for purposes of accepting service of process.
Further, the Officer Exculpation Charter Amendment is aligned with the narrow class and type of claims for which certain officers’ liability can be exculpated under amended Section 102(b)(7) of the DGCL. Accordingly, the Officer Exculpation Charter Amendment would only permit exculpation for direct claims (as opposed to derivative claims made by stockholders on behalf of the Company) and would not apply to: (i) breaches of the duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iii) any transaction in which the officer derived an improper personal benefit.
The Board believes it is appropriate for public corporations incorporated in states that allow for the limitation of liability of directors and officers to have such a provision in their certificates of incorporation. The nature of the role of directors and officers often requires them to make decisions on crucial matters. Frequently, directors and officers must make decisions in response to time-sensitive opportunities and challenges, which can create substantial risk of investigations, claims, actions, suits or proceedings seeking to impose liability on the basis of hindsight, especially in the current litigious environment and regardless of merit. Limiting concern about personal risk would empower both directors and officers to best exercise their business judgment in furtherance of stockholder interests.
We expect our peers and other companies with whom we compete for officer talent to adopt exculpation clauses that limit the personal liability of officers in their certificates of incorporation, and we believe failing to adopt the proposed Officer Exculpation Charter Amendment could impact our recruitment and retention
of exceptional officer candidates that conclude that the potential exposure to liabilities, costs of defense and other risks of proceedings exceeds the benefits of serving as an officer of the Company. In the absence of such protection, the Board believes qualified officers might be deterred from serving as officers of the Company due to potential exposure to personal liability and the risk that substantial expense could be incurred in defending lawsuits, regardless of merit. The proposed Officer Exculpation Charter Amendment is not being proposed in response to any specific resignation, threat of resignation or refusal to serve by any officer.
In approving the proposed Officer Exculpation Charter Amendment, the Board took into account several factors, such as the narrow class and type of claims that such officers would be exculpated from liability pursuant to amended DGCL Section 102(b)(7), the limited number of our officers who would be impacted, and the benefits the Board believes would accrue to us by providing officer exculpation in accordance with DGCL Section 102(b)(7), including, without limitation, the ability to attract and retain key officers and the potential to reduce litigation costs associated with frivolous lawsuits. The Board balanced these considerations with our corporate governance practices and determined that it is advisable and in the best interests of the Company and our stockholders to amend our Certificate of Incorporation to add an officer exculpation provision to eliminate or limit the personal liability of certain officers, to the extent permitted under the DGCL.
The Exculpation Amendment also provides that if the DGCL is amended after approval by the stockholders to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director or an officer of the Company shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
For the reasons stated above, on March 29, 2024, the Board determined that the proposed Officer Exculpation Charter Amendment is advisable and in the best interest of our Company and our stockholders and authorized and approved, subject to stockholder approval, the proposed Officer Exculpation Charter Amendment and directed that it be considered for approval by our stockholders at the Annual Meeting. The Board believes the proposed Officer Exculpation Charter Amendment would better position us to attract top officer candidates and retain our current officers and enable our officers to exercise their business judgment in furtherance of the interests of our stockholders without the potential for distraction posed by the risk of personal liability. Additionally, it would align the protections for our officers with those protections currently afforded to our directors, although it would not eliminate officers’ monetary liability for breach of fiduciary duty claims brought by the corporation itself or for derivative claims brought by stockholders in the name of the corporation.
Timing and Effect of the Officer Exculpation Charter Amendment
If the proposed Officer Exculpation Charter Amendment is approved by our stockholders, it would become effective immediately upon the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware, which we would expect to file promptly after the Annual Meeting. After effectiveness of the Officer Exculpation Charter Amendment, the new officer exculpation provision would apply only with respect to acts or omissions by our officers occurring after the date of the Officer Exculpation Charter Amendment.
If the proposed Officer Exculpation Charter Amendment is not approved by our stockholders, our Restated Certificate of Incorporation would remain unchanged.
In accordance with the DGCL, the Board may elect to abandon the proposed Officer Exculpation Charter Amendment without further action by our stockholders at any time prior to the effectiveness of the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware, notwithstanding stockholder approval of the
AudioEye, Inc. 2019 Equity Incentive Plan.proposed Officer Exculpation Charter Amendment at the Annual Meeting.
The Board unanimously recommends that you vote “FOR” Proposal No. 4 to approve the Officer Exculpation Charter Amendment. If not otherwise specified, proxies will be voted “FOR” the Officer Exculpation Charter Amendment.
RATIFICATIONTABLE OF
APPOINTMENTCONTENTSAUDIT COMMITTEE REPORT AND PAYMENT OF FEESTO INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (PROPOSAL 5) Report of the Audit Committee
The Audit Committee of ourassists the Board of Directors in accordance withfulfilling its charteroversight responsibilities relating to the accuracy and authority delegated to it byintegrity of AudioEye’s financial reporting, including the Board, has appointedperformance and the firmindependence of MaloneBailey, LLP to serve as ourAudioEye’s independent registered public accounting firm, MaloneBailey, LLP. The responsibilities of our Audit Committee are set forth in our Audit Committee Charter. The charter is available on our website at www.audioeye.com/governance-documents. In the discharge of its responsibilities, the Audit Committee:
•
reviewed and discussed with management and MaloneBailey, LLP our audited financial statements for the fiscal year
endingended December 31,
2019. As a matter of good corporate practice, the Board has directed that such appointment be submitted to our stockholders for ratification at the Annual Meeting. MaloneBailey, LLP has served as our independent registered public accounting firm since 2011 and is considered by our Audit Committee to be well qualified.If the stockholders do not ratify the appointment of2023;
•
discussed with MaloneBailey, LLP the Audit Committee will reconsidermatters required to be discussed by the appointment. Even ifapplicable requirements of the stockholders ratifyPublic Company Accounting Oversight Board (“PCAOB”) and the appointment,SEC;
•
received the written disclosures and the letter from MaloneBailey, LLP required by the applicable requirements of the PCAOB regarding MaloneBailey, LLP’s communications with the Audit Committee in its discretion, may appoint a different independent registered public accounting firm at any time duringconcerning independence; and
•
discussed with MaloneBailey, LLP their independence.
Based on the
year ifreview and discussions noted above, the Audit Committee
determinesrecommended to the Board of Directors that
such a change wouldthe audited financial statements be
included in the
best interests of AudioEye and its stockholders.Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for filing with the SEC.
Audit Committee
Jamil Tahir (Chairman)
Anthony Coelho
Dr. Katherine Fleming
Independent Registered Public Accounting Firm Fees and Services The following table sets forth by fee category the aggregate fees for professional services rendered by MaloneBailey, LLP for the fiscal years ended December 31,
20182023 and December 31,
2017:| | | Year Ended | |
| | | December 31, | | | December 31, | |
| | | 2018 | | | 2017 | |
| Audit Fees | | $ | 56,000 | | | $ | 54,000 | |
| Audit-Related Fees | | | 27,580 | | | | | |
| All Other Fees | | | - | | | | - | |
| Total | | $ | 83,580 | | | $ | 54,000 | |
2022:
| | | | Year Ended December 31, | |
| | | | 2023 | | | 2022 | |
| Audit Fees | | | | $ | 247,200 | | | | | $ | 221,890 | | |
| Audit-Related Fees | | | | | — | | | | | | 10,000 | | |
| Tax Fees | | | | | — | | | | | | — | | |
| All Other Fees | | | | | — | | | | | | — | | |
| Total | | | | $ | 247,200 | | | | | $ | 231,890 | | |
Audit Fees consist of fees for professional services rendered for the audit of the Company’s annual financial statements and for the review of the Company’s financial statements included in its quarterly reports on Form 10-Q. These fees also include fees for services that are normally provided by an independent registered public accounting firm in connection with statutory and regulatory filings or engagements.
Audit-Related Fees consist of fees for professional services that are reasonably related to the audit or review of the Company’s financial statements but are not reported under “Audit Fees.” In 2018,2023, there were no such fees. In 2022, such fees related solely to services rendered in connection with the Company’s Registration StatementStatements on Form S-1 filed byS-8.
Tax Fees consist of fees related to tax compliance, tax advice and tax planning services. In 2023 and 2022, there were no such fees.
All Other Fees consist of fees for services other than the Company with the SEC on September 4, 2018.services described above. In 2023 and 2022, there were no such fees.
Policy on Audit Committee Pre-Approval Pursuant to its charter, the Audit Committee must approve in advance the engagement of the registered public accounting firm for all audit services and non-audit services based on independence, qualifications and, if applicable, performance, and must also approve in advance fees and other terms of any such engagement. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any Audit Committee member to whom such pre-approval authority is delegated are required to be presented to the full Audit Committee at its next scheduled meeting.
Recommendation of the Board
The Board of Directors unanimously recommends that the stockholders vote “FOR” the
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM (PROPOSAL NO. 5)
Proposal No. 5 is a proposal to ratify the appointment of MaloneBailey, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024.
The Audit Committee of our Board of Directors, in accordance with its charter and authority delegated to it by the Board, has appointed the firm of MaloneBailey, LLP to serve as our independent registered public accounting firm.firm for the fiscal year ending December 31, 2024. As a matter of good corporate practice, the Board has directed that such appointment be submitted to our stockholders for ratification at the Annual Meeting. MaloneBailey, LLP has served as our independent registered public accounting firm since 2011 and is considered by our Audit Committee to be well qualified.
If the stockholders do not ratify the appointment of MaloneBailey, LLP, the Audit Committee will reconsider the appointment. Even if the stockholders ratify the appointment, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of AudioEye and its stockholders. Representatives of MaloneBailey, LLP will be present at our Annual Meeting and will have the opportunity to make a statement and respond to questions.
The Board unanimously recommends that you vote FOR Proposal No. 5 to ratify the appointment of MaloneBailey, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024. If not otherwise specified, proxies will be voted “FOR” the ratification of MaloneBailey, LLP.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
We have one class of securities outstanding, namely our common stock, par value $0.00001 per share, of which 11,658,146 shares were outstanding as of the Boardclose of Directors in fulfilling its oversight responsibilities relating to the accuracy and integrity of AudioEye’s financial reporting, including the performance and the independence of AudioEye’s independent registered public accounting firm, MaloneBailey, LLP. The responsibilitiesbusiness on March 28, 2024. Each share of our Audit Committee are setcommon stock entitles the holder to one vote on all matters put to a vote of stockholders at the Annual Meeting.
The following table sets forth ininformation regarding the beneficial ownership of our Audit Committee Charter. The charter is available oncommon stock as of March 28, 2024 by:
•
each person known by us to be the beneficial owner of more than 5% of our
website atwww.audioeye.com/investors/governance-documents. In the dischargeoutstanding shares of
its responsibilities, the Audit Committee:common stock; reviewed and discussed with management and MaloneBailey, LLP our audited financial statements for the fiscal year ended December 31, 2018;
| • | discussed with MaloneBailey, LLP the matters required to be discussed under Statement on Auditing Standards No. 1301,Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”); |
received the written disclosures and other communications from MaloneBailey, LLP that are required by the applicable requirements of the PCAOB regarding MaloneBailey, LLP’s communications with the Audit Committee; and
discussed with MaloneBailey, LLP the independent registered public accounting firm’s independence.
Based on the review and discussions noted above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for filing with the SEC.
| Audit Committee |
| |
| Ernest Purcell (Chairman)•
Anthony Coelho
Alexandre Zyngier |
EXECUTIVE COMPENSATION
Summary Compensation Table for Fiscal 2018
The table below summarizes the compensation paid to or earned by our principal executive officer and each of our two most highly compensateddirectors and named executive officers who were serving asbeneficially owns shares; and
•
all of our current directors and executive officers at December 31, 2018 (collectively, our “named executive officers”),as a group.
The following table also sets forth, as of March 28, 2024 and for the
fiscal years ended December 31, 2018 and December 31, 2017.| | | | | | | | | | | Stock | | | Option | | | | |
| Name and Principal | | | | Salary | | | Bonus(1) | | | Awards(2) | | | Awards | | | Total | |
| Position | | Year | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| Dr. Carr Bettis | | 2018 | | | 175,000 | | | | 40,000 | | | | 171,000 | (3) | | | - | | | | 386,000 | |
| Executive Chairman, | | 2017 | | | 87,499 | | | | - | | | | 287,355 | | | | 268,300 | | | | 643,154 | |
| Chairman and Director | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Todd Bankofier | | 2018 | | | 250,000 | | | | 80,000 | | | | - | | | | - | | | | 330,000 | |
| Chief Executive Officer | | 2017 | | | 177,867 | | | | - | | | | 41,250 | | | | 268,300 | | | | 487,417 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Sean Bradley | | 2018 | | | 200,000 | | | | 45,000 | | | | - | | | | - | | | | 245,000 | |
| President, Chief Strategy | | 2017 | | | 149,085 | | | | - | | | | 41,250 | | | | 201,225 | | | | 391,560 | |
| Officer and Secretary(4) | | | | | | | | | | | | | | | | | | | | | | |
| (1) | In January 2019, our Compensation Committee approved the payment of discretionary bonuses to each of our named executive officers in recognition of the Company’s financial performance for the 2018 fiscal year. The bonuses were paid in March 2019. |
| (2) | Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for stock awards and option awards granted during the reported fiscal years. For additional information regarding the assumptions we used to calculate the amounts in these columns, please refer to Note 11 to our audited consolidated financial statements included in our 2018 Annual Report filed with the SEC on March 27, 2019. |
| (3) | Dr. Carr Bettis’ 2018 stock award was comprised of a grant on December 31, 2018 of 20,000 RSUs. See Executive Compensation –Outstanding Equity Awards at Fiscal Year End” for additional information regarding these RSUs. |
| (4) | During 2018, Mr. Bradley served as President, Chief Technology Officer and Secretary. On February 27, 2019, he was appointed as our Chief Strategy Officer and now serves as President, Chief Strategy Officer and Secretary. |
Summarybeneficial owners listed in the table, their respective percentages of Compensatory Arrangements with Named Executive Officers, including in connection with a Termination or a Change in Control
Executive Employment Agreement with Dr. Carr Bettis. An Executive Employment Agreement datedthe Company’s total voting power on March 28, 2024. Such percentages are based on our shares of common stock outstanding as of July 1, 2015 (the “Dr. Bettis Employment Agreement”) between the Companyclose of business on March 28, 2024. Unless otherwise indicated, we believe that all persons named in the table have sole voting and Dr. Carr Bettis provided for Dr. Bettisinvestment power with respect to be our Executive Chairman during its term. The Dr. Bettis Employment Agreement was terminable at will by either the Company or Dr. Bettis and wasall shares of common stock, subject to extension upon mutual agreement. Under the Dr. Bettis Employment Agreement, Dr. Bettis received a base annual salarycommunity property laws where applicable. For purposes of $175,000 and was eligible to receive bonuses and equity awards at the sole discretion of our Board of Directors or Compensation Committee. In November 2018, following the expiration of the Bettis Employment Agreement in July 2018, the Boardthis table, “beneficial ownership” is determined to continue Dr. Bettis’ employment as Executive Chairman on an at-will basis at a base annual salary of $175,000.
Executive Employment Agreements with Todd Bankofier. Pursuant to an Executive Employment Agreement dated as of February 13, 2018, effective December 31, 2017 (the “Bankofier Employment Agreement”), Mr. Bankofier was employed as our Chief Executive Officer during 2018. The Bankofier Employment Agreement provided for a term of two years commencing December 1, 2017, subject to extension upon mutual agreement. Under the Bankofier Employment Agreement, Mr. Bankofier received a base annual salary of $250,000 and was eligible to receive bonuses and equity awards at the sole discretion of our Board of Directors or Compensation Committee.
The Bankofier Employment Agreement further provided that if, during its term, Mr. Bankofier had been terminated by the Company without cause or had resigned for good reason, including upon a change in control of the Company (as each such term was defined in the Bankofier Employment Agreement), then Mr. Bankofier would have been eligible to receive (i) a separation payment equal to his base salary for the greater of 12 months or the remainder of the term of the Bankofier Employment Agreement and (ii) payment of the cost of COBRA continuation coverage for him and his eligible dependents until the earlier of (x) Mr. Bankofier and his eligible dependents ceasing to be eligible under COBRA or (y) 12 months following the termination date of his employment or until such time as Mr. Bankofier obtained reasonably equivalent benefits for himself and his eligible dependents.
In February 2019, the Bankofier Employment Agreement was amended and restated pursuant to an Amended and Restated Executive Employment Agreement dated as of February 25, 2019, effective January 1, 2019 (the “Amended and Restated Bankofier Employment Agreement”). Pursuant to the Amended and Restated Bankofier Employment Agreement, Mr. Bankofier has continued his employment with the Company on the terms and conditions set forth therein. The Amended and Restated Bankofier Employment Agreement provides for an initial term that ends on December 31, 2019 and automatically renews for successive one-year periods unless earlier terminated as provided therein. Under the Amended and Restated Bankofier Employment Agreement, Mr. Bankofier receives a base annual salary of $300,000 and is eligible to be granted a bonus or bonuses at the sole discretion of the Board or the Compensation Committee and awards under the Company’s equity incentive compensation plans as the Compensation Committee may from time to time determine.
If, during the term of the Amended and Restated Bankofier Employment Agreement, Mr. Bankofier is terminated by the Company without cause or resigns for good reason, including upon a change in control (as each such term is defined in the Amended and Restated Bankofier Employment Agreement), then Mr. Bankofier will be eligible to receive (i) a separation payment equal to his base salary for the greater of 12 months or the remainder of the employment term, paid in accordance with Rule 13d-3(d) promulgated under the customary payroll practicesSecurities Exchange Act of the Company (or in a lump sum in the case of any resignation for good reason within 120 days after a change in control) and (ii) payment of the cost of COBRA continuation coverage for him and his eligible dependents until the earlier of (x) Mr. Bankofier and his eligible dependents ceasing to be eligible under COBRA or (y) 12 months following his termination date or until such time1934, as Mr. Bankofier shall obtain reasonably equivalent benefits for himself and his eligible dependents.
Executive Employment Agreements with Sean Bradley. Pursuant to an Executive Employment Agreement dated as of February 13, 2018, effective December 31, 2017amended (the “Bradley Employment Agreement”“Exchange Act”), Sean Bradley was employed as our President and Chief Technology Officer during 2018. The term of the Bradley Employment Agreement was two years and provided for Mr. Bradley to receive a base annual salary of $200,000. He was also eligible to receive bonuses at the sole discretion of our Board of Directors or Compensation Committee and was eligible to receive equity awards under our equity compensation plans.
The Bradley Employment Agreement also provided that if, during the term thereof, Mr. Bradley’s employment with the Company had been terminated by the Company without cause or by Mr. Bradley with good reason, including in connection with a change of control (as each such term was defined in the Bradley Employment Agreement), Mr. Bradley would have been eligible to receive (i) a separation payment equal to his base salary for the greater of 12 months or the remainder of the term of the Bradley Employment Agreement and (ii) reimbursement for the employer portion of the cost of COBRA continuation coverage for him and his eligible dependents until the earlier of (x) Mr. Bradley and his eligible dependents ceasing to be eligible under COBRA or (y) 12 months following the termination date or until such time as Mr. Bradley obtained reasonably equivalent benefits for him and his eligible dependents.
On February 27, 2019, the Company entered into an Executive Employment Agreement (the “2019 Bradley Employment Agreement”) with Sean Bradley pursuant to which Mr. Bradley continued his employment with the Company. The 2019 Bradley Employment Agreement terminated and superseded the Bradley Employment Agreement and wasa person is deemed to have become effective on January 1, 2019 other than with respect to Mr. Bradley’s title, which was changed by the Board on February 27, 2019 from President, Chief Technology Officer and Secretary to President, Chief Strategy Officer and Secretary. The 2019 Bradley Employment Agreement provides for a one-year term unless earlier terminated as provided therein. Under the 2019 Bradley Employment Agreement, Mr. Bradley receives a base annual salarybeneficial ownership of $210,000 and is eligible to be granted a bonus or bonuses at the sole discretion of the Board or the Compensation Committee and awards under the Company’s equity incentive compensation plans as the Compensation Committee may from time to time determine. The 2019 Bradley Employment Agreement provides that, in the event the Company terminates Mr. Bradley’s employment without cause or Mr. Bradley terminates his employment for good reason, including in connection with a change of control of the Company (as each such term is defined in the 2019 Bradley Employment Agreement), Mr. Bradley will be entitled to receive a severance benefit in an aggregate amount equal to his base salary during the 12 months prior to termination, which benefit will be payable over a 12-month period.
Equity Compensation Plans. Prior to the adoption of the 2019 Equity Incentive Plan described in Proposal 4 above, AudioEye granted equity awards to its officers, directors, employees, consultants and other service providers under the AudioEye, Inc. 2012 Incentive Compensation Plan (the “2012 Plan”), the AudioEye, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”), the AudioEye, Inc. 2014 Incentive Compensation Plan (the “2014 Plan”), the AudioEye, Inc. 2015 Incentive Compensation Plan (the “2015 Plan”), the AudioEye, Inc. 2016 Incentive Compensation Plan (the “2016 Plan”), and the AudioEye, Inc. 2016 Incentive Compensation Plan, as amended (the “Amended 2016 Plan” and, collectively with the 2016 Plan, 2015 Plan, 2014 Plan, 2013 Plan and 2012 Plan, the “Prior Plans”). The Prior Plans provide for the issuance of, among other awards, stock options, performance stock units and RSUs. The total number ofany shares of common stock that may be subjectsuch stockholder has the right to acquire within 60 days after March 28, 2024. The inclusion of any securities in the grantingfollowing table does not constitute an admission of awards underbeneficial ownership by the persons named below.
Unless otherwise indicated, the business address of each of the 2012 Plan, 2013 Plan, 2014 Plan 2015 Planindividuals listed in the table is c/o AudioEye, Inc., 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711.
| | | | Common Stock | |
| 5% or Greater Beneficial Owners | | | Number of
Shares
Beneficially
Owned(1) | | | Percentage
Beneficially
Owned(1)(2) | |
Keith Kosow
KTK Capital, Inc.
Cedar Holdings MGMT(3) | | | | | 867,800(4) | | | | | | 7.4% | | |
| Directors and Executive Officers | | | | | | | | | | | | | |
| David Moradi | | | | | 3,462,091(5) | | | | | | 29.7% | | |
| Dr. Carr Bettis | | | | | 800,783(6) | | | | | | 6.9% | | |
| Kelly Georgevich | | | | | 49,478(7) | | | | | | * | | |
| Jamil Tahir | | | | | 323,034(8) | | | | | | 2.8% | | |
| Anthony Coelho | | | | | 103,949(9) | | | | | | * | | |
| Dr. Katherine Fleming | | | | | —(10) | | | | | | * | | |
| All current directors and executive officers as a group (6 persons) | | | | | 4,739,335(11) | | | | | | 40.7% | | |
*
Less than 1%
(1)
Shares of common stock beneficially owned and Amended 2016 Planthe respective percentages of beneficial ownership of common stock assume the vesting, exercise or settlement, as applicable, of all options, RSUs and PSUs beneficially owned by such person or entity that are exercisable or can be settled as of, or vest or become exercisable, as applicable, within 60 days after, March 28, 2024. Shares of common stock issuable pursuant to the vesting of and the right to settle RSUs, PSUs, exercise of stock options as of or within 60 days after March 28, 2024 are deemed outstanding and held by the holder of such options, RSUs or PSUs for the
purpose of computing the percentage of outstanding common stock beneficially owned by such person but are not deemed outstanding for computing the percentage of outstanding common stock beneficially owned by any other person. A holder of options, RSUs, or PSUs that do not vest, become exercisable, or are scheduled to be settled, as applicable, within 60 days after March 28, 2024 is 200,000 shares. not deemed the beneficial owner thereof for purposes of this table.
(2)
These percentages have been calculated based on 11,658,146 shares of the Company’s common stock outstanding on March 28, 2024.
(3)
The total numberreporting persons’ business address is 100 South Pointe Drive #1206, Miami Beach, Florida 33139.
(4)
Based on a Schedule 13G/A filed with the SEC on February 17, 2024 by Keith Kosow, KTK Capital, Inc. (“KTK Capital”), and Cedar Holdings MGMT, and includes (i) 252,140 shares held by Keith Kosow, (ii) 319,909 shares held by KTK Capital and (iii) 295,751 shares held by Cedar Holdings MGMT. Mr. Kosow controls KTK Capital and Cedar Holdings MGMT and Mr. Kosow is deemed the beneficial owner of the shares owned by each company.
(5)
Comprised of (i) 563,758 shares of common stock
held by Mr. Moradi, and (ii) 2,898,333 shares of common stock held by Sero Capital LLC, an entity for which David Moradi is deemed the beneficial owner. Excludes 22,560 RSUs that
mayare vested, but are not scheduled to be
subject to the granting of awards under the 2016 Plan is 400,000 shares. As described in Proposal 4, if our stockholders approve the 2019 Plan at the Annual Meeting, then each of the Prior Plans will terminate as of the date of the Annual Meeting, and no awards will be granted under the Prior Plans on orsettled within 60 days after
the date of the Annual Meeting.On December 31, 2018, the Company granted to Dr. Bettis 20,000 RSUs for services provided as a Board member. The RSUs will vest upon the earlierMarch 28, 2024.
(6)
Comprised of (i) on April 30, 2019, provided that his service as a director is not terminated before such date, and349,808 shares of common stock held by Dr. Bettis; (ii) the date432,375 shares of a meeting of the stockholders of the Company atcommon stock held by CSB IV US Holdings LLC, an entity for which Dr. Bettis being willingis deemed a beneficial owner; and available to serve as a director, is nominated(iii) 18,600 shares of common stock held by Carr Bettis IRA, an account for election but is not re-elected by the stockholders. The settlement date for such RSUs, if they vest, will be the earlier of (i) April 30, 2025 or (ii) the date on which the Company undergoes a change of control during the seven-year term of the award. No other equity awards were granted to our named executive officers in 2018. As of December 31, 2018, Dr. Bettis also heldis deemed the beneficial owner. Excludes 97,340 RSUs that wereare vested andas of March 28, 2024, but that will settle on the earlierare not scheduled to be settled within 60 days after March 28, 2024.
(7)
Comprised of 49,478 shares of common stock owned by Ms. Georgevich.
(8)
Comprised of (i)
July 1, 2024 or2,304 shares of common stock held by Mr. Tahir; (ii)
the date on320,000 shares of common stock owned by TurnMark Partners, L.P., an investment partnership beneficially owned by Mr. Tahir; and (iii) 730 RSUs which
the Company undergoes a change of control (as defined in the RSU award agreements).Health, Welfare and Retirement Benefits. Our named executive officers are eligiblescheduled to participate in our broad-based employee benefit plans, including a tax-qualified Section 401(k) savings plan,settle within 60 days after March 28, 2024. Excludes 101,773 RSUs held by Mr. Tahir that are generally provided for all of our full-time employees. Our executive officers may participate in such plans on the same basis as all of our other full-time employees.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain informationvested as of December 31, 2018 concerningor are scheduled to vest within 60 days after March 28, 2024, but that are not scheduled to be settled within 60 days after March 28, 2024.
(9)
Comprised of (i) 86,897 shares of common stock
optionsheld by Mr. Coelho; and
(ii) 17,052 RSUs
heldwhich are scheduled to settle within 60 days after March 28, 2024. Excludes 82,177 RSUs that are vested as of
such date by our named executive officers:| | | Option Awards | | | Stock Awards | |
| | | Number of | | | Number of | | | | | | | | | Number of | | | | |
| | | securities | | | securities | | | | | | | | | shares or | | | Market value | |
| | | underlying | | | underlying | | | | | | | | | units of | | | of shares or | |
| | | unexercised | | | unexercised | | | Option | | | Option | | | stock that | | | units of stock | |
| | | options (#) | | | options (#) | | | Exercise | | | Expiration | | | have not | | | that have not | |
| Name | | Exercisable | | | Unexercisable | | | Price ($) | | | Date | | | vested (#)(1) | | | vested ($)(2) | |
| Dr. Carr Bettis | | | 12,000 | | | | - | | | | 11.25 | | | 3/24/2019 | | | | | | | | | |
| | | | 20,000 | | | | - | | | | 1.025 | | | 1/15/2019 | | | | - | | | | - | |
| | | | 80,000 | (3) | | | - | | | | 0.95 | | | 1/15/2021 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | �� | 20,000 | (4) | | | 171,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Todd Bankofier | | | 80,000 | (3) | | | - | | | | 0.95 | | | 1/15/2021 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Sean Bradley | | | 6,000 | | | | - | | | | 0.95 | | | 1/15/2019 | | | | - | | | | - | |
| | | | 60,000 | (3) | | | - | | | | 0.95 | | | 1/15/2021 | | | | - | | | | - | |
| | | | 1,989 | | | | - | | | | 4.475 | | | 4/15/2019 | | | | - | | | | - | |
| | | | 2,255 | | | | - | | | | 3.90 | | | 7/15/2019 | | | | - | | | | - | |
| | | | 2,464 | | | | - | | | | 3.125 | | | 10/15/2019 | | | | - | | | | - | |
(10)
Excludes 9,797 RSUs that are vested as of or are scheduled to vest within 60 days after March 28, 2024, but that are not scheduled to be settled within 60 days after March 28, 2024.
(11)
Comprised of (i) an aggregate of 4,721,553 shares of common stock; and (ii) 17,782 RSUs that are scheduled to vest and be settled within 60 days after March 28, 2024.
| (1) | In addition to the equity awards set forth in this table, as of December 31, 2018, Dr. Bettis held 97,340 RSUs that were vested and will settle on the earlier of (i) July 1, 2024 or (ii) the date on which the Company undergoes a change of control (as such term is defined in the applicable RSU award agreements). |
| (2) | The market value of unvested stock awards is calculated using a value of $8.55 per share, which was the closing price of AudioEye common stock on NASDAQ on December 31, 2018, which was the last trading day of the Company’s fiscal year ended December 31, 2018. |
| (3) | Each of Dr. Carr Bettis, Todd Bankofier and Sean Bradley was granted performance-based stock options in December 2015 which provided that they would vest provided (i) a share price condition was met and (ii) individual performance goals were achieved. In January 2018, our Compensation Committee determined that the performance-based stock options had become vested at each such officer’s target number of shares. |
| (4) | On December 31, 2018, the Company granted to Dr. Bettis 20,000 RSUs for services provided as a Board member. The RSUs vest upon the earlier of (i) on April 30, 2019, provided that Dr. Bettis’ service as a director is not terminated prior to that date, and (ii) the date of a meeting of the stockholders of the Company at which Dr. Bettis, being willing and available to serve as a director, is nominated for election but is not re-elected by the stockholders. The settlement date for such RSUs, if they vest, is the first to occur of (x) April 30, 2025 or (y) the date on which the Company undergoes a change of control (as defined in the RSU award agreement). |
The above table does not include any warrants acquired by a named executive officer in any private placement or similar transaction.
NO DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS
Section 16(a) of the
Securities Exchange Act
of 1934 and
rules andthe regulations
of the SECpromulgated thereunder require
our directors
and certain officers and persons who
beneficially own more than
10%ten percent of any class of our
common stock, as well as certain affiliates of such persons,voting securities to file reports of their ownership of our common stock and changes in
suchtheir ownership with the SEC.
Directors,Based on a review of reports filed by these reporting persons and written representations by our directors and executive officers, we believe that all of our directors, executive officers and persons
owningwho own more than
10%ten percent of any class of our
common stock are required by SEC rules and regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such reports received by us and on information provided by the reporting persons, we believe that during 2018, our directors, officers and owners of more than 10% of our common stockvoting securities complied with all
applicable filing requirements
under Section 16(a), except that, dueapplicable to
inadvertent administrative error,them during
2018: Mr. Zyngier was late in reporting two transactions and, on their Form 3s, Dr. Bettis omitted certain RSUs, Mr. Coelho omitted certain shares and Messrs. Bankofier and Bradley each included an equity award that had previously been cancelled. The Form 3s have since been amended.
STOCKHOLDER PROPOSALS FOR 20202025 ANNUAL MEETINGProposals
Any stockholder proposal to be considered for inclusion in our proxy statement and form of stockholders, excluding nominationsproxy for the Board, intended to be presented at our 20202025 Annual Meeting should be submitted by certified mail, return receipt requested, and must be received by us at our executive offices inat 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711, on or before December 12, 2019,11, 2024, the date that is 120 calendar days prior to the first anniversary of the date that this proxy statementProxy Statement is released to stockholders,stockholders.
In order for nominations or other business, other than a stockholder proposal to be
eligible for inclusionincluded in our proxy statement and form of proxy,
relating to that meeting and to be
introduced for actionproperly brought by a stockholder before the 2025 Annual Meeting, our By-Laws provide that the stockholder must give timely written notice thereof, which shall be delivered to the Secretary at the
2020 Annual Meeting.principal executive offices of the Company at 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711 not later than the close of business on February 23, 2025 nor earlier than January 24, 2025. In the event that the date of the
20202025 Annual Meeting is
changed more than
thirty30 days
frombefore or more than 60 days after the anniversary date of the 2024 Annual Meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of
this year’ssuch annual meeting
notice by stockholders should be received noand not later than the close of business on the later of the
150th calendar90th day prior to the date of
the 2020 Annual Meetingsuch annual meeting or the
10th calendar10th day following the
dateday on which
public announcement of the date of such meeting is first
publicly announced.made by the Company. Any stockholder proposalsuch notice must becontain the information set forth in, writing and mustotherwise comply with, our By-Laws.
In addition to satisfying the foregoing requirements, in order to comply with the universal proxy rules, a stockholder who intends to solicit proxies in support of director nominees for election at the 2025 Annual Meeting, other than the Company’s nominees, must provide notice that sets forth the information required by Rule 14a-814a-19 under the Exchange Act no later than March 25, 2025.
HOUSEHOLDING OF PROXY MATERIALS
The SEC’s proxy rules permit companies and
must set forth (i)intermediaries, such as brokers and banks, to satisfy delivery requirements for notices, proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a
descriptionsingle copy of
such materials to those stockholders. This method of delivery, often referred to as “householding,” should reduce the
business desired toamount of duplicate information that stockholders receive and lower printing and mailing costs. AudioEye and certain intermediaries will be
brought before the meetinghouseholding notices, proxy statements and
the reasonsannual reports for
conducting the business at the meeting; (ii) the name and address, as they appear onstockholders of record in connection with our
books, of the stockholder submitting the proposal; (iii) the class and number of shares that are beneficially owned by such stockholder; (iv) the dates on which the stockholder acquired the shares; (v) documentary support for any claim of beneficial ownership as required by Rule 14a-8; (vi) any material interest of the stockholder in the proposal; (vii) a statement in support of the proposal; and (viii) any other information required by the rules and regulations of the SEC. Stockholder nominations for the Board must comply with the procedures set forth above under “Corporate Governance—Nomination of Directors.”The failure of a stockholder to deliver a proposal in accordance with the requirements of the preceding paragraphs may result in the exclusion of the proposal from our2024 Annual Meeting. This means that:
•
Only one notice, proxy statement and such proposal being ineligibleannual report will be delivered to multiple stockholders sharing an address unless you notify your broker or bank to the contrary;
•
You can contact AudioEye by calling 866.331.5324 or by writing to James Spolar, General Counsel and Corporate Secretary, AudioEye, Inc., 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711, to request a separate copy of the notice, proxy statement and 2023 annual report for consideration at the 20202024 Annual Meeting. Further,Meeting and for future meetings or, if you are currently receiving multiple copies, to receive only a single copy in the submissionfuture, or you can contact your bank or broker to make a similar request; and
•
You can request delivery of a
proposal in accordance with the requirementssingle copy of the
immediately preceding paragraph does not guarantee that we will include it in ournotice, proxy statement
and annual report from your bank or
that it will be eligible for consideration atbroker if you share the
2020 Annual Meeting. We strongly encourage anysame address as another AudioEye stockholder
interested in submitting a proposaland your bank or broker has determined to
contact our Secretary in advance of the submission deadline to discuss the proposal.household proxy materials.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING Our Board knows of no matters other than those referred to in the accompanying Notice of Annual Meeting of Stockholders which may properly come before the Annual Meeting. However, if any other matter should be properly presented for consideration and vote at the Annual Meeting or any adjournment(s) thereof, it is the intention of the persons named as proxies on the enclosed form of proxy card to vote the shares represented by all valid proxy cards in accordance with their judgment of what is in the best interest of AudioEye and its stockholders.
HOUSEHOLDING
The SEC’s proxy rules permit companies and intermediaries, such as brokers and banks, to satisfy delivery requirements for notices, proxy statements and annual reports with respect to two or more stockholders sharing
By Order of the same address by delivering a single copyBoard of such materials to those stockholders. This method of delivery, often referred to as “householding,” should reduce the amount of duplicate information that stockholders receive and lower printing and mailing costs. AudioEye and certain intermediaries will be householding notices, proxy statements and annual reports for stockholders of record in connection with our 2019 Annual Meeting. This means that:Directors Only one notice, proxy statement and annual report will be delivered to multiple stockholders sharing an address unless you notify your broker or bank to the contrary;/s/ JAMES SPOLAR
You can contact AudioEye by calling 866.331.5324 or by writing to Sean Bradley, President, Chief Strategy Officer
James Spolar
General Counsel and Secretary
Tucson, Arizona
April 10, 2024
APPENDIX A
AUDIOEYE, INC.
2020 EQUITY INCENTIVE PLAN
(As Proposed to be Amended May 24, 2024)
1. Purpose. The purpose of the AudioEye, Inc., 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711, to request a separate copy of the notice, proxy statement and annual report for the 2019 Annual Meeting and for future meetings or, if you are currently receiving multiple copies, to receive only a single copy in the future, or you can contact your bank or broker to make a similar request; and
You can request delivery of a single copy of the notice, proxy statement and annual report from your bank or broker if you share the same address as another AudioEye stockholder and your bank or broker has determined to household proxy materials.
Annex A
AudioEye, Inc.
2019 2020 Equity Incentive Plan
1.1 General Purpose. The name of this plan (the “Plan”) is the AudioEye, Inc. 2019 Equity Incentive Plan. The purposes of the Plan are to (a) enable AudioEye, Inc., a Delaware corporation, and any Affiliate to attract and retain the typesbest available personnel for positions of Employees, Consultantsresponsibility with the Company, to provide additional incentives to them and Directors who will contribute to the Company’s long range success; (b) provide incentives that align thetheir interests of Employees, Consultants and Directors with those of the Company’s stockholders, and to thereby promote the Company’s long-term business success.
2. Definitions. In this Plan, the following definitions will apply.
(a) “Affiliate” means any entity that is a Subsidiary or Parent of the
Company; and (c) promote the success of the Company’s business.1.2 Eligible Award Recipients. The persons eligible to receive Awards are the Employees, Consultants and Directors of the Company and its Affiliates and such other individuals designated by the Committee who are reasonably expected to become Employees, Consultants and Directors after the receipt of Awards.
1.3 Available Awards. Awards that may be grantedCompany.
(b) “Award” means a grant made under the Plan
include: (a) Incentive Stockin the form of Options,
(b) Non-Qualified Stock Options, (c) Stock Appreciation Rights,
(d) Restricted
Stock, Stock Units, Other Stock-Based Awards
(e) Performance Share Awards, (f)or Cash
Awards, and (g) Other Equity-BasedIncentive Awards.
“Affiliate”
(c) “Award Agreement” means
a corporationthe written or electronic agreement, notice or other
entity that, directly or through one or more intermediaries, controls, is controlled by or is under common control with,document containing the
Company.“Applicable Laws” means the requirements relatedterms and conditions applicable to or implicated by the administration of the Plan under applicable state corporate law, United States federal and state securities laws, the Code, any stock exchange or quotation system on which the shares of Common Stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.
“each Award” means any right granted under the Plan, including an Incentive Stock Option, a Non-Qualified Stock Option, a Stock Appreciation Right, a Restricted Award, a Performance Share Award, a Cash Award, or an Other Equity-Based Award.
“Award Agreement” means a written agreement, contract, certificate or other instrument or document evidencing the terms and conditions of an individual Award granted under the Plan which may, in the discretion of the Company, be transmitted electronically to any Participant. Eachall amendments thereto. An Award Agreement shall beis subject to the terms and conditions of the Plan.
“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular Person, such Person shall be deemed to have beneficial ownership of all securities that such Person has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.
“Board”
(d) “Board” means the Board of Directors of the Company,Company.
(e) “Cash Incentive Award” means a dollar-denominated performance-based Award as
constituted at any time.“Cash Award” means an Award denominateddescribed in cash that is granted underSection 7.4 of the Plan.
“Cause”11(b).
(f) “Cause” with respect to any Participant shall have the meaning specified in the Participant’s Award Agreement. In the absence of any definition in the Award Agreement, “Cause” shall have the equivalent meaning or the same meaning as “cause” or “for cause” set forth in any employment, consulting, or other agreement for the performance of services between the Participant and the Company or an Affiliate or, in the absence of any such agreement or any such definition in such agreement, such term shall mean (i) Participant’s failure to substantially perform the fundamental duties and responsibilities associated with Participant’s position for any reason other than a physical or mental disability, including Participant’s failure byor refusal to carry out reasonable instructions; (ii) Participant’s material breach of any material written Company policy; (iii) Participant’s gross misconduct in the Participant to perform, in a reasonable manner, his or herperformance of Participant’s duties as assigned byfor the Company or an Affiliate, (ii) any violation orCompany; (iv) Participant’s material breach byof the Participantterms of his or her employment, consulting or other similar agreement with the Company or an Affiliate, if any; (v) being arrested or charged with any (iii)fraudulent or felony criminal offense or any violation or breach by the Participant of any non-competition, non-solicitation, non-disclosure and/or other similar agreement withcriminal offense which reflects adversely on the Company or an Affiliate, (iv)reflects conduct or character that the Board reasonably concludes is inconsistent with continued employment; or (vi) any act by the Participant of dishonesty or bad faith with respect to the Company or an Affiliate, (v) use of alcohol, drugs or other similar substancescriminal conduct that is a “statutory disqualifying event” (as defined under federal securities laws, rules and regulations).
(g) “Change in Control” means, unless otherwise defined in a
manner that adversely affects the Participant’s work performance, or (vi) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorably upon the Participant or the Company or any Affiliate. The good faith determination by the Committee of whether the Participant’s Continuous Service was terminated by the Company for “Cause” shall be final and binding for all purposes hereunder.“Change in Control” with respect to any Participant shall have the meaning specified in the Participant’sthen-effective written agreement (including an Award Agreement or any employment agreementAgreement) between thea Participant and the Company or its Affiliates. In the absence of any such definition, a “Change in Control” shall mean the occurrence of anyAffiliate, one of the following:
(i) The acquisition by any
(1) An Exchange Act Person of Beneficial Ownershipbecomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than eighty percent (80%) of either (A) the value of then outstanding equity securities of the Company (the “Outstandingrepresenting more than 80% of the combined voting power of the Company’s then outstanding Voting Securities, except that the following will not constitute a Change in Control:
(A) any acquisition of securities of the Company Stock”)by an Exchange Act Person from the Company for the purpose of providing financing to the Company;
(B) any formation of a Group consisting solely of beneficial owners of the Company’s Voting Securities as of the effective date of this Plan; or
(C) any repurchase or other acquisition by the Company of its Voting Securities that causes any Exchange Act Person to become the beneficial owner of more than 80%.
If, however, an Exchange Act Person or Group referenced in clause (A), (B) or (C) above acquires beneficial ownership of additional Company Voting Securities after initially becoming the beneficial owner of more than 80% of the combined voting power of the Company’s Voting Securities by one of the means described in those clauses, then a Change in Control will be deemed to have occurred.
(2) Individuals who are Continuing Directors cease for any reason to constitute a majority of the members of the Board.
(3) A Corporate Transaction is consummated, unless, immediately following such Corporate Transaction: (A) all or substantially all of the individuals and entities who were the beneficial owners of the Company’s Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 80% of the combined voting power of the then outstanding
voting securitiesVoting Securities of the
Company entitledsurviving or acquiring entity resulting from such Corporate Transaction (including beneficial ownership through any Parent of such entity) in substantially the same proportions as their ownership, immediately prior to
vote generally in the election of directors (the “Outstanding Company Voting Securities”) (the foregoing Beneficial Ownership hereinafter being referred to as a “Controlling Interest”); provided, however, that the following acquisitions shall not constitute or result in a Change in Control: (v) any acquisition directly from the Company; (w) any acquisition by the Company; (x) any acquisition by any Person that assuch Corporate Transaction, of the
Effective DateCompany’s Voting Securities; (B) no Exchange Act Person beneficially owns,
Beneficial Ownershipdirectly or indirectly, more than 80% of
a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Affiliate; or (z) any acquisition by anycombined voting power of the Voting Securities of the entity
pursuant to a transaction which complies with clauses (A), (B)resulting from such Corporate Transaction; and (C)
of subsection (iii) below; or(ii) During any period of two (2) consecutive years (not including any period prior to the Effective Date) individuals who constitute the Board on the Effective Date (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however,members of the board of directors (or comparable governors) of the entity resulting from such Corporate Transaction were Continuing Directors at the time of the initial agreement, or the action of the Board, providing for such Corporate Transaction.
Notwithstanding the foregoing, to the extent that any Award constitutes a deferral of compensation subject to Code Section 409A, and if that Award provides for a change in the time or form of payment upon a Change in Control, then no Change in Control shall be deemed to have occurred upon an event described in this Section 2(g) unless the event would also constitute a change in ownership or effective control of, or a change in the ownership of a substantial portion of the assets of, the Company under Code Section 409A.
(h) “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time. For purposes of the Plan, references to sections of the Code shall be deemed to include any applicable regulations thereunder and any successor or similar statutory provisions.
(i) “Committee” means two or more Non-Employee Directors designated by the Board to administer the Plan under Section 3, each member of which shall be (i) an independent director within the meaning of applicable stock exchange rules and regulations and (ii) a non-employee director within the meaning of Exchange Act Rule 16b-3.
(j) “Company” means AudioEye, Inc., a Delaware corporation, and any successor thereto.
(k) “Continuing Director” means an individual
becoming(i) who is, as of the effective date of the Plan, a director
subsequent toof the
Effective DateCompany, or (ii) who becomes a director of the Company after the effective date hereof and whose
initial election, or nomination for election by the Company’s stockholders, was approved by
a vote of at least a majority of the
directors then
comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board,Continuing Directors, but excluding, for
purposes of this
purpose, any suchclause (ii), an individual whose initial assumption of office occurs as
athe result of an actual or threatened
electionproxy contest
with respect toinvolving the
election or removal of directors or other actual or threatened solicitation of proxies or consents by
a person or
on behalf of a PersonGroup other than the
Board;Board, or
(iii) Consummation by reason of a reorganization, merger, statutory share exchangean agreement intended to avoid or consolidationsettle an actual or similar transaction involving the Company or any of its Affiliates,threatened proxy contest.
(l) “Corporate Transaction” means (i) a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets(ii) a merger, consolidation, share exchange or equity of another entity bysimilar transaction involving the Company, or anyregardless of its Affiliates (each a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than eighty percent (80%) of the value of the then outstanding equity securities and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of members of the board of directors (or comparable governing body of an entity that does not have such a board), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction ownswhether the Company or all or substantially all ofis the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Stocksurviving entity.
(m) “Disability” means (A) any permanent and
Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such entity resulting from such Business Combination or any Person that as of the Effective Date owns Beneficial Ownership of a Controlling Interest) beneficially owns, directly or indirectly, eighty percent (80%) or more of the value of the then outstanding equity securities of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors or other governing body of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or(iv) A complete liquidation or dissolution of the Company.
If required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if such transaction is not also a “change in the ownership or effective control of” the Company or “a change in the ownership of a substantial portion of the assets of” the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). The Board may, in its sole discretion and without a Participant’s consent, amend the definition of “Change in Control” to conform to the definition of “Change in Control” under Section 409A of the Code, and the regulations thereunder.
“Code” means the Internal Revenue Code of 1986, as it may be amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder.
“Committee” means a committee of one or more members of the Board appointed by the Board to administer the Plan in accordance withSection 3.3 andSection 3.4.
“Common Stock” means the common stock, $0.00001 par value per share, of the Company, or such other securities of the Company as may be designated by the Committee from time to time in substitution thereof.
“Company” means AudioEye, Inc., a Delaware corporation, and any successor thereto.
“Consultant” means any individual or entity which performs bona fide services to the Company or an Affiliate, other than as an Employee or Director, and who may be offered securities registerable pursuant to a registration statement on Form S-8 under the Securities Act.
“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Consultant or Director, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service,provided that there is no interruption or termination of the Participant’s Continuous Service;provided further that if any Award is subject to Section 409A of the Code, this sentence shall only be given effect to the extent consistent with Section 409A of the Code. For example, a change in status from an Employee of the Company to a Director of an Affiliate will not constitute an interruption of Continuous Service. The Committee or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence. The Committee or its delegate, in its sole discretion, may determine whether a Company transaction, such as a sale or spin-off of a division or subsidiary that employs a Participant, shall be deemed to result in a termination of Continuous Service for purposes of affected Awards, and such decision shall be final, conclusive and binding.
“Deferred Stock Units” has the meaning set forth inSection 7.2 hereof.
“Director” means a member of the Board.
“Disability” means, unless the applicable Award Agreement says otherwise, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment;provided, however, for purposes of determining the term of an Incentive Stock Option pursuant toSection 6.10 hereof, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Committee. Except in situations where the Committee is determining Disability for purposes of the term of an Incentive Stock Option pursuant toSection 6.10 hereof within the meaning of Section 22(e)(3) of the Code, the Committee may rely on any determination that a Participant is disabled for purposes of benefitstotal disability under any long-term disability plan maintained byor policy of the Company or any Affiliate in which aits Affiliates that covers the Participant, participates.
“Disqualifying Disposition” hasor (B) if there is no such long-term disability plan or policy, “total and permanent disability” within the meaning set forth inof Code Section 14.1222(e)(3).
“Effective Date” shall mean the date as of which this Plan is adopted by the Board.
“Employee”
(n) “Employee” means
any person, including an Officer or Director, employed by the Company or an Affiliate;provided, that,for purposes of determining eligibility to receive Incentive Stock Options, an Employee shall mean an employee of the Company or
a parent or subsidiary corporation within the meaning of Section 424 of the Code. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.
“Exchange Act”
(o) “Exchange Act” means the Securities Exchange Act of 1934, as
amended.“Fairamended and in effect from time to time.
(p) “Exchange Act Person” means any natural person, entity or Group other than (i) the Company or any Affiliate; (ii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate; (iii) an underwriter temporarily holding securities in connection with a registered public offering of such securities; or (iv) an entity whose Voting Securities are beneficially owned by the beneficial owners of the Company’s Voting Securities in substantially the same proportions as their beneficial ownership of the Company’s Voting Securities.
(q) “Fair Market Value”Value” means as of any date, the fair market value of the Common Stocka Share determined as determined below.follows:
(1) If the Common Stock is listedShares are readily tradable on anyan established stock exchange or a nationalsecurities market system, including without limitation, the New York Stock Exchange or the NASDAQ Stock Market, the(as determined under Code Section 409A), then Fair Market Value shallwill be the closing sales price offor a share of Common Stock (or if no sales were reportedShare on the closing priceprincipal securities market on which it trades on the date immediately preceding such date) as quotedfor which it is being determined, or if no sale of Shares occurred on such exchange or systemthat date, on the daynext preceding date on which a sale of determination,Shares occurred, as reported in theThe Wall Street Journal. In or such other source as the absence ofCommittee deems reliable; or
(2) If the Shares are not then readily tradable on an established securities market for the Common Stock, the(as determined under Code Section 409A), then Fair Market Value shallwill be determined in good faith by the Committee and such determination shall be conclusive and binding on all persons. Notwithstandingas the foregoing,result of a reasonable application of a reasonable valuation method that satisfies the Committee may also determine the Fair Marketrequirements of Code Section 409A.
(r) “Full Value
upon the average selling price of the Stock during a specified period that is within thirty (30) days before or thirty (30) days after such date, provided that, with respect to the grant ofAward” means an Award other than an Option
orAward, Stock Appreciation Right
the commitment to grant such Award
based on such valuation method must be irrevocable before the beginning of the specified period and otherwise compliant with Section 409A of the Code.“Fiscal Year” means the Company’s fiscal year.
“Free Standing Rights” has the meaning set forth inSection 7.1(a).
“Good Reason” shall,(s) “Good Reason” with respect to any Participant shall have the meaning specified in the Participant’s Award Agreement. In the absence of any definition in the Award Agreement, “Good Reason” shall have the equivalent meaning or the same meaning as “good reason” or “for good reason” set forth in any employment, consulting, or other agreement for the performance of services between the Participant and the Company or an Affiliate or, in the absence of any such agreement or any such definition in such agreement, such term shall mean (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant’s duties or responsibilities as assigned by the Company or an Affiliate, or any other action by the Company or an Affiliate which results in a material diminution in such duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or an Affiliate promptly after receipt of notice thereof given by the Participant; or (ii) any material failure by the Company or an Affiliate to comply with its obligations to the Participant as agreed upon, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company or an Affiliate promptly after receipt of notice thereof given by the Participant. An event or action will not give the Participant grounds for Good Reason unless (A) the Participant gives the Company written notice within 60 days after the initial existence of the event or action that the Participant intends to resign for Good Reason due to such event or action; (B) the event or action is not reasonably cured by the Company within 30 days after the Company receives written notice from the Participant; and (C) the Participant terminates service within 30 days after the end of the cure period.
“Grant Date”
(t) “Grant Date” means the date on which the Committee
adopts a resolution, or takes other appropriate action, expressly grantingapproves the grant of an Award
to a Participant that specifiesunder the
key terms and conditions of the AwardPlan, or
if asuch later date
is set forth in such resolution, then such date as
is set forth in such resolution.“Incentive Stock Option” means an Option that is designatedmay be specified by the Committee as an incentive stock option withinon the meaning of Section 422 ofdate the Code and that meetsCommittee approves the requirements set out in the Plan.
“Non-Employee Director”Award.
(u) “Group” means
a Director who is a “non-employee director” within the meaning of Rule 16b-3 and an “independent director” as defined in the Marketplace Rules of The NASDAQ Stock Market LLC.“Non-Qualified Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
“Option” means an Incentive Stock Option or a Non-Qualified Stock Option granted pursuant to the Plan.
“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
“Option Exercise Price” means the price at which a share of Common Stock may be purchased upon the exercise of an Option.
“Other Equity-Based Award” means an Award that is not an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, or Performance Share Award that is granted underSection 7.4 and is payable by delivery of Common Stock and/or which is measured by reference to the value of Common Stock.
“Participant” means an eligible person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.
“Performance Goals” means, for a Performance Period, the onetwo or more goals established by the Committee for the Performance Period based upon business criteriapersons who act, or agree to act together, as a partnership, limited partnership, syndicate or other performance measures determined by the Committee in its discretion.
“Performance Period” means the one or more periods of time, as the Committee may select, over which the attainment of one or more Performance Goals will be measuredgroup for the purpose of determining a Participant’s right to and the paymentacquiring, holding, voting or disposing of a Performance Share Award or a Cash Award.
“Performance Share Award” means any Award granted pursuant toSection 7.3 hereof.
“Performance Share” means the grant of a right to receive a number of actual shares of Common Stock or share units based upon the performancesecurities of the Company during a Performance Period, as determined by the Committee.
“Permitted Transferee”(v) “Non-Employee Director” means a member of the Optionholder’s immediate family (child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships), any person sharing the Optionholder’s household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the Optionholder) control the management of assets, and any other entity in which these persons (or the Optionholder) own more than 50% of the voting interests.
“Person”Board who is not an Employee.
(w) “Option” means a personright granted under the Plan to purchase a specified number of Shares at a specified price. An “Incentive Stock Option” or “ISO” means any Option designated as such and granted in accordance with the requirements of Code Section 422. A “Non-Qualified Stock Option” or “NQSO” means an Option other than an Incentive Stock Option.
(x) “Other Stock-Based Award” means an Award described in Section 11(a) of this Plan.
(y) “Parent” means a “parent corporation,” as defined in Code Section 13(d)(3) of424(e).
(z) “Participant” means a Service Provider to whom a then-outstanding Award has been granted under the
Exchange Act.“Plan”Plan.
(aa) “Plan” means this AudioEye, Inc.
20192020 Equity Incentive Plan, as amended
and/or amended and
restated from time to time.“Related Rights” has the meaning set forth inSection 7.1(a).
“Restricted Award” means any Award granted pursuant toSection 7.2(a).
“Restricted Period” has the meaning set forth inSection 7.2(a).
“Restricted Stock” has the meaning set forth inSection 7.2(a).
“Restricted Stock Units” has the meaning set forth inSection 7.2(a).
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
“Securities Act”
(bb) “Restricted Stock” means Shares issued to a Participant that are subject to such restrictions on transfer, vesting conditions and other restrictions or limitations as may be set forth in this Plan and the applicable Award Agreement.
(cc) “Service” means the
Securities Actprovision of
1933,services by a Participant to the Company or any Affiliate in any Service Provider capacity. A Service Provider’s Service shall be deemed to have terminated either upon an actual cessation of providing services to the Company or any Affiliate or upon the entity to which the Service Provider provides services ceasing to be an Affiliate. Except as
amended.“Stockotherwise provided in this Plan or any Award Agreement, Service shall not be deemed terminated in the case of (i) any approved leave of absence; (ii) transfers among the Company and any Affiliates in any Service Provider capacity; or (iii) any change in status so long as the individual remains in the service of the Company or any Affiliate in any Service Provider capacity.
(dd) “Service Provider” means an Employee, a Non-Employee Director, or any natural person who is a consultant or advisor, or is employed by a consultant or advisor retained by the Company or any Affiliate, and who provides services (other than in connection with (i) a capital-raising transaction or (ii) promoting or maintaining a market in Company securities) to the Company or any Affiliate.
(ee) “Share” means a share of Stock.
(ff) “Stock” means the common stock, $0.00001 par value per Share, of the Company.
(gg) “Stock Appreciation Right”Right” or “SAR” means the right pursuant to an Award granted underSection 7.1to receive, upon exercise,in cash and/or Shares as determined by the Committee, an amount payable in cash or shares equal to the appreciation in value of a specified number of shares subjectShares between the Grant Date of the SAR and its exercise date.
(hh) “Stock Unit” means a right to
the Stock Appreciation Right that is being exercised multipliedreceive, in cash and/or Shares as determined by the
excess of (a)Committee, the Fair Market Value of a
share of Common StockShare, subject to such restrictions on
the date the Award is exercised, over (b) the exercise price specified in the Stock Appreciation Right Award Agreement.“Stock for Stock Exchange” has the meaningtransfer, vesting conditions and other restrictions or limitations as may be set forth inSection 6.4.
“Substitute Award”has this Plan and the meaning set forth inSection 4.7.
“Ten Percent Stockholder”applicable Award Agreement.
(ii) “Subsidiary” means a person who owns (or is deemed to own pursuant to“subsidiary corporation,” as defined in Code Section 424(d)424(f), of the Code) stock possessing more than 10%Company.
(jj) “Substitute Award” means an Award granted upon the assumption of,
the total combined voting power of all classes of stock ofor in substitution or exchange for, outstanding awards granted by a company or other entity acquired by the Company or
any Affiliate or with which the Company or any Affiliate combines. The terms and conditions of
any of its Affiliates.“Total Share Reserve” hasa Substitute Award may vary from the meaningterms and conditions set forth inSection 4.1.
3.1 Authority the Plan to the extent that the Committee at the time of Committeethe grant may deem appropriate to conform, in whole or in part, to the provisions of the award in substitution for which it has been granted.
(kk) “Voting Securities” of an entity means the outstanding equity securities (or comparable equity interests) entitled to vote generally in the election of directors of such entity.
3. Administration of the Plan.
(a) Administration. The authority to control and manage the operations and administration of the Plan shall be administered byvested in the Committee or, in the Board’s sole discretion, by the Board.accordance with this Section 3.
(b) Scope of Authority. Subject to the terms of the Plan, the Committee’s charter and Applicable Laws, and in addition to other express powers and authorization conferred by the Plan, the Committee shall have the authority:(a)authority, in its discretion, to construetake such actions as it deems necessary or advisable to administer the Plan, including:
(1) determining the Service Providers to whom Awards will be granted, the timing of each such Award, the type of and interpretthe number of Shares covered by each Award, the terms, conditions, performance criteria, restrictions and other provisions of Awards, and the manner in which Awards are paid or settled;
(2) cancelling or suspending an Award, accelerating the vesting or extending the exercise period of an Award, or otherwise amending the terms and conditions of any outstanding Award, subject to the requirements of Sections 15(d) and 15(e);
(3) adopting sub-plans or special provisions applicable to Awards, establishing, amending or rescinding rules to administer the Plan, interpreting the Plan and
apply its provisions;(b) to promulgate, amend,any Award or Award Agreement, reconciling any inconsistency, correcting any defect or supplying an omission in the Plan or any Award Agreement, and rescind rules and regulations relating tomaking all other determinations necessary or desirable for the administration of the Plan;
(c)
(4) granting Substitute Awards under the Plan;
(5) taking such actions as are provided in Section 3(c) with respect to authorize any personAwards to execute, on behalfforeign Service Providers; and
(6) requiring or permitting the deferral of the
Company, any instrument required to carry out the purposessettlement of
the Plan;(d) to determine when Awards are to be granted under the Planan Award, and the applicable Grant Date;
(e) from time to time to select, subject to the limitations set forth in this Plan, those eligible Award recipients to whom Awards shall be granted;
(f) to determine the number of shares of Common Stock to be made subject to each Award;
(g) to determine whether each Option is to be an Incentive Stock Option or a Non-Qualified Stock Option;
(h) to prescribeestablishing the terms and conditions of each Award, including, without limitation,any such deferral.
Notwithstanding the
exercise priceforegoing, the Board shall perform the duties and
medium of payment and vesting provisions, and to specifyhave the
provisionsresponsibilities of the
Award Agreement relating to such grant;(i) to determine the target number of Performance Shares to be granted pursuant to a Performance Share Award, the performance measures that will be used to establish the Performance Goals, the Performance Period(s) and the number of Performance Shares earned by a Participant;
(j) to amend any outstanding Awards;provided, however, that if any such amendment impairs a Participant’s rights or increases a Participant’s obligations under his or her Award or creates or increases a Participant’s federal income tax liabilityCommittee with respect to an Award, such amendment shall alsoAwards made to Non-Employee Directors.
(c) Awards to Foreign Service Providers. The Committee may grant Awards to Service Providers who are foreign nationals, who are located outside of the United States or who are not compensated from a payroll maintained in the United States, or who are otherwise subject to (or could cause the Company to be subject to) legal or regulatory requirements of countries outside of the United States, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to the Participant’s consent;(k)comply with applicable foreign laws and regulatory requirements and to determinepromote achievement of the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination of their employment for purposes of the Plan. In connection therewith, the Committee may establish such subplans and modify exercise procedures and other Plan rules and procedures to the extent such actions are deemed necessary or desirable, and may take any other action that it deems advisable to obtain local regulatory approvals or to comply with any necessary local governmental regulatory exemptions.
(d) Acts of the Committee; Delegation. A majority of the members of the Committee shall constitute a quorum for any meeting of the Committee, and any act of a majority of the members present at any meeting at which periodsa quorum is present or any act unanimously approved in writing by all members of the Committee shall be no shorter than the periods generally applicable to Employees under the Company’s employment policies;(l) to make decisions with respect to outstanding Awards that may become necessary upon a change in corporate control or an event that triggers anti-dilution adjustments;
(m) to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; and
(n) to exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administrationact of the Plan.
TheCommittee. Any such action of the Committee also may modify the purchase price or the exercise price of any outstanding Award,provided that if the modification effects a repricing, stockholder approval shall be required before the repricing is effective.
3.2 Committee Decisions Final. All decisions made by the Committee pursuant to the provisions of the Plan shall be finalvalid and binding on the Company and the Participants, unless such decisions are determined by a court having jurisdiction to be arbitrary and capricious.
3.3 Delegation. The Committee or,effective even if no Committee has been appointed, the Board may delegate administration of the Plan to a committee or committees of one or more members of the Board, andCommittee at the term “Committee” shall applytime of such action are later determined not to any person or persons to whom such authority has been delegated. The Committee shall have the power to delegate to a subcommittee anysatisfied all of the administrative powerscriteria for membership in clauses (i) and (ii) of Section 2(i). To the Committee is authorized to exercise (and references in this Plan to the Board or the Committee shall thereafter be to the committee or subcommittee), subject, however, to such resolutions,extent not inconsistent with applicable law or stock exchange rules, the provisionsCommittee may delegate all or any portion of its authority under the Plan as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. The members of the Committee shall be appointed by and serve at the pleasure of the Board. From time to time, the Board may increaseone or decrease the size of the Committee, add additional members to, remove members (with or without cause) from, appoint new members in substitution therefor, and fill vacancies, however caused, in the Committee. The Committee shall act pursuant to a vote of the majoritymore of its members or, in the case of a Committee comprised of only two members, the unanimous consent of its members, whether present oras to Awards to Participants who are not or by the written consent of the majority of its members and minutes shall be kept of all of its meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the Plan and the Board, the Committee may establish and follow such rules and regulations for the conduct of its business as it may determine to be advisable.
3.4 Committee Composition. Except as otherwise determined by the Board, the Committee shall consist solely of two or more Non-Employee Directors. The Board shall have discretion to determine whether or not it intends to comply with the exemption requirements of Rule 16b-3. However, if the Board intends to satisfy such exemption requirements, with respect to any insider subject to Section 16 of the Exchange Act, to one or more directors or executive officers of the Committee shall beCompany or to a compensation committee of the Board that at all times consists solelycomprised of twoone or more Non-Employee Directors. Nothing herein shall create an inference that andirectors of the Company. The Committee may also delegate non-discretionary administrative responsibilities in connection with the Plan to such other persons as it deems advisable.
(e) Finality of Decisions. The Committee’s interpretation of the Plan and of any Award is not validly grantedor Award Agreement made under the Plan inand all related decisions or resolutions of the event Awards are grantedBoard or Committee shall be final and binding on all parties with an interest therein.
(f) Indemnification. Each person who is or has been a member of the Committee or of the Board, and any other person to whom the Committee delegates authority under the Plan, by a compensation committee of the Board that does not at all times consist solely of two or more Non-Employee Directors.3.5 Indemnification. In addition to such other rights of indemnification as they may have as Directors or members of the Committee, and to the extent allowed by Applicable Laws, the Committee shall be indemnified by the Company, to the maximum extent permitted by law, against the reasonableliabilities and expenses including attorney’s fees, actuallyimposed upon or reasonably incurred by such person in connection with or resulting from any action, suit or proceeding or in connection with any appeal therein, to which the Committee may be partyclaims against such person by reason of any action taken or failure to act under or in connection with the Plan or any Award grantedperformance of the individual’s duties under the Plan, and against all amounts paid by the Committee in settlement thereof (provided, however, that the settlement has been approved byPlan. This right to indemnification is conditioned upon such person providing the Company which approval shall not be unreasonably withheld) or paid by the Committee in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee did not act in good faith and in a manner which such person reasonably believed to be in the best interests of the Company, or in the case of a criminal proceeding, had no reason to believe that the conduct complained of was unlawful;provided, however, that within 60 days after the institution of any such action, suit or proceeding, such Committee shall, in writing, offer the Company thean opportunity, at its ownthe Company’s expense, to handle and defend the claims before such action, suitperson undertakes to handle and defend them on such person’s own behalf. The Company will not be required to indemnify any person for any amount paid in settlement of a claim unless the Company has first consented in writing to the settlement. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to
which such person or
proceeding. | 4. | Shares Subject to the Planpersons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise.4. Shares Available Under the Plan. (a) Maximum Shares Available. |
4.1 Subject to Section 4(b) and to adjustment as provided in accordance withSection 1112(a), no more than 1,000,000 sharesthe number of Common StockShares that may be the subject of Awards and issued under the Plan shall be 2,500,0004,000,000. No further awards may be made under the AudioEye, Inc. 2019 Equity Incentive Plan after the effective date of this Plan. Shares issued under the Plan may come from authorized and unissued shares or treasury shares. In determining the number of Shares to be counted against this share reserve in connection with any Award, the following rules shall apply:
(1) Where the number of Shares subject to an Award is variable on the Grant Date, the number of Shares to be counted against the share reserve shall be the maximum number of Shares that could be received under that particular Award, until such time as it can be determined that only a lesser number of shares could be received.
(2) Where two or more types of Awards are granted to a Participant in tandem with each other, such that the exercise of one type of Award with respect to a number of Shares cancels at least an equal number of Shares of the other, the number of Shares to be counted against the share reserve shall be the largest number of Shares that would be counted against the share reserve under either of the Awards.
(3) Shares subject to Substitute Awards shall not be counted against the share reserve, nor shall they reduce the Shares authorized for grant to a Participant in any calendar year.
(4) Awards that may be settled solely in cash shall not be counted against the share reserve, nor shall they reduce the Shares authorized for grant to a Participant in any calendar year.
(b) Effect of Forfeitures and Other Actions. Any Shares subject to an Award that expires, is cancelled or forfeited or is settled for cash shall, to the extent of such cancellation, forfeiture, expiration or cash settlement, again become available for Awards under this Plan, and the share reserve under Section 4(a) shall be correspondingly replenished. The following Shares shall not, however, again become available for Awards or replenish the share reserve under Section 4(a): (i) Shares tendered (either actually or by attestation) by the Participant or withheld by the Company in payment of the exercise price of a stock option issued under this Plan, (ii) Shares tendered (either actually or by attestation) by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an award under this Plan, (iii) Shares repurchased by the Company with proceeds received from the exercise of a stock option issued under this Plan, and (iv) Shares subject to a stock appreciation right award issued under this Plan that are not issued in connection with the stock settlement of that award upon its exercise.
(c) Effect of Plans Operated by Acquired Companies. If a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan (the “Totaland shall supplement the Share Reserve”)reserve under Section 4(a). AnyAwards using such available shares of Common Stock granted in connection with Options and Stock Appreciation Rights shall not be counted against this limit as one share for every one Optionmade after the date awards or Stock Appreciation Right awarded. Any shares of Common Stock granted in connection with Awards other than Options and Stock Appreciation Rights shall be counted against this limit as two shares of Common Stock for every one share of Common Stock granted in connection with such Award. Duringgrants could have been made under the terms of the Awards,pre-existing plan absent the Companyacquisition or combination, and shall keep available at all timesonly be made to individuals who were not Employees or Non-Employee Directors prior to such acquisition or combination.
(d) No Fractional Shares. Unless otherwise determined by the Committee, the number of shares of Common Stock requiredShares subject to satisfy such Awards.4.2an Award shall always be a whole number. No fractional Shares of Common Stock available for distributionmay be issued under the Plan, but the Committee may, consist, in wholeits discretion, adopt any rounding convention it deems suitable or pay cash in part,lieu of authorized and unissued shares, treasury shares or shares reacquired by the Companyany fractional Share in any manner.
4.3 Subjectsettlement of an Award.
(e) Limits on Awards to adjustment in accordance withSection 11, no more than 1,000,000 shares of Common Stock may be issued in the aggregate pursuant to the exercise of Incentive Stock Options (the“ISO Limit”)Non-Employee Directors.4.4 The maximum number of shares of Common StockShares subject to Awards granted during a single Fiscal Year to any Non-Employee Director who is not an Employee or Consultant during the Fiscal Year,any calendar year, together with any cash fees paid to such Non-Employee Director during the Fiscal Year,such calendar year, shall not exceed a total value of $400,000 (calculating the value of any Awards based on the grant date fair value for financial reporting purposes).
4.5 The maximum number of shares of Common Stock subject to Awards granted during a single Fiscal Year to any Employee or Consultant who is not a Director during the Fiscal Year shall not exceed a total value of $5,000,000 (calculating the value of any Awards based on the grant date fair value for financial reporting purposes)
5. Eligibility.4.6 Any shares of Common Stock subject to an Award that expires or is canceled, forfeited, or terminated without issuance of the full number of shares of Common Stock to which the Award related will again be available for issuance under the Plan. Any shares of Common Stock that again become available for future grants pursuant to thisSection4.6shall be added back as one (1) share if such shares were subject to Options or Stock Appreciation Rights and as two (2) shares if such shares were subject to other Awards. Notwithstanding anything to the contrary contained herein: shares subject to an Award under the Plan shall not again be made available for issuance or delivery under the Plan if such shares are (a) shares tendered in payment of an Option, (b) shares delivered or withheld by the Company to satisfy any tax withholding obligation, or (c) shares covered by a stock-settled Stock Appreciation Right or other Awards that were not issued upon the settlement of the Award.4.7 Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines (“Substitute Awards”). Substitute Awards shall not be counted against the Total Share Reserve; provided, that, Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as Incentive Stock Options shall be counted against the ISO limit. Subject to applicable stock exchange requirements, available shares under a stockholder-approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect such acquisition or transaction) may be used for Awards under the Plan and shall not count toward the Total Share Limit.
4.8 Notwithstanding anything to the contrary Participation in the Plan no Award may vest, in the ordinary course, prioris limited to the first anniversary of the date of grant of the Award. However, up to 5% of the Total Share Reserve may be subject to Awards that do not meet such vesting requirements. The minimum vesting criteria set forth in this Section4.8shall not apply to Substitute Awards described in Section4.7.
4.9 No dividends will be paid to a Participant with respect to any shares subject to an Award prior to the vesting of such Award. For the avoidance of doubt, as described in Section7.2(b), any dividends that may be attributable to any particular share of Restricted Stock or any particular Restricted Stock Unit or Deferred Stock Unit shall only be distributed to a Participant upon the release of restrictions on such share of Restricted Stock or the settlement of such Restricted Stock Unit or Deferred Stock Unit, as applicable, and a Participant shall have no right to such dividends if such Award is forfeited.
5.1 Eligibility for Specific Awards.Service Providers. Incentive Stock Options may be granted only to Employees. Awards other than Incentive Stock Options may be granted to Employees, Consultants and Directors and those individuals whom the Committee determines are reasonably expected to become Employees, Consultants and Directors following the Grant Date.
5.2 Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the Option Exercise Price is at least 110%Employees.
6. General Terms of the Fair Market Value of the Common Stock on the Grant Date and the Option is not exercisable after the expiration of five years from the Grant Date.6. Option ProvisionsAwards
. (a) Award Agreement. Each Option granted under the Plan shall be evidenced by an Award Agreement. Each Option so granted shall be subject to the conditions set forth in thisSection 6, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options shall be separately designated Incentive Stock Options or Non-Qualified Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. Notwithstanding the foregoing, the Company shall have no liability to any Participant or any other person if an Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the requirements of Section 409A of the Code. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:6.1 Term. Subject to the provisions ofSection 5.2 regarding Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after the expiration of 10 years from the Grant Date. The term of a Non-Qualified Stock Option granted under the Plan shall be determined by the Committee;provided, however, no Non-Qualified Stock Option shall be exercisable after the expiration of 10 years from the Grant Date.
6.2 Exercise Price of an Incentive Stock Option. Subject to the provisions ofSection 5.2 regarding Ten Percent Stockholders, the Option Exercise Price of each Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the Grant Date. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
6.3 Exercise Price of a Non-Qualified Stock Option. The Option Exercise Price of each Non-Qualified Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the Grant Date. Notwithstanding the foregoing, a Non-Qualified Stock Option may be granted with an Option Exercise Price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 409A of the Code.
6.4 Consideration. The Option Exercise Price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (a) in cash or by certified or bank check at the time the Option is exercised or (b) in the discretion of the Committee, upon such terms as the Committee shall approve, the Option Exercise Price may be paid: (i) by delivery to the Company of other Common Stock, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the Option Exercise Price (or portion thereof) due for the number of shares being acquired, or by means of attestation whereby the Participant identifies for delivery specific shares of Common Stock that have an aggregate Fair Market Value on the date of attestation equal to the Option Exercise Price (or portion thereof) and receives a number of shares of Common Stock equal to the difference between the number of shares thereby purchased and the number of identified attestation shares of Common Stock (a “Stock for Stock Exchange”); (ii) if the Common Stock is listed on any established stock exchange or a national market system, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the exercise price (i.e., by means of a “cashless” exercise procedure); (iii) by reduction in the number of shares of Common Stock otherwise deliverable upon exercise of such Option with a Fair Market Value equal to the aggregate Option Exercise Price at the time of exercise (i.e., by means of a “net exercise”); (iv) by any combination of the foregoing methods; or (v) in any other form of legal consideration that may be acceptable to the Committee. Unless otherwise specifically provided in the Option, the exercise price of Common Stock acquired pursuant to an Option that is paid by delivery (or attestation) to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). Notwithstanding the foregoing, during any period for which the Common Stock is publicly traded (i.e., the Common Stock is listed on any established stock exchange or a national market system) an exercise by a Director or Officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002 shall be prohibited with respect to any Award under this Plan.
6.5 Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
6.6 Transferability of a Non-Qualified Stock Option. A Non-Qualified Stock Option may, in the sole discretion of the Committee, be transferable to a Permitted Transferee, upon written approval by the Committee to the extent provided in the Award Agreement. If the Non-Qualified Stock Option does not provide for transferability, then the Non-Qualified Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
6.7 Vesting of Options. Each Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Committee may deem appropriate. The vesting provisions of individual Options may vary. No Option may be exercised for a fraction of a share of Common Stock.
6.8 Termination of Continuous Service. Unless otherwise provided in an Award Agreement or in an employment agreement the terms of which have been approved by the Committee, in the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (a) the date three months following the termination of the Optionholder’s Continuous Service or (b) the expiration of the term of the Option as set forth in the Award Agreement;provided that, if the termination of Continuous Service is by the Company for Cause, all outstanding Options (whether or not vested) shall immediately terminate and cease to be exercisable. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Award Agreement, the Option shall terminate.
6.9 Extension of Termination Date. An Optionholder’s Award Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service for any reason would be prohibited at any time because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act or any other state or federal securities law or the rules of any securities exchange or interdealer quotation system, then the Option shall terminate on the earlier of (a) the expiration of the term of the Option in accordance with Section 6.1 or (b) the expiration of a period after termination of the Participant’s Continuous Service that is three months after the end of the period during which the exercise of the Option would be in violation of such registration or other securities law requirements.
6.10 Disability of Optionholder. Unless otherwise provided in an Award Agreement, in the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (a) the date that is 12 months following such termination or (b) the expiration of the term of the Option as set forth in the Award Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein or in the Award Agreement, the Option shall terminate.
6.11 Death of Optionholder. Unless otherwise provided in an Award Agreement, in the event an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s death, but only within the period ending on the earlier of (a) the date 12 months following the date of death or (b) the expiration of the term of such Option as set forth in the Award Agreement. If, after the Optionholder’s death, the Option is not exercised within the time specified herein or in the Award Agreement, the Option shall terminate.
6.12 Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Non-Qualified Stock Options.
6.13 Reload Options. No Option may include provisions that "reload" the Option upon exercise.
| 7. | Provisions of Awards Other Than Options. |
7.1 Stock Appreciation Rights.
(a) General.Each Stock Appreciation Right granted under the Plan shall be evidenced by an Award Agreement. Each Stock Appreciation Right so granted shall be subject to the conditions set forth in thisSection 7.1, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Stock Appreciation Rights may be granted alone (“Free Standing Rights”) or in tandem with an Option granted under the Plan (“Related Rights”).
(b) Grant Requirements. Any Related Right that relates to a Non-Qualified Stock Option may be granted at the same time the Option is granted or at any time thereafter but before the exercise or expiration of the Option. Any Related Right that relates to an Incentive Stock Option must be granted at the same time the Incentive Stock Option is granted.
(c) Term of Stock Appreciation Rights. The term of a Stock Appreciation Right granted under the Plan shall be determined by the Committee;provided, however, no Stock Appreciation Right shall be exercisable later than the tenth anniversary of the Grant Date.
(d) Vesting of Stock Appreciation Rights. Each Stock Appreciation Right may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Stock Appreciation Right may be subject to such other terms and conditions on the time or times when it may be exercised as the Committee may deem appropriate. The vesting provisions of individual Stock Appreciation Rights may vary. No Stock Appreciation Right may be exercised for a fraction of a share of Common Stock.
(e) Exercise and Payment. Upon exercise of a Stock Appreciation Right, the holder shall be entitled to receive from the Company an amount equal to the number of shares of Common Stock subject to the Stock Appreciation Right that is being exercised multiplied by the excess of (i) the Fair Market Value of a share of Common Stock on the date the Award is exercised, over (ii) the exercise price specified in the Stock Appreciation Right or related Option. Payment with respect to the exercise of a Stock Appreciation Right shall be made on the date of exercise. Payment shall be made in the form of shares of Common Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Committee in its sole discretion), cash or a combination thereof, as determined by the Committee.
(f) Exercise Price. The exercise price of a Free Standing Right shall be determined by the Committee. A Related Right granted simultaneously with or subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to the same extent as the related Option;provided, however, that a Stock Appreciation Right, by its terms, shall be exercisable only when the Fair Market Value per share of Common Stock subject to the Stock Appreciation Right and related Option exceeds the exercise price per share thereof and no Stock Appreciation Rights may be granted in tandem with an Option unless the Committee determines that the requirements ofSection 7.1(b) are satisfied.
(g) Reduction in the Underlying Option Shares. Upon any exercise of a Related Right, the number of shares of Common Stock for which any related Option shall be exercisable shall be reduced by the number of shares for which the Stock Appreciation Right has been exercised. The number of shares of Common Stock for which a Related Right shall be exercisable shall be reduced upon any exercise of any related Option by the number of shares of Common Stock for which such Option has been exercised.
7.2 Restricted Awards.
(a) General.A Restricted Award is an Award of actual shares of Common Stock (“Restricted Stock”) or hypothetical Common Stock units (“Restricted Stock Units”) having a value equal to the Fair Market Value of an identical number of shares of Common Stock, which may, but need not, provide that such Restricted Award may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose for such period (the “Restricted Period”) as the Committee shall determine. Each Restricted Award granted under the Plan shall be evidenced by an Award Agreement. Each Restricted Award so granted shall be subject to the conditions set forth in thisSection 7.2 and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Restricted Stock and Restricted Stock Units.
(i) Each Participant granted Restricted Stock shall execute and deliver to the Company an Award Agreement with respect to the Restricted Stock setting forth the restrictions and other terms and conditions applicable to such Restricted Stock. If the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than delivered to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (A) an escrow agreement satisfactory to the Committee, if applicable and (B) the appropriate blank stock power with respect to the Restricted Stock covered by such agreement. If a Participant fails to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and stock power, the Award shall be null and void. Subject to the restrictions set forth in the Award, the Participant generally shall have the rights and privileges of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock and the right to receive dividends;provided that, any cash dividends and stock dividends with respect to the Restricted Stock shall be withheld by the Company for the Participant’s account, and interest may be credited on the amount of the cash dividends withheld at a rate and subject to such terms as determined by the Committee. The cash dividends or stock dividends so withheld by the Committee and attributable to any particular share of Restricted Stock (and earnings thereon, if applicable) shall be distributed to the Participant in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends, if applicable, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends.
(ii) The terms and conditions of a grant of Restricted Stock Units shall be reflected in an Award Agreement. No shares of Common Stock shall be issued at the time a Restricted Stock Unit is granted, and the Company will not be required to set aside funds for the payment of any such Award. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder. The Committee may also grant Restricted Stock Units with a deferral feature, whereby settlement is deferred beyond the vesting date until the occurrence of a future payment date or event set forth in an Award Agreement (“Deferred Stock Units”). At the discretion of the Committee, each Restricted Stock Unit or Deferred Stock Unit (representing one share of Common Stock) may be credited with an amount equal to the cash and stock dividends paid by the Company in respect of one share of Common Stock (“Dividend Equivalents”). Dividend Equivalents shall be withheld by the Company and credited to the Participant’s account, and interest may be credited on the amount of cash Dividend Equivalents credited to the Participant’s account at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a Participant’s account and attributable to any particular Restricted Stock Unit or Deferred Stock Unit (and earnings thereon, if applicable) shall be distributed in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such Dividend Equivalents and earnings, if applicable, to the Participant upon settlement of such Restricted Stock Unit or Deferred Stock Unit and, if such Restricted Stock Unit or Deferred Stock Unit is forfeited, the Participant shall have no right to such Dividend Equivalents.
(c) Restrictions.
(i) Restricted Stock awarded to a Participant shall be subject to the following restrictions until the expiration of the Restricted Period, and to such other terms and conditions as may be set forth in the applicable Award Agreement: (A) if an escrow arrangement is used, the Participant shall not be entitled to delivery of the stock certificate; (B) the shares shall be subject to the restrictions on transferability set forth in the Award Agreement; (C) the shares shall be subject to forfeiture to the extent provided in the applicable Award Agreement; and (D) to the extent such shares are forfeited, the stock certificates shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect to such shares shall terminate without further obligation on the part of the Company.
(ii) Restricted Stock Units and Deferred Stock Units awarded to any Participant shall be subject to (A) forfeiture until the expiration of the Restricted Period, and satisfaction of any applicable Performance Goals during such period, to the extent provided in the applicable Award Agreement, and to the extent such Restricted Stock Units or Deferred Stock Units are forfeited, all rights of the Participant to such Restricted Stock Units or Deferred Stock Units shall terminate without further obligation on the part of the Company and (B) such other terms and conditions as may be set forth in the applicable Award Agreement.
(d) Restricted Period. With respect to Restricted Awards, the Restricted Period shall commence on the Grant Date and end at the time or times set forth on a schedule established by the Committee in the applicable Award Agreement. No Restricted Award may be granted or settled for a fraction of a share of Common Stock.
(e) Delivery of Restricted Stock and Settlement of Restricted Stock Units. Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth inSection 7.2(c) and the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his or her beneficiary, without charge, the stock certificate evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (to the nearest full share) and any cash dividends or stock dividends credited to the Participant’s account with respect to such Restricted Stock and the interest thereon, if any. Upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, or at the expiration of the deferral period with respect to any outstanding Deferred Stock Units, the Company shall deliver to the Participant, or his or her beneficiary, without charge, one share of Common Stock for each such outstanding vested Restricted Stock Unit or Deferred Stock Unit (“Vested Unit”) and cash equal to any Dividend Equivalents credited with respect to each such Vested Unit in accordance withSection 7.2(b)(ii) hereof and the interest thereon or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to such Dividend Equivalents and the interest thereon, if any;provided, however, that, if explicitly provided in the applicable Award Agreement, the Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only shares of Common Stock for Vested Units. If a cash payment is made in lieu of delivering shares of Common Stock, the amount of such payment shall be equal to the Fair Market Value of the Common Stock as of the date on which the Restricted Period lapsed in the case of Restricted Stock Units, or the delivery date in the case of Deferred Stock Units, with respect to each Vested Unit.
(f) Stock Restrictions. Each certificate representing Restricted Stock awarded under the Plan shall bear a legend in such form as the Company deems appropriate.
7.3 Performance Share Awards.
(a) Grant of Performance Share Awards. Each Performance Share Award granted under the Plan shall be evidenced by an Award Agreement. Each Performance Share Award so granted shall be subject to the conditions set forth in thisSection 7.3, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. The Committee shall have the discretion to determine: (i) the number of shares of Common Stock or stock-denominated units subject to a Performance Share Award granted to any Participant; (ii) the Performance Period applicable to any Award; (iii) the conditions that must be satisfied for a Participant to earn an Award; and (iv) the other terms, conditions and restrictions of the Award.
(b) Earning Performance Share Awards. The number of Performance Shares earned by a Participant will depend on the extent to which the performance goals established by the Committee are attained within the applicable Performance Period, as determined by the Committee.
7.4 Other Equity-Based Awards and Cash Awards. The Committee may grant Other Equity-Based Awards, either alone or in tandem with other Awards, in such amounts and subject to such conditions as the Committee shall determine in its sole discretion. Each Equity-Based Award shall be evidenced by an Award Agreement setting forth the amount of the Award together with such other terms and shall be subjectconditions applicable to such conditions,the Award (and not inconsistent with the Plan,Plan) as determined by the Committee. An Award to a Participant may be reflectedmade singly or in combination with any form of Award. Two types of Awards may be made in tandem with each other such that the applicableexercise of one type of Award Agreement. The Committee may grant Cash Awards in such amounts andwith respect to a number of Shares reduces the number of Shares subject to such Performance Goals, other vesting conditions,the related Award by at least an equal amount.
(b) Vesting and such other terms as the Committee determines in its discretion. Cash Awards shall be evidenced in such form as the Committee may determine.8. Securities Law ComplianceTerm
. Each Award Agreement shall provide that no shares of Common Stockset forth the period until the applicable Award is scheduled to vest and, if applicable, expire (which shall not be purchased or sold thereunder unlessmore than ten years from the Grant Date), and until (a)the applicable vesting conditions and any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel and (b) if required to do so by the Company, the Participant has executed and delivered to the Company a letter of investment intent in such form and containing such provisions as theperformance period. The Committee may require. The Company shall use reasonable efforts to seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Awards and to issue and sell shares of Common Stock upon exercise of the Awards;provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Award or any Common Stock issued or issuable pursuant to any such Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Awards unless and until such authority is obtained.9. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Awards, or upon exercise thereof, shall constitute general funds of the Company.
10. Miscellaneous.
10.1 Exercisability and Vesting upon Death or Disability. Subject to Section 4.8, the Committee shall have the power to accelerate the time at whichprovide in an Award may first be exercised or the time during which an Award or any part thereof will vest on a Participant’s termination of employment or service due to death or Disability, notwithstanding the provisions in the Award stating the time at whichAgreement for such vesting conditions and timing as it may first be exercised or the time during which it will vest.determine.
10.3 Stockholder Rights
(c) Transferability. Except as provided in this Section 6(c), (i) during the Plan or an Award Agreement, no Participant shall be deemed to be the holder of, or to have any of the rightslifetime of a holderParticipant, only the Participant or the Participant’s guardian or legal representative may exercise an Option or SAR, or receive payment with respect to any sharesother Award; and (ii) no Award may be sold, assigned, transferred, exchanged or encumbered, voluntarily or involuntarily, other than by will or the laws of Common Stock subject to such Award unlessdescent and until such Participant has satisfied all requirements for exercisedistribution. Any attempted transfer in violation of the Award pursuant to its terms and no adjustmentthis Section 6(c) shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such Common Stock certificate is issued, except as provided inSection 11 hereof.10.4 No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause or (b) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
10.5 Transfer; Approved Leave of Absence. For purposes of the Plan, no termination of employment by an Employee shall be deemed to result from either (a) a transfer of employment to the Company from an Affiliate or from the Company to an Affiliate, or from one Affiliate to another, or (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the Employee’s right to reemployment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing, in either case, except to the extent inconsistent with Section 409A of the Code if the applicable Award is subject thereto.
10.6 Withholding Obligations. To the extent provided by the terms of an Award Agreement and subject to the discretion of the Committee, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) 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 to the Participant as a result of the exercise or acquisition of Common Stock under the Award,provided, however, that no shares of Common Stock are withheld for such purpose with a value exceeding the maximum amount of tax required to be withheld by law; (c) delivering to the Company previously owned and unencumbered shares of Common Stock of the Company; or (d) if the Common Stock is listed on any established stock exchange or a national market system, through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the tax required to be withheld by law (i.e., by means of a “cashless” exercise procedure).
11. Adjustments Upon Changes in Stock. In the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the Grant Date of any Award, Awards granted under the Plan and any Award Agreements, the exercise price of Options and Stock Appreciation Rights, the Performance Goals to which Performance Share Awards and Cash Awards are subject, the maximum number of shares of Common Stock subject to all Awards stated inSection 4 will be equitably adjusted or substituted, as to the number, price or kind of a share of Common Stock or other consideration subject to such Awards to the extent necessary to preserve the economic intent of such Award. In the case of adjustments made pursuant to thisSection 11, unless the Committee specifically determines that such adjustment is in the best interests of the Company or its Affiliates, the Committee shall, in the case of Incentive Stock Options, ensure that any adjustments under thisSection 11 will not constitute a modification, extension or renewal of the Incentive Stock Options within the meaning of Section 424(h)(3) of the Code and in the case of Non-Qualified Stock Options, ensure that any adjustments under thisSection 11 will not constitute a modification of such Non-Qualified Stock Options within the meaning of Section 409A of the Code. Any adjustments made under thisSection 11 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.
12. Effect of Change in Control.
12.1 Notwithstanding any provision of the Plan to the contrary:
(a) In the event of a Participant’s termination of Continuous Service without Cause or for Good Reason during the 12-month period following a Change in Control, all outstanding Options and Stock Appreciation Rights shall become immediately exercisable with respect to 100% of the shares subject to such Options or Stock Appreciation Rights, and/or the Restricted Period shall expire immediately with respect to 100% of the outstanding shares of Restricted Stock or Restricted Stock Units as of the date of the Participant’s termination of Continuous Service.
(b) With respect to Performance Share Awards and Cash Awards, in the event of a Change in Control, all incomplete Performance Periods in respect of such Awards in effect on the date the Change in Control occurs shall end on the date of such change and the Committee shall (i) determine the extent to which Performance Goals with respect to each such Performance Period have been met based upon such audited or unaudited financial information then available as it deems relevant and (ii) cause to be paid to the applicable Participant partial or full Awards with respect to Performance Goals for each such Performance Period based upon the Committee’s determination of the degree of attainment of Performance Goals or, if not determinable, assuming that the applicable “target” levels of performance have been attained, or on such other basis determined by the Committee.
To the extent practicable, any actions taken by the Committee under the immediately preceding clauses (a) and (b) shall occur in a manner and at a time which allows affected Participants the ability to participate in the Change in Control with respect to the shares of Common Stock subject to their Awards.
12.2 In the event of a Change in Control, the Committee may cancel any outstanding Awards and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such Awards based upon the price per share of Common Stock received or to be received by other stockholders of the Company in the event. In the case of any Option or Stock Appreciation Right with an exercise price that equals or exceeds the price paid for a share of Common Stock in connection with the Change in Control, the Committee may cancel the Option or Stock Appreciation Right without the payment of consideration therefor.
12.3 The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of the Company and its Affiliates, taken as a whole.
| 13. | Amendment of the Plan and Awards. |
13.1 Amendment of Plan. The Board at any time, and from time to time, may amend or terminate the Plan. However, except as provided inSection 11 relating to adjustments upon changes in Common Stock andSection 13.3, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy any Applicable Laws. At the time of such amendment, the Board shall determine, upon advice from counsel, whether such amendment will be contingent on stockholder approval.
13.2 Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval.
13.3 Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees, Consultants and Directors with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options or to the nonqualified deferred compensation provisions of Section 409A of the Code and/or to bring the Plan and/or Awards granted under it into compliance therewith.
13.4 No Impairment of Rights. Rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing.
13.5 Amendment of Awards. The Committee at any time, and from time to time, may amend the terms of any one or more Awards;provided, however, that the Committee may not affect any amendment which would otherwise constitute an impairment of the rights under any Award unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing.
14. General Provisions.
14.1 Forfeiture Events.effect. The Committee may, specifyhowever, provide in an Award Agreement or otherwise that the Participant’s rights, payments and benefits with respect to an Award (other than an Incentive Stock Option) may be transferred pursuant to a domestic relations order or may be transferable by gift to any “family member” (as defined in General Instruction A.1(a)(5) to Form S-8 under the Securities Act of 1933) of the Participant. Any Award held by a transferee shall continue to be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain events, in addition to applicable vesting conditions of an Award. Such events may include, without limitation, breach of non-competition, non-solicitation, confidentiality, or other restrictive covenants that are contained in the Award Agreement or otherwise applicable to the Participant, a termination of the Participant’s Continuous Service for Cause, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Affiliates.
14.2 Clawback. Notwithstanding any other provisions in this Plan, the Company may cancel any Award, require reimbursement of any Award by a Participant, and effect any other right of recoupment of equity or other compensation provided under the Plan in accordance with any Company policies that may be adopted and/or modified from time to time (“Clawback Policy”). In addition, a Participant may be required to repay to the Company previously paid compensation, whether provided pursuant to the Plan or an Award Agreement, in accordance with the Clawback Policy. By accepting an Award, the Participant is agreeing to be bound by the Clawback Policy, as in effect or as may be adopted and/or modified from time to time by the Company in its discretion (including, without limitation, to comply with applicable law or stock exchange listing requirements).
14.3 Other Compensation Arrangements. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
14.4 Sub-Plans. The Committee may from time to time establish sub-plans under the Plan for purposes of satisfying securities, tax or other laws of various jurisdictions in which the Company intends to grant Awards. Any sub-plans shall contain such limitations and othersame terms and conditions asthat were applicable to that Award immediately before the Committee determines are necessary or desirable. All sub-plans shall be deemed a part of the Plan, but each sub-plan shall apply only to the Participants in the jurisdiction for which the sub-plan was designed.
14.5 Deferral of Awards. The Committee may establish one or more programs under the Plan to permit selected Participants the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Participant to payment or receipt of shares of Common Stock or other consideration under an Award. The Committee may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Committee deems advisable for the administration of any such deferral program.
14.6 Unfunded Plan. The Plan shall be unfunded. Neither the Company, the Board nor the Committee shall be required to establish any special or separate fund or to segregate any assets to assure the performance of its obligations under the Plan.
14.7 Recapitalizations. Each Award Agreement shall contain provisions required to reflect the provisions ofSection 11.
14.8 Delivery. Upon exercise of a right granted under this Plan, the Company shall issue Common Stock or pay any amounts due within a reasonable period of time thereafter. Subject to any statutory or regulatory obligations the Company may otherwise have, fortransfer thereof. For purposes of this Plan, 30 days shall be considered a reasonable period of time.
14.9 No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan. The Committee shall determine whether cash, additional Awards or other securities or property shall be issued or paid in lieu of fractional shares of Common Stock or whether any fractional shares should be rounded, forfeited or otherwise eliminated.
14.10 Other Provisions. The Award Agreements authorized under the Plan may contain such other provisions not inconsistent with this Plan, including, without limitation, restrictions upon the exercise of Awards, as the Committee may deem advisable.
14.11 Section 409A. The Plan is intended to comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless Applicable Laws require otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required to avoid accelerated taxation and tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six month period immediately following the Participant’s termination of Continuous Service shall instead be paid on the first payroll date after the six-month anniversary of the Participant’s separation from service (or the Participant’s death, if earlier). Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A of the Code and neither the Company nor the Committee will have any liability to any Participant for such tax or penalty.
14.12 Disqualifying Dispositions. Any Participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years from the Grant Date of such Incentive Stock Option or within one year after the issuance of the shares of Common Stock acquired upon exercise of such Incentive Stock Option (a “Disqualifying Disposition”) shall be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Common Stock.
14.13 Section 16. It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Rule 16b-3 as promulgated under Section 16 of the Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3, or any other rule promulgated under Section 16 of the Exchange Act, and will not be subject to short-swing liability under Section 16 of the Exchange Act. Accordingly, if the operation of any provision of the Plan would conflict withrelating to notice to a Participant or to acceleration or termination of an Award upon the intent expressed in thisSection 14.13, such provisiondeath or termination of Service of a Participant, the references to “Participant” shall mean the extent possible shall be interpreted and/or deemed amended so as to avoid such conflict.
14.14 original grantee of an Award and not any transferee.
(d) Designation of Beneficiary Designation. Each Participant under the Plan may from time to time name any beneficiary or beneficiaries by whom any right under the Plan is to be exercised in case of such Participant’s death. Each designation will revoke all prior designations by the same Participant, shall be in a form reasonably prescribed by the Committee and shall be effective only when filed by the Participant in writing with the Company during the Participant’s lifetime.14.15 Expenses
(e) Termination of Service. Unless otherwise provided in an applicable Award Agreement or another then-effective written agreement between a Participant and the Company, and subject to Section 12 of this Plan, if a Participant’s Service with the Company and all of its Affiliates terminates, the following provisions shall apply (in all cases subject to the scheduled expiration of an Option or SAR Award, as applicable):
(1) Upon termination of Service for Cause, all unexercised Option and SAR Awards and all unvested portions of any other outstanding Awards shall be immediately forfeited without consideration.
(2) Upon termination of Service for any other reason, all unvested and unexercisable portions of any outstanding Awards shall be immediately forfeited without consideration.
(3) Upon termination of Service for any reason other than Cause, death or Disability, the currently vested and exercisable portions of Option and SAR Awards may be exercised for a period of three months after the date of such termination. However, if a Participant thereafter dies during
such three-month period, the vested and exercisable portions of the Option and SAR Awards may be exercised for a period of one year after the date of such termination.
(4) Upon termination of Service due to death or Disability, the currently vested and exercisable portions of Option and SAR Awards may be exercised for a period of one year after the date of such termination.
(f) Rights as Stockholder. No Participant shall have any rights as a stockholder with respect to any Shares covered by an Award unless and until the date the Participant becomes the holder of record of the Shares, if any, to which the Award relates.
(g) Performance-Based Awards. Any Award may be granted as a performance-based Award if the Committee establishes one or more measures of corporate, business unit or individual performance which must be attained, and the performance period over which the specified performance is to be attained, as a condition to the grant, vesting, exercisability, lapse of restrictions and/or settlement in cash or Shares of such Award. In connection with any such Award, the Committee shall determine the extent to which performance measures have been attained and other applicable terms and conditions have been satisfied, and the degree to which the grant, vesting, exercisability, lapse of restrictions and/or settlement of such Award has been earned. The Committee shall also have the authority to provide, in an Award Agreement or otherwise, for the modification of a performance period and/or adjustments to or waivers of the achievement of performance goals under specified circumstances such as (i) the occurrence of events that are unusual in nature or infrequently occurring, such as a Change in Control, an equity restructuring (as described in Section 12(a)), acquisitions, divestitures, restructuring activities, recapitalizations, or asset write-downs, (ii) a change in applicable tax laws or accounting principles, or (iii) the Participant’s death or Disability.
(h) Dividends and Dividend Equivalents. No dividends, dividend equivalents or distributions will be paid with respect to Shares subject to an Option or SAR Award. Any dividends or distributions payable with respect to Shares that are subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions and risk of forfeiture as the Shares to which such dividends or distributions relate. In its discretion, the Committee may provide in an Award Agreement for a Stock Unit Award or an Other Stock-Based Award that the Participant will be entitled to receive dividend equivalents, based on dividends actually declared and paid on outstanding Shares, on the units or other Share equivalents subject to the Stock Unit Award or Other Stock-Based Award, and such dividend equivalents will be subject to the same restrictions and risk of forfeiture as the units or other Share equivalents to which such dividend equivalents relate. The additional terms of any such dividend equivalents will be as set forth in the applicable Award Agreement, including the time and form of payment and whether such dividend equivalents will be credited with interest or deemed to be reinvested in additional units or Share equivalents. Any Shares issued or issuable during the term of this Plan as the result of the reinvestment of dividends or the deemed reinvestment of dividend equivalents in connection with an Award shall be counted against, and replenish upon any subsequent forfeiture, the Plan’s share reserve as provided in Section 4.
(i) Deferrals of Full Value Awards and Cash Incentive Awards. The costsCommittee may, in its discretion, permit or require the deferral by a Participant of administeringthe issuance of Shares or payment of cash in settlement of any Full Value Award or Cash Incentive Award, subject to such terms, conditions, rules and procedures as it may establish or prescribe for such purpose and with the intention of complying with the applicable requirements of Code Section 409A. The terms, conditions, rules and procedures for any such deferral shall be set forth in writing in the relevant Award Agreement or in such other agreement, plan or document as the Committee may determine, or some combination of such documents. The terms, conditions, rules and procedures for any such deferral shall address, to the extent relevant, matters such as: (i) the amount of compensation that may or must be deferred (or the method for calculating the amount); (ii) the permissible time(s) and form(s) of payment of deferred amounts; (iii) the terms and conditions of any deferral elections by a Participant or of any deferral required by the Company; and (iv) the crediting of interest or dividend equivalents on deferred amounts.
7. Stock Option Awards.
(a) Type and Exercise Price. The Award Agreement pursuant to which an Option Award is granted shall specify whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option. The exercise price at which each Share subject to an Option Award may be purchased shall be determined by the Committee and set forth in the Award Agreement, and shall not be less than the Fair Market Value of a Share on the Grant Date, except in the case of Substitute Awards (to the extent consistent with Code Section 409A and, in the case of Incentive Stock Options, Code Section 424).
(b) Payment of Exercise Price. The purchase price of the Shares with respect to which an Option Award is exercised shall be payable in full at the time of exercise. The purchase price may be paid in cash or in such other manner as the Committee may permit, including by payment under a broker-assisted sale and remittance program, by withholding Shares otherwise issuable to the Participant upon exercise of the Option or by delivery to the Company of Shares (by actual delivery or attestation) already owned by the Participant (in either case, such Shares having a Fair Market Value as of the date the Option is exercised equal to the purchase price of the Shares being purchased).
(c) Exercisability and Expiration. Each Option Award shall be exercisable in whole or in part on the terms provided in the Award Agreement. No Option Award shall be exercisable at any time after its scheduled expiration. When an Option Award is no longer exercisable, it shall be deemed to have terminated.
(d) Incentive Stock Options.
(1) An Option Award will constitute an Incentive Stock Option Award only if the Participant receiving the Option Award is an Employee, and only to the extent that (i) it is so designated in the applicable Award Agreement and (ii) the aggregate Fair Market Value (determined as of the Option Award’s Grant Date) of the Shares with respect to which Incentive Stock Option Awards held by the Participant first become exercisable in any calendar year (under the Plan and all other plans of the Company and its Affiliates) does not exceed $100,000 or such other amount specified by the Code. To the extent an Option Award granted to a Participant exceeds this limit, the Option Award shall be treated as a Non-Qualified Stock Option Award. The maximum number of Shares that may be issued upon the exercise of Incentive Stock Option Awards under the Plan shall be paid2,500,0004,000,000, subject to adjustment as provided in Section 12(a).
(2) No Participant may receive an Incentive Stock Option Award under the Plan if, immediately after the grant of such Award, the Participant would own (after application of the rules contained in Code Section 424(d)) Shares possessing more than 10% of the total combined Voting Power of all classes of stock of the Company or an Affiliate, unless (i) the per Share exercise price for such Award is at least 110% of the Fair Market Value of a Share on the Grant Date and (ii) such Award will expire no later than five years after its Grant Date.
(3) For purposes of continued Service by a Participant who has been granted an Incentive Stock Option Award, no approved leave of absence may exceed three months unless reemployment upon expiration of such leave is provided by statute or contract. If reemployment is not so provided, then on the date six months following the first day of such leave, any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Stock Option.
(4) If an Incentive Stock Option Award is exercised after the expiration of the exercise periods that apply for purposes of Code Section 422, such Option shall thereafter be treated as a Non-Qualified Stock Option.
(5) The Award Agreement covering an Incentive Stock Option Award shall contain such other terms and provisions that the Committee determines necessary to qualify the Option Award as an Incentive Stock Option Award.
(e) Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of an Option Award during the applicable post-termination of Service exercise period as set forth in Section 6(e)
or in the applicable Award Agreement is prevented by Section 16(c), the Option shall remain exercisable until the later of (i) 30 days after the date the exercise of the Option would no longer be prevented by such provision, or (ii) the end of the applicable post-termination exercise period, but in no event later than the scheduled expiration date of the Option as set forth in the applicable Award Agreement.
8. Stock Appreciation Right Awards.
(a) Nature of Award. An Award of Stock Appreciation Rights shall be subject to such terms and conditions as are determined by the Committee, and shall provide a Participant the right to receive upon exercise of the SAR Award all or a portion of the excess of (i) the Fair Market Value as of the date of exercise of the SAR Award of the number of Shares as to which the SAR Award is being exercised, over (ii) the aggregate exercise price for such number of Shares. The per Share exercise price for any SAR Award shall be determined by the Committee and set forth in the applicable Award Agreement, and shall not be less than the Fair Market Value of a Share on the Grant Date, except in the case of Substitute Awards (to the extent consistent with Code Section 409A).
(b) Exercise of SAR. Each SAR Award may be exercisable in whole or in part at the times, on the terms and in the manner provided in the Award Agreement. No SAR Award shall be exercisable at any time after its scheduled expiration. When a SAR Award is no longer exercisable, it shall be deemed to have terminated. Upon exercise of a SAR Award, payment to the Participant shall be made at such time or times as shall be provided in the Award Agreement in the form of cash, Shares or a combination of cash and Shares as determined by the Committee. The Award Agreement may provide for a limitation upon the amount or percentage of the total appreciation on which payment (whether in cash and/or Shares) may be made in the event of the exercise of a SAR Award.
9. Restricted Stock Awards.
(a) Vesting and Consideration. Shares subject to a Restricted Stock Award shall be subject to vesting and the lapse of applicable restrictions based on such conditions or factors and occurring over such period of time as the Committee may determine in its discretion. The Committee may provide whether any consideration other than Services must be received by the Company or any Affiliate as a condition precedent to the grant of a Restricted Stock Award, and may correspondingly provide for Company reacquisition or repurchase rights if such additional consideration has been required and some or all of a Restricted Stock Award does not vest.
(b) Shares Subject to Restricted Stock Awards. Unvested Shares subject to a Restricted Stock Award shall be evidenced by a book-entry in the name of the Participant with the Company’s transfer agent or by one or more Stock certificates issued in the name of the Participant. Any such Stock certificate shall be deposited with the Company or its designee, together with an assignment separate from the certificate, in blank, signed by the Participant, and bear an appropriate legend referring to the restricted nature of the Restricted Stock evidenced thereby. Any book-entry shall be subject to comparable restrictions and corresponding stop transfer instructions. Upon the vesting of Shares of Restricted Stock, and the Company’s determination that any necessary conditions precedent to the release of vested Shares (such as satisfaction of tax withholding obligations and compliance with applicable legal requirements) have been satisfied, such vested Shares shall be made available to the Participant in such manner as may be prescribed or permitted by the Committee. Except as otherwise provided in the Plan or an applicable Award Agreement, a Participant with a Restricted Stock Award shall have all the rights of a shareholder, including the right to vote the Shares of Restricted Stock.
10. Stock Unit Awards.
(a) Vesting and Consideration. A Stock Unit Award shall be subject to vesting and the lapse of applicable restrictions based on such conditions or factors and occurring over such period of time as the Committee may determine in its discretion. If vesting of a Stock Unit Award is conditioned on the achievement of specified performance goals, the extent to which they are achieved over the specified performance period and the number of Stock Units that will be earned and eligible to vest shall be determined by the Committee. The Committee may provide whether any consideration other than Services must be received by the Company or any Affiliate as a condition precedent to the settlement of a Stock Unit Award.
(b) Settlement of Award. Following the vesting of a Stock Unit Award, and the Company’s determination that any necessary conditions precedent to the settlement of the Award (such as satisfaction of tax withholding obligations and compliance with applicable legal requirements) have been satisfied, settlement of the Award and payment to the Participant shall be made at such time or times in the form of cash, Shares (which may themselves be considered Restricted Stock under the Plan) or a combination of cash and Shares as determined by the Committee.
11. Other Awards.
(a) Other Stock-Based Awards. The Committee may from time to time grant Shares and other Awards that are valued by reference to and/or payable in whole or in part in Shares under the Plan. The Committee shall determine the terms and conditions of such Awards, which shall be consistent with the terms and purposes of the Plan. The Committee may direct the Company to issue Shares subject to restrictive legends and/or stop transfer instructions that are consistent with the terms and conditions of the Award to which the Shares relate.
(b) Cash Incentive Awards. A Cash Incentive Award shall be considered a performance-based Award for purposes of, and subject to, Section 6(g), the payment of which shall be contingent upon the degree to which one or more specified performance goals have been achieved over the specified performance period. Cash Incentive Awards may be granted to any Participant in such dollar-denominated amounts and upon such terms and at such times as shall be determined by the Committee. Following the completion of the applicable performance period and the vesting of a Cash Incentive Award, payment of the settlement amount of the Award to the Participant shall be made at such time or times in the form of cash, Shares or other forms of Awards under the Plan (valued for these purposes at their grant date fair value) or a combination of cash, Shares and other forms of Awards as determined by the Committee and specified in the applicable Award Agreement.
12. Changes in Capitalization, Corporate Transactions, Change in Control.
(a) Adjustments for Changes in Capitalization. In the event of any equity restructuring (within the meaning of FASB ASC Topic 718) that causes the per share value of Shares to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary dividend, the Committee shall make such adjustments as it deems equitable and appropriate to (i) the aggregate number and kind of Shares or other securities issued or reserved for issuance under the Plan, (ii) the number and kind of Shares or other securities subject to outstanding Awards, (iii) the exercise price of outstanding Options and SARs, and (iv) any maximum limitations prescribed by the Plan with respect to certain types of Awards or the grants to individuals of certain types of Awards. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of Participants. In either case, any such adjustment shall be conclusive and binding for all purposes of the Plan. No adjustment shall be made pursuant to this Section 12(a) in connection with the conversion of any convertible securities of the Company, or in a manner that would cause Incentive Stock Options to violate Section 422(b) of the Code or cause an Award to be subject to adverse tax consequences under Section 409A of the Code.
(b) Corporate Transactions. Unless otherwise provided in an applicable Award Agreement or another written agreement between a Participant and the Company, the following provisions shall apply to outstanding Awards in the event of a Change in Control that involves a Corporate Transaction.
(1) Continuation, Assumption or Replacement of Awards. In the event of a Corporate Transaction, then the surviving or successor entity (or its Parent) may continue, assume or replace Awards outstanding as of the date of the Corporate Transaction (with such adjustments as may be required or permitted by Section 12(a)), and such Awards or replacements therefor shall remain outstanding and be governed by their respective terms, subject to Section 12(b)(4) below. A surviving or successor entity may elect to continue, assume or replace only some Awards or portions of Awards. For purposes of this Section 12(b)(1), an Award shall be considered assumed or replaced if, in connection with the Corporate Transaction and in a manner consistent with Code Section 409A
(and Code Section 424 if the Award is an ISO), either (i) the contractual obligations represented by the Award are expressly assumed by the surviving or successor entity (or its Parent) with appropriate adjustments to the number and type of securities subject to the Award and the exercise price thereof that preserves the intrinsic value of the Award existing at the time of the Corporate Transaction, or (ii) the Participant has received a comparable equity-based award that preserves the intrinsic value of the Award existing at the time of the Corporate Transaction and contains terms and conditions that are substantially similar to those of the Award.
(2) Acceleration. If and to the extent that outstanding Awards under the Plan are not continued, assumed or replaced in connection with a Corporate Transaction, then (i) all outstanding Option and SAR Awards shall become fully vested and exercisable for such period of time prior to the effective time of the Corporate Transaction as is deemed fair and equitable by the Committee, and shall terminate at the effective time of the Corporate Transaction, (ii) all outstanding Full Value Awards shall fully vest immediately prior to the effective time of the Corporate Transaction, and (iii) to the extent vesting of any Award is subject to satisfaction of specified performance goals, such Award shall be deemed “fully vested” for purposes of this Section 12(b)(2) if the performance goals are deemed to have been satisfied at the target level of performance and the vested portion of the Award at that level of performance is proportionate to the portion of the performance period that has elapsed as of the effective time of the Corporate Transaction. The Committee shall provide written notice of the period of accelerated exercisability of Option and SAR Awards to all affected Participants. The exercise of any Option or SAR Award whose exercisability is accelerated as provided in this Section 12(b)(2) shall be conditioned upon the consummation of the Corporate Transaction and shall be effective only immediately before such consummation.
(3) Payment for Awards. If and to the extent that outstanding Awards under the Plan are not continued, assumed or replaced in connection with a Corporate Transaction, then the Committee may provide that some or all of such outstanding Awards shall be canceled at or immediately prior to the effective time of the Corporate Transaction in exchange for payments to the holders as provided in this Section 12(b)(3). The Committee will not be required to treat all Awards similarly for purposes of this Section 12(b)(3). The payment for any Award canceled shall be in an amount equal to the difference, if any, between (i) the fair market value (as determined in good faith by the Committee) of the consideration that would otherwise be received in the Corporate Transaction for the number of Shares subject to the Award, and (ii) the aggregate exercise price (if any) for the Shares subject to such Award. If the amount determined pursuant to the preceding sentence is not a positive number with respect to any Award, such Award may be canceled pursuant to this Section 12(b)(3) without payment of any kind to the affected Participant. With respect to an Award whose vesting is subject to the satisfaction of specified performance goals, the number of Shares subject to such an Award for purposes of this Section 12(b)(3) shall be the number of Shares as to which the Award would have been deemed “fully vested” for purposes of Section 12(b)(2). Payment of any amount under this Section 12(b)(3) shall be made in such form, on such terms and subject to such conditions as the Committee determines in its discretion, which may or may not be the same as the form, terms and conditions applicable to payments to the Company’s stockholders in connection with the Corporate Transaction, and may, in the Committee’s discretion, include subjecting such payments to vesting conditions comparable to those of the Award canceled, subjecting such payments to escrow or holdback terms comparable to those imposed upon the Company’s stockholders under the Corporate Transaction, or calculating and paying the present value of payments that would otherwise be subject to escrow or holdback terms.
(4) Termination After a Corporate Transaction. If and to the extent that Awards are continued, assumed or replaced under the circumstances described in Section 12(b)(1), and if within 12 months after the Corporate Transaction a Participant experiences an involuntary termination of Service for reasons other than Cause, or voluntarily terminates his or her Service for Good Reason, then (i) outstanding Option and SAR Awards issued to the Participant that are not yet fully exercisable shall immediately become exercisable in full and shall remain exercisable for one year following the Participant’s termination of Service, and (ii) any Full Value Awards that are not yet fully vested shall immediately vest in full (with vesting in full for a performance-based award
determined as provided in Section 12(b)(2), except that the proportionate vesting amount will be determined with respect to the portion of the performance period during which the Participant was a Service Provider).
(c) Other Change in Control. Unless otherwise provided in an applicable Award Agreement or another written agreement between a Participant and the Company, in the event of a Change in Control that does not involve a Corporate Transaction, all Awards will continue in accordance with their terms; provided, however, if within 12 months after the Change in Control a Participant experiences an involuntary termination of Service for reasons other than Cause or voluntarily terminates his or her Service for Good Reason, then (i) outstanding Option and SAR Awards issued to the Participant that are not yet fully exercisable shall immediately become exercisable in full and shall remain exercisable for one year following the Participant’s termination of Service, (ii) subject to clause (iii) below, any Full Value Awards that are not yet fully vested shall immediately vest in full, and (iii) to the extent vesting of any Award is subject to satisfaction of specified performance goals, such Award shall be deemed “fully vested” for purposes of this Section 12(c) if the performance goals are deemed to have been satisfied at the target level of performance and the vested portion of the Award at that level of performance is proportionate to the portion of the performance period that has occurred up to the date of such Participant’s termination of Service.
(d) Dissolution or Liquidation. Unless otherwise provided in an applicable Award Agreement, in the event of a proposed dissolution or liquidation of the Company, the Committee will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. An Award will terminate immediately prior to the consummation of such proposed action.
13. Plan Participation and Service Provider Status. Status as a Service Provider shall not be construed as a commitment that any Award will be made under the Plan to that Service Provider or to eligible Service Providers generally. Nothing in the Plan or in any Award Agreement or related documents shall confer upon any Service Provider or Participant any right to continued Service with the Company or any Affiliate, nor shall it interfere with or limit in any way any right of the Company or any Affiliate to terminate the person’s Service at any time with or without Cause or change such person’s compensation, other benefits, job responsibilities or title.
14. Tax Withholding. The Company or any Affiliate, as applicable, shall have the right to (i) withhold from any cash payment under the Plan or any other compensation owed to a Participant an amount sufficient to cover any required withholding taxes related to the grant, vesting, exercise or settlement of an Award, and (ii) require a Participant or other person receiving Shares under the Plan to pay a cash amount sufficient to cover any required withholding taxes before actual receipt of those Shares. In lieu of all or any part of a cash payment from a person receiving Shares under the Plan, the Committee may permit the Participant to satisfy all or any part of the required tax withholding obligations (but not to exceed the maximum individual statutory tax rate in each applicable jurisdiction) by authorizing the Company to withhold a number of the Shares that would otherwise be delivered to the Participant pursuant to the Award, or by transferring to the Company Shares already owned by the Participant, with the Shares so withheld or delivered having a Fair Market Value on the date the taxes are required to be withheld equal to the amount of taxes to be withheld.
15. Effective Date, Duration, Amendment and Termination of the Plan.
(a) Effective Date. The Plan shall become effective on the date it is approved by the Company’s stockholders, which shall be considered the date of its adoption for purposes of Treasury Regulation §1.422-2(b)(2)(i). No Awards shall be made under the Plan prior to its effective date.
(b) Duration of the Plan. The Plan shall remain in effect until all Shares subject to it are distributed, all Awards have expired or terminated, the Plan is terminated pursuant to Section 15(c), or the tenth anniversary of the effective date of the PlanMay 24, 2034, whichever occurs first (the “Termination Date”). Awards made before the Termination Date shall continue to be outstanding in accordance with their terms and the terms of the Plan unless otherwise provided in the applicable Award Agreements.
(c) Amendment and Termination of the Plan. The Board may at any time terminate, suspend or amend the Plan. The Company shall submit any amendment of the Plan to its stockholders for approval
only to the extent required by applicable laws or regulations or the rules of any securities exchange on which the Shares may then be listed. No termination, suspension, or amendment of the Plan may materially impair the rights of any Participant under a previously granted Award without the Participant’s consent, unless such action is necessary to comply with applicable law or stock exchange rules.
(d) Amendment of Awards. Subject to Section 15(e), the Committee may unilaterally amend the terms of any Award Agreement evidencing an Award previously granted, except that no such amendment may materially impair the rights of any Participant under the applicable Award without the Participant’s consent, unless such amendment is necessary to comply with applicable law or stock exchange rules or any compensation recovery policy as provided in Section 16(i).
(e) No Option or SAR Repricing. Except as provided in Section 12(a), no Option or Stock Appreciation Right Award granted under the Plan may be (i) amended to decrease the exercise price thereof, (ii) cancelled in conjunction with the grant of any new Option or Stock Appreciation Right Award with a lower exercise price, (iii) cancelled in exchange for cash, other property or the grant of any Full Value Award at a time when the per share exercise price of the Option or Stock Appreciation Right Award is greater than the current Fair Market Value of a Share, or (iv) otherwise subject to any action that would be treated under accounting rules as a “repricing” of such Option or Stock Appreciation Right Award, unless such action is first approved by the Company’s stockholders.
16. Other Provisions.
(a) Unfunded Plan. The Plan shall be unfunded and the Company shall not be required to segregate any assets that may at any time be represented by Awards under the Plan. Neither the Company, its Affiliates, the Committee, nor the Board shall be deemed to be a trustee of any amounts to be paid under the Plan nor shall anything contained in the Plan or any action taken pursuant to its provisions create or be construed to create a fiduciary relationship between the Company and/or its Affiliates, and a Participant. To the extent any person has or acquires a right to receive a payment in connection with an Award under the Plan, this right shall be no greater than the right of an unsecured general creditor of the Company.14.16
(b) Limits of Liability. Except as may be required by law, neither the Company nor any member of the Board or of the Committee, nor any other person participating (including participation pursuant to a delegation of authority under Section 3(c) of the Plan) in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have any liability to any party for any action taken, or not taken, in good faith under the Plan.
(c) Compliance with Applicable Legal Requirements and Company Policies. No Shares distributable pursuant to the Plan shall be issued and delivered unless and until the issuance of the Shares complies with all applicable legal requirements, including compliance with the provisions of applicable state and federal securities laws, and the requirements of any securities exchanges on which the Company’s Shares may, at the time, be listed. During any period in which the offering and issuance of Shares under the Plan is not registered under federal or state securities laws, Participants shall acknowledge that they are acquiring Shares under the Plan for investment purposes and not for resale, and that Shares may not be transferred except pursuant to an effective registration statement under, or an exemption from the registration requirements of, such securities laws. Any stock certificate or book-entry evidencing Shares issued under the Plan that are subject to securities law restrictions shall bear or be accompanied by an appropriate restrictive legend or stop transfer instruction. Notwithstanding any other provision of this Plan, the acquisition, holding or disposition of Shares acquired pursuant to the Plan shall in all events be subject to compliance with any applicable Company policies, including those relating to insider trading, pledging or hedging transactions, minimum post-vesting holding periods and stock ownership guidelines, and to forfeiture or recovery of compensation as provided in Section 16(i).
(d) Other Benefit and Compensation Programs. Payments and other benefits received by a Participant under an Award made pursuant to the Plan shall not be deemed a part of a Participant’s regular, recurring compensation for purposes of the termination, indemnity or severance pay laws of any country and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided by the Company or an Affiliate
unless expressly so provided by such other plan, contract or arrangement, or unless the Committee expressly determines that an Award or portion of an Award should be included to accurately reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of competitive cash compensation.
(e) Governing Law. To the extent that federal laws do not otherwise control, the Plan and all determinations made and actions taken pursuant to the Plan shall be governed by the laws of the State of Delaware without regard to its conflicts-of-law principles and shall be construed accordingly.
(f) Severability. If any provision of the provisionsPlan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
(g) Code Section 409A. It is intended that (i) all Awards of Options, SARs and Restricted Stock under the Plan will not provide for the deferral of compensation within the meaning of Code Section 409A and thereby be exempt from Code Section 409A, and (ii) all other Awards under the Plan will either not provide for the deferral of compensation within the meaning of Code Section 409A, or will comply with the requirements of Code Section 409A, and Awards shall be structured and the Plan administered and interpreted in accordance with this intent. The Plan and any Award Agreement may be unilaterally amended by the Company in any manner deemed necessary or advisable by the Committee or Board in order to maintain such exemption from or compliance with Code Section 409A, and any such amendment shall conclusively be presumed to be necessary to comply with applicable law. Notwithstanding anything to the contrary in the Plan or any Award Agreement, with respect to any Award that constitutes a deferral of compensation subject to Code Section 409A:
(1) If any amount is heldpayable under such Award upon a termination of Service, a termination of Service will be deemed to have occurred only at such time as the Participant has experienced a “separation from service” as such term is defined for purposes of Code Section 409A;
(2) If any amount shall be invalid, illegalpayable with respect to any such Award as a result of a Participant’s “separation from service” at such time as the Participant is a “specified employee” within the meaning of Code Section 409A, then no payment shall be made, except as permitted under Code Section 409A, prior to the first business day after the earlier of (i) the date that is six months after the Participant’s separation from service or unenforceable, whether(ii) the Participant’s death. Unless the Committee has adopted a specified employee identification policy as contemplated by Code Section 409A, specified employees will be identified in wholeaccordance with the default provisions specified under Code Section 409A.
None of the Company, the Board, the Committee nor any other person involved with the administration of this Plan shall (i) in any way be responsible for ensuring the exemption of any Award from, or compliance by any Award with, the requirements of Code Section 409A, (ii) have any obligation to design or administer the Plan or Awards granted thereunder in part,a manner that minimizes a Participant’s tax liabilities, including the avoidance of any additional tax liabilities under Code Section 409A, and (iii) shall have any liability to any Participant for any such tax liabilities.
(h) Rule 16b-3. It is intended that the Plan and all Awards granted pursuant to it shall be administered by the Committee so as to permit the Plan and Awards to comply with Exchange Act Rule 16b-3. If any provision of the Plan or of any Award would otherwise frustrate or conflict with the intent expressed in this Section 16(h), that provision to the extent possible shall be interpreted and deemed amended in the manner determined by the Committee so as to avoid the conflict. To the extent of any remaining irreconcilable conflict with this intent, the provision shall be deemed modifiedvoid as applied to Participants subject to Section 16 of the Exchange Act to the extent but onlypermitted by law and in the manner deemed advisable by the Committee.
(i) Forfeiture and Compensation Recovery.
(1) The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture or recovery by the Company upon the occurrence of certain specified events, in addition to any
otherwise applicable vesting or performance conditions of an Award. Such events may include termination of Service for Cause; violation of any material Company or Affiliate policy; breach of noncompetition, non-solicitation or confidentiality provisions that apply to the
extent, of such invalidity, illegality or unenforceability andParticipant; a determination that the
remaining provisions shall not be affected thereby.14.17 Plan Headings. The headings in the Plan are for purposes of convenience only and are not intended to define or limit the constructionpayment of the provisions hereof.
14.18 Non-Uniform Treatment. The Committee’s determinations underAward was based on an incorrect determination that financial or other criteria were met or other conduct by the Plan need not be uniformParticipant that is detrimental to the business or reputation of the Company or its Affiliates.
(2) Awards and
any compensation associated therewith may be made
by it selectively among persons who are eligiblesubject to
receive, or actually receive, Awards. Without limiting the generality of the foregoing, the Committee shall be entitled to make non-uniform and selective determinations, amendments and adjustments, and to enter into non-uniform and selective Award Agreements.15. Effective Date of Plan. The Plan shall become effective as of the Effective Date, but no Award shall be exercised (or, in the case of a stock Award, shall be granted) unless and until the Plan has been approvedforfeiture, recovery by the stockholders of the Company which approval shall be within twelve (12) months before or after the date the Plan isother action pursuant to any compensation recovery policy adopted by the Board.
16. TerminationBoard or Suspensionthe Committee at any time, including in response to the requirements of Section 10D of the Plan. The Plan shall terminate automatically on tenth anniversaryExchange Act and any implementing rules and regulations thereunder, or as otherwise required by law. Any Award Agreement may be unilaterally amended by the Committee to comply with any such compensation recovery policy.
APPENDIX B
CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
AudioEye, Inc., a corporation organized and existing under and by virtue of the
Effective Date. No Award shall be granted pursuant to the Plan after such date, but Awards theretofore granted may extend beyond that date. The Board may suspend or terminate the Plan at any earlier date pursuant toSection 13.1 hereof. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.17. Choice ofGeneral Corporation Law. The law of the State of Delaware (the “Corporation”), does hereby certify as follows:
1. Article EIGHTH of the Restated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
EIGHTH: A director or officer of the Corporation shall govern all questions concerningnot be personally liable to the construction, validity and interpretationCorporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer; provided, however, that the foregoing shall not eliminate or limit the liability of a director or officer (i) for any breach of the director’s or officer’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, (iv) for any transaction from which the director or officer derived an improper personal benefit, or (v) in the case of an officer, in any action by or in the right of the Corporation. If the General Corporation Law of the State of Delaware is amended after approval by the stockholders of this Plan, without regardprovision to such state’s conflictauthorize corporate action further eliminating or limiting the personal liability of law rules.directors or officers, then the liability of a director or an officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. 2. The amendment described herein has been duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by [ ], its [ ], this [ ] day of [ ], 2024.
PROXY | AUDIOEYE, INC. | PROXY |
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Name:
Title: | |
5210 E. Williams Circle, Suite 750; Tucson, AZ 85711
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) DateTO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:KEEP THIS PORTION FOR YOUR RECORDSTHIS PROXY CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSThe undersigned hereby appointsTODD BANKOFIERandSEAN BRADLEY, and each of them individually, with full power of substitution, as Proxies to represent and vote, as designated below, all shares of common stock of AudioEye, Inc. (the “Company”) registered in the name of the undersigned at the Annual Meeting of Stockholders of the Company to be held at 730 Third Avenue, 18th Floor, New York, NY 10017, on Friday, May 10, 2019, at 10:00 a.m., Eastern Time, and at any adjournment or postponement thereof.
THIS PROXY,VALID ONLY WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS. WITH RESPECT TO PROPOSALS 1SIGNED AND 3 BELOW,IF YOU “ABSTAIN” FROM VOTING, IT WILL HAVE NO EFFECT ON THE OUTCOME OF SUCH PROPOSALS.WITH RESPECT TO PROPOSALS 2, 4 AND 5 BELOW,IF YOU “ABSTAIN” FROM VOTING, IT WILL HAVE THE SAME EFFECT AS AN “AGAINST” VOTE. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2, 4 AND 5, AND RECOMMENDS VOTING FOR “EVERY 1 YEAR” ON PROPOSAL 3.
IF YOU ARE NOT VOTING ON THE INTERNET, PLEASE MARK, SIGN, DATEDATED. DETACH AND RETURN THIS PROXY CARD.
Proposal 1 –PORTION ONLYV43614-P11569-Z87454! ! !ForAllWithholdAllFor AllExceptFor Against Abstain! ! !! ! !AUDIOEYE, INC.5210 E. WILLIAMS CIRCLE, SUITE 750TUCSON, ARIZONA 8571101) Dr. Carr Bettis02) Anthony Coelho03) Dr. Katherine E. Fleming1. Election of Directors:
| For | Against | Abstain | | | For | Against | Abstain |
Dr. Carr Bettis | ¨ | ¨ | ¨ | | Ernest Purcell | ¨ | ¨ | ¨ |
Anthony Coelho | ¨ | ¨ | ¨ | | Alexandre Zyngier | ¨ | ¨ | ¨ |
Proposal 2 –DirectorsAUDIOEYE, INC.The Board of Directors recommends you vote FOR thefollowing:Nominees:The Board of Directors recommends you vote FOR the following proposals:2. To approve, by non-binding advisory vote, the compensation of AudioEye, Inc.’s named executive officers
Proposal 3 – To approve, by non-binding advisory vote, the frequency of future advisory votes on executive compensation.
| ¨ Every 1 Year | | ¨ Every 2 Years | | ¨ Every 3 Years | |
Proposal 4 –To approve the AudioEye, Inc. 2019 Equity Incentive Plan.
Proposal 5 –officers.5. To ratify the appointment of MaloneBailey, LLP as AudioEye, Inc.’s independent registered public accounting firm for the fiscal year ending DecemberendingDecember 31, 2019.
THIS2024.3. To approve amendments to the AudioEye, Inc. 2020 Equity Incentive Plan.4. To approve an amendment to AudioEye, Inc.'s Restated Certificate of Incorporation.NOTE: In their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting or any adjournment thereof.Please sign exactly as your name(s)
appear(s) hereon. When signing as attorney, executor,administrator, or other fiduciary, please give full title as such. Joint owners should each signpersonally. All holders must sign. If a corporation or partnership, please sign in full corporateor partnership name by authorized officer.04) David Moradi05) Jamil TahirTo withhold authority to vote for any individual nominee(s),mark "For All Except" and write the number(s) of the nominee(s)for whom your vote is withheld on the line below.! ! !! ! !VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode aboveUse the Internet to transmit your voting instructions up until 11:59 p.m., Eastern Time, the daybefore the meeting date. Have your proxy card in hand when you access the web site and followthe instructions to obtain your records and to create an electronic voting instruction form.ELECTRONIC DELIVERY OF FUTURE PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.MATERIALSIf you would like to reduce the costs incurred by our company in mailing proxy materials, you canconsent to receiving all future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above tovote using the Internet and, when prompted, indicate that you agree to receive or access proxymaterials electronically in future years.DURING THE PROXY HOLDER IS AUTHORIZED TOVIRTUAL MEETING:Go to www.virtualshareholdermeeting.com/AEYE2024You may attend the virtual-only meeting via the Internet and vote during the virtual meeting. Havethe information that is printed in the box marked by the arrow available and follow the instructions.VOTE BY PHONE - 1-800-690-6903Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m., EasternTime, the day before the meeting date. Have your proxy card in hand when you call and thenfollow the instructions.VOTE BY MAILMark, sign and date your proxy card and return it in the postage-paid envelope we have providedor return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.SCAN TOVIEW MATERIALS & VOTE IN HIS DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. | Dated:__________, 2019 | |
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| administrators, trustees, etc. should so indicate when signing. If the |
| stockholder is a corporation, the full corporate name should be inserted |
| and the proxy signed by an officer of the corporation indicating his/her |
| title. |
Please indicate whether you plan to attend this meeting:¨
5210 E. Williams Circle, Suite 750; Tucson, AZ 85711
ANNUAL MEETING
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V43615-P11569-Z87454Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:The Notice and Proxy Statement and the Annual Report on Form 10-K are available atwww.proxyvote.com.AUDIOEYE, INC.THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSTheDIRECTORSANNUAL MEETING OF STOCKHOLDERSMAY 24, 2024The undersigned hereby appointsTODD BANKOFIERandSEAN BRADLEY, James Spolar and eachKelly Georgevich, or either of them, individually,as proxies, each with fullthe power of substitution, as Proxiesto appoint their substitute, and hereby authorizes them to represent and to vote, as designated below,on the reverse side of this proxy card, all of the shares of Series A Convertible PreferredCommon Stock of AudioEye, Inc. (the “Company”) registered inthat the name of the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held at 730 Third Avenue, 18th Floor, New York, NY 10017, on Friday, May 10, 2019,virtually at 10:00 a.m., Eastern Time, on Friday, May 24, 2024, and at any adjournment or postponement thereof.
THISthereof.THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S).UNDERSIGNED. IF NO SUCH DIRECTIONS ARE MADE,GIVEN, THIS PROXY WILL BE VOTED IN ACCORDANCE WITHFOR THE RECOMMENDATIONELECTION OF THE BOARD OF DIRECTORS. WITH RESPECT TO PROPOSALS 1 AND 3 BELOW,IF YOU “ABSTAIN” FROM VOTING, IT WILL HAVE NO EFFECTNOMINEES LISTED ON THE OUTCOME OF SUCH PROPOSALS.WITH RESPECT TO PROPOSALS 2, 4 AND 5 BELOW,IF YOU “ABSTAIN” FROM VOTING, IT WILL HAVE THE SAME EFFECT AS AN “AGAINST” VOTE.REVERSE SIDE FOR THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”AND FOR PROPOSALS 1, 2, 3, 4 AND 5,5.PLEASE MARK, SIGN, DATE AND RECOMMENDS VOTING FOR “EVERY 1 YEAR” ON PROPOSAL 3.
Proposal 1 – Election of Directors:
| For | Against | Abstain | | | For | Against | Abstain |
Dr. Carr Bettis | ¨ | ¨ | ¨ | | Ernest Purcell | ¨ | ¨ | ¨ |
Anthony Coelho | ¨ | ¨ | ¨ | | Alexandre Zyngier | ¨ | ¨ | ¨ |
Proposal 2 –To approve, by non-binding advisory vote, the compensation of AudioEye, Inc.’s named executive officers
Proposal 3 – To approve, by non-binding advisory vote, the frequency of future advisory votes on executive compensation.
| ¨ Every 1 Year | | ¨ Every 2 Years | | ¨ Every 3 Years | |
Proposal 4 –To approve the AudioEye, Inc. 2019 Equity Incentive Plan.
Proposal 5 – To ratify the appointment of MaloneBailey, LLP as AudioEye, Inc.’s independent registered public accounting firm for the fiscal year ending December 31, 2019.
RETURN THIS PROXY CARD IS VALID ONLY WHENPROMPTLY USING THE ENCLOSED REPLY ENVELOPECONTINUED AND TO BE SIGNED AND DATED. THE PROXY HOLDER IS AUTHORIZED TO VOTE IN HIS DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
| Dated: __________, 2019 | |
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Please use the included Business Reply Envelope to return your Proxy Card, orON REVERSE SIDE | | |
scan and email your Proxy Card to cdalton@corporatestock.com. | Signature | |
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| Please print name | |
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| Signature (Joint Owners) | |
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| Please print name | |
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| Address Changes/Comments: | |
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Please indicate whether you plan to attend this meeting:¨ | Please date and sign name exactly as it appears hereon. Executors, |
| administrators, trustees, etc. should so indicate when signing. If the |
| stockholder is a corporation, the full corporate name should be inserted |
| and the proxy signed by an officer of the corporation indicating his/her |
| title. |
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