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LONG-TERM DEBT, NET

9 Months Ended

Sep. 30, 2024

5. LONG-TERM DEBT, NET

Avenue Capital Group:

On June 28, 2024 (the “Closing Date”), the Company entered into a Loan and Security Agreement (as amended, supplemented, restated or otherwise modified as of the date hereof and from time to time, the “Loan and Security Agreement”) with Avenue Venture Opportunities Fund, L.P., a Delaware limited partnership (“Avenue”), Avenue Venture Opportunities Fund II, L.P., a Delaware limited partnership (“Avenue 2” and, together with Avenue, the “Lenders”), and Avenue Capital Management II, L.P., a Delaware limited partnership (the “Administrative and Collateral Agent”).

Under the Loan and Security Agreement, the Lenders have agreed to loan to the Company up to an aggregate of $20 million, to be disbursed in two tranches: (1) one tranche of $15 million (“Growth Capital Loan Tranche 1”) on the Closing Date, with $4.5 million funded by Avenue and $10.5 million funded by Avenue 2, of which $10 million is available to the Company on the Closing Date and $5 million constitutes restricted cash subject to release to the Company prior to March 31, 2025, provided (i) the FDA has accepted Company’s application for review with respect to DrugSorb-ATR De Novo 510(k) and (ii) the Company has received a minimum of $3 million in net proceeds from the sale of its equity securities after the Closing Date. The restriction will be released on a dollar for dollar basis for equity raised between $3 million and $5 million and (2) a second tranche of up to $5 million, which may be disbursed at the Company’s request between July 1, 2025 and December 31, 2025, provided that the Company receives FDA marketing approval of its DrugSorb-ATR application (“Growth Capital Loan Tranche 2” and together with Growth Capital Loan Tranche 1, the “Growth Capital Loans” or the “Commitment”). The proceeds from the Commitment were used to pay off the existing outstanding debt with Bridge Bank, and will additionally be used for working capital purposes and to fund general business requirements in accordance with the terms of the Loan and Security Agreement. Each Growth Capital Loan shall bear interest at a variable rate per annum equal to the greater of (A) the Prime Rate (as defined in the Loan and Security Agreement) plus five percent (5.00%) or (B) thirteen and one-half percent (13.50%).

Commencing on August 1, 2024, the Company shall make monthly payments during the term of each Growth Capital Loan of interest only during the initial 25-month period following the Closing Date (as may be extended to the 30 months anniversary of the Closing Date upon satisfaction of certain conditions) and thereafter to maturity in equal monthly installments of principal plus accrued and unpaid interest. All unpaid principal and accrued and unpaid interest shall be due and payable in full on July 1, 2027; provided, however that if the Company draws the full amount of Growth Capital Loan Tranche 2 by December 2025, all unpaid principal and accrued and unpaid interest shall be due and payable in full by January 1, 2028. In addition, the Loan and Security Agreement required the Company to pay a non-refundable commitment fee equal to 1.00% of the Commitment due and payable on the Closing Date. In addition to the non-refundable commitment fee, the Company also paid financial advisor fees and legal fees of approximately $640,000 related to the Commitment. These costs are being amortized over the loan period as a charge to interest expense. During the three and nine months ended September 30, 2024, the Company recorded interest expense of approximately $58,000 related to these costs. In addition, the Loan and Security Agreement requires the Company to pay a non-refundable final payment equal to 4.5% of the original commitment amount. This final payment has been accrued and included as part of the debt discount. This discount will be charged to interest expense over the term of the loan. For the three and nine months ended September 30, 2024, the Company recorded interest expense of approximately $132,000 related to the debt discount.

The Capital Growth Loans are evidenced by secured promissory notes issued to the Lenders by the Company. If the Company elects to prepay the Growth Capital Loan(s) pursuant to the terms of the Loan and Security Agreement, it will owe a prepayment fee to the Lenders, as follows: (1) for a prepayment made on or after the funding date of a Growth Capital Loan through and including the first anniversary of such funding date, an amount equal to 3.00% of the principal amount of such Growth Capital Loan prepaid; (2) for a prepayment made after the first anniversary of the funding date of a Growth Capital Loan through and including the second anniversary of such funding date, an amount equal to 2.00% of the principal amount of such Growth Capital Loan prepaid; and (3) for a prepayment made any time after the second anniversary of the funding date of a Growth Capital Loan, an amount equal to 1.00% of the principal amount of such Growth Capital Loan prepaid.

Events of default which may cause repayment of the Commitment to be accelerated include, among other customary events of default, (1) non-payment of any obligation when due, (2) the failure to perform any obligation required under the Loan and Security Agreement and to cure such default within a reasonable time frame, (3) the occurrence of any circumstance that has a Material Adverse Effect (as defined in the Loan and Security Agreement), (4) default beyond any applicable grace period or cure under any other agreement involving the borrowing of money in excess of the Threshold Amount (as defined in the Loan and Security Agreement), (5) any judgment(s) singly or in the aggregate in excess of the Threshold Amount entered against the Company that remain unsatisfied, unvacated or unstayed for 15 days or more after entry thereof (to the extent not otherwise covered by independent third-party insurance), and (6) if the Company becomes insolvent or starts an insolvency proceeding or if an insolvency proceeding is brought by a third party against the Company and such proceeding is not dismissed or stayed within 45 days. The Loan and Security Agreement includes customary loan conditions, company representations and warranties, company affirmative covenants and company negative covenants for secured transactions of this type. As of September 30, 2024, the Company was in compliance with these covenants.

As additional consideration for the Commitment, on June 28, 2024, the Company also issued each Lender a warrant instrument (each, a “Warrant”) entitling the Lenders to purchase an aggregate of 1,645,569 shares of the Company’s common stock for cash at the exercise price of $0.79 and expire on June 28, 2029. The number of warrants is fixed, however, the exercise price may be adjusted down if the Company raises equity (excluding sales of equity utilizing the Company’s at-the-market equity facility) at a share price that is lower than $0.79. These warrants meet the criteria for equity classification under ASC 815. Accordingly, the Company has recorded a debt discount and additional paid-in capital of approximately $690,000 related to these warrants as of June 30, 2024. This discount will be charged to interest expense over the term of the loan.

The Lenders were also granted the right while the Commitment is outstanding to convert up to an aggregate amount of $2,000,000 of the principal amount of the outstanding Growth Capital Loans into the Company’s common stock at a fixed conversion price of 120% of the Closing Price (as defined in the warrant) or $0.95 per share (the “Conversion Option”).

The Company’s and CytoSorbents Medical’s obligations under the Loan and Security Agreement are joint and several. The obligations under the Loan and Security Agreement are secured by a first priority security interest in favor of the Lenders with respect to the Company’s Shares (as defined in the Loan and Security Agreement) and the Company’s Collateral (as defined in the Loan and Security Agreement), which includes the Company’s intellectual property, pursuant to that certain Intellectual Property Security Agreement, dated as of June 28, 2024, by and between the Company and the Administrative and Collateral Agent.

Long-term debt consists of the following as of September 30, 2024:


Principal amount	$	15,000,000
Accrued final fee		900,000
Less unamortized debt discount		(1,455,858)
Less unamortized debt acquisition costs		(638,157)
Subtotal		13,805,985
Less Current maturities		—
Long-term debt net of current maturities	$	13,805,985

Principal payments of long-term debt are due as follows during the periods ending September 30:


2025	$	—
2026		2,500,000
2027		12,500,000
2028		—
Total	$	15,000,000

Bridge Bank:

On June 28, 2024, concurrent with the closing of the Avenue Capital Group financing discussed above, the Company paid off its existing outstanding debt with Bridge Bank. The following items survive the termination of the Bridge Bank Amended and Restated Loan and Security Agreement and related amendments:

2018 Success Fee Letter:

Pursuant to the amended 2018 Letter, the Borrower shall pay to the Bank a success fee in the amount equal to 6.37% of the funded amount of the Term B Loan (as defined in the Restated Loan and Security Agreement) (the “Success Fee”) upon the first occurrence of any of the following events: (a) a sale or other disposition by the Borrower of all or substantially all of its assets; (b) a merger or consolidation of the Borrower into or with another person or entity, where the holders of the Borrower’s outstanding voting equity securities as of immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities of the successor or surviving person or entity as of immediately following the consummation of such merger or consolidation; (c) a transaction or a series of related transactions in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of the Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of the Borrower, who did not have such power before such transaction; or (d) the closing price per share for the Company’s common stock on the Nasdaq Capital Market being the greater of (i) 70% or more over $7.05, the closing price of the Company’s common stock on March 29, 2018 (after giving effect to any stock splits or consolidations effected after the date thereof) for five successive business days, or (ii) at least 26.13% more than the average price of Company’s common stock for the 365-day period ending on the date of the funding of the Term B Loan. This obligation terminated on the fifth anniversary of the funding of the Term B Loan which was July 31, 2024.

2022 Success Fee Letter:

Pursuant to the 2022 Success Fee Letter, the Borrower will pay to the Bank a success fee equal to (i) 1% of $5 million if the Company draws down the first tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $8 for five consecutive trading days; (ii) 1.5% of $5 million if the Company draws down the second tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $10 for five consecutive trading days; and (iii) 2% of $5,000,000 if the Company draws down the third tranche of the Term C Loan and is payable only if the Company’s stock price equals or exceeds $12 for five consecutive trading days (together, the “Success Fee”). As of June 28, 2024, the Company had drawn down only the first tranche of the Term C Loan. Borrower may pay the Success Fee in cash or in shares of common stock, at Borrower’s sole discretion. The right of Bank to receive the Success Fees and the obligation of the Borrower to pay the Success Fees hereunder shall terminate on the date that is the fifth anniversary of the funding date of the last Term C Loans made but shall survive the termination of the Loan Agreement and any prepayment of the Term C Loans. The termination date of this Letter is December 27, 2027.