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Item 1.01.
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Entry into a Definitive Material Agreement
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Warrant Repricing
Transactions
On August 14, 2019
(the “Effective Date”), AudioEye, Inc. (the “Company”) entered into an Omnibus Amendment to Common Stock
Warrants (the “2015 PA Warrant Amendment”), which amended warrants to purchase up to a total of 1,194,990 shares of
the Company’s Common Stock, par value $0.00001 per share (“Common Stock”), previously issued under a Note and
Warrant Purchase Agreement dated as of October 9, 2015 by and among the Company and certain investors, as amended by a First Amendment
to Note and Warrant Purchase Agreement dated as of April 18, 2016 and a Second Amendment to Note and Warrant Purchase Agreement
dated as of October 11, 2017 (the “2015 PA Warrants”). The 2015 PA Warrant Amendment amended the 2015 PA Warrants such
that they are exercisable at a discounted exercise price of $1.63 per share if exercised in full for a cash purchase price on or
prior to August 16, 2019, or $2.50 per share if exercised during the remainder of their terms.
On the same date, the
Company entered into an Omnibus Amendment to Common Stock Warrants (the “2018 PA Warrant Amendment” and, together with
the 2015 PA Warrant Amendment, the “Warrant Amendments”), which amended warrants to purchase up to a total of 85,719
shares of Common Stock previously issued under an Amended and Restated Common Stock and Warrant Purchase Agreement dated as of
August 23, 2018 by and among the Company and certain investors (the “2018 PA Warrants”). The 2018 PA Warrant Amendment
amended the 2018 PA Warrants such that they are exercisable at a discounted exercise price of $4.07 per share if exercised in full
for a cash purchase price on or prior to August 16, 2019, or $6.25 per share if exercised during the remainder of their terms.
As a result of the
Warrant Amendments, up to 1,280,709 shares of Common Stock may be issued at the discounted exercise prices, for an aggregate cash
purchase price of up to approximately $2.3 million. As of the time of the filing of this Form 8-K, warrants were exercised at
the discounted exercise prices to purchase a total of 1,212,136 shares of Common Stock, for an aggregate cash purchase price of
approximately $2.1 million.
The foregoing description
of the Warrant Amendments is qualified in its entirety by the text of the Warrant Amendments, the form of which is filed as Exhibit
10.1 hereto and incorporated herein by reference.
Letter Agreement
On August 14, 2019,
in consideration of the Warrant Amendments and the agreed exercise thereof by Sero Capital LLC, a Delaware limited liability company
and significant stockholder of the Company (the “Stockholder”), and in consideration of the Stockholder’s stock
ownership in the Company, the Company entered into a letter agreement with the Stockholder dated as of August 14, 2019 (the “Letter
Agreement”). Pursuant to the Letter Agreement, the Company agreed, upon the request of the Stockholder, to increase the size
of the Company’s Board of Directors (the “Board”) and to appoint to the Board two individuals designated by the
Stockholder for so long as the Stockholder and its affiliates collectively own at least 30% of the voting power of the Company.
The number of designated directors will be reduced to one at such time as the Stockholder and its affiliates collectively own less
than 30% of such voting power and, at such time as such ownership falls below 5%, the Stockholder will cease to have the right
to designate a director. The Company’s obligations under the Letter Agreement are subject to compliance with the Company’s
governing documents and policies, as well as all applicable laws, rules and regulations.
The foregoing description
of the Letter Agreement is qualified in its entirety by the text of the Letter Agreement, a copy of which is filed as Exhibit 10.2
hereto and incorporated herein by reference.
Loan Agreement
On August 14, 2019,
the Company entered into a Loan Agreement dated as of August 14, 2019 (the “Loan Agreement”) with Sero Capital LLC,
a Delaware limited liability company and significant stockholder of the Company (the “Lender”). The Loan Agreement
provides the Company with an unsecured credit facility pursuant to which the Company may, from time to time during the term of
the Loan Agreement and subject to the terms and conditions thereof, borrow up to the aggregate principal amount of $2,000,000.
Any advances under the Loan Agreement will bear interest at a per annum rate of 10% (subject to increase in the event of a default),
which will be payable monthly (subject to certain exceptions) and may, at the Company’s option, be paid either in cash or
by the issuance to the Lender of shares of Common Stock. The term of the Loan Agreement extends through August 14, 2020, subject
to earlier termination as provided in the Loan Agreement. The Company’s obligations under the Loan Agreement are subject
to acceleration upon the occurrence of an event of default (as defined in the Loan Agreement). The Company may prepay its obligations
under the Loan Agreement without penalty, but subject to certain limitations regarding the number, timing and dollar amounts of
prepayments. The Loan Agreement provides for certain customary covenants, representations and events of default.
As described in Item
3.02 of this Current Report on Form 8-K (this “Form 8-K”), the Company issued certain Common Stock Warrants
to the Lender in connection with the Loan Agreement.
The foregoing description
of the Loan Agreement is qualified in its entirety by the text of the Loan Agreement, a copy of which is filed as Exhibit 10.3
hereto and incorporated herein by reference.