UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly period ended March 31, 2017

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 333-60608

 

JANEL CORPORATION

 

Nevada   86-1005291
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization   Identification No.)

 

303 Merrick Road – Suite 400    
Lynbrook, New York   11563
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (516) 256-8143

 

(Former name, former address and former fiscal year if changed from last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
(Do not check if a smaller reporting company) Emerging growth company    ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No x

 

The number of shares of Common Stock outstanding as of May 12, 2017 was 553,951.

 

 

 

  1  

 

 

JANEL CORPORATION

 

TABLE OF CONTENTS

 

Part I - Financial Information   Page
       
  Item 1. Financial Statements:  
       
    Consolidated Balance Sheets as of 3
    March 31, 2017 (unaudited) and September 30, 2016  
       
    Consolidated Statements of Operations 4
    for the Three and Six Months Ended March 31, 2017 and 2016  
    (unaudited)  
       
    Consolidated Statements of Changes in Stockholders’ Equity 5
    for the Six Months Ended March 31, 2017 (unaudited)  
       
    Consolidated Statements of Cash Flows 6
    for the Six Months Ended March 31, 2017 and 2016 (unaudited)  
       
    Notes to Consolidated Financial Statements (unaudited) 7
       
  Item 2. Management’s Discussion and Analysis of 11
    Financial Condition and Results of Operations  
       
  Item 4. Controls and Procedures 18
       
Part II - Other Information    
       
  Item 1. Legal Proceedings 18
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
       
  Item 5. Other Information 19
       
  Item 6. Exhibits 19 
       
    Signatures 21  

 

  2  

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    March 31,
2017
    September 30, 2016  
    (unaudited)        
ASSETS      
CURRENT ASSETS                
Cash and cash equivalents   $ 764,559     $ 965,115  
Accounts receivable, net of allowance for doubtful accounts of                
$230,000 and $230,000, respectively     11,654,157       12,353,582  
Inventory     376,191       356,875  
Prepaid expenses and sundry current assets     288,462       233,716  
Total current assets     13,083,369       13,909,288  
PROPERTY AND EQUIPMENT, NET     361,039       287,391  
OTHER ASSETS                
Intangible assets, net (Note 3)     11,994,930       12,373,266  
Goodwill     8,443,477       8,443,477  
Deferred income taxes     685,887       844,977  
Security deposits     106,971       99,658  
Total other assets     21,231,265       21,761,378  
Total assets   $ 34,675,673     $ 35,958,057  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY    
CURRENT LIABILITIES                
Note payable - bank (Note 4)   $ 6,457,296     $ 6,498,403  
Note payable - related party (Note 5)     485,365       500,000  
Accounts payable - trade     8,901,430       9,298,029  
Accrued expenses and other current liabilities     1,326,868       1,254,926  
Dividends payable     870,989       623,077  
Current portion of long-term debt     857,148       857,148  
Total current liabilities     18,899,096       19,031,583  
OTHER LIABILITIES                
Long-term debt - bank (Note 4)     4,126,966       4,616,540  
Long-term debt - related party, net of imputed interest (Note 5)     -       471,108  
Deferred compensation     78,568       78,568  
Total other liabilities     4,205,534       5,166,216  
Total liabilities     23,104,630       24,197,799  
                 
STOCKHOLDERS' EQUITY                
Preferred stock, $0.001 par value; 100,000 shares authorized                
Series A 20,000 shares authorized and 20,000 shares issued and outstanding     20       20  
Series B 5,700 shares authorized and 1,271 shares issued and outstanding     1       1  
Series C 20,000 shares authorized and 14,205 shares issued and outstanding     15       15  

Common stock, $0.001 par value; 4,500,000 shares authorized, 573,951 shares

issued and 553,951 and 573,951 shares outstanding, respectively

    574       574  
Paid-in capital     12,724,927       12,920,416  
Treasury stock, at cost (Note 6)     (240,000 )     -  
Accumulated deficit     (1,959,823 )     (2,161,994 )
Total Janel Corporation stockholders' equity     10,525,714       10,759,032  
Non-controlling interest     1,045,329       1,001,226  
Total stockholders' equity     11,571,043       11,760,258  
Total liabilities and stockholders' equity   $ 34,675,673     $ 35,958,057  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  3  

 

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

          Three months ended     Six months ended  
          March 31,     March 31,  
          2017     2016     2017     2016  
                               
REVENUES                                        
Global Logistics Services           $ 15,482,185     $ 15,937,072     $ 31,535,356     $ 38,510,697  
Manufacturing             2,358,838       712,306       4,161,164       712,306  
TOTAL REVENUES             17,841,023       16,649,378       35,696,520       39,223,003  
COSTS AND EXPENSES:                                        
Forwarding expenses             12,415,154       12,835,126       25,354,257       32,014,619  
Cost of revenues - manufacturing             1,086,218       305,291       1,899,145       305,291  
Selling, general and administrative             3,583,874       3,303,040       7,204,148       6,310,306  
Amortization of intangible assets             191,665       128,802       383,331       227,344  
TOTAL COSTS AND EXPENSES             17,276,911       16,572,259       34,840,881       38,857,560  
                                         
INCOME FROM OPERATIONS             564,112       77,119       855,639       365,443  
OTHER ITEMS:                                        
Interest expense, net of interest income             (192,222 )     (139,702 )     (382,527 )     (276,773 )
NET INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES             371,890       (62,583 )     473,112       88,670  
Income taxes             (164,389 )     (23,390 )     (226,838 )     (38,577 )
NET INCOME (LOSS) FROM CONTINUING OPERATIONS             207,501       (85,973 )     246,274       50,093  
Loss from discontinued operations, net of tax                     (159,239 )             (183,177 )
NET INCOME (LOSS)             207,501       (245,212 )     246,274       (133,084 )
Less: net income attributable to non-controlling interests             28,243       14,305       44,103       14,305  
NET INCOME (LOSS) ATTRIBUTABLE TO JANEL                                        
CORPORATION SHAREHOLDERS             179,258       (259,517 )     202,171       (147,389 )
Preferred stock dividends             (126,344 )     (67,411 )     (255,412 )     (128,346 )
NET INCOME (LOSS) AVAILABLE TO                                        
COMMON SHAREHOLDERS           $ 52,914     $ (326,928 )   $ (53,241 )   $ (275,735 )
                                         
Income (Loss) per share from continuing operations
attributable to common shareholders:
    Basic     $ 0.36     $ (0.15 )   $ 0.43     $ 0.09  
      Diluted     $ 0.31     $ (0.14 )   $ 0.35     $ 0.08  
                                         
(Loss) per share from discontinued operations
attributable to common shareholders:
    Basic     $ -     $ (0.28 )   $ -     $ (0.32 )
      Diluted     $ -     $ (0.26 )   $ -     $ (0.30 )
                                         
Net income (loss) per share
attributable to common shareholders:
    Basic     $ 0.09     $ (0.57 )   $ (0.09 )   $ (0.48 )
      Diluted     $ 0.08     $ (0.54 )   $ 0.08     $ (0.45 )
                                         
Basic weighted average number of shares outstanding             573,951       573,951       573,951       573,951  
Fully-diluted weighted average number of shares outstanding             679,377       606,624       696,630       616,998  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  4  

 

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

    Common Stock     Preferred Stock     Paid-in    

Accumulated

    Treasury Stock           Non-Controlling     Total  
    Shares     $     Shares     $     Capital     Deficit     Shares     $     Total     Interests     Equity  
                                                                   
Balance – September 30, 2016     573,951     $ 574       35,476     $ 36     $ 12,920,416     $ (2,161,994 )     -     $ -     $ 10,759,032     $ 1,001,226     $ 11,760,258  
Net income     -       -       -       -       -       202,171       -       -       202,171       44,103     $ 246,274  
Dividends to
preferred shareholders
    -       -       -       -       (255,412 )     -       -       -       (255,412 )     -     $ (255,412 )
Stock options issued     -       -       -       -       59,923       -       -       -       59,923       -     $ 59,923  
Treasury stock acquired                     -       -               -       20,000       (240,000 )     (240,000 )     -     $ (240,000 )
Balance –
March 31, 2017
    573,951     $ 574       35,476     $ 36     $ 12,724,927     $ (1,959,823 )     20,000       (240,000 )   $ 10,525,714     $ 1,045,329     $ 11,571,043  

  

The accompanying notes are an integral part of these consolidated financial statements.

 

  5  

 

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six months ended March 31,  
    2017     2016  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
   Net income (loss)   $ 246,274     $ (133,084 )
   Plus (loss) from discontinued operations     -       183,177  
   Adjustments to reconcile net income to net                
      cash provided by (used in) operating activities:                
         Bad debt expense     60,403       1,372  
         Depreciation     56,959       27,666  
         Deferred income tax     159,090       -  
         Amortization of intangible assets     383,331       198,844  
         Amortization of imputed interest     14,257       27,786  
         Stock based compensation     59,923       32,050  
   Changes in operating assets and liabilities:                
         Accounts receivable     639,022       2,775,071  
         Inventory     (19,316 )     10,740  
         Prepaid expenses and sundry current assets     (62,059 )     (48,292 )
         Accounts payable and accrued expenses     (564,652 )     (1,473,209 )
NET CASH PROVIDED BY OPERATING ACTIVITIES     973,232       1,602,121  
NET CASH USED IN DISCONTINUED OPERATIONS     -       (183,177 )
      973,232       1,418,944  
CASH FLOWS FROM INVESTING ACTIVITIES:                
   Acquisition of property and equipment     (130,608 )     (271,528 )
   Acquisition of INDCO             (10,734,663 )
NET CASH USED IN INVESTING ACTIVITIES     (130,608 )     (11,006,191 )
CASH FLOWS FROM FINANCING ACTIVITIES:                
   Dividends paid     (7,500 )     (7,500 )
   Proceeds (Payments) from bank loans     (535,680 )     5,787,473  
   Proceeds from sale of additional Preferred Series C     -       4,352,663  
   Proceeds, net of payments, from related party note     -       129,258  
   (Repayment) of notes payable - related party     (500,000 )     (500,000 )
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES     (1,043,180 )     9,761,894  
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (200,556 )     174,647  
CASH AND CASH EQUIVALENTS, beginning of the period     965,115       942,748  
CASH AND CASH EQUIVALENTS, end of period   $ 764,559     $ 1,117,395  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                
   Cash paid during the period for:                
      Interest   $ 368,270     $ 261,816  
      Income taxes   $ 75,485     $ 38,577  
   Non-cash financing activities:                
      Dividends declared to preferred stockholders   $ 247,912     $ 128,346  
      Intangible assets acquired           $ 12,102,838  
      Acquisition of treasury stock   $ (240,000 )   $ -  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  6  

 

 

JANEL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION

 

The attached unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of Article 10 of regulation S-X and instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on or about December 22, 2016.

 

2. ACQUISITIONS

 

INDCO, INC.

 

On March 21, 2016, the Company executed and closed a Stock Purchase Agreement (the “Purchase Agreement”) for the purchase by the Company of the outstanding common stock of INDCO (the “INDCO Shares”), representing approximately 91.65% of the beneficial ownership of INDCO. The remaining 8.35% ownership of INCDO was retained by existing INDCO management.

 

Under the terms of the Purchase Agreement, the purchase price for the INDCO shares was $11,000,000, subject to certain closing adjustments and customary indemnifications, representations and warranties which amount was paid at closing in cash.

 

INDCO comprises the Manufacturing segment of the Company.

 

Purchase price allocation

 

In accordance with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangible assets based on their estimated fair values which were determined by an independent valuation performed by a third party.

 

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.

 

The assets acquired and liabilities assumed as part of our acquisition were recognized at their fair values as of the effective acquisition date, March 1, 2016, based upon an appraisal from a third party. The following table summarizes the fair values assigned to the assets acquired and liabilities assumed.

 

    Fair Value  
Cash   $ 377,653  
Accounts receivable, net     620,632  
Inventory     372,212  
Prepaid expenses and other current assets     109,333  
Fixed assets     155,050  
Accounts payable and other liabilities     (1,690,202 )
Note payable - related party     (129,258 )
Customer relationships and other intangibles     7,700,000  
Goodwill     4,402,838  
Non-controlling interest     (918,258 )
Purchase price   $ 11,000,000  

 

  7  

 

 

3.

INTANGIBLE ASSETS

 

A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows:

 

    March 31,     September 30,      
    2017     2016     Life
Customer relationships   $ 11,450,000     $ 11,450,000     15-20 years
Trademarks / names     1,770,000       1,770,000     20 years
Other     60,000       60,000     2-5 years
      13,280,000       13,280,000      
Less: Accumulated amortization     (1,285,070 )     (906,734 )    
    $ 11,994,930     $ 12,373,266      

 

4. NOTE PAYABLE – BANK

 

(A) Presidential Financial Corporation Borrowing Facility

 

On March 27, 2014, Janel Corporation and several of its Janel Group subsidiaries (collectively, the “Janel Borrowers”), entered into a Loan and Security Agreement with Presidential Financial Corporation (“Presidential”) with respect to a revolving line of credit facility (the “Presidential Facility”). As currently amended, the Presidential Facility provides that the Janel Borrowers can borrow up to $10,000,000, limited to 85% of the Janel Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Loan and Security Agreement. Interest will accrue at an annual rate equal to five percent above the greater of (a) the prime rate of interest quoted in The Wall Street Journal from time to time, or (b) 3.25%. The Janel Borrowers’ obligations under the Presidential Facility are secured by the assets of the Janel Borrowers. The agreement requires, among other things, that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. The Presidential Facility will expire on March 27, 2018, subject to earlier termination as provided in the Loan and Security Agreement, unless renewed.

 

As of March 31, 2017, there were outstanding borrowings of $6,457,296 under the Presidential Facility, representing 64.57% of the $10,000,000 available thereunder.

 

(B) First Merchants Bank Borrowing Facility

 

On March 21, 2016, INDCO executed a Credit Agreement with First Merchants Bank (“First Merchants”) with respect to a $6,000,000 term loan and $1,500,000 (limited to the borrowing base and reserves) revolving loan. Interest will accrue on the term loan at an annual rate equal to the one month LIBOR plus either 3.75% (if INDCO’s cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if INDCO’s cash flow leverage ratio is greater than 2:1). Interest accrues on the revolving loan at an annual rate equal to the one month LIBOR plus 2.75%. INDCO’s obligations under the First Merchants credit facilities are secured by all of INDCO’s assets, and are guaranteed by the Company. The First Merchants credit facilities will expire on the fifth anniversary of the loans, subject to earlier termination as provided in the Credit Agreement, unless renewed.

 

As of March 31, 2017, there were no borrowings under the revolving loan, and there were outstanding borrowings of $5,023,281 under the term loan.

 

  8  

 

 

5. LONG-TERM DEBT – RELATED PARTY

 

Long-term debt - related party consists of the following:

 

    March 31,     September 30,  
    2017     2016  
Non-interest bearing note payable to a related party, net of imputed interest due when earned   $ 485,365     $ 971,108  
Less current portion     (485,365 )     (500,000 )
    $ -     $ 471,108  

 

6. STOCKHOLDERS’ EQUITY

 

(a) On October 1, 2016, the Company entered into an agreement to grant a consultant options to purchase 6,053 shares of common stock ($25,000 worth of stock based on the September 30, 2016 closing price of $4.13) at an exercise price of $4.13 per share. The options are exercisable in three installments on each of October 1, 2017, 2018 and 2019. The Company will expense $2,083 per fiscal quarter during the vesting period, commencing with the fiscal quarter ended December 31, 2016.

 

(b) On March 31, 2017, the Company acquired 20,000 shares of its common stock for an aggregate of $240,000, which amount was paid in April 2017.

 

7. BUSINESS SEGMENT INFORMATION

 

As of March 31, 2017, the Company operates in two reportable segments, Global Logistics Services and Manufacturing, supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the three and six months ended March 31, 2017:

 

Three months ended March 31, 2017

 

    Consolidated     Global Logistics Services     Manufacturing     Corporate  
Revenues     17,841,023       15,482,185       2,358,838       -  
Forwarding expenses and cost of revenues     13,501,372       12,415,154       1,086,218       -  
Gross margin     4,339,651       3,067,031       1,272,620       -  
Selling, general and administrative     3,583,874       2,486,391       663,034       434,449  
Amortization of intangible assets     191,665       -       2,501       189,164  
Income (Loss) from operations     564,112       580,640       607,085       (623,613 )
Interest expense     192,222       121,757       70,464       -  
Identifiable assets     34,675,673      

11,340,803

      2,210,576       21,124,294  
Capital expenditures     12,075       -       12,075       -  

 

Six months ended March 31, 2017

 

    Consolidated     Global Logistics Services     Manufacturing     Corporate  
Revenues     35,696,520       31,535,356       4,161,164       -  
Forwarding expenses and cost of revenues     27,253,402       25,354,257       1,899,145       -  
Gross margin     8,443,118       6,181,099       2,262,019       -  
Selling, general and administrative     7,204,148       5,145,458       1,276,168       782,522  
Amortization of intangible assets     383,331       -       5,000       378,331  
Income (Loss) from operations     855,639       1,035,641       980,851       (1,160,853 )
Interest expense     382,527       239,689       142,837       -  
Identifiable assets     34,675,673       11,340,803       2,210,576       21,124,294  
Capital expenditures     130,608       22,793       107,814       -  

 

  9  

 

 

8. SUBSEQUENT EVENTS

 

The Company has evaluated events occurring after the date of these financial statements through the date that these financial statements were issued. Other than as discussed below, there were no material subsequent events as of that date which would require disclosure in or adjustments to the financial statements.

 

In April 2017, after the close of the period covered by this Report, the Company acquired 100% of the outstanding equity of W.J. Byrnes & Co., a California corporation engaged in global logistics services with several stations in the United States. This acquisition will expand the domestic network of the Company’s Global Logistics Services segment.

 

On May 12, 2017, Janel adopted the Company’s 2017 Equity Incentive Plan (the “Plan”) pursuant to which (i) incentive stock Options, (ii) non-statutory stock options, (iii) restricted stock awards, and (iv) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company and its subsidiaries. Participants and all terms of any awards under the Plan are in the discretion of the Company’s Compensation Committee (or the full Board if no Compensation Committee is appointed).

 

On May 12, 2017, the following named executive officers were granted options under the Company’s 2013 Non-Qualified Stock Option Plan exercisable for a period of ten years to purchase the following number of shares of the Company’s common stock at $8.01 per share:

 

Name Number of Shares
Brendan J. Killackey 8,000
Carlos Pla 3,121

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

As used throughout this Report, “we,” “our,” “Janel,” “the Company,” “Registrant” and similar words refer to Janel Corporation and subsidiaries.

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking statements may generally be identified by the use of the words “may”, “will”, “believes”, “should”, “expects”, “anticipates”, “estimates”, and similar expressions. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

 

OVERVIEW

 

Janel Corporation is a holding company with subsidiaries in two business segments: Global Logistics Services and Manufacturing. The Company’s Global Logistics Services segment comprises several wholly-owned subsidiaries, collectively known as “Janel Group.” The Company’s Manufacturing segment comprises its majority-owned INDCO subsidiary, which manufactures and distributes industrial mixing equipment. Janel is a successor to a business originally formed in 1975. Janel is domiciled in the state of Nevada. Its corporate headquarters is in Lynbrook, New York. Its website is located at http://www.janelcorp.com.

 

Janel’s management focuses on significant capital allocation decisions, corporate governance and supporting its subsidiaries where appropriate. The Company expects to grow through its subsidiaries’ organic growth and by completing acquisitions. Janel either will acquire businesses within its existing segments, or it will expand its portfolio into new segments. Janel’s acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.

 

In September 2014, the Company purchased the equity of Alpha International/President Container Lines (“Alpha/PCL”), a global logistics services company. Approximately one year later, it purchased the equity of Liberty International, Inc. (“Liberty”). These companies, along with the legacy Janel Group, comprise Janel Corporation’s Global Logistics Services segment, which focuses on international transportation and customs clearance. In March 2016, the Company purchased INDCO, Inc. (“INDCO”) in order to diversify cash flow streams. INDCO comprises Janel Corporation’s Manufacturing segment.

 

In April 2017, after the close of the period covered by this Report, the Company acquired 100% of the outstanding equity of W.J. Byrnes & Co., a California corporation engaged in global logistics services with several stations in the United States. This acquisition will expand the domestic network of the Company’s Global Logistics Services segment.

 

Janel and its consolidated subsidiaries employ 108 full-time and five part-time people in the United States. None of these employees is covered by a collective bargaining agreement. Janel and its subsidiaries have experienced no work stoppages and consider relations with their employees to be good.

 

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Results of Operations

 

The following discussion and analysis addresses the results of operations for our business segments, Global Logistics Services and Manufacturing, as well as for the Company's corporate group and the consolidated Company, for the three and six months ended March 31, 2017. Comparisons to results for the three and six months ended March 31, 2016 include data from the Global Logistics Services segment and the corporate group for the full period, and only one month of results for the Manufacturing segment, which was purchased on March 1, 2016. The discussion and analysis then addresses liquidity and the financial condition of the segments and consolidated Company as well as other matters.

 

Global Logistics Services – Three months ended March 31, 2017 and 2016

 

Revenues.  Total revenues from continuing operations for the three months ended March 31, 2017 were $15,482,185 as compared to $15,937,072 for the three months ended March 31, 2016. This is a decrease of ($454,887), or (2.9%). The decrease primarily is due to the loss of a low-margin, high-revenue customer, previously reported.

 

Forwarding Expenses. Total forwarding expenses from continuing operations for the three months ended March 31, 2017 were $12,415,154 as compared to $12,835,126 for the three months ended March 31, 2016. This is a decrease of ($419,972), or (3.3%). The decrease primarily is due to reduction in expenses associated with the loss of the low-margin, high-revenue customer referenced above.

 

Certain items have been categorized as “corporate” expenses attributable to overall management of the Company and other non-segment specific activities. These expenses are discussed below under Corporate Selling, General and Administrative Expenses. The following discussion of selling, general and administrative expenses in the Global Logistics Service segment excludes these “corporate” items.

 

Selling, General and Administrative Expenses. Total selling, general and administrative expenses from continuing operations for the three months ended March 31, 2017 were $2,486,391 as compared to $2,668,508 for the three months ended March 31, 2016. This is a decrease of ($182,117), or (6.8%). The decrease is due to certain cost reduction initiatives enacted in prior periods. As a percentage of revenue, selling, general and administrative expenses for the three months ended March 31, 2017 were 16.1%, as compared to 16.7% for the three months ended March 31, 2016. The decrease primarily was due to the loss of the low-margin, high-revenue customer referenced above.

 

Interest Expense . Total interest expense for the three months ended March 31, 2017 was $121,757, as compared to $124,745 for the three months ended March 31, 2016. This is a decrease of ($2,988), or (2.4%).

 

Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations for the three months ended March 31, 2017 was $458,883, as compared to $308,694 for the three months ended March 31, 2016. This is an increase of $150,189, or 48.7%.

 

Manufacturing – Three months ended March 31, 2017 and 2016

 

INDCO, which comprises the Company’s Manufacturing segment, was purchased as of March 1, 2016. Therefore, prior year period data includes only the results of the one month in that period that the Company owned INDCO.

 

Revenues. Total revenues for the three months ended March 31, 2017 were $2,358,838 and $712,306, for the one month ended March 31, 2016.

 

Cost of Revenues. Total cost of revenues for the three months ended March 31, 2017 was $1,086,218 and $305,291 for the one month ended March 31, 2016.

 

Gross Margin . Total gross margin for the three months ended March 31, 2017 was $1,272,620 and $407,015 for the one month ended March 31, 2016.

 

Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the three months ended March 31, 2017 were $663,034 and $211,797 for the one month ended March 31, 2016.

 

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Interest Expense . Total interest expense for the three months ended March 31, 2017 was $70,464, and $14,957 for the one month ended March 31, 2016.

 

Income from Continuing Operations before Income Taxes. Income before income taxes for the three months ended March 31, 2017 was $536,621 and $179,427 for the one month ended March 31, 2016.

 

Corporate – Three months ended March 31, 2017 and 2016

 

Corporate Selling, General and Administrative Expenses . Total corporate selling, general and administrative expenses from continuing operations for the three months ended March 31, 2017 were $434,449, as compared to $422,735 for the three months ended March 31, 2016.

 

Amortization of Intangible Assets. Total amortization of intangible assets for the three months ended March 31, 2017 was $189,164, as compared to $127,969 for the three months ended March 31, 2016. This is an increase of $61,195, or 47.8%. The increase is due to the additional amortization associated with the March 2016 purchase of INDCO. These amounts do not include amortization associated with the INDCO term loan origination fee.

 

Net Loss . Net loss for the three months ended March 31, 2017 was ($623,613), as compared to ($550,704) for the three months ended March 31, 2016. This is a decrease of ($72,909) or (13.2%). The decrease primarily is due to the significant increase in amortization of intangible assets.

 

Consolidated income taxes – Three months ended March 31, 2017 and 2016

 

The company recorded a net income tax provision for the three months ended March 31, 2017 of $164,389, as compared to $23,390 for the three months ended March 31, 2016.

 

Global Logistics Services – Six months ended March 31, 2017 and 2016

 

Revenues.  Total revenues from continuing operations for the six months ended March 31, 2017 were $31,535,356, as compared to $38,510,697 for the six months ended March 31, 2016. This is a decrease of ($6,975,341), or (18.1%). The decrease primarily is due to the loss of a low-margin, high-revenue customer, previously reported.

 

Forwarding Expenses. Total forwarding expenses from continuing operations for the six months ended March 31, 2017 were $25,354,257 as compared to $32,014,619 for the six months ended March 31, 2016. This is a decrease of ($6,660,362), or (20.8%). The decrease primarily is due to reduction in expenses associated with the loss of the low-margin, high-revenue customer referenced above.

 

For the current fiscal year, certain items have been categorized as “corporate” expenses attributable to overall management of Janel and other non-segment specific activities. These expenses are discussed below under “Corporate Selling, General and Administrative Expenses.” The following discussion of selling, general and administrative expenses in the Global Logistics Service segment excludes these “corporate” items.

 

Selling, General and Administrative Expenses. Total selling, general and administrative expenses from continuing operations for the six months ended March 31, 2017 were $5,145,458 as compared to $5,442,278 for the six months ended March 31, 2016. This is a decrease of ($296,820), or (5.5%). The decrease is due to certain cost reduction initiatives enacted in prior periods. As a percentage of revenue, selling, general and administrative expenses for the six months ended March 31, 2017 were 16.3%, as compared to 14.1% for the six months ended March 31, 2016. The increase primarily was due to the loss of the low-margin, high-revenue customer referenced above.

 

Interest Expense . Total interest expense for the six months ended March 31, 2017 was $239,689, as compared to $261,816 for the six months ended March 31, 2016. This is a decrease of ($22,127), or (8.5%). The decrease is due to a reduction in the average balance of our revolving loan as compared to the prior year period, the result of positive cash flow and repayment of the principal balance.

 

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Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations for the six months ended March 31, 2017 was $795,952, as compared to $791,984 for the six months ended March 31, 2016. This is an increase of $3,968, or 0.5%.

 

Manufacturing – Six months ended March 31, 2016

 

INDCO, which comprises the Company’s Manufacturing segment, was purchased as of March 1, 2016. Therefore, prior year period data includes only the results of the one month in that period that the Company owned INDCO.

 

Revenues. Total revenues for the six months ended March 31, 2017 were $4,161,164 and $712,306 for the one month ended March 31, 2016.

 

Cost of Revenues. Total cost of revenues for the six months ended March 31, 2017 was $1,899,145 and $305,291 for the one month ended March 31, 2016.

 

Gross Margin . Total gross margin for the six months ended March 31, 2017 was $2,262,019 and $407,015 for the one month ended March 31, 2016.

 

Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the six months ended March 31, 2017 were $1,276,168 and $199,297 for the one month ended March 31, 2016.

 

Interest Expense . Total interest expense for the six months ended March 31, 2017 was $142,837 and $14,957 for the one month ended March 31, 2016.

 

Income from Continuing Operations before Income Taxes. Income from continuing operations before income taxes for the six months ended March 31, 2017 was $838,014 and $179,427 for the one month ended March 31, 2016.

 

Corporate – Six months ended March 31, 2017 and 2016

 

Corporate Selling, General and Administrative Expenses . Total corporate selling, general and administrative expenses from continuing operations for the six months ended March 31, 2017 were $782,522, as compared to $656,230 for the six months ended March 31, 2016. This is an increase of $126,292, or 19.2%. The increase is due to the recategorization of certain costs, previously included in the Global Logistics Services segment, as “corporate” costs. These include primarily the salaries of executives whose responsibilities have shifted from the Global Logistics Service segment to Janel Corporation corporate development.

 

Amortization of Intangible Assets. Total amortization of intangibles for the six months ended March 31, 2017 was $378,331, as compared to $226,511 for the six months ended March 31, 2016. This is an increase of $151,820, or 67%. The increase is due to the addition of goodwill amortization associated with the March 2016 purchase of INDCO. These amounts do not include amortization associated with the INDCO term loan origination fee.

 

Net Loss . Net loss for the six months ended March 31, 2017 was ($1,160,853) as compared to ($882,741) for the six months ended March 31, 2016. This is a decrease of ($278,112) or (31.5%). The decrease primarily is due to the significant increase in professional fees related to acquisition activity.

 

Consolidated income taxes – Six months ended March 31, 2017 and 2016

 

The company recorded a net income tax provision for the six months ended March 31, 2017 of $226,838, as compared to $38,577 for the six months ended March 31, 2016.

 

Liquidity and Capital Resources

 

General. Our ability to satisfy our liquidity requirements, which derive from debt obligations, working capital needs, day-to-day operating expenses and capital expenditures, depends upon our future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond our control. We depend on our commercial credit facilities to fund our day-to-day operations as there is a timing difference between our collection cycles and the timing of our payments to vendors.

 

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Janel’s cash flow performance for the six months ending March 31, 2017 is not necessarily indicative of future cash flow performance.

  

Cash and cash equivalents for the six months ended March 31, 2017 decreased from $965,115 at the beginning of the period to $764,559 at the end of the period. This is a decrease of $200,556, or 20.8%. Net working capital (current assets minus current liabilities) for the six months ended March 31, 2017 decreased from ($5,122,295) at the beginning of the period to ($5,815,727) at the end of the period. This is a decrease of ($453,430). This decrease is primarily due to the reduction of revenues for the period.

 

Cash Flows from Continuing Operating Activities. Net cash provided by continuing operating activities for the six months ended March 31, 2017 was $973,232, as compared to $1,602,121 for the six months ended March 31, 2016. The change was driven by a decrease in accounts receivable, partially offset by a decrease in accounts payable and accrued expenses.

 

Cash Flows from Discontinued Operating Activities. Net cash used in discontinued operating activities for the six months ended March 31, 2017 was $37,547 reported within continuing operations in 2017, as compared to $183,177 for the six months ending March 31, 2016. The 2016 figure includes the settlement of a lawsuit involving the Company's discontinued food business.

 

Cash Flows from Investing Activities . Net cash used in investing activities for the six months ended March 31, 2017 was $130,608, as compared to $11,006,191 for the six months ended March 31, 2016. The decrease is due to the presence of the INDCO acquisition in the prior period.

 

Cash Flows from Financing Activities . Net cash (used in) provided by financing activities for the six months ended March 31, 2017 was ($1,043,180) as compared to $9,761,894 for the six months ended March 31, 2016. The cash used in financing activities for the six months ending March 31, 2017 primarily went toward the second of three annual earnout payments associated with the 2014 acquisition of Alpha/PCL and toward repayment of the First Merchants credit facility associated with the INDCO acquisition. The cash provided by financing activities for the six months ended March 31, 2016 primarily came from the First Merchants credit facility and the sale of additional Preferred Series C shares, both associated with the INDCO acquisition.

 

Global Logistics Services

 

Presidential Financial Corporation Borrowing Facility. On March 27, 2014, Janel Corporation and several of its Janel Group subsidiaries (collectively, the “Janel Borrowers”), entered into a Loan and Security Agreement with Presidential Financial Corporation (“Presidential”) with respect to a revolving line of credit facility (the “Presidential Facility”). As currently amended, the Presidential Facility now provides that the Janel Borrowers can borrow up to $10,000,000, limited to 85% of the Janel Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Loan and Security Agreement. Interest will accrue at an annual rate equal to five percent above the greater of (a) the prime rate of interest quoted in The Wall Street Journal from time to time, or (b) 3.25%. The Janel Borrowers’ obligations under the Presidential Facility are secured by the assets of the Janel Borrowers. The agreement requires, among other things, that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. The Presidential Facility will expire on March 27, 2018, subject to earlier termination as provided in the Loan and Security Agreement, unless renewed.

 

Working Capital Requirements. Janel Group’s cash needs are currently met by the Presidential Facility and cash on hand. As of March 31, 2017, the Company had $3,542,704 available under its $10,000,000 Presidential Facility and $317,300 in cash. The Company believes that current financial resources will be sufficient to finance Janel Group operations and obligations (current and long-term liabilities) for the long- and short-terms. However, Janel Group’s actual working capital needs for the long- and short-terms will depend upon numerous factors, including operating results, the cost associated with growing Janel Group either internally or through acquisition, competition, and the availability under the Presidential Facility. None of these factors can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Janel Group’s operations will be materially negatively impacted.

 

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Manufacturing

 

First Merchants Bank Borrowing Facility. On March 21, 2016, INDCO executed a Credit Agreement with First Merchants Bank with respect to a $6,000,000 term loan and $1,500,000 (limited to the borrowing base and reserves) revolving loan. Interest will accrue on the term loan at an annual rate equal to the one month LIBOR plus either 3.75% (if INDCO’s cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if INDCO’s cash flow leverage ratio is greater than 2:1). Interest will accrue on the revolving loan at an annual rate equal to the one month LIBOR plus 2.75%. INDCO’s obligations under the First Merchants credit facilities are secured by all of INDCO’s assets, and are guaranteed by the Company. The First Merchants credit facilities will expire on the fifth anniversary of the loans, subject to earlier termination as provided in the Credit Agreement, unless renewed.

 

Working Capital Requirements. INDCO’s cash needs are currently met by the First Merchant’s Bank term loan and revolving credit facility and cash on hand. As of March 31, 2017, INDCO had $1,500,000 available under its $1,500,000 revolving facility, subject to collateral availability, and $447,259 in cash. The Company believes that the current financial resources will be sufficient to finance INDCO operations and obligations (current and long-term liabilities) for the long- and short-terms. However, actual working capital needs for the long- and short-terms will depend upon numerous factors, including operating results, the cost associated with growing INDCO either internally or through acquisition, competition, and available credit under the revolving credit facility. None of these factors can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, INDCO’s operations will be materially negatively impacted. 

 

Current Outlook

 

The results of operations in both the Global Logistics Services and Manufacturing segments are affected by the general economic cycle, particularly as it influences global trade levels and, specifically, the import and export activities of our Janel Group business’s various current and prospective customers. Historically, the Company’s quarterly results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of Janel Group’s international network and service offerings, and other similar and subtle forces. The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.

 

The Company’s subsidiaries are implementing business strategies to grow revenue and profitability for the current fiscal year and beyond. Janel Group’s strategy calls for additional branch offices, introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions, and a continued focus on implementing lean methodologies to contain operating expenses. INDCO’s strategy calls for introductions of new product lines and wider distribution and promotion of its print- and web-based catalog.

 

In addition to supporting its subsidiaries’ growth plans, the Company may seek to grow by entering new business segments through acquisition.

 

Certain elements of our profitability and growth strategy, principally proposals for acquisition and accelerating our revenue growth, are contingent upon the availability of adequate financing on terms acceptable to the Company. Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated timing, and the Company’s operations will be materially negatively impacted.

 

Critical Accounting Policies and Estimates

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such difference may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to revenue recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, and deferred income taxes. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates.

 

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Management believes that the nature of the Company’s business is such that there are few, if any, complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy.

 

Revenue Recognition

 

Global Logistics Services

 

Revenues are derived from airfreight, ocean freight and custom brokerage services. The Company’s Janel Group business is a non-asset-based carrier and accordingly does not own transportation assets. Janel Group generates the major portion of its air and ocean freight revenues by purchasing transportation services from direct carriers (airlines, steam ship lines, etc.) and reselling those services to its customers. By consolidating shipments from multiple customers and availing itself of its buying power, Janel Group is able to negotiate favorable rates from the direct carriers, while offering to its customer’s lower rates than the customers could obtain themselves.

 

Airfreight revenues include the charges for carrying the shipments when Janel Group acts as a freight consolidator. Ocean freight revenues include the charges for carrying the shipments when Janel Group acts as a Non-Vessel Operating Common Carrier (NVOCC). In each case, Janel Group is acting as an indirect carrier. When acting as an indirect carrier, Janel Group will issue a House Airway Bill (HAWB) or a House Ocean Bill of Lading (HOBL) to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, Janel Group receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments. At this point the risk of loss passes to the carrier, however, in order to claim for any such loss, the customer is first obligated to pay the freight charges.

 

Based upon the terms in the contract of carriage, revenues related to shipments where Janel Group issues a HAWB or a HOBL are recognized at the time the freight is tendered to the direct carrier. Costs related to the shipments are recognized at the same time.

 

Revenues realized when Janel Group acts as an agent for the shipper and does not issue a HAWB or a HOBL include only the commission and fees earned for the services performed. These revenues are recognized upon completion of the services.

 

Customs brokerage and other services involves provide multiple services at destination including clearing shipments through customs by preparing required documentation, calculating and providing for payment of duties and other charges on behalf of the customers, arranging for any required inspections, and arranging for final delivery. These revenues are recognized upon completion of the services.

 

The movement of freight may require multiple services. In most instances, Janel Group may perform multiple services including destination break bulk and value added services such as local transportation, distribution services and logistics management. Each of these services has separate fee that is recognized as revenue upon completion of the service.

 

Customers will frequently request an all-inclusive rate for a set of services that is known in the industry as “door-to-door services.” In these cases, the customer is billed a single rate for all services from pickup at origin to delivery. The allocation of revenue and expense among the components of services when provided under an all-inclusive rate are done in an objective manner on a fair value basis in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.”

 

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Manufacturing

 

Revenues are derived from the engineering, manufacture, and delivery of specialty mixing equipment. Payments are made by either credit card acceptance or invoice billing by INDCO. A significant portion of sales comes from its web-based catalog. Such online sales are generally credit card purchases. Revenue is recognized when products are delivered and risk of loss transfers to the carrier(s) used.

 

Estimates

 

While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the following areas that in the aggregate are not a major component of the Company’s consolidated statements of operations:

 

  a. accounts receivable valuation;

 

  b. the useful lives of long-term assets;

 

  c. the accrual of costs related to ancillary services the Company provides;

 

  d. accrual of tax expense on an interim basis;

 

  e. deferred tax valuation allowance; and

 

  f. impairment of intangible assets.

 

Management believes that the methods utilized in these areas are non-aggressive in approach and consistent in application. Management believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company’s transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Janel maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and have concluded that the system is effective. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicated with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s financial position or results of operations.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the three months ended March 31, 2017:

 

Period   Total Number of
Shares Purchased
   

Average Price Paid

Per Share

    Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
   

Maximum Number of Shares

that May Yet be Purchased

Under the Plans or Programs

 
January 2017     0       0       0       0  
February 2017     0       0       0       0  
March 2017     100,000     $ 12.00       0       0  
Total     100,000     $ 12.00     0     0  

 

On March 31, 2017, the Company entered into an Agreement and Release with James N. Jannello, the founder and former president of the Company, pursuant to which Mr. Jannello released the Company from all future obligations in connection with Mr. Jannello’s retirement from the Company in 2013, the Company and Mr. Jannello released each other from all claims, and the Company and affiliated purchasers purchased 20,000 and 80,000 shares, respectively, of Mr. Jannello’s 110,000 shares of the Company’s Common Stock. The aggregate payment to Mr. Jannello by all purchasers was $1,200,000.

 

ITEM 5. OTHER INFORMATION

 

On May 12, 2017, the Company submitted for filing to the Nevada Secretary of State an Amendment to Certificate of Designation After Issuance of Class or Series eliminating redemption rights of holders of the Company’s Series C Cumulative Preferred Stock, par value $0.001 per share.

 

On May 12, 2017, Janel adopted the Company’s 2017 Equity Incentive Plan (the “Plan”) pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards, and (iv) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company and its subsidiaries. Participants and all terms of any awards under the Plan are in the discretion of the Company’s Compensation Committee (or the full Board if no Compensation Committee is appointed). The full text of the Plan is filed as Exhibit 10.2 hereto and incorporated herein by this reference. 

 

On May 12, 2017, the following named executive officers were granted options under the Company’s 2013 Non-Qualified Stock Option Plan exercisable for a period of ten years to purchase the following number of shares of the Company’s common stock at $8.01 per share:

 

Name Number of Shares
Brendan J. Killackey 8,000
Carlos Pla 3,121

 

The options granted to Mr. Killackey are immediately exercisable, and the options granted to Mr. Pla are exercisable in three equal installments on the first, second and third anniversaries of the grant date and were in satisfaction of the grant previously reported as having been made as part of his employment by the Company.

 

ITEM 6. EXHIBITS

 

Exhibit No.

  3.1 Articles of Incorporation of Wine Systems Design, Inc. (predecessor name) (incorporated by reference to Exhibit 3A to Wine Systems Design, Inc. (predecessor name) Registration Statement on Form SB-2 filed May 10, 2001, File No. 333-60608)
  3.2 Restated and Amended By-Laws of Janel Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 1, 2013, File No. 333-60608)
  3.3 Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 17, 2007 File No. 333-60608)
  3.4 Certificate of Designations of Series B Convertible Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 22, 2007, File No. 333-60608)
  3.5 Certificate of Designations of Series C Cumulative Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 29, 2014, File No. 333-60608)
  3.6 Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 21, 2015, File No. 333-60608)
  3.7 Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock*

 

  19  

 

 

  3.8 Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed April 21, 2015, File No. 333-60608)
  10.1 Janel World Trade, Ltd. 2013 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 1, 2013, File No. 333-60608)
  10.2 Janel Corporation 2017 Equity Incentive Plan*
  10.3 Loan and Security Agreement dated March 27, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 2, 2012, File No. 333-60608)
  10.4 First Amendment to the Loan and Security Agreement, dated September 10, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 16, 2014, File No. 333-60608)
  10.5 Second Amendment to the Loan and Security Agreement, dated September 25, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 30, 2014, File No. 333-60608)
  10.6 Third Amendment to the Loan and Security Agreement, dated October 9, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 14, 2014, File No. 333-60608)
  10.7 Fourth Amendment to the Loan and Security Agreement and Demand Secured Promissory Note, dated August 18, 2015, by and among Janel Corporation (formerly, Janel World Trade, Ltd.), Janel Group, Inc. (formerly, the Janel Group of New York), The Janel Group of Illinois, The Janel Group of Georgia, The Janel Group of Los Angeles, Janel Ferrara Logistics, LLC, Alpha International, LP, PCL Transport, LLC and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 20, 2015, File No. 333-60608)
  10.8 Amended and Restated Demand Secured Promissory Note made by Janel Corporation (and its subsidiaries) in favor of Presidential Financial Corporation, dated August 18, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 20, 2015, File No. 333-60608)
  10.9 Credit Agreement, effective as of February 29, 2016, by and between INDCO, Inc. and First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
  10.10 Term Loan Promissory Note, effective as of February 29, 2016, made by INDCO, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
  10.11 Revolving Loan Promissory Note, effective as of February 29, 2016, made by INDCO, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
  10.12 Security Agreement, effective as of February 29, 2016, made by INDCO and the Company, Inc. for the benefit of First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
  10.13 Continuing Guaranty Agreement, effective as of February 29, 2016, made by Janel Corporation for the benefit of First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
  10.14 Agreement of Lease dated January 2, 2015 between 303 Merrick LLC and The Janel Group of New York, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2014, File No. 333-60608)
  31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
  31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
  32.1 Section 1350 Certifications*
  101 Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, March 31, 2017 and September 30, 2016, (ii) Consolidated Statements of Income for the three months ended March 31, 2017 and 2016, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016, and (v) Notes to Unaudited Consolidated Financial Statements*

 

  * Filed herewith

 

  20  

 

 

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 thereunto duly authorized.

 

Dated: May 12, 2017 JANEL CORPORATION
  Registrant
   
  /s/  Brendan J. Killackey
 

President and Chief Executive Officer

(Principal Executive Officer)

   
   
  /s/  Carlos Pla
 

Chief Financial Officer

(Principal Financial Officer)

 

 

  21  

 

 

Exhibit 3.7

 

 

 

*150303* BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov Amendment to Certificate of Designation After Issuance of Class or Series (PURSUANT TO NRS 78.1955) USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY Certificate of Amendment to Certificate of Designation For Nevada Profit Corporations (Pursuant to NRS 78.1955 - After Issuance of Class or Series) 1. Name of corporation: Janel Corporation 2. Stockholder approval pursuant to statute has been obtained. 3. The class or series of stock being amended: Series C Cumulative Preferred Stock, $0,001 par value per share 4. By a resolution adopted by the board of directors, the certificate of designation is being amended as follows or the new class or series is: Paragraph 7 of the Certificate of Designation for Series C Cumulative Preferred Stock filed on August 25, 2014, as amended March 22, 2016, is hereby amended and restated in its entirety as set forth on Exhibit A attached hereto. 5. Effective date of filing: (optional) (must not be later than 90 days after the certificate is filed) 6. Signature: (required) Signature of Officer Filing Fee: $175.00 IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected. This form must be accompanied by appropriate fees. Nevada Secretary of State NRS Amend Designation –After Revised: 1-5-15

 

 

 

 

 

 

Exhibit A to Certificate of Amendment of Certificate of Designation of Janel Corporation 7. Redemption. (a) By the Corporation. The Corporation may, by written notice to the holders of Series C Cumulative Preferred Stock, redeem all or any portion of the Series C Cumulative Preferred Stock at any time, or from time to time (each, a "Mandatory Redemption"), for an amount equal to the Original Series C Issuance Price, plus an amount equal to all accumulated but unpaid dividends thereon to and including the date full payment is tendered to the holders of Series C Cumulative Preferred Stock (the "Series C Redemption Price"); provided, however, that any partial redemption of Series C Cumulative Preferred Stock shall be redeemed from holders of Series C Cumulative Preferred Stock, pro rata, in proportion to their respective ownership of shares of Series C Cumulative Preferred Stock. (b) Redemption Mechanics. The Corporation shall give the holders of the Series C Cumulative Preferred Stock written notice of a Mandatory Redemption including the number of shares of Series C Cumulative Preferred Stock being redeemed, which notice will include written instructions to the holders of the shares of Series C Cumulative Preferred Stock being redeemed (the "Redeeming Shares") regarding surrender of certificates representing Redeeming Shares (the "Redemption Instructions"). The holders of the Redeeming Shares shall surrender the certificate(s) evidencing the Redeeming Shares. As soon as practicable after receipt by the Corporation of the certificate(s) evidencing the shares of Redeeming Shares, the Corporation shall be obligated to, and shall promptly pay, the Redemption Price to the holders from whom surrendered Redeeming Shares were received.

 

 

 

 

Exhibit 10.2

 

Janel Corporation

 

2017 Equity Incentive Plan

 

Adopted: May 12, 2017

Approved By Stockholders: ________, 201__

 

1.              Purposes.

 

(a)           Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are Employees, Directors and Consultants.

 

(b)           Available Stock Awards. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Non-statutory Stock Options, (iii) Restricted Stock Awards, and (iv) Stock Appreciation Rights.

 

(c)           General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

 

2.              Definitions.

 

As used in this Plan, the following terms have the following meanings:

 

(a)           “Affiliate” means, at the time of determination, any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

 

(b)           “Board” means the Board of Directors of the Company.

 

(c)           “Capitalization Adjustment” has the meaning ascribed to that term in Section 11(a).

 

(d)           “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

(i)          any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by any institutional investor, or any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions that are primarily a private financing transaction for the Company or (B) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

 

 

 

 

(ii)         there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company if, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction;

 

(iii)        individuals who, on the date this Plan is adopted by the Board, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board.; or

 

(iv)        there is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the Company immediately prior to such sale, lease, license or other disposition.

 

The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

 

Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such agreement (it being understood, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply).

 

(e)           “Code” means the Internal Revenue Code of 1986, as amended.

 

(f)           “Committee” means a committee of one or more members of the Board appointed by the Board in accordance with Section 3(c).

 

(g)           “Common Stock” means the Common Stock of the Company.

 

(h)           “Company” means Janel Corporation, a Nevada corporation.

 

(i)           “Consultant” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) serving as a member of the Board of Directors of an Affiliate and who is compensated for such services. However, the term “Consultant” shall not include Directors who are not compensated by the Company for their services as Directors, and the payment of a director’s fee by the Company for services as a Director shall not cause a Director to be considered a “Consultant” for purposes of the Plan.

 

  - 2 -  

 

 

(j)           “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service. For example, a change in status from an employee of the Company to a consultant to an Affiliate or to a Director shall not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence policy or in the written terms of the Participant’s leave of absence.

 

(k)           “Corporate Transaction” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

(i)          a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its Subsidiaries;

 

(ii)         a sale or other disposition of at least fifty percent (50%) of the outstanding securities of the Company;

 

(iii)        a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or

 

(iv)        a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.

 

(l)           “Director” means a member of the Board.

 

(m)           “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.

 

(n)           “Employee” means any person employed by the Company or an Affiliate. Service as a Director or payment of a director’s fee by the Company for such service or for service as a member of the Board of Directors of an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

(o)           “Entity” means a corporation, partnership, limited liability company, trust or other entity.

 

(p)           “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(q)           “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include (A) the Company or any Subsidiary of the Company, (B) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) an Entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company.

 

  - 3 -  

 

 

(r)           “Fair Market Value” means, as of any date, the value of the Common Stock determined in good faith by the Board and in accordance with Section 409A of the Code and applicable guidance thereunder.

 

(s)           “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

 

(t)           “Listing Date” means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.

 

(u)           “Non-statutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

 

(v)          “Officer” means any person designated by the Company as an officer.

 

(w)           “Option” means an Incentive Stock Option or a Non-statutory Stock Option granted pursuant to the Plan.

 

(x)           “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan; provided, however, that an Option Agreement may contain terms that vary from the terms of the Plan.

 

(y)           “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

 

(z)           “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

 

(aa)          “Participant” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

 

(bb)          “Plan” means this Janel Corporation 2017 Equity Incentive Plan.

 

(cc)          “Restricted Stock Award” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(a).

 

(dd)          “Securities Act” means the Securities Act of 1933, as amended.

 

  - 4 -  

 

 

(ee)          “Stock Appreciation Right” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 7(b).

 

(ff)          “Stock Award” means any right granted under the Plan, including an Option, a Restricted Stock Award and a Stock Appreciation Right.

 

(gg)          “Stock Award Agreement” means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

 

(hh)          “Subsidiary” means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).

 

(ii)          “Ten Percent Stockholder” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.

 

3.              Administration.

 

(a)            Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3(c).

 

(b)            Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

 

(i)          To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

 

(ii)         To construe and interpret the Plan and Stock Awards granted under it, and to establish, interpret, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

 

(iii)        To effect, at any time and from time to time, with the consent of any adversely affected Optionholder, (1) the reduction of the exercise price of any outstanding Option under the Plan, (2) the cancellation of any outstanding Option under the Plan and the grant in substitution therefor of (A) a new Option under the Plan or another equity plan of the Company covering the same or a different number of shares of Common Stock, (B) a Restricted Stock Award (including a stock bonus), (C) a Stock Appreciation Right, (D) cash and/or (E) other valuable consideration (as determined by the Board, in its sole discretion), or (3) any other action that is treated as a repricing under generally accepted accounting principles.

 

  - 5 -  

 

 

(iv)        To amend the Plan or a Stock Award as provided in Section 12.

 

(v)         To terminate or suspend the Plan as provided in Section 13.

 

(vi)        To approve forms of Stock Award Agreements for use under the Plan and to amend the terms of any one or more Stock Awards, including, but not limited to, amendments to provide terms more favorable than previously provided in the Stock Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however , that, the rights under any Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the affected Participant, and (ii) such Participant consents in writing. Notwithstanding the foregoing, subject to the limitations of applicable law, if any, and without the affected Participant’s consent, the Board may amend the terms of any one or more Stock Awards if necessary to maintain the qualified status of the Stock Award as an Incentive Stock Option, to exempt the Stock Award from Section 409A of the Code and the related guidance thereunder, or to bring the Stock Award into compliance with Section 409A of the Code and the related guidance thereunder.

 

(vii)       Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan.

 

(c)             Delegation to Committee. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

 

(d)            Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

 

4.              Shares Subject to the Plan.

 

(a)            Share Reserve. Subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate 10.77% of the fully-diluted 928,656 shares of Common Stock, or 100,000 shares.

 

  - 6 -  

 

 

(b)            Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of Common Stock issued to a Participant pursuant to a Stock Award are forfeited back to or repurchased by the Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such shares, then the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan; provided, however, that subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued as Incentive Stock Options shall be the number of shares originally set forth in Section 3(a) above before any amendment. If any shares subject to a Stock Award are not delivered to a Participant because such shares are withheld for the payment of taxes, then the number of shares that are not delivered shall revert to and again become available for issuance under the Plan. If the exercise price of any Stock Award is satisfied by tendering shares of Common Stock held the Participant (either by actual deliver or attestation), then the number of such tendered shares shall revert to and again become available for issuance under the Plan.

 

(c)            Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

 

5.              Eligibility.

 

(a)             Eligibility for Specific Stock Awards . Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

 

(b)            Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

 

(c)            Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or the sale of the Company’s securities to such Consultant is not exempt under Rule 701 of the Securities Act (“Rule 701”) because of the nature of the services that the Consultant is providing to the Company, because the Consultant is not a natural person, or because of some other provision of Rule 701.

 

6.              Option Provisions.

 

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Non-statutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

 

(a)            Term. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, no Incentive Stock Option granted shall be exercisable after the expiration of ten (10) years from the date on which it was granted.

 

(b)            Exercise Price of a Stock Option. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise price of each Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Sections 409A and 424(a) of the Code.

 

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(c)            Consideration. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) by cash, check, bank draft or money order payable to the Company at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Non-statutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instruction to pay the aggregate exercise price to the Company from the sales proceeds, or (4) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes).

 

In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes.

 

(d)            Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

 

(e)            Transferability of a Non-statutory Stock Option. A Non-statutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Non-statutory Stock Option does not provide for transferability, then the Non-statutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, (i) the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option, and (ii) the Board may, in its sole discretion, permit transfer of a Non-statutory Stock Option in a manner consistent with applicable tax and securities laws upon the Optionholder’s request.

 

(f)            Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 6(f) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.

 

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(g)            Termination of Continuous Service. Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Company and the Optionholder, in the event that an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.

 

(h)            Extension of Termination Date. An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in Section 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.

 

(i)             Disability of Optionholder. Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Company and the Optionholder, in the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

 

(j)             Death of Optionholder. Except as otherwise provided in the applicable Stock Award Agreement or other agreement between the Company and the Optionholder, in the event that (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder’s death pursuant to Section 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

 

(k)             Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate.

 

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(l)              Right of Repurchase. The Option may, but need not, include a provision whereby the Company may elect to repurchase all or any part of the vested shares of Common Stock acquired by the Optionholder pursuant to the exercise of the Option.

 

(m)             Right of First Refusal. The Option may, but need not, include a provision whereby the Company may elect to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or any part of the shares of Common Stock received upon the exercise of the Option.

 

7.              Provisions of Stock Awards other than Options .

 

(a)             Restricted Stock Awards. Each Restricted Stock Award agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Award agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award agreements need not be identical; provided, however, that each Restricted Stock Award agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

 

(i)           Purchase Price. At the time of the grant of a Restricted Stock Award, the Board will determine the price to be paid by the Participant for each share subject to the Restricted Stock Award. To the extent required by applicable law, the price to be paid by the Participant for each share of the Restricted Stock Award will not be less than the par value of a share of Common Stock. A Restricted Stock Award may be awarded as a stock bonus ( i.e. , with no cash purchase price to be paid) to the extent permissible under applicable law.

 

(ii)          Consideration. At the time of the grant of a Restricted Stock Award, the Board will determine the consideration permissible for the payment of the purchase price of the Restricted Stock Award. The purchase price of Common Stock acquired pursuant to the Restricted Stock Award shall be paid in one of the following ways: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; (iii) by services rendered or to be rendered to the Company; or (iv) in any other form of legal consideration that may be acceptable to the Board.

 

(iii)         Vesting. Shares of Common Stock acquired under a Restricted Stock Award may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

 

(iv)         Termination of Participant’s Continuous Service. In the event that a Participant’s Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Restricted Stock Award agreement. The Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following the purchase of the restricted stock unless otherwise determined by the Board or provided in the Restricted Stock Award agreement.

 

(v)          Transferability. Rights to purchase or receive shares of Common Stock granted under a Restricted Stock Award shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award agreement, as the Board shall determine in its discretion, and so long as Common Stock awarded under the Restricted Stock Award remains subject to the terms of the Restricted Stock Award agreement.

 

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(b)             Stock Appreciation Rights. Each Stock Appreciation Right agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Stock Appreciation Right agreements may change from time to time, and the terms and conditions of separate Stock Appreciation Rights agreements need not be identical, but each Stock Appreciation Right agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

 

(i)           Term . No Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Stock Appreciation Right Agreement.

 

(ii)          Strike Price . Notwithstanding anything in the applicable Stock Award Agreement to the contrary, the strike price of each Stock Appreciation Right shall not be less than the Fair Market Value of the Common Stock equivalents subject to the Stock Appreciation Right on the date of grant.

 

(iii)         Calculation of Appreciation. Each Stock Appreciation Right will be denominated in share of Common Stock equivalents. The appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of share of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over (B) the strike price that is determined by the Committee pursuant to Section 7(b)(ii).

 

(iv)         Vesting. At the time of the grant of a Stock Appreciation Right, the Board may impose such restrictions or conditions to the vesting of such Right as it deems appropriate.

 

(v)          Exercise. To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Rights agreement evidencing such Right.

 

(vi)         Payment . The appreciation distribution in respect of a Stock Appreciation Right may be paid in Common Stock, in cash, or any combination of the two, as the Board deems appropriate.

 

(vii)        Termination of Continuous Service. If a Participant’s Continuous Service terminates for any reason, any unvested Stock Appreciation Rights shall be forfeited and any vested Stock Appreciation Rights shall be automatically redeemed.

 

8.              Covenants of the Company.

 

(a)           Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

 

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(b)           Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant shall not be eligible for the grant of a Stock Award or the subsequent issuance of Common Stock pursuant to the Stock Award if such grant or issuance would be in violation of any applicable securities laws.

 

9.              Use of Proceeds from Stock.

 

Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

 

10.            Miscellaneous.

 

(a)           Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

 

(b)           Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.

 

(c)           No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

(d)           Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Non-statutory Stock Options, notwithstanding any contrary provision of any Stock Award Agreement or any Board resolutions related thereto.

 

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(e)             Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

 

(f)             Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting); or (iii) delivering to the Company owned and unencumbered shares of Common Stock; or (iv) by such other method as may be set forth in the Stock Award Agreement.

 

(g)             Electronic Delivery . Any reference herein to a “written” agreement or document shall include any agreement or document delivered electronically or posted on the Company’s website.

 

(h)             Corporate Action Constituting Grant of Stock Awards . Corporate action constituting a grant by the Company of a Stock Award to any Participant shall be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the Participant. If the Board determines that the terms of a Stock Award do not reflect the appropriate exercise, strike or purchase price on the appropriate date of grant in accordance with the requirements of the Plan, the terms of the Stock Award shall be automatically corrected to reflect the appropriate price or other terms provided for under the Plan, as determined by the Board, without the need for consent of the Participant; provided, however , that no such correction shall result in a direct or indirect reduction in the exercise price or strike price of the Stock Award.

 

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(i)             Compliance with 409A . To the extent that the Board determines that any Stock Award granted under the Plan is subject to Section 409A of the Code, the Stock Award Agreement evidencing such Stock Award shall incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code. To the extent permitted by applicable law, the Plan and Stock Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued or amended after the date the Plan was approved by the Board and stockholders of the Company. Notwithstanding anything in the Plan or in any Stock Award Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of the Code would otherwise be payable or distributable under the Plan or any Stock Award Agreement by reason of the occurrence of a Change in Control, or Participant’s Disability or separation from service, such amount or benefit will not be payable or distributable to Participant by reason of such circumstance unless (i) the circumstances giving rise to such Change in Control, Disability or separation from service meet any description or definition of “change in control event,” “disability” or “separation from service”, as the case may be, in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition), or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A of the Code by reason of the short-term deferral exemption or otherwise. This provision does not prohibit the vesting of any amount upon a Change in Control, Disability or separation from service, however defined. If this provision prevents the payment or distribution of any amount or benefit, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant “change in control event” “disability” or “separation from service” as the case may be. In addition, to the greatest extent permitted by applicable law, the Board may adopt such amendments to the Plan and the applicable Stock Award Agreement (including but not limited to increasing the exercise price of an Award to the extent required for the avoidance of the tax consequences set forth in Section 409A(a)(1)) or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (i) exempt the Stock Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Stock Award, or (ii) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.

 

11.            Adjustments upon Changes in Stock.

 

(a)             Capitalization Adjustments . If any change is made in, or other event occurs with respect to, the Common Stock subject to the Plan or subject to any Stock Award without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company (each a “Capitalization Adjustment”), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to Sections 4(a) and 4(b) and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company).

 

(b)             Dissolution or Liquidation . Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the Company, and upon ten (10) days prior written notice, all outstanding Stock Awards shall terminate immediately prior to the completion of such dissolution or liquidation, and shares of Common Stock subject to the Company’s repurchase option may be repurchased by the Company notwithstanding the fact that the holder of such stock in still in Continuous Service, provided, however , that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.

 

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(c)             Corporate Transaction . Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction, any surviving corporation or acquiring corporation may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (it being understood that similar stock awards include, but are not limited to, awards to acquire the same consideration paid to the stockholders or the Company, as the case may be, pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or such successor’s parent company), if any, in connection with such Corporate Transaction. A surviving corporation or acquiring corporation (or its parent) may choose to assume or continue only a portion of a Stock Award or substitute a similar stock award for only a portion of a Stock Award. Except as otherwise stated in the Stock Award Agreement, in the event that any surviving corporation or acquiring corporation does not assume or continue any or all such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by Participants whose Continuous Service has not terminated prior to the effective time of the Corporate Transaction (“Current Participants”), the vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), the Stock Awards shall terminate if not exercised (if applicable) at or prior to such effective time, and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards held by Participants whose Continuous Service has not terminated shall (contingent upon the effectiveness of the Corporate Transaction) lapse. With respect to any other Stock Awards outstanding under the Plan that have not been assumed, continued or substituted that are not held by current Participants, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated, unless otherwise provided in a written agreement between the Company or any Affiliate and the holder of such Stock Award, and such Stock Awards, upon advance written notice by the Company of at least 10 days to the holders of such Stock Awards, shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction; provided, however that any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall not terminate and may continue to be exercised notwithstanding the Corporate Transaction.

 

(d)            Change in Control.

 

(i)           Stock Awards May be Assumed . Except as otherwise stated in the Stock Award Agreement, in the event of a Change in Control, any surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to acquire the same consideration paid to the stockholders of the Company pursuant to the Change in Control), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or the successor’s parent company, if any), in connection with such Change in Control. A surviving corporation or acquiring corporation (or its parent) may choose to assume or continue only a portion of a Stock Award or substitute a similar stock award for only a portion of a Stock Award.

 

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(ii)          Stock Awards Not Assumed Held by Current Participants . Except as otherwise stated in the Stock Award Agreement, in the event of a Change in Control in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue any or all outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by Current Participants, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Change in Control) be accelerated in full to a date prior to the effective time of such Change in Control as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five business (5) days prior to the effective time of the Change in Control), and such Stock Awards shall terminate if not exercised (if applicable) at or prior to the effective time of the Change in Control, and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall lapse (contingent upon the effectiveness of the Change in Control).

 

(iii)         Stock Awards Not Assumed Held by Persons other than Current Participants . Except as otherwise stated in the Stock Award Agreement, in the event of a Change in Control in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue any or all outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by persons other than current Participants, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated and such Stock Awards (other than a Stock Award consisting of vested and outstanding shares of Common Stock not subject to the Company’s right of repurchase), upon advance written notice by the Company of at least 10 days to the holders of such Stock Awards, shall terminate if not exercised (if applicable) prior to the effective time of the Change in Control; provided, however , that any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall not terminate and may continue to be exercised notwithstanding the Change in Control.

 

(iv)         Additional Provisions . A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant. A Stock Award may vest as to all or any portion of the shares subject to the Stock Award (i) immediately upon the occurrence of a Change in Control, whether or not such Stock Award is assumed, continued, or substituted by a surviving or acquiring entity in the Change in Control, and/or (ii) in the event a Participant’s Continuous Service is terminated, actually or constructively, within a designated period following the occurrence of a Change in Control.

 

12.            Amendment of the Plan and Stock Awards.

 

(a)           Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11(a) relating to Capitalization Adjustments, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code.

 

(b)           Stockholder Approval. The Board, in its sole discretion, may submit any other amendment to the Plan for stockholder approval.

 

(c)           Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and to certain nonqualified deferred compensation under Section 409A of the Code and/or to bring the Plan and/or Stock Awards granted under it into compliance therewith, subject to the limitations, if any, of applicable law.

 

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(d)           No Impairment of Rights. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

 

(e)           Amendment of Stock Awards. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

 

13.            Termination or Suspension of the Plan.

 

(a)           Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

 

(b)           No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.

 

14.            Effective Date of Plan.

 

The Plan shall become effective as determined by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.

 

15.            Choice of Law.

 

The law of the State of New York shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

 

  - 17 -  

 

 

Attachment A

 

Janel Corporation

2017 Equity Incentive Plan

Stock Option Agreement

(Incentive Stock Option or Non-statutory Stock Option)

 

Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Stock Option Agreement, Janel Corporation (the “Company”) has granted you an option under its 2017 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

 

The details of your option are as follows:

 

1.              Vesting. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.

 

2.              Number of Shares and Exercise Price. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments.

 

3.              Exercise prior to Vesting (“Early Exercise”). If permitted in your Grant Notice (i.e., the “Exercise Schedule” indicates that “Early Exercise” of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that:

 

(a)          a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;

 

(b)          any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Company’s form of Early Exercise Stock Purchase Agreement;

 

(c)          you shall enter into the Company’s form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and

 

(d)          if your option is an Incentive Stock Option, then, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which your option plus all other Incentive Stock Options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Non-statutory Stock Options.

 

4.              Method of Payment. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following:

 

 A- i

 

 

(a)           In the Company’s sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.

 

(b)           Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Company’s reported earnings (generally six (6) months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

 

(c)           Pursuant to the following deferred payment alternative:

 

(i)          Not less than one hundred percent (100%) of the aggregate exercise price, plus accrued interest, shall be due four (4) years from date of exercise or, at the Company’s election, upon termination of your Continuous Service.

 

(ii)         Interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes.

 

(iii)        At any time that the Company is incorporated in Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall be made in cash and not by deferred payment.

 

(iv)        In order to elect the deferred payment alternative, you must, as a part of your written notice of exercise, give notice of the election of this payment alternative and, in order to secure the payment of the deferred exercise price to the Company hereunder, if the Company so requests, you must tender to the Company a promissory note and a pledge agreement covering the purchased shares of Common Stock, both in form and substance satisfactory to the Company, or such other or additional documentation as the Company may request.

 

5.              Whole Shares. You may exercise your option only for whole shares of Common Stock.

 

6.               Securities Law Compliance. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.

 

 A- ii

 

 

7.              Term. You may not exercise your option before the commencement or after the expiration of its term. The term of your option commences on the Date of Grant and expires upon the earliest of the following:

 

(a)          three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in Section 6, your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;

 

(b)          twelve (12) months after the termination of your Continuous Service due to your Disability;

 

(c)          eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;

 

(d)          the Expiration Date indicated in your Grant Notice; or

 

(e)          the day before the tenth (10th) anniversary of the Date of Grant.

 

If your option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option’s exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or your permanent and total disability, as defined in Section 22(e) of the Code. (The definition of disability in Section 22(e) of the Code is different from the definition of the Disability under the Plan). The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.

 

8.              Exercise.

 

(a)          You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.

 

(b)          By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.

 

 A- iii

 

 

(c)          If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.

 

(d)          By exercising your option you agree that you shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the managing underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of a registration statement of the Company filed under the Securities Act (the “Lock Up Period”); provided, however , that nothing contained in this section shall prevent the exercise of a repurchase option, if any, in favor of the Company during the Lock Up Period. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Company’s stock are intended third party beneficiaries of this Section 8(d) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

 

9.              Transferability. Your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.

 

10.            Change In Control.

 

(a)          If a Change in Control occurs and as of the effective time of such Change in Control your Continuous Service terminates due to an involuntary termination (not including death or Disability) without Cause or due to a voluntary termination with Good Reason, then, as of the date of termination of Continuous Service, the vesting and exercisability of your option shall be accelerated in full.

 

(b)          “Cause” means the occurrence of any one or more of the following: (i) your commission of any crime involving fraud, dishonesty or moral turpitude; (ii) your attempted commission of or participation in a fraud or act of dishonesty against the Company that results in (or might have reasonably resulted in) material harm to the business of the Company; (iii) your intentional, material violation of any contract or agreement between you and the Company or any statutory duty you owe to the Company; or (iv) your conduct that constitutes gross insubordination, incompetence or habitual neglect of duties and that results in (or might have reasonably resulted in) material harm to the business of the Company; provided, however , that the action or conduct described in clauses (iii) and (iv) above will constitute “Cause” only if such action or conduct continues after the Company has provided you with written notice thereof and thirty (30) days to cure the same.

 

 A- iv

 

 

(c)          “Good Reason” means that one or more of the following are undertaken by the Company without your express written consent: (i) the assignment to you of any duties or responsibilities that results in a material diminution in your function as in effect immediately prior to the effective date of the Change in Control; provided, however , that a change in your title or reporting relationships shall not provide the basis for a voluntary termination with Good Reason; (ii) a material reduction by the Company in your annual base salary, as in effect on the effective date of the Change in Control or as increased thereafter; provided, however , that Good Reason shall not be deemed to have occurred in the event of a reduction in your annual base salary that is pursuant to a salary reduction program affecting substantially all of the employees of the Company and that does not adversely affect you to a greater extent than other similarly situated employees; (iii) any failure by the Company to continue in effect any benefit plan or program, including incentive plans or plans with respect to the receipt of securities of the Company, in which you were participating immediately prior to the effective date of the Change in Control (hereinafter referred to as “Benefit Plans”), or the taking of any action by the Company that would adversely affect your participation in or reduce your benefits under the Benefit Plans or deprive you of any fringe benefit that you enjoyed immediately prior to the effective date of the Change in Control; provided, however , that Good Reason shall not be deemed to have occurred if the Company provides for your participation in benefit plans and programs that, taken as a whole, are comparable to the Benefit Plans; (iv) a relocation of your business office to a location more than fifty (50) miles from the location at which you performed your duties as of the effective date of the Change in Control, except for required travel by you on the Company’s business to an extent substantially consistent with your business travel obligations prior to the effective date of the Change in Control; or (v) a material breach by the Company of any provision of the Plan or the Option Agreement or any other material agreement between you and the Company concerning the terms and conditions of your employment.

 

11.            Option not a Service Contract. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.

 

12.            Withholding Obligations.

 

(a)          At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “cashless exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.

 

(b)          Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable legal conditions or restrictions, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.

 

 A- v

 

 

(c)          You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied.

 

13.            Notices. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.

 

14.            Governing Plan Document. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.

 

 A- vi

 

 

Attachment B

 

Janel Corporation
Stock Option Grant Notice
(2017 Equity Incentive Plan)

 

Janel Corporation (the “Company”), pursuant to its 2017 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.

 

Optionholder:  
Date of Grant:  
Vesting Commencement Date:  
Number of Shares Subject to Option:  
Exercise Price (Per Share):  
Total Exercise Price:  
Expiration Date:  

 

Type of Grant: ¨ Incentive Stock Option 1 ¨ Non-statutory Stock Option
     
Exercise Schedule : ¨ Same as Vesting Schedule ¨ Early Exercise Permitted

 

Vesting Schedule :

 

Payment: By one or a combination of the following items (described in the Stock Option Agreement):

 

¨ By cash or check
¨ Pursuant to a Regulation T Program if the Shares are publicly traded
¨ By delivery of already-owned shares if the Shares are publicly traded
¨ By deferred payment

 

Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:

 

Other Agreements:    
     

 

 

1           If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.

 

 B- i

 

 

Janel Corporation   Optionholder:
         
By:      
  Signature     Signature
         
Title:     Date:  
         
Date:        

 

Attachments : Stock Option Agreement, 2017 Equity Incentive Plan and Notice of Exercise

 

 B- ii

 

 

Attachment C

 

NOTICE OF EXERCISE

 

TO: Janel Corporation

 

Date of Exercise: _______________

 

Ladies and Gentlemen:

 

This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.

 

Type of option (check one): Incentive   ¨ Non-statutory   ¨
Stock option dated:    
Number of shares as to which option is exercised:    
Certificates to be issued in name of:    
Total exercise price: $  
Cash payment delivered herewith: $  
Promissory note delivered herewith: $  
Value of ________ shares of common stock delivered herewith 2 : $  

 

By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 2017 Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.

 

 

2           Shares must meet the public trading requirements set forth in the option. Shares must be valued in accordance with the terms of the option being exercised, must have been owned for the minimum period required in the option, and must be owned free and clear of any liens, claims, encumbrances or security interests. Certificates must be endorsed or accompanied by an executed assignment separate from certificate.

 

 C- i

 

 

I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the “Shares”), which are being acquired by me for my own account upon exercise of the Option as set forth above:

 

I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and are deemed to constitute “restricted securities” under Rule 701 and “control securities” under Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws.

 

I further acknowledge that I will not be able to resell the Shares for at least ninety days (90) after the stock of the Company becomes publicly traded ( i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.

 

I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company’s Articles of Incorporation, Bylaws and/or applicable securities laws.

 

I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Shares or other securities of the Company held by me, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. I further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to my Shares until the end of such period.

 

  Very truly yours,
   
   

 

 C- ii

 

 

Exhibit 31.1

CERTIFICATION

 

I, Brendan J. Killackey, certify that:

 

1.          I have reviewed this Quarterly Report on Form 10-Q of Janel Corporation;

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.          The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.          The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: May 12, 2017 /s/ Brendan J. Killackey
  President and Chief Executive Officer
(Principal Executive Officer)

   

 

 

Exhibit 31.2

CERTIFICATION  

 

I, Carlos Pla, certify that:

 

1.          I have reviewed this Quarterly Report on Form 10-Q of Janel Corporation;

 

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.          The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.          The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: May 12, 2017 /s/ Carlos Pla
  Chief Financial Officer
(Principal Financial Officer)

 

 

 

Exhibit 32.1

 

CERTIFICATION

PURSUANT TO 18 U.S.C. §1350

 

In connection with the report on Form 10-Q of Janel Corporation for the quarter ended March 31, 2017, as filed with the SEC on the date hereof (the “Report”), each of the undersigned officers of the registrant certifies pursuant to 18 U.S.C. Section 1350 that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

 

Dated: May 12, 2017   /s/ Brendan J. Killackey
      Brendan J. Killackey
      President and Chief Executive Officer
(Principal Executive Officer)
       
      /s/ Carlos Pla
      Carlos Pla
      Chief Financial Officer
(Principal Financial Officer)