Item 1.01. Entry
into a Material Definitive Agreement.
Stock Purchase Agreement
On March 21, 2016,
Janel Corporation (the “
Company
”) executed a Stock Purchase Agreement (the “
Purchase
Agreement
”)
with Indco, Inc., a Tennessee corporation based in Indiana which markets and sells specialty industrial mixers (“
Indco
”),
and the principal stockholder of Indco, Tennessee Valley Ventures II, L.P. (the “
Investment Stockholder
”), for
the purchase by the Company of approximately 97% of the outstanding common stock of Indco (the “
Indco Shares
”),
representing approximately 91.65% of the beneficial ownership of Indco. The balance of Indco’s outstanding shares will continue
to be held by Indco’s president, Mark Hennis. Closing of the transactions contemplated by the Purchase Agreement took place
on the same day.
Under the terms of
the Purchase Agreement, the purchase price for the Indco Shares was $11,000,000, subject to certain closing adjustments as set
forth in the Purchase Agreement. The Purchase Agreement contains customary representations, warranties and covenants by each of
the parties. The Purchase Agreement further provides that each party will indemnify the other for any breach of the Purchase Agreement
by such indemnifying party, failure of any warranty or representation of such party or failure by such party to comply with any
covenants or obligations under the Purchase Agreement, subject to certain monetary limitations on the indemnification obligations
of Indco and the Investment Stockholder.
Indco will operate
as a new business segment for the Company. Mark Hennis, president of Indco, and Kris Wilberding, chief financial officer of Indco,
will continue in their roles pursuant to the terms of employment agreements, effective post-closing, entered into between Indco
and each of these individuals. The initial term of each employment agreement ends on March 20, 2018, and thereafter will renew
for 1-year terms unless either party provides notice that it does not wish to renew. The Company will pay Mr. Hennis an annual
salary of $180,000, and will pay Ms. Wilberding an annual salary of $120,000. Each employment agreement also provides that the
employee is entitled to typical employee benefits and additional incentive compensation and contains customary restrictive covenants.
First Merchants Bank Credit Facility
On March 21, 2016, Indco executed a Credit
Agreement with First Merchants Bank (“
First Merchants
”) with respect to a $6 million Term Loan and $1.5 million
(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.
Subscription Agreement
On March 21, 2016, the Company entered into
a Subscription Agreement (the “
Subscription
Agreement
”) with Oaxaca Group LLC (the “
Investor
”)
for the sale to the Investor of 8,705.33 shares of the Company’s Series C Cumulative Preferred Stock, par value $0.001 per
share (the “
Series C Preferred Stock
”), at a purchase price of $500.00 per share, or an aggregate of $4,352,663.
The Investor beneficially owns 43.4% of the Company’s common stock, which includes exercisable warrants to purchase 250,000
shares of the Company’s common stock.
The Company issued the shares of Series
C Preferred Stock on the same date. Such shares were sold to an accredited investor in a private placement in reliance upon the
exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933
and Regulation D promulgated thereunder.
The Company used the proceeds from the sale for the acquisition of the Indco Shares, as more fully described above.