Document:

Exhibit
10.54

 

REGISTRATION
RIGHTS AGREEMENT

 

This
Registration Rights Agreement (the “Agreement”) is made and entered into as of this _____ day of ____________, 2020
(the “Closing Date”) by and among Hancock Jaffe Laboratories, Inc., a Delaware corporation (the “Company”),
the “Buyers” named in that certain Securities Purchase Agreement by and among the Company and the Buyers (the “Purchase
Agreement”) and Ladenburg Thalmann & Co. Inc. (“Ladenburg” or the “Placement Agent”). Capitalized
terms used herein have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein.

 

The
parties hereby agree as follows:

 

1.
Certain Definitions. As used in this Agreement, the following terms shall have the following meanings:

 

a.
“Common Stock” means the common stock, $0.00001 par value, of the Company.

 

b.
“Holders” means the Buyers.

 

c.
“Buyers” means the Buyer identified in the Purchase Agreement and any Affiliate or permitted transferee of any Buyer
who is a subsequent holder of any Registrable Securities.

 

d.
“Prospectus” means (i) any prospectus (preliminary or final) included in any Registration Statement, as amended or
supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus, and (ii) any “issuer free writing prospectus”
as defined in Rule 433 under the 1933 Act.

 

e.
“Register,” “registered” and “registration” refer to a registration made by preparing and
filing a Registration Statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or
ordering of effectiveness of such Registration Statement or document.

 

f.
“Registrable Securities” means (i) the shares of Common Stock that are issuable upon the conversion of the Preferred
Stock issued pursuant to the Purchase Agreement and upon exercise of the Warrants and (ii) any other securities issued or issuable
with respect to or in exchange for such shares, whether by merger, charter amendment, or otherwise; provided, that, (1) in no
event will any share of Common Stock acquired upon conversion of such Preferred Stock or exercise of the Warrants prior to the
effectiveness of the Initial Registration Statement be deemed a Registrable Security and (2) a security shall cease to be a Registrable
Security upon (A) sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible
for sale without restriction by a Holder pursuant to Rule 144.

 

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g.
“Registration Statement” means any registration statement, including the Initial Registration Statement unless expressly
stated otherwise, of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities pursuant
to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration Statement.

 

h.
“Required Holders” means the Holders beneficially owning a majority of the then Registrable Securities.

 

i.
“SEC” means the U.S. Securities and Exchange Commission.

 

j.
“1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

k.
“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

2.
Registration.

 

a.
Registration Statements.

 

i.
On the 30th calendar day following the date effective date of a Capital Event, the Company shall prepare and file with
the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration
statement as is then available to effect a registration for resale of the Registrable Securities) (the “Initial Registration
Statement”), covering the resale of the Registrable Securities.

 

ii.
Subject to any SEC comments, any such Registration Statement shall include the plan of distribution attached hereto as Exhibit
A; provided, however, that no Holder shall be named as an “underwriter” in the Registration Statement without the
Holder’s prior written consent, provided, further, any Holder who unreasonably refuses to be named as an underwriter in
the Registration Statement shall be excluded as a selling shareholder from the Registration Statement. Such Registration Statement
also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate
number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect
to the Registrable Securities. Such Registration Statement shall not include any shares of Common Stock or other securities of
the Company for the account of any other person without the prior written consent of the Required Holders. The Registration Statement
(and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided by the
Placement Agent to the Holders in accordance with Section 3(c) prior to its filing or other submission. If the Initial Registration
Statement is not filed with the SEC within thirty (30) calendar days after the effective date of a Capital Event, beginning on
the thirty first (31st) calendar day after the effective date of the Capital Event, the Company will make pro rata
payments to each Holder, as liquidated damages and not as a penalty, in an amount equal to 1.0% of the aggregate amount invested
by the Holder pursuant to the Purchase Agreement for each 30-day period or pro rata for any portion thereof following such date
for which the Initial Registration Statement is not filed. Such payments shall constitute the Holders’ exclusive monetary
remedy for such events, but shall not affect the right of the Holders to seek injunctive relief. Such payments shall be made to
each Holder in cash no later than three (3) Business Days after the end of each 30-day period.

 

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b.
Expenses. The Company will pay all expenses associated with effecting the registration of the Registrable Securities, including
filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable
Securities for sale under applicable state securities laws, listing fees and the Holders’ other reasonable expenses in connection
with the registration, but excluding discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals with respect to the Registrable Securities being sold and excluding the fees and disbursements
of counsel to any Holder.

 

c.
Effectiveness.

 

i.
The Company shall use commercially reasonable efforts to have any Registration Statement declared effective as soon as practicable.
The Company shall notify the Holders by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24)
hours, after any Registration Statement is declared effective and shall simultaneously provide the Holders with copies of any
related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby.

 

ii.
For not more than forty (40) consecutive days or for a total of not more than sixty (60) days in any twelve (12) month period,
the Company may suspend the use of any Prospectus included in any Registration Statement contemplated by this Section in the event
that the Company determines in good faith that such suspension is necessary to (A) delay the disclosure of material non-public
information concerning the Company, the disclosure of which at the time is not, in the good faith opinion of the Company, in the
best interests of the Company or (B) amend or supplement the affected Registration Statement or the related Prospectus so that
such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the
circumstances under which they were made, not misleading (an “Allowed Delay”); provided, that the Company shall promptly
(a) notify each Holder in writing of the commencement of an Allowed Delay, but shall not (without the prior written consent of
an Holder) disclose to such Holder any material non-public information giving rise to an Allowed Delay, (b) advise the Holders
in writing to cease all sales under the Registration Statement until the end of the Allowed Delay, and (c) use commercially reasonable
efforts to terminate an Allowed Delay as promptly as practicable.

 

d.
Rule 415. Cutback If at any time the SEC takes the position that the offering of some or all of the Registrable Securities in
a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under
the 1933 Act or requires any Holder to be named as an “underwriter”, the Company shall use its commercial best
efforts to persuade the SEC that the offering contemplated by a Registration Statement is a bona fide secondary offering and
not an offering “by or on behalf of the issuer” as defined in Rule 415 and that none of the Holders is an
“underwriter”. In the event that, despite the Company’s commercial best efforts and compliance with the
terms of this Section 2(d), the SEC refuses to alter its position, the Company shall (i) remove from the Registration
Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such
restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure
the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”). Any cut-
back imposed pursuant to this Section 2(d) shall be allocated among the Holders on a pro rata basis, unless the SEC
Restrictions otherwise require or provide or the Holders otherwise agree. Any cut- back imposed pursuant to a SEC comment
shall be applied, first to securities of the Company that are registered pursuant to an agreement subsequent to the date of
this Agreement and, second to the Registrable Securities on a pro rata basis taken together. For the avoidance of doubt, no
liquidated damages shall accrue as to any Cut Back Shares.

 

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e.
Right to Piggyback Registration.

 

i.
If at any time following the date of this Agreement and the effective date of a Capital Event any Registrable Securities remain
outstanding and are not freely tradable under Rule 144 and (A) there is not one or more effective Registration Statements covering
all of the Registrable Securities and (B) the Company proposes for any reason to register any shares of Common Stock under the
1933 Act (other than pursuant to a registration statement on Form S-4 or Form S-8 (or a similar or successor form) or a shelf
registration statement on Form S-3) with respect to an offering of Common Stock by the Company for its own account or for the
account of any of its stockholders, it shall at each such time promptly give written notice to the holders of the Registrable
Securities of its intention to do so (but in no event less than thirty (30) days before the anticipated filing date) and, to the
extent permitted under the provisions of Rule 415 under the 1933 Act and by Law, include in such registration all Registrable
Securities with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after
receipt of the Company’s notice (a “Piggyback Registration”).

 

ii.
Notwithstanding the foregoing, (A) if such registration involves an underwritten public offering, the Holders must sell their
Registrable Securities to, if applicable, the underwriter(s) at the same price and subject to the same underwriting discounts
and commissions that apply to the other securities sold in such offering (it being acknowledged that the Company shall be responsible
for other expenses as set forth in Section 2(b) and subject to the Holders entering into customary underwriting documentation
for selling stockholders in an underwritten public offering, and (B) if, at any time after giving written notice of its intention
to register any Registrable Securities pursuant to Section 2(e)(i) and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any reason not to cause such registration statement
to become effective under the 1933 Act, the Company shall deliver written notice to the Holders and, thereupon, shall be relieved
of its obligation to register any Registrable Securities in connection with such registration; provided, however, that nothing
contained in this Section 2(e)(ii) shall limit the Company’s liabilities and/or obligations under this Agreement, including,
without limitation, the obligation to pay liquidated damages under this Section 2.

 

3.
Company Obligations. The Company will use commercially reasonable efforts to effect the registration of the Registrable Securities
in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible:

 

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a.
use commercially reasonable efforts to cause such Registration Statement to become effective and to remain continuously effective
for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Registration
Statement as amended from time to time, have been sold, or (ii) the date on which all Registrable Securities covered by such Registration
Statement may be sold without restriction pursuant to Rule 144 (the “Effectiveness Period”) and advise a Holder in
writing when the Effectiveness Period has expired as to their respective Registrable Securities;

 

b.
prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep the Registration Statement effective for the Effectiveness Period and to comply with the provisions of
the 1933 Act and the 1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

 

c.
provide copies to the Placement Agent for distribution to the Holders to review each Registration Statement and all amendments
and supplements thereto no fewer than three (3) days prior to their filing with the SEC and not file any document to which a Holder
reasonably objects;

 

d.
use commercially reasonable efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness and, (ii)
if such order is issued, obtain the withdrawal of any such order at the earliest possible moment;

 

e.
prior to any public offering of Registrable Securities, if the Common Stock is not traded on a national securities exchange (as
defined by the SEC) use commercially reasonable efforts to register or qualify or cooperate with the Holders in connection with
the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such
U.S. jurisdictions requested by the Holders and do any and all other commercially reasonable acts or things necessary or advisable
to enable the distribution in such U.S. jurisdictions of the Registrable Securities covered by the Registration Statement; provided,
however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business
in any U.S. jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (ii) subject itself to
general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(e), or (iii) file a general
consent to service of process in any such jurisdiction;

 

f.
use commercially reasonable efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each
securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed;

 

g.
immediately notify the Holders, at any time prior to the end of the Effectiveness Period, upon discovery that, or upon the happening
of any event as a result of which, the Prospectus includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then
existing, and promptly prepare, file with the SEC and furnish to such holder a supplement to or an amendment of such Prospectus
as may be necessary so that such Prospectus shall not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then
existing;

 

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h.
otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act
and the 1934 Act, including, without limitation, Rule 172 under the 1933 Act, file any final Prospectus, including any supplement
or amendment thereof, with the SEC pursuant to Rule 424 under the 1933 Act, promptly inform the Holders in writing if, at any
time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof,
the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other
actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make available
to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings
statement covering a period of at least twelve (12) months, beginning after the effective date of each Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder
(for the purpose of this subsection 3(h), “Availability Date” means the 45th day following the end of the fourth fiscal
quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last
quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal
quarter); and

 

i.
With a view to making available to the Holders the benefits of Rule 144 (or its successor rule) and any other rule or regulation
of the SEC that may at any time permit the Holders to sell shares of Common Stock to the public without registration, the Company
covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144,
until such date as all of the Registrable Securities shall have been resold pursuant to a Registration Statement, Rule 144 or
otherwise in a transaction in which the transferee receives freely tradable shares; (ii) file with the SEC in a timely manner
all reports and other documents required of the Company under the 1934 Act; and (iii) furnish to each Holder upon request, as
long as such Holder owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting
requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, and (C) such other information as may be reasonably requested in order to avail the Holder of any rule or regulation
of the SEC that permits the selling of any such Registrable Securities without registration. In the event that the Company fails
to comply with the requirements of this Section 3(i) after the 90th day after the Closing Date, the Company will make pro rata
payments to each Holder, as liquidated damages and not as a penalty, in an amount equal to 1.0% of the aggregate amount invested
by the Holder pursuant to the Purchase Agreement for each 30-day period or pro rata for any portion thereof until such failure
is cured; provided, however, that such liquidated damages shall be payable only to a Holder only to the extent the Holder continues
to hold Registrable Securities prior to such failure. Such payments shall constitute the Holders’ exclusive monetary remedy
for such events, but shall not affect the right of the Holders to seek injunctive relief. Such payments shall be made to each
Holder in cash no later than three (3) Business Days after the end of each 30-day period.

 

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4.
Obligations of the Holders.

 

a.
Each Holder shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it,
and the intended method of disposition of the Registrable Securities held by it if substantially different from Exhibit A, as
shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5) Business Days prior to the first anticipated filing
date of any Registration Statement, the Company shall notify each Holder of the information the Company requires from the Holder
if it elects to have any of its Registrable Securities included in the Registration Statement which such notice may be provided
through Ladenburg as Placement Agent. A Holder shall provide the information to the Company at least two (2) Business Days prior
to the first anticipated filing date of such Registration Statement if the Holder elects to have any of the Registrable Securities
included in the Registration Statement. In the event that a Holder does not provide such information on a timely basis, the Company
shall provide prompt written notice to the Holder that the Registrable Securities attributable to that Holder will be excluded
from the Registration Statement unless the Holder provides the required information within one (1) Business Day after its receipt
of such notice. If the Holder does not provide the required information to the Company by the end of the next Business Day after
its receipt of such notice, the Company shall have the right to exclude the Registrable Securities attributable to that Holder
from the Registration Statement and the Holder shall not be entitled to receive any liquidated damages pursuant to the provisions
of this Agreement with respect to such Registration Statement. Notwithstanding anything in this Agreement to the contrary, any
Holder that elects not to have any of its Registrable Securities included in the Registration Statement, shall not be entitled
to receive any liquidated damages pursuant to the provisions of this Agreement with respect to such Registration Statement.

 

b.
Each Holder, by its acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of a Registration Statement hereunder, unless the Holder has notified the
Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

 

c.
Each Holder agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant
to Section 2(c)(ii) or (ii) the happening of an event pursuant to Section 3(h) hereof the Holder will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities, until the Holder
is advised by the Company that such dispositions may again be made.

 

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5.
Indemnification.

 

a.
Indemnification by the Company. The Company will indemnify and hold harmless each Holder, including without limitation Ladenburg
and its respective officers, directors, members, managers, partners, trustees, employees and agents and other representatives,
successors and assigns, and each other person, if any, who controls such Holder within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement or omission or alleged omission of any material fact contained in any Registration Statement,
any Prospectus, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document
or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state in a Blue
Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv)
any violation by the Company or its agents of any rule or regulation promulgated under the 1933 Act applicable to the Company
or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure
to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or
its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification
on a Holder’s behalf and will reimburse such Holder, and each such officer, director, shareholder or member and each such
controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided , however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information furnished by the Holder or any such controlling
person in writing specifically for use in such Registration Statement or Prospectus.

 

b.
Indemnification by the Holders. Each Holder agrees, severally but not jointly, to indemnify and hold harmless, to the fullest
extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company
(within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney
fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration
Statement or Prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the
extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by
the Holder to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto.
In no event shall the liability of a Holder be greater in amount than the dollar amount of the proceeds (net of all expenses paid
by the Holder in connection with any claim relating to this Section 5 and the amount of any damages the Holder has otherwise been
required to pay by reason of such untrue statement or omission) received by the Holder upon the sale of the Registrable Securities
included in the Registration Statement giving rise to such indemnification obligation.

 

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c.
Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification
hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses
of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses,
or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory
to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest
exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the
failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the
defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding
in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such
indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect of such claim or litigation. The indemnifying party shall not
be liable hereunder for any settlements entered into by an indemnified party without the indemnifying party’s prior written
consent, which shall not be unreasonably withheld, conditioned or delayed.

 

d.
Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f)
of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event
shall the contribution obligation of a holder of Registrable Securities be greater in an amount than the dollar amount of the
proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 5 and the amount of any
damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

 

6.
Miscellaneous.

 

a.
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 Required Holders.

 

b.
Notices. All notices and other communications provided for or permitted hereunder shall be made as set forth in Section 13.1 of
the Purchase Agreement.

 

c.
Maximum Liquidated Damages. The maximum amount of liquidated damages due to a Holder will be 20% of the aggregate amount invested
by the Holder pursuant to the Purchase Agreement.

 

d.
Assignments and Transfers by Holders. The provisions of this Agreement shall be binding upon and inure to the benefit of the Holders
and their respective successors and assigns. A Holder may transfer or assign, in whole or from time to time in part, to one or
more persons its rights hereunder in connection with the transfer of Registrable Securities by the Holder to such person, provided
that the Holder complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after
such assignment is effected.

 

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e.
Assignments and Transfers by the Company. This Agreement may not be assigned by the Company (whether by operation of law or otherwise)
without the prior written consent of the Required Holders; provided, however, that in the event that the Company is a party to
a merger, consolidation, share exchange or similar business combination transaction in which the Common Stock is converted into
the equity securities of another Person, from and after the effective time of such transaction, such Person shall, by virtue of
such transaction, be deemed to have assumed the obligations of the Company hereunder. The term “Company” shall be
deemed to refer to such Person and the term “Registrable Securities” shall be deemed to include the securities received
by the Holders in connection with such transaction unless such securities are otherwise freely tradable by the Holders after giving
effect to such transaction.

 

f.
Benefits of the Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

g.
Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. This Agreement may be delivered via facsimile or other form
of electronic communication, which shall be deemed an original.

 

h.
Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.

 

i.
Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but
shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions
hereof prohibited or unenforceable in any respect.

 

j.
Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions
as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements
herein contained.

 

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k.
Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein.
This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

 

l.
Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by,
the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than
the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability
of any other provision of this Agreement. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing
suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations
to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court
ruling in favor of the Holder. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT
OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

[Signature
Page Follows]

 

    	11

     

    

 

IN
WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as
of the date first above written.

 

	The
    Company:	 
	HANCOCK
    JAFFE LABORATORIES, INC.	 
	 	 
	By:	                    	 
	Name:	 	 
	Title:	 	 
	 	 	 
	Ladenburg
    Thalmann & Co. Inc.	 
	 	 
	By:	 	 
	Name:	 	 
	Title:	 	 

 

[Holder
Signature Page Follows]

 

    	12

     

    

 

IN
WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as
of the date first above written.

 

	IF
    HOLDER IS AN INDIVIDUAL,	 
	 	 
	 	 
	(Name
    of Holder)	 
	 	 
	 	 
	(Signature
    of Holder)	 

 

	IF HOLDER IS AN ENTITY,	 
	 	 
	 	 
	(Name of Entity)	 
	 	 	 
	By:	      	 
	Name:	 	 
	Title:	 	 

 

    	13

     

    

 

Plan
of Distribution

 

Exhibit
A

 

The
selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares
of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as
a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any
or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.

 

The
selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

 

–
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

–
block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;

 

–
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

–
an exchange distribution in accordance with the rules of the applicable exchange;

 

–
privately negotiated transactions;

 

–
short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the
SEC;

 

–
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

–
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

 

–
a combination of any such methods of sale; and

 

–
any other method permitted by applicable law.

 

The
selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock
owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer
and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer
the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will
be the selling beneficial owners for purposes of this prospectus.

 

    	14

     

    

 

In
connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course
of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these
securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

 

The
aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of
the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering.

 

The
selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under
the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.

 

The
selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests
therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions,
concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities
Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act.

 

To
the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase
prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

 

In
order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has
been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied
with.

 

We
have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales
of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, to the extent applicable
we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders
for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify
any broker- dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities
arising under the Securities Act.

 

We
have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state
securities laws, relating to the registration of the shares offered by this prospectus.

 

We
have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective
until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance
with the registration statement or (2) the date on which all of the shares may be sold without restriction pursuant to Rule 144
of the Securities Act.

 

    	15ex_193749.htm

Exhibit 10.2

 

 

“Group B”

 

CHANGE IN CONTROL SEVERANCE AGREEMENT

 

THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the “Agreement”) is made and entered into this 27th day of May 2020, between INSTEEL INDUSTRIES INC. a North Carolina corporation (the “Company”) and Mark A Carano (the “Executive”). Certain capitalized terms used in this Agreement are defined in Section 6.

 

R E C I T A L S

 

The Company acknowledges that Executive is expected to make significant contributions to the growth and success of the Company. The Company also acknowledges that there exists the possibility of a Change in Control of the Company. The Company recognizes that the possibility of a Change in Control may contribute to uncertainty on the part of senior management and may result in the departure or distraction of senior management from their operating responsibilities.

 

Strong and competent management of the Company is essential to advancing the best interests of the Company and its partners and its shareholders. In the event of a threat or occurrence of a bid to acquire or change control of the Company or to effect a business combination, it is particularly important that the business of the Company be continued with a minimum of disruption. The Company believes that the objective of securing and retaining strong management will be achieved if the Company’s key management employees are given assurances of employment security so that they will not be distracted by personal uncertainties and risks created by such circumstances.

 

NOW, THEREFORE, in consideration of the mutual covenants and obligations herein the Company and Executive agree as follows:

 

1.           Effective Date. The Effective Date of this Agreement is May 27, 2020.

 

2.           Term of Agreement. The Term of this Agreement begins on the Effective Date and ends on the day before the second anniversary of the Effective Date. Notwithstanding the preceding sentence, the Term of this Agreement shall be extended for an additional twelve month period, as of each anniversary of the Effective Date, unless either party gives written notice, at least ninety days prior to the applicable anniversary of the Effective Date, that the Term of this Agreement will not be extended.

 

3.           Right to Receive Termination Benefits. Executive shall be entitled to receive the Termination Benefits described in Section 4 if (i) a Change in Control occurs during the Term of this Agreement and (ii) within two years after the Control Change Date either (x) the Company terminates Executive’s employment with the Company without Cause or (y) Executive resigns from the employment of the Company and Executive has Good Reason to resign from the Company, and either (x) or (y), as applicable, constitutes a Separation from Service with the Company.

 

 

 

 

 

No amounts will be payable under this Agreement unless Executive’s employment with the Company terminates or is terminated as described in the foregoing subsection.

 

4.           Termination Benefits. Upon a termination of Executive’s employment in accordance with Section 3, Executive shall be entitled to receive the following payments and benefits (“Termination Benefits”):

 

(a)     A lump sum payment of any accrued but unpaid salary from the Company through the date Executive’s employment terminates.

 

(b)     A lump sum payment of any bonus that has been earned from the Company but which remains unpaid as of Executive’s termination of employment.

 

(c)     A lump sum reimbursement for any expenses Executive incurred on behalf of the Company prior to termination of employment to the extent that such expenses are reimbursable under the Company’s standard reimbursement policies but have not been reimbursed as of Executive’s termination of employment.

 

(d)     Continued payment of Executive’s base salary, for one year following Executive’s termination, at the rate in effect on the date of Executive’s termination of employment or, if greater, at the rate in effect on the Control Change Date. Except as provided in Section 19, such payments shall be made in accordance with the Company’s normal payroll practices beginning with the first payroll payment date following the Executive’s termination of employment.

 

(e)     A lump sum payment equal to one times the average bonus paid to the Executive for the three -year period prior to the Executive’s termination of employment; provided, however, that if the Executive has not been employed for a full three years at the time of his termination of employment, Executive shall receive, in lieu of the foregoing amount, a lump sum payment equal to his annual base salary at the rate in effect on the date of Executive’s termination of employment or, if greater, at the rate in effect on the Control Change Date, multiplied by the average bonus percentage for the immediately preceding three years for the executive management group of the Company (not including the Executive).

 

(f)     Reasonable outplacement services provided by the firm selected by Executive, the cost of which will be paid by the Company; provided, however, that the Company’s obligation under this subsection (f) will not exceed $15,000.

 

2

 

 

(g)     Continued participation in the “employee welfare benefit plans” (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) in which Executive participates immediately prior to Executive’s date of termination, on such terms as are then in effect, for one year following the termination of Executive’s employment with the Company and payment by the Company of the cost or premium for continued coverage in the Company health plan for a period of one year following Executive’s termination of employment. In the event that the continued coverage of Executive in any such employee welfare benefit plan, including without limitation the Company health plan, is barred by its terms, the Company shall pay Executive, for one year following Executive’s termination of employment, the cash equivalent of the portion of the insurance premium or other cost charged to the Company for Executive’s participation in such employee welfare benefit plan(s), including the entire insurance premium or other cost for coverage in the Company health plan, prior to Executive’s termination of employment, plus an additional amount such that, after payment of the income and employment tax liability on such payment, Executive retains an amount equal to the portion of the insurance premium or other cost charged to the Company for Executive’s participation in such employee welfare benefit plans, including the entire insurance premium or other cost for coverage in the Company health plan, prior to Executive’s termination of employment. Except as provided in Section 19, such cash payments, in lieu of coverage, shall be made in accordance with the Company’s normal payroll practices during such one-year period beginning with the first payroll payment date following the Executive’s termination of employment.

 

(h)     All stock options and any other stock-based awards outstanding immediately prior to Executive’s termination of employment shall immediately vest and become exercisable by Executive for the remainder of the term provided for in the agreement evidencing the stock option or award in which such options or other stock-based awards were granted.

 

(i)     Except as provided in Section 19, lump sum Termination Benefits shall be payable within 45 days of Executive’s termination of employment in accordance with Section 3 and the other Termination Benefits shall be payable as described above. The payment of the Termination Benefits shall be reduced by amounts required to be withheld for applicable income and employment taxes.

 

5.           Limitation on Parachute Payments. The Termination Benefits and other payments, distributions and benefits provided by the Company for Executive’s benefit pursuant to this Agreement and under other plans, programs, and agreements may constitute Parachute Payments (as defined in Section 280G(b) of the Internal Revenue Code of 1986 (the “Code”) that are subject to the “golden parachute” rules of Code section 280G and the excise tax of Code section 4999. The Company and Executive intend to reduce any Parachute Payments (but not any payment, distribution or other benefit that is not a Parachute Payment) if, and only to the extent that, a reduction will allow Executive to receive a greater Net After Tax Amount than he would receive absent a reduction. The remaining provisions of this Section describe how that intent will be effectuated.

 

(a)     The Company will first determine the amount of any Parachute Payments that are payable to Executive. The Company will also determine the Net After Tax Amount attributable to total Parachute Payments.

 

(b)     The Company will next determine the amount of Executive’s Capped Parachute Payments. Thereafter, the Company will determine the Net After Tax Amount attributable to Executive’s Capped Parachute Payments.

 

3

 

 

(c)     Executive shall receive the total Parachute Payments unless the Company determines that the Capped Parachute Payments will yield Executive a higher Net After Tax Amount, in which case Executive will receive the Capped Parachute Payments. If Executive will receive the Capped Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount payable under any other plan, program, or agreement that, by its terms, requires a reduction to prevent a “golden parachute” payment under Code section 280G; by next reducing Executive’s benefit, if any, under this Agreement, to the extent it is a Parachute Payment; and thereafter by reducing Parachute Payments payable under other plans and agreements (with the reductions first coming from cash benefits and then from noncash benefits). The Company will notify Executive if it determines that the Parachute Payments must be reduced to the Capped Parachute Payments and will send Executive a copy of its detailed calculations supporting that determination. The Company will pay Executive the Termination Benefits or the reduced Termination Benefits determined in this Section 5 as described in Sections 4 and 19.

 

6.           Certain Definitions. As used in this Agreement, certain terms have the definitions set forth below.

 

(a)     Acquiring Person means that a Person, considered alone or together with all Control Affiliates and Associates of that Person, is or becomes directly or indirectly the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities representing at least twenty five percent (25%) of the Company’s then outstanding securities entitled to vote generally in the election of the Board.

 

(b)     Associate, with respect to any Person, is defined in Rule 12b-2 under the Exchange Act; provided, however, that an Associate shall not include the Company or a majority-owned affiliate of the Company.

 

(c)     Board means the Board of Directors of the Company.

 

(d)     Capped Parachute Payments means the largest amount of Parachute Payments that may be paid without liability for any excise tax under Code section 4999.

 

(e)     Cause means (i) willful, deliberate and continued failure by Executive (other than for reason of mental or physical illness) to perform his duties as established by the Board, or fraud or dishonesty in connection with such duties, in either case, if such conduct has a materially detrimental effect on the business operations of the Company; (ii) a material breach by Executive of his fiduciary duties of loyalty or care to the Company; (iii) conviction of any crime (or upon entering a plea of guilty or nolo contendere to a charge of any crime) constituting a felony; (iv) misappropriation of the Company’s funds or property; or (v) willful, flagrant, deliberate and repeated infractions of material published policies and regulations of the Company of which Executive has actual knowledge.

 

4

 

 

(f)     Change in Control means (i) a Person is or becomes an Acquiring Person; (ii) holders of the securities of the Company entitled to vote thereon approve any agreement with a Person (or, if such approval is not required by applicable law and is not solicited by the Company, the closing of such an agreement) that involves the transfer of more than fifty percent (50%) of the Company’s and its affiliates’ total assets on a consolidated basis, as reported in the Company’s consolidated financial statements filed with the Securities and Exchange Commission; (iii) holders of the securities of the Company entitled to vote thereon approve a transaction (or, if such approval is not required by applicable law and is not solicited by the Company, the closing of such a transaction) pursuant to which the Company will undergo a merger, consolidation, or statutory share exchange with a company, regardless of whether the Company is intended to be the surviving or resulting entity after the merger, consolidation, or statutory share exchange, other than a transaction that results in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior to the closing of the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the Company’s voting securities carrying the right to vote in elections of persons to the Board, or such securities of such surviving entity, outstanding immediately after the closing of such transaction; (iv) the Continuing Directors cease for any reason to constitute a majority of the Board; (v) holders of the securities of the Company entitled to vote thereon approve a plan of complete liquidation of the Company or an agreement for the sale or liquidation by the Company or its affiliates of substantially all of the assets of the Company and its affiliates (or, if such approval is not required by applicable law and is not solicited by the Company, the commencement of actions constituting such a plan or the closing of such an agreement); or (vi) the Board adopts a resolution to the effect that, in its judgment, as a consequence of any one or more transactions or events or series of transactions or events, a Change in Control of the Company has effectively occurred.

 

(g)     Continuing Director means any member of the Board, while a member of the Board and (i) who was a member of the Board on the Effective Date or (ii) whose nomination for or election to the Board was recommended or approved by a majority of the Continuing Directors.

 

(h)     Control Affiliate, with respect to any Person, means an affiliate as defined in Rule 12b-2 under the Exchange Act.

 

(i)     Control Change Date means the date on which a Change in Control occurs. If a Change in Control occurs on account of a series of transactions or events, the “Control Change Date” is the date of the last of such transactions or events in the series.

 

(j)     Exchange Act means the Securities Exchange Act of 1934, as amended.

 

(k)     Good Reason means Executive’s resignation from the employment of the Company and its affiliates on account of one or more of the following events:

 

(i)     a material diminution by the Board of the duties, functions and responsibilities of Executive as the Vice President and Chief Financial Officer of the Company without his consent;

 

(ii)     the failure of the Company to permit Executive to exercise such responsibilities as are consistent with Executive’s positions or are of a nature as are usually associated with such offices of a corporation engaged in substantially the same business as the Company;

 

5

 

 

(iii)     the Company’s causing Executive to relocate his employment more than fifty (50) miles from Mt. Airy, North Carolina, or his place of primary residence as of the Effective Date of this Agreement, without the consent of Executive;

 

(iv)     the failure of the Company to make a payment to Executive when due or, if later, within 10 days after Executive has made demand for such payment;

 

(v)     the Company’s material reduction of Executive’s (A) annual base salary, as in effect from time to time after the Effective Date; (B) bonus, such that the aggregate threshold, target, or maximum bonus projected for Executive for a fiscal year is lower than the aggregate threshold, target, or maximum bonus, respectively, projected for Executive for the immediately preceding fiscal year; or (C) employee welfare, fringe or pension benefits, other than reductions determined to be necessary to comply with the Employee Retirement Income Security Act of 1974, as amended, or to retain the tax-qualified or tax-favored status of the benefit under the Code, which determination shall be made by the Board in good faith;

 

(vi)     a breach of Section 10 of this Agreement;

 

(vii)     the Company or the Board directs Executive to engage in unlawful or unethical conduct or conduct contrary to the Company’s good business practices.

 

(l)     Net After Tax Amount means the amount of any Parachute Payments or Capped Parachute Payments, as applicable, net of taxes imposed under Code sections 1, 3101(b) and 4999 and any state or local income taxes applicable as in effect on the date of the payment under Section 5 of this Agreement. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Parachute Payments, as applicable, in effect for the year for which the determination is made.

 

(m)     Person means any human being, firm, corporation, partnership, or other entity. “Person” also includes any human being, firm, corporation, partnership, or other entity as defined in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term “Person” does not include the Company, or any Related Entity, and the term Person does not include any employee-benefit plan maintained by the Company or any Related Entity, and any person or entity organized, appointed, or established by the Company or any Related Entity for or pursuant to the terms of any such employee-benefit plan, unless the Board determines that such an employee-benefit plan or such person or entity is a “Person”.

 

(n)     Related Entity means any entity that is part of a controlled group of corporations or is under common control with the Company within the meaning of section 1563(a), 414(b) or 414(c) of the Code.

 

6

 

 

(o)     Separation from Service means the termination of the Executive’s employment with the Company and all Related Entities; provided, however, that the Executive will not be considered as having had a Separation from Service if (i) the Executive continues to provide services to the Company or any Related Entity as an employee at an annual rate that is at least equal to 20 percent of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is at least equal to 20 percent of the average annual remuneration earned during the final three full calendar years of employment (or if less, such lesser period), (ii) the Executive continues to provide services to the Company or any Related Entity in a capacity other than as an employee and such services are provided at an annual rate that is 50 percent or more of the services rendered, on average, during the immediately preceding three full calendar years of employment (or, if employed less than three years, such lesser period) and the annual remuneration for such services is 50 percent or more of the annual remuneration earned during the final three full calendar years of employment (or, if less, such lesser period) or (iii) the Executive is on military leave, sick leave or other bona fide leave of absence (such as temporary employment by the government) so long as the period of such leave does not exceed six months, or if longer, so long as the Executive’s right to reemployment with the Company or any Related Entity is provided either by statute or by contract. If the period of leave exceeds six months and the Executive’s right to reemployment is not provided either by statute or by contract, the Separation from Service will be deemed to occur on the first date immediately following such six-month period. For purposes of this Section 6(o), the annual rate of providing services shall be determined based upon the measurement used to determine the Executive’s base compensation. This definition of Separation from Service is intended to comply with the definition of “separation from service” as used in Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.

 

(p)     Specified Employee generally means an employee who is (i) an officer of the Company or a Related Entity having annual compensation greater than $140,000 (with certain adjustments for inflation after 2006), (ii) a five-percent owner of the Company or a Related Entity or (iii) a one-percent owner of the Company or a Related Entity having annual compensation greater than $150,000. This definition is intended to comply with the “specified employee” rules of Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.

 

7.           Attorneys’ Fees. Executive shall be entitled to reimbursement by the Company for any attorneys’ fees and any other reasonable expenses that Executive incurs in enforcing or protecting his rights under this Agreement. Subject to Section 19, such reimbursement shall be made within thirty days following final resolution of the dispute or occurrence giving rise to such fees and expenses, regardless of whether Executive is deemed the prevailing party in the resolution of the dispute or occurrence.

 

8.           No Assignment. Except as required by applicable law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law and any attempt to effect any such action shall be null, void and of no effect.

 

7

 

 

9.           Governing Law. This Agreement shall be governed by the laws of the State of North Carolina other than its choice of law provisions to the extent that they would require the application of the laws of a State other than the State of North Carolina.

 

10.         Successors. The Company shall require any successor to all or substantially all of the Company’s respective business or assets (whether direct or indirect, by purchase, merger, consolidation or otherwise), to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to resign from the employ of the Company and to receive the Termination Benefits and other benefits under this Agreement in the same amount and on the same terms as Executive would be entitled to hereunder if he terminated his employment for Good Reason following a Change in Control. References in this Agreement to the “Company” include the Company as herein before defined and any successor to the Company’s business, assets or both which assumes and agrees to perform this Agreement by operation of law or otherwise.

 

11.         Binding Agreement. This Agreement shall inure to the benefit of and be enforceable by Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amount remains payable to him hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is none, to Executive’s estate.

 

12.         No Employment Rights. Nothing in this Agreement confers on Executive any right to continuance of employment by the Company or any Related Entity. Nothing in this Agreement interferes with the right of the Company or a Related Entity to terminate Executive’s employment at any time for any reason whatsoever, with or without Cause, subject to the requirements of this Agreement. Nothing in this Agreement restricts the right of Executive to terminate his employment with the Company and Related Entities at any time for any reason whatsoever, with or without Good Reason.

 

13.         Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together constitute one and the same instrument.

 

14.         Entire Agreement. This Agreement expresses the whole and entire agreement between the parties with reference to the payment of the Termination Benefits and supersedes and replaces any prior agreement, understanding or arrangement (whether oral or written) by or between the Company and Executive with respect to the payment of the Termination Benefits.

 

8

 

 

15.         Notices. All notices, requests and other communications to any party under this Agreement shall be in writing and shall be given to such party at its address set forth below or such other address as such party may hereafter specify for the purpose by notice to the other party:

 

	
			If to Executive:

				
			Mark A. Carano

			 

			 

			
	 	 
	
			If to the Company:

				
			Insteel Industries Inc.

			1373 Boggs Drive

			Mt. Airy, North Carolina 27030

			

 

Each notice, request or other communication shall be effective if (i) given by mail, seventy-two hours after such communication is deposited in the mails with first class postage prepaid, address as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section 15.

 

16.     Modification of Agreement. No waiver or modification of this Agreement shall be valid unless in writing and duly executed by the party to be charged therewith. No evidence of any waiver or modification shall be offered or received in evidence at any proceeding, arbitration or litigation between the parties unless such waiver or modification is in writing, and duly executed. The parties agree that this Section 16 may not be waived except as herein set forth.

 

17.     Recitals. The Recitals to this Agreement are incorporated herein and shall constitute an integral part of this Agreement.

 

18.     Section 409A. This Agreement is intended to comply with the applicable requirements of Section 409A of the Code and shall be construed and interpreted in accordance therewith. Notwithstanding the preceding, the Company and its Related Entities shall not be liable to the Executive or any other person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that any amount under this Agreement is subject to taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.

 

19.     Delay of Payment. Notwithstanding any other provision of this Agreement, if the Executive is a Specified Employee, to the extent necessary to comply with Section 409A of the Code, no payments or benefits (which are not otherwise exempt) may be paid or provided hereunder before the date which is six months after the Executive’s Separation from Service or, if earlier, his death. The amounts which would have otherwise been required to be paid, and the benefits which would have otherwise been provided, during such six months or, if earlier, until Executive’s death, shall be paid to Executive in one lump sum cash payment as soon as administratively practical after the date which is six months after Executive’s Separation from Service or, if earlier, after the Executive’s death. Any other payments scheduled to be made or benefits scheduled to be provided after such period shall be made or provided at the times otherwise designated in this Agreement disregarding the delay of payment for the payments and benefits described in this Section 19.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written.

 

	
			 

				
			Mark A Carano

				
			 

			
	 	
			 

			 

			 

				 
	 	
			 

			 

			 

				
			 

			
	 	INSTEEL INDUSTRIES INC.	 
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			By: 

				
			 

				
			 

			
	
			 

				
			 

				
			Name

				
			 

			
	
			 

				
			 

				
			 Title

				
			 

			

 

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