DEBT

Credit Facility

On May 14, 2014, we entered into a Credit Agreement (“Agreement”) with Huntington Bank. The Agreement includes both a term loan and a revolving loan and is secured by mortgages on our facilities in West Lafayette and Evansville, Indiana and liens on our personal property. As of December 31, 2015, we were not in compliance with certain financial covenants of the Agreement. Huntington Bank has advised us that the failure to meet these financial covenants constitutes an event of default under the Agreement and has reserved all of its rights with respect thereto, but has not exercised available remedies to date. These remedies include the ability to accelerate the outstanding debt under our term loan and revolving loan, to exercise their security interest and collect on the underlying collateral, to refrain from making additional advances under the revolving loan and to terminate our interest rate swap. Were Huntington Bank to accelerate the outstanding debt, we would have insufficient funds to satisfy that obligation, and their exercise of alternative remedies could also have a material adverse effect on our operations and financial condition.

Management is in discussion with Huntington Bank to secure a forbearance whereby Huntington Bank would agree for a limited time period to forbear from exercising certain of its rights and remedies under the Agreement, including the right to declare outstanding indebtedness thereunder immediately due. A forbearance agreement would provide management with additional time to engage in discussions with Huntington Bank and other parties regarding restructuring or replacing our debt, including amounts outstanding under the revolving loan scheduled to mature in May 2016, and to explore alternative liquidity solutions. There can be no assurance that we will be able to complete initiatives to resolve our credit issues on satisfactory terms, or at all. If we are unable to negotiate a forbearance and execute on initiatives to refinance our indebtedness or otherwise rectify our liquidity issues, we may have insufficient funds to satisfy our debt obligations and operate our business.

The term loan for $5,500 bears interest at LIBOR plus 325 basis points with monthly principal payments of approximately $65 plus interest. The term loan matures in May 2019. On May 15, 2014, we used the proceeds from the term loan to pay off prior indebtedness. The balance on the term loan at December 31, 2015 and September 30, 2015 was $4,256 and $4,452, respectively.

The revolving loan for $2,000 matures in May 2016 and bears interest at LIBOR plus 300 basis points with interest paid monthly. The revolving loan also carries a facility fee of .25%, paid quarterly, for the unused portion of the revolving loan. The revolving loan includes an annual clean-up provision that requires the Company to maintain a balance of not more than 20% of the maximum loan of $2,000 for a period of 30 days in any 12 month period while the revolving loan is outstanding. The revolving loan balance was $824 and $ 86 at December 31, 2015 and September 30, 2015, respectively.

On May 14, 2015, we executed a first amendment to the Agreement with Huntington Bank. As amended, the Agreement requires us to maintain a fixed charge coverage ratio of not less than 1.05 to 1.00 for the fiscal quarters ending June 30, 2015, September 30, 2015 and December 31, 2015 and not less than 1.10 to 1.00 for the fiscal quarter ending March 31, 2016 until maturity. The fixed charge coverage ratio calculation excludes up to $1,000 in capital expenditures related to the building renovation costs associated with our lease agreement with Cook Biotech, Inc. executed in January 2015. The Agreement also requires us to maintain a maximum total leverage ratio of not greater than 3.00 to 1.00 from the date of the Agreement through September 30, 2015 and 2.50 to 1.00 commencing after October 1, 2015 until maturity. The Agreement also contains various other covenants, including restrictions on the incurrence of certain indebtedness, liens, investments, acquisitions, asset sales and cash dividends. As of December 31, 2015, we were not in compliance with the fixed charge coverage ratio and maximum total leverage ratio.

We entered into an interest rate swap agreement with respect to the above loans to fix the interest rate with respect to 60% of the value of the term loan at approximately 5.0%. We entered into this derivative transaction to hedge interest rate risk of the related debt obligation and not to speculate on interest rates. The changes in the fair value of the interest rate swap are recorded in AOCI to the extent effective. We assess on an ongoing basis whether the derivative that is used in the hedging transaction is highly effective in offsetting changes in cash flows of the hedged debt. The terms of the interest rate swaps match the terms of the underlying debt resulting in no ineffectiveness.

We incurred $134 of costs in connection with the issuance of the credit facility. These costs were capitalized and are being amortized to interest expense on a straight-line basis over five years based on the contractual term of the credit facility. As of December 31, 2015 and September 30, 2015, the unamortized portion of debt issuance costs related to the credit facility was $87 and $94, respectively, and was included in Debt issue costs, net on the consolidated balance sheets.