UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

  

FORM 8-K

  

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): December 19, 2016

  

AUDIOEYE, INC.

  

DELAWARE   333-177463   20-2939845
(State or other jurisdiction of incorporation)   (Commission File Number)   (IRS Employer Identification No.)

 

5210 E. Williams Circle, Suite 750

Tucson, Arizona 85711

(Address of principal executive offices)

 

(866) 331-5324

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act of 1933 (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(e) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement

 

On December 19, 2016 (the “Initial Closing Date”), AudioEye, Inc. (the “Company”) entered into a Common Stock and Warrant Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the issuance and sale of up to 7,142,857 shares of common stock of the Company (the “Common Stock”) and warrants (the “Warrants”) to purchase up to an aggregate of 800,000 shares of Common Stock in one or more closings within 30 days of the Initial Closing Date (the “Transaction”).

 

The Warrants

 

The Warrants are exercisable at $0.25 per share and expire on the fifth anniversary of the date of issuance. The Warrants are subject to anti-dilution protection, subject to certain customary exceptions.

 

Registration Rights

 

If the Company proposes to register any of its Common Stock under the Securities Act of 1933, as amended, in connection with the public offering of such securities for cash within the twelve (12) month period immediately following the Initial Closing Date, the Company shall use commercially reasonable efforts to (i) provide notice of such registration to each Investor and (ii) upon written request of any such Investor within ten (10) days after such notice is given by the Company, include the shares issuable upon exercise of the Warrants then beneficially held by such Investor in such registration.

 

Item 8.01 Other Events

 

On December 22, 2016, the Company issued a press release with respect to the Transaction.

 

Item 9.01 Exhibits

 

(d) Exhibits.

 

Exhibit No.   Description
     
4.1   Form of Warrant
     
4.2   Common Stock and Warrant Purchase Agreement
     
99.1   Press Release dated December 22, 2016

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: December 22, 2016   AUDIOEYE, INC. 
     
     
  By:   /s/ Todd Bankofier 
    Todd Bankofier, Chief Executive Officer

 

 

 

 

INDEX TO EXHIBITS

 

Exhibits   Description
4.1   Form of Warrant
4.2   Common Stock and Warrant Purchase Agreement
99.1   Press Release dated December 22, 2016

 

 

 

Exhibit 4.1

 

 

THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

 

Warrant No. [ ]

 

AUDIOEYE, INC.

COMMON STOCK WARRANT

 

This Common Stock Warrant (this “ Warrant ”) is issued as of December [__], 2016, by AudioEye, Inc., a Delaware corporation (the “ Company ”), to [_______] (the “ Holder ”) in connection with that certain Common Stock and Warrant Purchase Agreement, dated as of December 19, 2016, by and between the Company and the other parties thereto ( as the same may from time to time be amended, modified, extended, renewed or restated, the “ Purchase Agreement ”). Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Purchase Agreement.

 

1.                   Number of Warrant Shares; Exercise Price . Subject to the terms and conditions set forth herein, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company, to purchase from the Company [______] shares of common stock, $0.00001 par value per share (the “ Common Stock ”), of the Company (as adjusted from time to time, “ Warrant Shares ”) at a price of $0.25 per Warrant Share (as adjusted for splits and the like, the “ Exercise Price ”).

 

2.                   Exercise Period . This Warrant is exercisable as to the Warrant Shares covered hereby during the period commencing on the date hereof and continuing until 5:00 p.m. Arizona Time on the fifth (5th) anniversary hereof (the “ Expiration Date ”).

 

3.                   Method of Exercise . Subject to Sections 1 and 2 above, the Holder may exercise, in whole or in part, the purchase rights evidenced by this Warrant. Such exercise shall be effected by: (a) the surrender of this Warrant, together with a duly executed copy of the form of exercise notice attached hereto as Annex I (the “ Exercise Notice ”), to the secretary of the Company at its principal office, accompanied by (b) either (x) the payment to the Company by cash, check or wire transfer of an amount equal to the product of (i) the Exercise Price multiplied by (ii) the number of Warrant Shares being purchased (such product, the “ Purchase Price ”) or (y) the payment of the Purchase Price through a “cashless exercise” in accordance with Section 4 . The date on which the Exercise Notice is delivered to the secretary of the Company is an “ Exercise Date .”

 

 

 

 

4.                   Cashless Exercise . In the event the Holder elects to satisfy its obligation to pay the Purchase Price through a “cashless” exercise, the Company shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

“X” equals the number of Warrant Shares to be issued to the Holder;

 

“Y” equals the total number of Warrant Shares with respect to which this Warrant is being exercised;

 

“A” equals the arithmetic average of the Closing Sale Prices of the shares of Common Stock (as reported by Bloomberg Financial Markets) for the five (5) consecutive Trading Days ending on the date immediately preceding the Exercise Date (the “ Fair Market Value ”); and

 

“B” equals the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

For purposes of this Warrant, “ Closing Sale Price ” means, for any security as of any date, the last trade price for such security on the Principal Trading Market for such security, as reported by Bloomberg Financial Markets, or, if such Principal Trading Market begins to operate on an extended hours basis and does not designate the last trade price, then the last trade price of such security prior to 4:00 P.M., New York City time, as reported by Bloomberg Financial Markets, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg Financial Markets, or, if no last trade price is reported for such security by Bloomberg Financial Markets, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets. “ Trading Day ” means a day on which exchanges in the United States are open for the buying and selling of securities. “ Principal Trading Market ” means the OTC Bulletin Board, the OTC Markets, NASDAQ or a national securities exchange. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as determined in good faith by the Board of Directors of the Company. The Board of Directors’ determination shall be binding upon all parties absent demonstrable error. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

5.                   Rule 144 . For purposes of Rule 144 promulgated under the Securities Act of 1933, as amended (the “ Act ”), it is intended, understood and acknowledged that the Warrant Shares issued in a “cashless exercise” transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the Original Issue Date of this Warrant (provided that the Commission continues to take the position that such treatment is proper at the time of such exercise).

 

6.                   Certificates for Warrant Shares . If the shares of the Company are certificated, upon the exercise of the purchase rights evidenced by this Warrant, one or more certificates for the number of Warrant Shares so purchased shall be issued and delivered to the Holder as soon as practicable thereafter, with a legend substantially similar to the legend set forth below (in addition to any legend required under applicable state securities laws):

 

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

 

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Upon any partial exercise of this Warrant, the Company shall forthwith issue and deliver to the Holder a new warrant or warrants of like tenor as this Warrant for the remaining portion of the Warrant Shares for which this Warrant may still be exercised.

 

The legend set forth in this Section 6 shall be removed and the Company shall issue a certificate (or issue in an uncertificated form) without such legend or any other legend to the Holder if (a) such Warrants or Warrant Shares are sold pursuant to an effective registration statement under the Act (provided that the Holder agrees to only sell such Warrant or Warrant Shares during such time that the registration statement is effective and not withdrawn or suspended, and only as permitted by the registration statement), (b) such Warrants or Warrant Shares are sold or transferred pursuant to, and in accordance with all requirements of, Rule 144 (including, if applicable, the volume, manner-of-sale and notice filing provisions of Rule 144), or (c) such Warrants or Warrant Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such securities and without volume or manner-of-sale restrictions. The Company shall bear all costs incurred by it or a Holder relating to the removal of the legend in accordance with this Section 6 , provided that the Company shall not be liable for any transfer taxes relating to the issuance of a new certificate or statement in the name of any person other than the relevant Holder and its affiliates.

 

7.                     Issuance of Warrant Shares . The Company covenants that the Warrant Shares, when issued pursuant to the exercise of this Warrant, will be duly and validly issued, fully-paid and non-assessable and free from all taxes, liens, and charges with respect to the issuance thereof (except for any applicable transfer taxes, which shall be paid by the Holder).

 

8.                     Reservation of Warrant Shares . From the date hereof until the Expiration Date, the Company shall at all times reserve and keep available out of its authorized but unissued Common Stock of the Company or other securities constituting Warrant Shares, solely for the purpose of issuance upon the exercise of this Warrant, the maximum number of Warrant Shares issuable upon the exercise of this Warrant, and the par value per Warrant Share shall at all times be less than or equal to the applicable Exercise Price. The Company shall not increase the par value of any Warrant Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect, and shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock of the Company upon the exercise of this Warrant.

 

9.                   Adjustment of Exercise Price and Number of Warrant Shares . The number of and kind of Warrant Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

 

(a)                 Subdivisions, Combinations and Other Issuances . If the Company shall at any time or from time to time prior to the Expiration Date subdivide the Warrant Shares, by forward stock split or otherwise, or combine such shares, or issue additional shares as a dividend with respect to any such shares, the number of Warrant Shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price payable per Warrant Share, but the Purchase Price payable for the total number of Warrant Shares purchasable under this Warrant (as adjusted) shall remain the same. The aggregate Exercise Price shall be reduced by the aggregate amount of cash dividends paid to holders of equity securities in the Company prior to the date of the Holder’s exercise of the Warrant. Any adjustment under this Section 9(a) shall become effective as of the record date of such subdivision, combination, dividend, or other distribution, or in the event that no record date is fixed, upon the making of such subdivision, combination or dividend.

 

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(b)                Merger, Consolidation, Reclassification, Reorganization, Etc . In case of any change in the Warrant Shares prior to the Expiration Date (other than as a result of a subdivision, combination, or stock dividend provided for in Section 9(a) above), whether through merger, consolidation, reclassification, reorganization, partial or complete liquidation, purchase of substantially all the assets of the Company, or other change in the capital structure of the Company (any of the foregoing a “ Sale Event ”), then, as a condition of such Sale Event, lawful and adequate provision will be made so that the Holder will have the right thereafter to receive upon the exercise of the Warrant the kind and amount of shares of stock or other securities or property to which it would have been entitled if, immediately prior to such Sale Event, he had held the number of Warrant Shares obtainable upon the exercise of the Warrant. In any such case, appropriate adjustment will be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Holder, to the end that the provisions set forth herein will thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the exercise of the Warrant. If the Company, at any time while this Warrant is outstanding, distributes to holders of the Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of the Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, “ Distributed Property ”), then in each such case the Holder shall be entitled upon exercise of this Warrant for the purchase of any or all of the Warrant Shares, to receive the amount of Distributed Property which would have been payable to the Holder had such Holder been the holder of such Warrant Shares on the record date for the determination of stockholders entitled to such Distributed Property.  The Company will at all times set aside in escrow and keep available for distribution to such holder upon exercise of this Warrant a portion of the Distributed Property to satisfy the distribution to which such Holder is entitled pursuant to the preceding sentence.  The Company will not permit any change in its capital structure to occur unless the issuer of the shares of stock or other securities to be received by the Holder, if not the Company, agrees to be bound by and comply with the provisions of this Warrant.

 

(c)                 Dilution .

 

(i)                  In the event that the Company shall, at any time or from time to time, offer shares of Common Stock (other than (i) Common Stock or options to purchase Common Stock issued, sold or granted pursuant to the Company’s equity incentive plans; or (ii) securities of the Company issued pursuant to the exercise of any convertible or exercisable securities outstanding as of the date of this Warrant (the securities set forth in clauses (i) and (ii), collectively, the “ Excluded Securities ”)) in a non-public offering (or in a public offering in which more than 50% of such public offering is subscribed to by affiliates of the Company) in which the Common Stock is sold at a price less than the Exercise Price, then the Exercise Price shall be reduced (but not increased) to an amount determined by multiplying the Exercise Price by a fraction (x) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as determined in the following sentence) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the Aggregate Consideration (as defined below) received or deemed received by the Company for the total number of additional shares of Common Stock so issued would purchase at such then-existing Exercise Price, and (y) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as determined in the following sentence) immediately prior to such issue or sale plus the total number of additional shares of Common Stock so issued.  For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (I) the number of shares of Common Stock outstanding, (II) the number of Warrant Shares obtainable upon exercise of the Warrant if the Exercise Date is the day immediately preceding the given date, and (III) the number of shares of Common Stock which are issuable upon the exercise or conversion of all other rights, options and Warrant Shares outstanding on the day immediately preceding the given date.

 

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(ii)                An adjustment made pursuant to Section 9(c)(i) shall be made on the next Business Day following the date on which any such issuance or sale is made and shall be effective retroactively to the close of business on the date of such issuance or sale.

 

(iii)              For the purpose of making any adjustment required under Section 9(c)(i) , the aggregate consideration received by the Company for any issue or sale of securities (the “ Aggregate Consideration ”) shall be computed as: (A) to the extent it consists of cash, the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, the fair value of that property as determined in good faith by the Board of Directors of the Company; provided, however, that to the extent the Board of Directors determines the fair value of property other than cash is equal to or exceeds $1,000,000, then the Company shall have such property appraised by a qualified independent appraiser, whose valuation shall conclusively determine the value, and (C) if shares of Common Stock, Convertible Securities (as defined below) or rights or options to purchase either shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such shares of Common Stock, Convertible Securities or rights or options.

 

(iv)              For the purpose of the adjustment required under Section 9(c)(i) , if the Company issues or sells (x) preferred shares or other stock, options, warrants, purchase rights or other securities convertible into, shares of Common Stock other than Excluded Shares (such convertible stock or securities being herein referred to as “ Convertible Securities ”) or (y) rights or options for the purchase of shares of Common Stock or Convertible Securities (other than Excluded Shares) and if the Effective Price (defined below) of such shares of Common Stock is less than the Exercise Price, the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus: (A) in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options; and (B) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of anti-dilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses. The “ Effective Price ” of shares of Common Stock shall mean the quotient determined by dividing the total number of shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under Section 9(a)(i) , into the Aggregate Consideration received, or deemed to have been received by the Company for such issue under Section 9(a)(i) , for such shares of Common Stock. In the event that the number of shares of Common Stock or the Effective Price cannot be ascertained at the time of issuance, such shares of Common Stock shall be deemed issued immediately upon the occurrence of the first event that makes such number of shares or the Effective Price, as applicable, ascertainable.

 

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(v)                If the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of anti-dilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further, that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities.

 

(vi)              If any option or warrant expires or is cancelled without having been exercised, then, for the purposes of the adjustments set forth above, such option or warrant shall have been deemed not to have been issued and the Exercise Price shall be adjusted accordingly.

 

(d)                Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event, the amount of the adjustment, the method by which such adjustment was calculated, and the number of Warrant Shares or other securities or property thereafter purchasable and/or the Exercise Price after giving effect to such adjustment upon exercise of this Warrant.

 

(e)                 Notice of Sale Event or Distributed Property . The Company shall promptly notify the Holder (i) of any Sale Event and the kind and amount of shares of stock or other securities or property to which the Holder will be entitled in accordance with Section 9(b) , and (ii) in the event there is any distribution of Distributed Property, the portion of the Distributed Property to which the Holder is entitled in accordance with Section 9(b) .

 

10.               Further Limitations on Disposition . The Holder agrees not to dispose of all or any portion of the Warrant Shares or the Warrant (a) unless and until there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or (b) the proposed disposition is pursuant to a transaction exempt from the registration requirements of the Act; provided, however, that the Holder may dispose or otherwise transfer the Warrant to an affiliate of the Holder, to a family member of the Holder, or to any trust, partnership, limited liability company or custodianship established for estate-planning purposes for the primary benefit of the Holder or his or her family members, in each case without the requirements set forth in this Section 10 .

 

11.               No Fractional Warrant Shares . Notwithstanding any provisions to the contrary in this Warrant, the Company shall not be required to issue any Warrant Shares representing fractional Warrant Shares, but may instead make a payment in cash based on the Exercise Price.

 

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12.               No Rights as Stockholders . Prior to the exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any pre-emptive rights, and the Holder shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein or as otherwise agreed. Upon exercise of this Warrant, the Holder shall become a stockholder of the Company in accordance with the Company’s certificate of incorporation, to the extent such Holder is not already a stockholder of the Company.

 

13.               Loss, Etc. of Warrant . Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant if mutilated, and upon reimbursement of the Company’s reasonable incidental expenses, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination.

 

14.               Miscellaneous .

 

(a)                 Further Acts . Each of the parties hereto agrees to perform any further acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Warrant.

 

(b)                Notices . Unless otherwise provided, all notices and other communications required or permitted under this Warrant shall be in writing and shall be mailed by United States first-class mail, postage prepaid, sent by facsimile or delivered personally by hand or by a nationally recognized courier addressed to the party to be notified at the address or facsimile number indicated for such person in the Purchase Agreement, or at such other address or facsimile number as such party may designate by ten (10) days’ advance written notice to the other parties hereto. All such notices and other written communications shall be effective on the date of mailing, confirmed facsimile transfer or delivery.

 

(c)                 Amendment and Modification; Waiver . Except as otherwise provided herein, this Warrant may only be amended, modified or supplemented by an agreement in writing signed by the Company and the Holders of outstanding Warrants exercisable for at least a majority of the aggregate number of Warrant Shares issued pursuant to the Purchase Agreement. No waiver by the Company or the Holders of outstanding Warrants exercisable for at least a majority of such Warrant Shares, waiving on behalf of all Holders, or the Holder, waiving on its own behalf, of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by such parties so waiving. The Holder hereby acknowledges that any provision hereof may be amended, modified, supplemented or waived on its behalf by the Holders of outstanding Warrants exercisable for at least a majority of such Warrant Shares. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Warrant shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

(d)                Headings; References . The headings of sections contained in this Warrant are included herein for reference purposes only, solely for the convenience of the parties hereto, and shall not in any way be deemed to effect the meaning, interpretation or applicability of this Warrant or any term, condition or provision hereof.

 

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(e)                 Successors and Assigns . All of the covenants, stipulations, promises, and agreements in this Warrant shall bind and inure to the benefit of the parties’ respective successors and assigns, whether so expressed or not.

 

(f)                 Governing Law . This Warrant any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without reference to the conflicts of law provisions.

 

(g)                 Entire Agreement . The terms and provisions of the Transaction Agreements supersede all written and oral agreements and representations made by or on behalf of the Company. The Transaction Agreements contain the entire agreement of the parties.

 

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

 

(i)                  Execution and Counterparts . This Warrant may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one instrument. Any one of such counterparts shall be sufficient for the purpose of proving the existence and terms of this Warrant and no party shall be required to produce an original or all of such counterparts in making such proof.

 

(j)                  Jurisdiction . EACH OF THE PARTIES AGREE THAT NEITHER IT NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS WARRANT OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NONE OF THE PARTIES HERETO HAS AGREED WITH OR REPRESENTED TO ANY OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. EACH OF THE PARTIES HEREBY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL MAY BE TAKEN OR OTHER REVIEW SOUGHT FROM THE AFORESAID COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR WITH RESPECT TO THIS WARRANT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS.

 

(k)                Information Rights . While  any  securities of the Company remain outstanding and  are “restricted securities” within the meaning of Rule 144(a)(3) under the Act, the Company will, during any period in which the Company is not subject to and in compliance with Section 13 or 15(d) of the of the Securities and Exchange Act of 1934, as amended (the “ Exchange Act ”) and are not exempt from reporting under Rule 12g3-2(b) under the Exchange Act, furnish to the Holder, upon request and at the Company’s expense, the information required to be delivered pursuant to Rule 144A(d)(4) under the Act.

 

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(l)                  No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Warrant and in taking all such action as may be necessary or appropriate to protect the Holder’s rights under this Warrant against impairment.

 

 

 

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IN WITNESS WHEREOF, this Warrant is executed as of the date first written above.

 

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

 

 

 

Signature page to

AudioEye, Inc.
Common Warrant

 

 

 

IN WITNESS WHEREOF, this Warrant is executed as of the date first written above.

 

  HOLDER:
   
   
  If Entity:
     
  Entity Name:    
     
     
  By:    
     
  Name:    
     
  Title:    
     
     
  If Individual:
     
  Name:   
     
  Signature:    

 

 

 

Signature page to

AudioEye, Inc.
Common Warrant

 

 

 

ANNEX I

 

  NOTICE OF EXERCISE

 

TO:    
     

1.          The undersigned Warrantholder (“ Holder ”) elects to acquire the Warrant Shares of AudioEye, Inc. (the “ Company ”), pursuant to the terms of the Warrant dated December ___, 2016 (the “ Warrant ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

2.          The Holder elects to purchase _________ Warrant Shares as provided in Section 3 and ( check one ):

¨ tenders herewith a check in the amount of $_______ as payment of the Purchase Price

 

¨ intends that payment of the Purchase Price shall be made as a “cashless exercise’ under Section 4 of the Warrant

 

3.          The Holder surrenders the Warrant with this Notice of Exercise.

 

4.          The Holder represents that it is acquiring the aforesaid Warrant Shares for investment and not with a view to, or for resale in connection with, distribution and that the Holder has no present intention of distributing or reselling the Warrant Shares unless in compliance with all applicable federal and state securities laws.

 

5.        Pursuant to this Notice of Exercise, the Company shall deliver to the Holder Warrant Shares determined in accordance with the terms of the Warrant.

 

 

By:      
     
Name:      
     
Title:      
     
Date:      

 

 

Exhibit 4.2

 

 

COMMON STOCK AND WARRANT PURCHASE AGREEMENT

 

This Common Stock and Warrant Purchase Agreement (this “ Agreement ”) is made and entered into as of December 19, 2016, by and among AudioEye, Inc., a Delaware corporation (the “ Company ”), and the investors set forth on Exhibit A attached hereto (each an “ Investor ” and collectively, the “ Investors ”).

 

RECITALS

 

The Company desires to sell to the Investors, and the Investors desire to purchase from the Company, (i) shares (the “ Shares ”) of common stock, $0.00001 par value per share, of the Company (“ Common Stock ”) and (ii) warrants to purchase the Company’s Common Stock (the “ Warrants ”), in the form attached as Exhibit B hereto (the “ Financing ”).

 

AGREEMENT

 

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

 

Section 1.                  AUTHORIZATION AND SALE .

 

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

 

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

 

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

 

Common Stock and Warrant Purchase Agreement; 12-2016

  

 

 

1.4   Additional Closings .

 

(a)                    From and after the Initial Closing, the Company shall have the right to sell up to the balance of the remaining Shares and Warrants pursuant to this Agreement at one or more additional closings occurring within 30 days of the Initial Closing Date (each, an “ Additional Closing ”), and to add additional entities and persons as “Investors” hereunder and as parties hereto. No Investor in the Initial Closing is obligated to purchase Shares in the Additional Closing.

 

(b)                   The aggregate number of Shares issued in any Closings shall not exceed 7,142,857 Shares and the aggregate number of shares issuable upon exercise of Warrants issued in any Closings shall not exceed 800,000 shares. Each Additional Closing shall take place at the offices of DLA Piper LLP (US), 401 Congress Avenue, Suite 2500, Austin, Texas 78701, on a date or dates determined by the Company and the Investors purchasing additional Shares and Warrants at such Additional Closing (each such date, an “ Additional Closing Date ”). Any Shares and Warrants issued pursuant to this Section 1.4 shall be deemed to be “Shares” and “Warrants,” respectively, for all purposes under this Agreement and at the same per share Purchase Price. The Initial Closing and each Additional Closing shall constitute and be treated as a “ Closing ” hereunder, and the Initial Closing Date and each Additional Closing Date shall constitute and be treated as a “ Closing Date ” hereunder. At the Initial Closing and each Additional Closing, the Company shall issue and deliver to the Investors participating in such Closing the Shares and the Warrants, each registered in the name of such Investors, against payment to the Company of the purchase price therefor.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Notwithstanding the provisions of Subsections (a) and (b) above, no such Registration Statement or opinion of counsel shall be required for: any transfer of any Securities by an Investor (i) pursuant to a transaction exempt from the registration requirements of the Securities Act, (ii) to any affiliate of such Investor, to a family member of such Investor, or to any trust, partnership, limited liability company or custodianship established for estate-planning purposes for the primary benefit of such Investor or his or her family members or (iii) if the Securities have been held for the appropriate amount of time for the Securities to be permitted to be resold under Rule 144 and the selling Investor is not an affiliate or otherwise subject to the volume limitations in Rule 144; provided that in each of the foregoing cases the transferee shall, prior to giving effect to such transfer, agree in writing to be subject to the terms of this Section to the same extent as if the transferee were an original Investor under this Agreement.

 

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

 

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

 

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

 

Common Stock and Warrant Purchase Agreement; 12-2016

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

 

Section 4.         CONDITIONS .

 

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

 

(a)                    The representations and warranties in Section 2 shall be true, accurate and complete at and as of the Closing in all material respects (except with respect to any provisions including the word “material” or words of similar import with respect to which such representations shall be true, accurate and complete) with the same effect as though such representations and warranties had been made on and as of the date of the Closing.

 

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

 

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

 

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

 

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

 

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

 

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

 

Common Stock and Warrant Purchase Agreement; 12-2016

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

 

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

 

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

 

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

 

Section 5.         POST-CLOSING COVENANTS.

 

5.1   Registration Rights . If the Company proposes to register any of its Common Stock under the Securities Act in connection with the public offering of such securities for cash within the twelve (12) month period immediately following the Initial Closing Date, the Company shall use commercially reasonable efforts to (i) provide notice of such registration to each Investor and (ii) upon written request of any such Investor within ten (10) days after such notice is given by the Company, include the Issuable Shares then beneficially held by such Investor in such registration. 

 

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

 

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

 

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

 

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

 

Section 6.         GENERAL PROVISIONS .

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6.8   Attorneys’ Fees and Expenses . Each party to this Agreement agrees to pay its own fees and expenses arising in connection with the negotiation and execution of this Agreement and consummation of the transactions contemplated in this Agreement. If any action, suit, or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated under this Agreement, the prevailing party shall recover all of such party’s costs and attorneys’ fees incurred in each such action, suit, or other proceeding, including any and all appeals or petitions from such action, suit or other proceeding.

 

6.9   Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors holding a majority of the then-outstanding Shares issued pursuant to this Agreement. Any amendment or waiver effected in accordance with this Section shall be binding upon each Investor and the Company.

 

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

 

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

 

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

 

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

 

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

 

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

  

 

[Signature Pages Follow]

 

Common Stock and Warrant Purchase Agreement; 12-2016

10

 

 

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

 

  AUDIOEYE, INC.
   
   
  By:    
  Name:    
  Title:  

 

 

Signature Page to AudioEye, Inc.
Common Stock and Warrant Purchase Agreement

Stock and Warrant Purchase Agreement; 12-2016

 

 

 

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

 

  INVESTOR
   
   
  If Entity:
     
  Entity Name:    
     
     
  By:    
     
  Name:    
     
  Title:    
     
     
  If Individual:
     
  Name:   
     
  Signature:    
     
     
Purchase Amount: $       

 

 

Signature Page to AudioEye, Inc.
Common Stock and Warrant Purchase Agreement

Stock and Warrant Purchase Agreement; 12-2016

 

 

EXHIBIT A

 

 

SCHEDULE OF INVESTORS

 

Initial Closing

 

INVESTORS SHARES OF COMMON STOCK WARRANT SHARES PURCHASE PRICE
       
Total :      

 

 

 

Stock and Warrant Purchase Agreement; 12-2016

 

 

EXHIBIT B

 

 

FORM OF WARRANT

 

 

 

Stock and Warrant Purchase Agreement; 12-2016

 

 

Exhibit 99.1

AudioEye, Inc. Completes $550,000 Equity Financing

TUCSON, Ariz., Dec. 22, 2016 /PRNewswire/ -- AudioEye, Inc. (OTCQB: AEYE) ("AudioEye" or the "Company") today announced that it has completed a $550,000 equity raise through the private sale and issuance of Common Stock and Warrants to accredited investors. While significant investment came from outside investors, participants in the financing included Dr. Carr Bettis, Executive Chairman of AudioEye, and Board Member E.W. (Sandy) Purcell.

"We appreciate the support of the new investors enabling us to add strength to our balance sheet as we plan to ramp up marketing and sales efforts in early 2017," stated Carr Bettis.

The Common Stock was issued at $0.14 per share and each investor received twenty percent (20%) warrant coverage. The Warrants are exercisable for an aggregate of 440,000 shares of Common Stock at $0.25 per share and expire on the fifth anniversary of the date of issuance. The Warrants are subject to anti-dilution protection, subject to certain customary exceptions.

About AudioEye, Inc.

Incorporated in 2005, AudioEye provides enhanced web access and usability for its clients' customers through AudioEye's Ally platform. The Ally product allows AudioEye's clients to reach more customers , build more brand loyalty , retain more customers and secure more repeat business .

AudioEye's common stock trades on the OTCQB under the symbol "AEYE." The Company maintains offices in Tucson and Atlanta.

Forward-Looking Statements

Any statements in this press release about AudioEye's expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are "forward-looking statements" as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as "believe", "anticipate", "should", "intend", "plan", "will", "expects", "estimates", "projects", "positioned", "strategy", "outlook" and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that AudioEye is not able to predict accurately or over which AudioEye has no control. Other risks are described more fully in AudioEye's filings with the Securities and Exchange Commission. Forward-looking statements reflect management's analysis as of the date of this press release and AudioEye urges you not to place undue reliance on these forward-looking statements. AudioEye does not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.

For further information, please contact:

Matt Kreps
Darrow & Associates
(214) 597-8200
mkreps@darrowir.com

or

David Kovacs
Strategic Consultant
AudioEye, Inc.
(520) 308-6143