On August 14, 2012, the Company entered into a two year Interim Revenue Interest Purchase Agreement (the “Interim Royalty Contract”) with PDL BioPharma, Inc. (“PDL”), pursuant to which PDL paid the Company $1,750,000 in exchange for the purchase of specified “Acquired Revenues,” from the Company in an amount equal to the following: (i) during the period from August 1, 2012 to December 31, 2012, 3% of the Company’s Net Revenues per month, and (ii) during the period from January 1, 2013 to August 31, 2014, the greater of 5% of the Company’s Net Revenues or $112,257 per month.

Long-term debt consists of the following:

Future principal payments on long-term debt at September 30 are $483,871 for 2012, $1,935,484 for 2013, $3,685,484 for 2014, and $645,161 for 2015, however, such future principal payments were eliminated as the debt was paid in full in October 2012.

Loan and Security Agreements and Warrants

On September 30, 2011, the Company entered into the Loan and Security Agreement with MidCap Financial SBIC, LP (“MidCap”), as administrative agent, and the Lenders listed on Schedule 1 thereto. The Loan and Security Agreement was subsequently amended on May 14 and August 14, 2012 (the Loan and Security Agreement, as amended, the “MidCap Loan”). The credit facility under the MidCap loan has a principal amount of $5.0 million and a term of 42 months, and is subject to prepayment penalties. Under the MidCap Loan, AxoGen is required to make interest only payments for the first 12 months, and payments of both interest and straight line amortization of principal for the remaining 30 months. The interest rate is 9.9% per annum, and interest is computed on the basis of a 360-day year and the actual number of days elapsed during which such interest accrues.

The agreement contains customary affirmative and negative covenants, including, without limitation, (i) covenants requiring AxoGen to comply with applicable laws, provide to MidCap copies of AxoGen’s financial statements, maintain appropriate levels of insurance, protect, defend and maintain the validity and enforceability of AxoGen’s material intellectual property, (ii) covenants restricting AxoGen’s ability to dispose of all or any part of its assets (subject to certain exceptions), engage in other lines of business, change its seniormanagement, enter into merger or consolidation transactions, incur or assume additional indebtedness, or incur liens on its assets, and (iii) covenants requiring the Company to meet certain minimum Net Invoiced Revenue, as defined in the agreement, or maintain a cash balance not less than 80% of the loan principal amount.

The MidCap Loan is secured by all of AxoGen’s assets. The lenders also received a ten-year warrant to purchase 89,686 shares of AxoGen’s common stock at $2.23 per share. The fair value of the warrant was $173,736 and was recorded as debt discount and is being amortized through interest expense – deferred financing costs using the effective interest method over the term of the debt. Amortization of debt discount was $12,299 and $36,806 for the three months and nine months ended September 30, 2012, respectively. The Company also recorded $317,990 in deferred financing costs which is being amortized over the term of the loan. Amortization of the deferred financing cost was $22,714 and $68,141 for the three months and nine months ended September 30, 2012, respectively.

In addition, on August 14, 2012, the Company and MidCap entered into an amendment to the MidCap Loan, under which (i) the lenders to the MidCap Loan consented to the Company’s entry into the Interim Royalty Contract, and (ii) the parties agreed that PDL’s right in the Acquired Revenues under the Interim Royalty Contract are subordinated to the MidCap Loan.

On October 5, 2012, AxoGen entered into a Revenue Interests Purchase Agreement (the “Royalty Contract”) with PDL. Proceeds from the PDL transaction were used to fully repay the MidCap Loan and extinguish AxoGen’s obligations thereunder.