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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2026
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 001-42771
_________________________
Shoulder Innovations, Inc.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
27-0538764
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
1535 Steele Avenue SW, Suite B Grand Rapids, Michigan
49507
(Address of Principal Executive Offices)
(Zip Code)
(616) 294-1026
Registrant’s telephone number, including area code

N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per shareSIThe New York Stock Exchange
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 o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes x No o
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
o
Accelerated filer
o
Non-accelerated filer
x
Smaller reporting company
x
Emerging growth company
x
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.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
As of July 30, 2026, there were 20,818,957 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 (this “Quarterly Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including but not limited to statements regarding our future results of operations and financial condition, our business plans and strategy, the potential market size, market trends and growth opportunities for our products, macroeconomic and geopolitical conditions, and the sufficiency of our cash balances, working capital and cash generated from our operations, investing and financing activities for future liquidity and capital resource needs, may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K dated December 31, 2025, filed with the SEC on March 10, 2026 (the “2025 Annual Report”). The forward-looking statements in this Quarterly Report are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits to this Quarterly Report with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of any new information, future events or otherwise.

As used in this Quarterly Report, unless otherwise stated or the context requires otherwise, the terms “Shoulder Innovations,” the “Company,” “we,” “us,” and “our” refer to Shoulder Innovations, Inc. “Shoulder Innovations,” the Shoulder Innovations logos, and other trade names, trademarks, or service marks of Shoulder Innovations appearing in this Quarterly Report are the property of Shoulder Innovations. Other trade names, trademarks, or service marks appearing in this Quarterly Report are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us, by these other companies. Solely for convenience, trade names, trademarks, and service marks referred to in this Quarterly Report appear without the ®, ™, and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trade names, trademarks, and service marks.

We routinely post important information for investors in the “Investors” section of our website, shoulderinnovations.com. We may use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the “Investors” section of our website, in addition to following our press releases, filings with the SEC, public conference calls,
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presentations, and webcasts. The information contained on, or that may be accessed through, our website, is not incorporated by reference into, and is not a part of, this Quarterly Report.

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Shoulder Innovations, Inc.
Condensed Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
Part I. Financial Information
Item 1. Financial Statements
June 30, 2026December 31, 2025
Assets
Current assets
Cash and cash equivalents$24,460 $26,871 
Marketable securities74,533 97,434 
Trade accounts receivable, net of allowance for credit losses10,873 8,268 
Inventories, net22,920 21,591 
Prepaid expenses2,329 1,518 
Other current assets2,292 1,483 
Total current assets 137,407 157,165 
Property and equipment, net14,498 12,532 
Operating lease right-of-use asset69 110 
Other assets33 — 
Intangible assets, net— 100 
Total assets $152,007 $169,907 
Liabilities, convertible preferred stock, and stockholders’ equity
Current liabilities
Accounts payable ($1,378 and $1,220 to related parties, respectively)
$5,931 $8,874 
Current operating lease obligations37 62 
Accrued liabilities ($0 and $575 to related parties, respectively)
6,864 5,259 
Total current liabilities 12,832 14,195 
Long-term liabilities
Long-term debt14,813 14,911 
Other long-term liabilities34 51 
Total long-term liabilities 14,847 14,962 
Total liabilities$27,679 $29,157 
Commitments and contingencies (note 8)
Stockholders’ equity
Common stock, $0.001 par value, 730,000,000 shares authorized and 20,822,472 and 20,623,457 shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively
$21 $21 
Preferred stock, $0.001 par value, 20,000,000 shares authorized and no shares issued and outstanding as of June 30, 2026 and December 31, 2025, respectively
— — 
Additional paid-in capital240,343 238,012 
Accumulated deficit(115,932)(97,400)
Accumulated other comprehensive income (loss)(104)117 
Total stockholders’ equity124,328 140,750 
Total liabilities, convertible preferred stock, and stockholders’ equity$152,007 $169,907 
See accompanying notes to unaudited condensed financial statements.
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Shoulder Innovations, Inc.
Condensed Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
Three Months EndedSix Months Ended
June 30, 2026June 30, 2025June 30, 2026June 30, 2025
Net revenue $17,175 $11,013 $33,883 $21,145 
Cost of goods sold 3,734 2,620 7,456 4,961 
Gross profit 13,441 8,393 26,427 16,184 
Selling, general and administrative expenses (includes $862, $887, $2,101 and $1,736 to related parties, respectively)
20,086 12,849 38,294 23,351 
Research and development expenses (includes $2,645, $1,060, $5,710 and $2,295 to related parties, respectively)
3,391 1,406 7,145 2,989 
Operating loss (10,036)(5,862)(19,012)(10,156)
Other (income) expense
Interest (income) expense, net(673)216 (1,109)583 
Change in fair value of Series E purchase option— 11,719 — 11,719 
Loss on extinguishment of debt589 — 589 — 
Other expense, net201 1,399 40 1,400 
Total other (income) expense 117 13,334 (480)13,702 
Loss before income tax expense (10,153)(19,196)(18,532)(23,858)
Income tax expense— — — — 
Net loss$(10,153)$(19,196)$(18,532)$(23,858)
Other comprehensive loss, net
Unrealized gain (loss) on marketable securities(40)1 (221)(115)
Total other comprehensive gain (loss), net (40)1 (221)(115)
Comprehensive loss $(10,193)$(19,195)$(18,753)$(23,973)
Net loss per share attributed to common stock – basic and diluted:
Net loss per share$(0.49)$(165.53)$(0.90)$(232.13)
Weighted average shares outstanding
Weighted average common shares outstanding – basic and diluted20,735,694 115,965 20,694,593 102,775 
See accompanying notes to unaudited condensed financial statements.
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Shoulder Innovations, Inc.
Condensed Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands, except shares and per share amounts)
Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmount
Balance, December 31, 2024$74,475 83,882 $1 $2,148 $197 $(57,041)$(54,695)
Issuance of preferred stock in private placement, net of issuance cost of $352
19,542 — — — — — — 
Exercise of preferred stock warrant130 — — — — — — 
Issuance of common stock— 18,903 — 32 — — 32 
Stock-based compensation expense— — — 127 — — 127 
Net loss— — — — — (4,662)(4,662)
Other comprehensive loss, net— — — — (116)— (116)
Balance, March 31, 2025$94,147 102,785 $1 $2,307 $81 $(61,703)$(59,314)
Issuance of preferred stock in private placement, net of issuance cost of $52
$31,903 — $— $— $— $— $— 
Exercise of preferred stock warrant650 — — — — — — 
Issuance of common stock— 46,018 — 119 — — 119 
Stock-based compensation expense— — — 190 — — 190 
Net Loss— — — — — (19,196)(19,196)
Other Comprehensive income, net— — — — 1 — 1 
Balance, June 30, 2025$126,700 148,803 $1 $2,616 $82 $(80,899)$(78,200)
Balance, December 31, 2025$— 20,623,457 $21 $238,012 $117 $(97,400)$140,750 
Issuance of common stock— 79,702 — 101 — — 101 
Stock-based compensation expense— — — 726 — — 726 
Net loss— — — — — (8,379)(8,379)
Other comprehensive loss, net— — — — (181)— (181)
Balance, March 31, 2026$— 20,703,159 $21 $238,839 $(64)$(105,779)$133,017 
Issuance of common stock— 119,313 — 423 — — 423 
Stock-based compensation expense— — — 1,081 — — 1,081 
Net Loss— — — — — (10,153)(10,153)
Other Comprehensive loss, net— — — — (40)— (40)
Balance, June 30, 2026$— 20,822,472 $21 $240,343 $(104)$(115,932)$124,328 
See accompanying notes to unaudited condensed financial statements.
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Shoulder Innovations, Inc.
Condensed Statements of Cash Flows
(Unaudited)
(amounts in thousands)
Six Months Ended
June 30, 2026June 30, 2025
Cash flows from operating activities
Net loss$(18,532)$(23,858)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization2,265 1,385 
Amortization of debt discounts100 126 
Stock-based compensation expense1,807 317 
Realized (gain) loss on marketable securities40 (207)
Change in fair value of warrant liabilities and Series E purchase option— 13,134 
Loss on extinguishment of debt589 — 
Other292 99 
Change in operating assets and liabilities
Trade accounts receivable(2,857)(1,820)
Inventory(1,329)(3,126)
Prepaid expenses(811)(260)
Accounts payable(2,222)982 
Other current assets and liabilities908 1,954 
Net cash used in operating activities(19,750)(11,274)
Cash flows from investing activities
Fixed asset purchases(4,892)(2,311)
Purchases of marketable securities(18,170)(20,477)
Sales of marketable securities40,384 16,909 
Net cash provided by (used in) investing activities17,322 (5,879)
Cash flows from financing activities
Proceeds from exercise of common stock options524 151 
Proceeds from exercise of preferred stock warrants— 362 
Proceeds from Series E convertible preferred stock, net of issuance cost— 39,553 
Payments of long-term debt(15,000)— 
Proceeds from debt issuance15,000 — 
Payments of debt issuance and extinguishment costs(507)— 
Payment of deferred IPO offering costs— (1,982)
Net cash provided by financing activities 17 38,084 
Net change in cash for period (2,411)20,931 
Cash and cash equivalents, beginning of period 26,871 6,123 
Cash and cash equivalents, end of period $24,460 $27,054 
Supplemental cash flows information
Cash paid for interest$1,257 $863 
Non-cash investing and financing activities
Series E convertible preferred stock issuance cost in other current liabilities$— $45 
Series E second tranche right equity conversion— 11,937 
Preferred stock warrant liability equity conversion— 418 
Unpaid IPO offering costs included in accounts payable and accrued liabilities— 1,835 
Fixed asset purchases included in accounts payable
$379 $441 
See accompanying notes to unaudited condensed financial statements.
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Shoulder Innovations, Inc.
Notes to the Unaudited Condensed Financial Statements
(in thousands, except share, per share data and percentages)
1. Summary of Significant Accounting Policies
Business Activity
Shoulder Innovations, Inc. (the “Company”) is principally involved in developing next generation shoulder replacement implants, utilizing contract manufacturing partners, and distributing them nationwide for surgeries through a network of employed and contracted sales representatives. The Company is headquartered in Grand Rapids, Michigan and markets and sells its products throughout the United States.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Certain information and note disclosures included in the Company’s audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed financial statements should be read in conjunction with the audited annual financial statements for the year ended December 31, 2025 included in the Company’s Annual Report on Form 10-K dated December 31, 2025, filed with the SEC on March 10, 2026. There have been no material changes in our significant accounting policies as described in our audited annual financial statements for the year ended December 31, 2025. In the opinion of management, these unaudited condensed financial statements reflect all adjustments, including those of a normal and recurring nature, which are necessary for a fair presentation of the results for the interim period presented.
Reverse Stock Split
On July 23, 2025, the Company amended its amended and restated certificate of incorporation to effect a reverse stock split of shares of the Company’s common stock on a 1-for-19.08 basis (the “Reverse Stock Split”). The common stock warrants and options to purchase common stock were subsequently adjusted as a result of the Reverse Stock Split. All impacted share and per-share information included in these unaudited condensed financial statements and notes thereto have been retroactively adjusted to give effect to the Reverse Stock Split.
Initial Public Offering
On August 1, 2025, the Company closed its initial public offering (“IPO”), and issued 5,000,000 shares of common stock at public offering price of $15.00 per share. The Company received net proceeds of approximately $64,212, after deducting underwriting discounts and commissions and offering expenses. Immediately prior to the closing of the IPO, all outstanding shares of convertible preferred stock and $40,000 in aggregate principal amount of convertible notes converted into 15,176,862 shares of common stock. In connection with the closing of the IPO, on August 1, 2025, the Company amended and restated its certificate of incorporation to authorize the issuance of up to 730,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.
New Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The update requires all public business entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold and an explanation, if not otherwise evident, of the individual reconciling items disclosed, such as the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items. In addition, the update requires certain new disclosures of the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid (net of refunds received). Other new disclosures required include income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. The new guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments are to be applied on a prospective basis, with retrospective application permitted. As an emerging growth company that has not opted out of the extended transition period for complying with new or revised financial accounting
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Shoulder Innovations, Inc.
Notes to the Unaudited Condensed Financial Statements
(in thousands, except share, per share data and percentages)
standards, the amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2025. The Company is currently evaluating the impact of the new standard on its financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires additional, disaggregated disclosure around certain income statement expense line items. This ASU mandates that entities, at each interim and annual period, disclose the amounts of (a) inventory purchases, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depletion, depreciation, and amortization for oil and gas activities included within each relevant expense caption presented on the income statement within continuing operations. Entities are also required to (1) combine certain disclosures already mandated under GAAP with these new requirements, (2) provide qualitative descriptions of expenses that are not disaggregated quantitatively, and (3) disclose total selling expenses and, annually, the definition of selling expenses. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its financial statements and related disclosures.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”), which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-11.
2. Fair Value Measurements
The fair value of marketable securities as of June 30, 2026 and December 31, 2025 are summarized below:
June 30, 2026
Level 1Level 2Level 3
Assets:
Cash Equivalents
Money market funds$9,659 $— $— 
Short-term marketable securities at fair value
U.S. treasury and government agencies55,469 — — 
Corporate and international bonds— 19,064 — 
Total $65,128 $19,064 $— 
December 31, 2025
Level 1Level 2Level 3
Assets:
Cash Equivalents
Money market funds$11,799 $— $— 
Short-term marketable securities at fair value
U.S. treasury and government agencies76,678 — — 
Corporate and international bonds— 20,756 — 
Total $88,477 $20,756 $— 
Liabilities related to preferred stock warrants and the Series E purchase option are remeasured at fair value on a recurring basis using the Black-Scholes option pricing model. The following table presents the change in fair value of the preferred stock warrants and the Series E purchase option which are classified in Level 3 of the fair value hierarchy for the six months ended June 30, 2025:
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Shoulder Innovations, Inc.
Notes to the Unaudited Condensed Financial Statements
(in thousands, except share, per share data and percentages)
June 30, 2025
Preferred stock warrant liabilitySeries E purchase option
Balance, January 1, 2025$970 $— 
Additions— 218 
Change in fair value1,415 11,719 
Exercises(418)(11,937)
Balance, June 30, 2025$1,967 $— 
The preferred stock warrants and the Series E purchase option were valued under the Black-Scholes option pricing model, which considers the estimated volatility of the Company’s equity at the date of measurement based on selected metrics of applicable volatility calculations from guideline public companies. The remeasurement of the convertible preferred stock warrant liability resulted in $1,415 being recognized as other expense, net for the six months ended June 30, 2025. The remeasurement of the Series E purchase option resulted in $11,719 recognized as an increase in fair value of Series E purchase option for the six months ended June 30, 2025.
The fair value of the preferred stock warrants were estimated as of June 30, 2025 using the following weighted average assumptions:
DescriptionJune 30, 2025
Weighted average volatility55.00 %
Weighted average risk-free rate3.79 %
Expected dividend yield— %

3. Accrued Liabilities
Accrued liabilities consist of the following:
June 30, 2026December 31, 2025
Commissions payable$1,893 $1,401 
Accrued legal fees393 236 
Accrued payroll3,362 1,776 
Accrued royalties698 1,074 
Other518 772 
Accrued liabilities$6,864 $5,259 
4. Related Party Transactions
On October 22, 2020, the Company entered into a software license agreement with Genesis Software Innovations, LLC (“Genesis Software”), which was amended and restated on January 1, 2023, and subsequently amended on June 10, 2025 (the “License Agreement”). Robert Ball, the Company’s Chief Executive Officer and Executive Chairman, is a co-founder and director of Genesis Software. Mr. Ball and Matthew Ahearn, the Company’s Chief Operating Officer and a director, are directors of Genesis Investment Holdings, LLC, which has an ownership interest in Genesis Software. The License Agreement has a 5-year term and required an upfront payment of $1,000, an incremental $500 payment when Food and Drug Administration clearance was obtained, and quarterly payments of royalties equal to 4% of the net sales price of each licensed product sold, until such time we have paid Genesis Software an aggregate of $7,000 under the License Agreement. As of June 30, 2026, the Company has made all payments under the License Agreement and has no future payment obligations pursuant to the agreement. For the three and six months ended June 30, 2026, the Company paid Genesis Software $666 and $1,241, respectively, pursuant to the License Agreement. For the three and six months ended
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Shoulder Innovations, Inc.
Notes to the Unaudited Condensed Financial Statements
(in thousands, except share, per share data and percentages)
June 30, 2025, the Company paid Genesis Software $398 and $741, respectively, pursuant to the License Agreement. Amounts owed under the agreement of $0 and $575 are included in accrued liabilities on the condensed balance sheets at June 30, 2026, and December 31, 2025, respectively.
For the three and six months ended June 30, 2026, the Company paid $1,994 and $4,330, respectively, for software development to Genesis Software. For the three and six months ended June 30, 2025, the Company paid $453 and $1,024, respectively for software development to Genesis Software. Amounts payable of $982 and $863 are included in accounts payable on the condensed balance sheets at June 30, 2026 and December 31, 2025, respectively.
The Company has entered into a consulting agreement with Genesis Innovation Group, an entity under common ownership. The consulting agreement is currently on a year-to-year basis. The agreement requires compensation for services performed. If services performed are on an hourly basis, the Company shall be responsible to pay for hours actually worked by the consultant’s employees. The Company will reimburse the consultant for all reasonable expenses incurred in connection with performing services for the Company. For the three and six months ended June 30, 2026, the Company paid Genesis Innovation Group $1,261 and $2,399, respectively. For the three and six months ended June 30, 2025, the Company paid Genesis Innovation Group $1,060 and $2,295, respectively. Amounts payable of $396 and $357 are included in accounts payable on the condensed balance sheets at June 30, 2026 and December 31, 2025, respectively.
5. Convertible Preferred Stock
On March 6, 2025, the Company entered into a Series E Preferred Stock Purchase Agreement pursuant to a Series E Preferred Stock financing, whereby it received a total commitment amount of $40,130 for the issuance and sale of 58,774,332 shares of Series E Preferred Stock pursuant to two separate closing tranches, the first of which closed on March 6, 2025, whereby the Company issued 29,455,169 shares of Series E preferred stock resulting in total gross proceeds to the Company of $20,111.
In June 2025 the Company called the second tranche of its Series E Preferred Stock for the issuance of 29,319,143 shares of Series E Preferred Stock resulting in gross proceeds to the Company of $20,019. The Company recognized the change in value of the Series E purchase option in the other expense, net caption in its condensed statements of operations and comprehensive loss.
On March 4, 2025, Genesis Investment Holdings, LLC exercised 988,999 Series Seed warrants resulting in proceeds of $83.
For the three and six months ended June 30, 2025, 625,000 and 750,000 Series B warrants were exercised, resulting in proceeds of $232 and $279, respectively.
Immediately prior to the closing of the Company’s IPO on August 1, 2025, all shares of the Company’s redeemable convertible preferred stock converted into shares of the Company’s common stock.
6. Loss Per Share
Basic net loss per share is computed by dividing the net loss after tax attributable to common stockholders by the weighted average shares outstanding during the period. Diluted net loss per share is computed by including potentially dilutive securities outstanding during the period in the calculation of weighted average shares outstanding. The Company did not have any dilutive securities during the periods presented; therefore, diluted net loss per share is equal to basic net loss per share.
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Shoulder Innovations, Inc.
Notes to the Unaudited Condensed Financial Statements
(in thousands, except share, per share data and percentages)
Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted net loss per share calculations for the three and six months ended June 30, 2026 and 2025 (in thousands, except par value, share and per share amounts):
Three Months EndedSix Months Ended
June 30, 2026June 30, 2025June 30, 2026June 30, 2025
Net loss $(10,153)$(19,196)$(18,532)$(23,858)
Basic and diluted weighted average shares outstanding 20,735,694 115,965 20,694,593 102,775 
Net loss attributable to common shareholders, basic and diluted $(0.49)$(165.53)$(0.90)$(232.13)
The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive:
June 30, 2026June 30, 2025
Series Seed— 882,620 
Series A— 1,173,971 
Series B— 349,264 
Series C— 2,626,639 
Series D— 4,240,522 
Series E— 3,080,414 
Common options
2,613,353 1,716,821 
Common warrants
43,578 17,827 
Restricted stock units25,230 — 
Series Seed warrants
— — 
Series B warrants
— 13,102 
Series D warrants
— 130,736 
Total2,682,161 14,231,916 
7. Segment Information
The Company reports segment information based on how the Company’s chief operating decision maker (“CODM”), who is the Chief Executive Officer, regularly reviews operating results, allocates resources and makes decisions regarding business operations. The Company’s business structure is comprised of one operating and reportable segment. The CODM uses segment gross margin and net loss for determining the allocation of resources, including employees, financial, or capital resources, to the segment to achieve the Company’s strategic plan and to assess the performance of the segment by monitoring actual results against performance targets established in the Company’s annual budget and forecasting process.
All revenue for the three and six months ended June 30, 2026 and 2025 was generated from customers located in the United States. No customers represent 10% or more of the Company’s net revenue for the three and six months ended June 30, 2026 and 2025. The measure of segment assets is reported on the condensed balance sheets as total assets.
The table below is a summary of the segment net loss and total net loss, including significant segment expenses (in thousands):
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Shoulder Innovations, Inc.
Notes to the Unaudited Condensed Financial Statements
(in thousands, except share, per share data and percentages)
Three Months EndedSix Months Ended
June 30, 2026June 30, 2025June 30, 2026June 30, 2025
Net revenue$17,175 $11,013 $33,883 $21,145 
Cost of goods sold
3,734 2,620 7,456 4,961 
Gross profit
13,441 8,393 26,427 16,184 
Operating expenses:
General and administrative8,936 5,820 17,561 11,033 
Sales and marketing9,347 5,449 17,623 10,182 
Medical education1,803 1,580 3,110 2,136 
Research and development3,391 1,406 7,145 2,989 
Total other (income) expense
117 13,334 (480)13,702 
Segment net loss and total net loss $(10,153)$(19,196)$(18,532)$(23,858)
Depreciation expense for the three and six months ended June 30, 2026 totaled $1,108 and $2,165, respectively. Depreciation expense of $1,086 and $2,120 for instruments is in sales and marketing and $22 and $45 for computer equipment, furniture and fixtures, and leasehold improvements are included in general and administrative expenses in the condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2026, respectively. Depreciation expense for the three and six months ended June 30, 2025 totaled $643 and $1,235, respectively. Depreciation expense of $623 and $1,198 for instruments is in sales and marketing and $20 and $37 for computer equipment, furniture and fixtures, and leasehold improvements are included in general and administrative expenses in the condensed statements of operations and comprehensive loss for the three and six months ended June 30, 2025, respectively.
Amortization expense related to the License Agreement for the three and six months ended June 30, 2026, totaled $25 and $100, respectively. Amortization expense related to the License Agreement for the three and six months ended June 30, 2025 totaled $75 and $150, respectively. Amortization expense is included in general and administrative expense.
8. Commitments and Contingencies
Litigation
From time to time, the Company may be a party to legal proceedings that arise in the ordinary course of business, some of which may be covered by insurance. The Company establishes an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss and the accrued amount, if any, thereof, and adjusts the amount as appropriate. If the loss contingency at issue is not both probable and reasonably estimable, the Company does not establish an accrual, but it will continue to monitor the matter for developments that could make the loss contingency both probable and reasonably estimable. If there is at least a reasonable possibility that a material loss will occur, the Company will provide disclosure regarding the contingency. Except as disclosed below, management believes that the Company does not have any pending legal proceedings that, separately or in the aggregate, would have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
On February 28, 2024, the Company filed a complaint against Catalyst Orthoscience Inc. (“Catalyst”) in United States District Court for the District of Delaware claiming patent infringement through Catalyst’s making, using, selling, offering for sale in the United States, and/or importing into the United States, reverse shoulder systems. In response to the Company’s lawsuit, on March 20, 2024, Catalyst filed a counterclaim in United States District Court for the District of Delaware claiming patent infringement by certain of the Company’s products. The Company is seeking an injunction, monetary damages, interest, fees and other costs. The Company believes that it has substantial and meritorious defenses to Catalyst’s claims and intends to vigorously defend its position, including through the trial and appellate stages if necessary. As the Company’s lawsuit and Catalyst’s counterclaim is ongoing, the Company is unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. Accordingly, the Company has not made an accrual for any possible loss. The outcome of any litigation, however, is inherently uncertain, and an adverse judgment or settlement in the counterclaim proceeding, if any, could have a material and adverse effect on the Company’s business, financial position, results of operations or cash flows.
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Shoulder Innovations, Inc.
Notes to the Unaudited Condensed Financial Statements
(in thousands, except share, per share data and percentages)
9. Debt
On June 26, 2026, the Company entered into a Loan and Security Agreement (the “Loan Agreement”), by and between the Company, as borrower, and Stifel Bank, as lender (the “Lender”). The Loan Agreement provides for (i) a senior secured term loan in the aggregate principal amount of $15,000 (the “Term Loan”) and (ii) a senior secured asset-based revolving line of credit in the aggregate principal amount of $30,000, which, subject to certain conditions, may be increased by $5,000 at the Company’s request (the “Revolving Facility”). Proceeds from the Loan Agreement were used to pay off the term loan outstanding under the Trinity Loan and Security Agreement (the “Trinity Loan Agreement”). The Trinity Loan Agreement was terminated on June 26, 2026.
Availability under the Revolving Facility is subject to a borrowing base consisting of specified percentages of eligible accounts receivable, subject to adjustments established by the Lender; provided that, up to $15,000 of the Revolving Facility is available on a non-formula basis so long as the Company meets certain liquidity requirements.
The aggregate principal amount of borrowings outstanding under the Term Loan accrue interest at a rate per annum equal to the greater of (i) 0.75% below the prime rate and (ii) 5.00%. The aggregate principal amount of borrowings outstanding under the Revolving Facility will accrue interest at a rate per annum equal to the greater of: (i) the prime rate and (ii) 5.00%.
The Company’s obligations under the Loan Agreement are secured by substantially all assets of the Company, except for any copyrights, patents, trademarks, service marks and applications now owned or hereafter acquired by the Company or any claims for damages by way of any past, present and future infringement of any of the foregoing intellectual property.
The Term Loan and Revolving Facility may be prepaid at any time and without penalty, except that any prepayment of the aggregate principal amount of borrowings outstanding under the Term Loan made prior to June 26, 2027 is subject to a prepayment premium equal to 1.00% of the aggregate principal amount of borrowings outstanding under the Term Loan immediately prior to such prepayment. The Term Loan matures on June 1, 2031, and the Revolving Facility matures on June 26, 2029.
The Loan Agreement contains customary affirmative and negative covenants and covenants limiting the ability of the Company to, among other things, incur debt, grant liens, pay dividends and distributions on capital stock, and make investments and acquisitions, in each case subject to exceptions customary for secured financings. As of June 30, 2026, the Company was in compliance with all covenants contained in the Loan Agreement.
As of June 30, 2026, there was $15,000 in outstanding borrowings under the Term Loan and no outstanding borrowings under the Revolving Facility.
For the three and six months ended June 30, 2026, the Company recognized $589 of loss on extinguishment of debt as a result of repaying the Trinity Loan Agreement, of which $269 was related to write-off of unamortized debt discount and issuance cost and $320 was related to a prepayment premium and end of term payment. The Company also incurred $187 of debt issuance costs related to the Loan Agreement.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited condensed financial statements and accompanying notes, which appear elsewhere in this Quarterly Report. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (the “SEC”), including our audited financial statements for the year ended December 31, 2025 and related notes as disclosed in our 2025 Annual Report, which discusses our business and related risks in greater detail, as well as subsequent reports we may file with the SEC from time to time, for additional information. The section titled “Risk Factors” contained in Part I, Item 1A of the Company’s 2025 Annual Report and similar discussions in our other SEC filings, also describe some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should carefully consider those risks, in addition to the other information in this Quarterly Report and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.
Overview
We are a commercial-stage medical technology company exclusively focused on transforming the shoulder surgical care market. We currently offer advanced implant systems for shoulder arthroplasty. These systems are a core element of our ecosystem, which we designed to improve core components of shoulder surgical care – preoperative planning, implant design and procedural efficiency – to benefit each stakeholder in the care chain. Our ecosystem is also comprised of enabling technologies, efficient instrument systems, specialized support and surgeon-to-surgeon collaboration. Together, these elements seek to address the long-standing clinical and operational challenges in the shoulder surgical care market by delivering predictable outcomes, procedural simplicity, and efficiency across all sites of care. We believe our exclusive focus on shoulder surgical care, combined with a highly specialized commercial organization and strong clinical data, positions us well to capture significant share in this large, growing market.
We believe the shoulder surgical care market today presents a significant market opportunity. Our initial focus within this broader market is on shoulder arthroplasty. Shoulder arthroplasty is an established surgical procedure involving the reconstruction of the shoulder joint with prosthetic implants through one of two main approaches: Anatomic Total Shoulder Arthroplasty (“aTSA”) and Reverse Total Shoulder Arthroplasty (“rTSA”). Both approaches can be performed in inpatient hospital settings and in outpatient settings, including ambulatory surgery centers (“ASCs”). A key competitive advantage of ours has been the emergence of ASCs as a cost-efficient site of care with positive outcomes relative to hospital-based care. We expect that future growth in the shoulder surgical care market will be significantly driven by ASCs as hospitals face capacity constraints and are more limited in their ability to meet increasing demand.

We view ourselves as specialists serving specialists, having purposefully built our product ecosystem around the unique needs of shoulder surgeons. Our commercial organization is comprised of three key components: (i) a dedicated commercial leadership team, (ii) a Customer Experience and Medical Education team and (iii) a network of independent distributors. These key components work in tandem to form a commercial flywheel that is designed to build and provide key product support to surgeons and other stakeholders in the shoulder surgical care market, accelerate adoption, and enhance long-term retention. Our commercial organization is strategically focused on surgeons in hospital and ASC settings, with a particular focus on the high-volume surgeons who perform the vast majority of shoulder arthroplasty procedures each year.
We utilize third-party manufacturing and supply providers to manufacture our implants. We believe this outsourcing strategy provides the expertise and capacity required to effectively and efficiently scale production based on demand, and helps to ensure low-cost production and a capital efficient business model.
We have experienced significant growth in recent years, primarily driven by growth in our net revenue from the sale of our advanced implant systems.
Key Business Metrics
We regularly review a number of operating and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. We believe that the number of implant systems sold is a useful indicator of our ability to drive demand for our implant systems, generate net revenue and expand our business. The following table sets forth the number of implant systems sold in each of the three-month periods indicated:
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Mar. 31,
2024		June 30, 2024Sept. 30,
2024		Dec. 31,
2024		Mar. 31,
2025		June 30, 2025Sept. 30, 2025Dec. 31, 2025Mar. 31, 2026June 30, 2026
Implant systems sold9711,1211,0371,2201,4431,5031,5841,9762,1842,238
While we believe that the number of implant systems sold is a useful indicator and is helpful in tracking the progress of our current business, we anticipate this metric may be substituted for additional or different metrics as our business continues to grow and scale.
Key Factors Affecting Our Results of Operations
We believe the following important factors have impacted and will continue to impact our results of operations for the foreseeable future. While these factors may present significant opportunities for us, they also pose risks and challenges that we must address, as well as those described in the section titled “Risk Factors” included in the Company’s 2025 Annual Report.
•Market awareness and adoption. The growth of our business depends on our ability to generate broader awareness of our ecosystem in an effort to drive adoption by new surgeons and to increase utilization by existing surgeons. To drive adoption, our commercial organization is strategically focused on surgeons in hospital and ASC settings, and leverages our internal business intelligence platform to appropriately target surgeons in the shoulder surgical care market. The organization uses key touchpoints, surgeon support and surgeon education initiatives to deliver high quality services and information to surgeons. We are also focused on supporting surgeons that already use our implant systems in order to further increase utilization. We intend to continue scaling our commercial organization to further drive awareness, adoption and demand. Over time, we expect to further expand and utilize our external network of independent distributors. In the future, we may increase our international presence and any such expansion may adversely affect our gross margin and results of operations. Our financial performance will be significantly impacted by the extent to which we can increase awareness of our ecosystem, as well as the timing and rate of adoption of our implant systems by key stakeholders in the shoulder surgical care market.
•Increasing importance of outpatient and ASC settings. While our ecosystem provides advantages across all shoulder surgical care settings, we believe we are particularly well positioned to address the increasing importance of outpatient and ASC settings. The number of procedures performed in outpatient and ASC settings has increased over time due to both the transition of such procedures from the hospital setting, as well as from a general increase in the number of total procedures performed, due in part to the access and availability of these settings. We generally derive a similar amount of net revenue from procedures whether they are performed in a hospital or an ASC. As a result, we believe outpatient and ASC settings represent an important and growing opportunity to drive demand and net revenue.
•Continued investments in product development, innovation and growth. We expect to continue to focus on long-term revenue growth through investments in our ecosystem and expansion of our operations. In research and development, we continually invest in improving our technologies, developing new products and further expanding our cleared indications. For example, we began using ProVoyance in 2021 and have developed a product line to include certain fracture indications and commercially launched the InSet 70 in September of 2025. In December 2025, the Company announced the development of a robotics platform to design a transformative shoulder-specific micro-robotic solution designed to further enhance shoulder surgical precision, workflow efficiency, and enable exciting, new clinical approaches in the aTSA and rTSA markets. The robotic solution, known as InSet Neo, is designed to be integrated with the Company’s ProVoyance platform to deliver a comprehensive technology solution. We are planning FDA submission for InSet Neo in the first half of 2027. We are also evaluating expansion into adjacent areas in shoulder surgical care, which may include sports medicine and shoulder trauma markets. In January 2026, we received FDA 510(k) clearance for products designed for patients with metal sensitivity and products that expand our I-Series humeral stem product line to include additional fracture indications. In April 2026, we announced the full commercial launch of the InSet™ I-135RFX Humeral Stem. We have filed a 510(k) with the FDA related to additive manufacturing of certain products, which will add
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additional supply chain capacity and cost reductions of up to 30% on certain products beginning in 2027. Beginning in the third quarter of 2026, the InSet Clutch guide system for anatomic and reverse glenoid procedures will be available to surgeons, and we also expect a limited user release for a new subscapularis sparing technique initiative. We expect the first surgical cases using our streamlined InSet anatomic glenoid implant, the InSet Go, in the fourth quarter of 2027 which will further reduce surgical steps. Additionally, we are targeting FDA submission in 2027 for a new concept for reverse procedures, branded InSet One. We anticipate we will continue to invest significantly in product development, including with respect to our supporting technologies, in order to further bolster our ecosystem. While research and development are time consuming and costly and therefore negatively impact our results of operations in the near term, we believe expanding into new areas, implementing product improvements and continuing to demonstrate the efficacy, safety and cost effectiveness of our products through clinical data and surgeon education are all critical to increasing the adoption of our implant systems and to the success of our business over the long term. Our clinical data collection efforts within the registry are ahead of our expectations. As we expand our operations in line with our anticipated growth, we will be required to maintain sufficient levels of inventory and instrumentation to meet our estimated demand, which we expect will increase expenses.
•Reimbursement and coverage. Healthcare providers generally rely on third-party payors, including federal Medicare, state Medicaid and private health insurance plans, to cover and reimburse all or part of the cost of our implant systems. As a result, demand for our implant systems depends in large part on the availability of reimbursement from such payors and the rates that such payors reimburse for procedures using our implant systems, which can vary due to geographic location, nature of facility in which the procedure is performed and other factors. While we benefit from established reimbursement practice and codes applicable to partial and total shoulder arthroplasty, we also work with payors to ensure positive coverage decisions and payment rates in outpatient settings. Effective as of January 1, 2024, Centers for Medicare and Medicaid Services added total shoulder arthroplasty to the ASC covered procedures list, which allows procedures that use our implant systems to be performed at ASCs and be reimbursed by Medicare. We believe this decision helped to improve demand from ASCs and supported improved payment rates in outpatient settings for the year ended December 31, 2025, which had a positive impact on net revenue during the period. We expect this trend to continue and further support our growth in outpatient settings, such as ASCs.
•Seasonality. We have experienced and expect to continue to experience seasonality in our business. While we have experienced significant growth across quarters, we expect that future demand for our advanced implant systems will typically be lower in the months in and surrounding the third calendar quarter, as is common across our industry, as a result of summer seasonality associated with warmer weather and its corresponding impact on individual lifestyles.
Non-GAAP Financial Measures
In addition to our results and measures of performance determined in accordance with U.S. GAAP, we believe that non-GAAP financial measures can be useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating business plans and making strategic decisions. We use and present Adjusted EBITDA for these purposes. We define Adjusted EBITDA as net loss before interest (income) expense, net, income tax expense, loss on extinguishment of debt, depreciation and amortization, and stock-based compensation expense.
We believe that Adjusted EBITDA, together with a reconciliation to net loss, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. However, Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these potential limitations include:
•other companies, including companies in our industry which have similar business arrangements, may report Adjusted EBITDA, or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures;
•although depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditures for such replacements or for new capital expenditure requirements;
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•Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs or the potentially dilutive impact of stock-based compensation; and
•Adjusted EBITDA does not reflect the interest (income) expense, net, or the cash requirements necessary to service interest or principal payments, on existing or future debt that we may incur.
Because of these and other limitations, you should consider Adjusted EBITDA only as supplemental to other GAAP-based financial measures.
The following table presents a reconciliation of Adjusted EBITDA to the most comparable GAAP financial measure, net loss, for each of the periods indicated:
Three Months Ended June 30,Six Months Ended June 30
2026202520262025
(unaudited)
(in thousands)
Net loss$(10,153)$(19,196)$(18,532)$(23,858)
Interest (income) expense, net
(673)216 (1,109)583 
Income tax expense— — — — 
Loss on extinguishment of debt589 — 589 — 
Depreciation and amortization expense1,133 717 2,265 1,385 
Stock-based compensation expense1,081 190 1,807 317 
Adjusted EBITDA$(8,023)$(18,073)$(14,980)$(21,573)
Components of Our Results of Operations
Net Revenue
We currently derive our net revenue from the sale of our aTSA and rTSA implant systems, which generally consist of our InSet Glenoid and humeral stem products. We sell our implants to hospitals, outpatient centers and ASCs in the United States through a dedicated commercial leadership team and a network of external independent distributors. Net revenue is recognized when the performance obligation to deliver these implant systems to our customers is satisfied and we transfer control of the implants to our customers, which is generally when we have received a purchase order and appropriate notification that the procedure has been used or implanted. Revenue is recognized in the amount of the consideration received net of any sales taxes that we expect to collect from customers. We also record shipping and handling costs as revenue. Our average sales price for our implant systems was $7,674 and $7,330 for the three months ended June 30, 2026 and 2025, respectively. Our average sales price for our implant systems was $7,662 and $7,179 for the six months ended June 30, 2026 and 2025, respectively. No single customer accounted for more than 10% of our net revenue during the three or six months ended June 30, 2026 and 2025, respectively. We expect our net revenue to increase for the foreseeable future as we expand our commercial organization, add new customers, expand our sales territories, introduce new products, as existing customers perform more procedures using our systems and as we generally expand awareness of our systems with new and existing customers. While industry trends have resulted in increased downward pricing pressure on medical services and products, we have not experienced a material impact on our net revenue to date; however, we cannot assure you that our net revenue will not be impacted in the future by these industry trends. Our net revenue may fluctuate from quarter to quarter due to a variety of factors, such as the size and success of our dedicated commercial leadership team, the number of hospitals and physicians who are aware of and use our systems and seasonality.

Cost of Goods Sold, Gross Profit and Gross Margin
Cost of Goods Sold
Cost of goods sold consists primarily of the cost of components, packaging and sterilization, and obsolete inventory adjustments. Our systems are manufactured to our specifications primarily by third-party suppliers in the United States and are generally ordered on a purchase order basis. Cost of goods sold is recognized at the time the related revenue is recognized. Prior to use in surgery, the cost of our products is recorded as inventories, net of obsolescence reserve on our condensed balance sheets. Cost of goods sold does not include depreciation expense for instruments, which is included in selling, general and administrative expenses. Depreciation expense for instruments was $1,086 thousand and $623 thousand for the three months ended June 30, 2026 and 2025, respectively. See Note 7 to our unaudited condensed
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financial statements included elsewhere in this Quarterly Report for additional information. We expect cost of goods sold to increase as our net revenue increases and more of our implant systems are sold.
Gross Profit and Gross Margin
Gross profit is calculated as net revenue less cost of goods sold. We calculate gross margin as gross profit divided by net revenue. Our gross margin has been and will continue to be affected by a variety of factors, including average selling prices, sales mix for our implant systems, costs associated with third-party manufacturing, seasonality of our business and costs of other services. We expect our gross margin to remain consistent for the foreseeable future as our net revenue grows and our related costs of goods sold increases.
Operating Expenses
Our operating expenses consist of (i) selling, general and administrative expenses and (ii) research and development expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs, including commissions, salaries, bonuses, benefits and stock-based compensation related to personnel performing selling, marketing and general and administrative functions, including the costs associated with marketing initiatives and medical education programs. All of our stock-based compensation charges are included in selling, general and administrative expenses. In addition, selling, general and administrative expenses include depreciation expense for instruments, royalty payments made to product design surgeons, royalty payments made pursuant to our License Agreement (as defined below), travel expenses, professional services fees (including consulting, legal, finance, audit and tax fees), insurance costs, allocated facility expenses and other general corporate expenses.
We expect our selling, general and administrative expenses to continue to increase for the foreseeable future as we continue to grow our business and increase our utilization of internal and external resources within our commercial organization. As we continue to invest in growth, we will be required to maintain significant levels of instrumentation, which we expect to increase our selling, general and administrative expenses. Furthermore, the royalty payments made pursuant to our License Agreement will increase as our net revenue increases. Additionally, we anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with being a public company, compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs. We also expect to see an increase in our stock-based compensation expense with the establishment of a new publicly-traded company equity plan and to the extent of grants in the form of restricted stock units or options.
Research and Development Expenses
Research and development expenses consist of costs incurred in performing or for the outsourcing of various research and development activities, including consulting fees and other expenses paid related to such activities, costs associated with our registry, any future clinical trial costs and costs related to prototypes and related supplies related to our research and development efforts. We maintain a procedurally focused approach to product development and have projects underway to add new systems and implants across multiple shoulder indications and to add additional functionality or versatility to our existing systems. We expect our research and development expenses to increase as we pursue development of new products and product enhancements.
Other (Income) Expense
Our other (income) expense consists of (i) interest (income) expense, net, (ii) change in fair value of Series E purchase option, (iii) loss on extinguishment of debt, and (iv) other (income) expense, net.
Interest (Income) Expense, Net
Interest (income) expense, net consists of interest expense related to the Trinity Loan Agreement (as defined below), the Loan Agreement (as defined below), interest expense related to our convertible notes, and non-cash interest related to the amortization of debt discount, issuance costs and deferred interest associated with our indebtedness, as well as interest income earned on our cash, cash equivalents and marketable securities.
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Change in Fair Value of Series E Purchase Option
Change in fair value of warrant liabilities consists of gains and losses resulting from the remeasurement of the fair value of our warrant liabilities at each balance sheet date. During the third quarter of 2025 and upon completion of the Company’s IPO, a final remeasurement of the fair value of the warrant liability was made and the warrants were reclassified to equity within the additional paid-in capital line item.
Loss on Extinguishment of Debt
Loss on extinguishment of debt consists of unamortized deferred financing fees, prepayment premium, and unrecognized end of term payment amount under the Trinity Loan Agreement.
Other Expense, Net
Other expense, net consists primarily of adjustment in the fair market value of marketable securities and change in fair value of warrant liabilities.
Results of Operations
Comparison of the Three Months Ended June 30, 2026 and 2025
The following table sets forth the components of our statements of operations for the periods presented below:
Three Months Ended June 30,Change
20262025$%
(unaudited)
($ in thousands)
Net revenue
$17,175 $11,013 $6,162 56.0 %
Cost of goods sold
3,734 2,620 1,114 42.5 %
Gross profit
13,441 8,393 5,048 60.1 %
Operating expenses:
Selling, general and administrative expenses(1)
20,086 12,849 7,237 56.3 %
Research and development expenses
3,391 1,406 1,985 141.2 %
Total operating expenses
23,477 14,255 9,222 64.7 %
Operating loss
(10,036)(5,862)(4,174)(71.2)%
Other (income) expense
Interest (income) expense, net
(673)216 (889)(411.6)%
Change in fair value of Series E purchase option— 11,719 (11,719)(100.0)%
Loss on extinguishment of debt589 — 589 *
Other expense, net201 1,399 (1,198)(85.6)%
Total other expense117 13,334 (13,217)(99.1)%
Loss before income tax expense(10,153)(19,196)9,043 47.1 %
Income tax expense
— — — — 
Net loss
$(10,153)$(19,196)$9,043 47.1 %
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(1)Includes stock-based compensation expense of $1,081 thousand and $190 thousand for the three months ended June 30, 2026 and 2025, respectively.
*Not meaningful
Net Revenue. Net revenue increased $6,162 thousand, or 56.0%, to $17,175 thousand for the three months ended June 30, 2026, compared to $11,013 thousand for the three months ended June 30, 2025. The increase in net revenue was due to an increase in the number of implant systems sold, as well as an increase in the number of customers.
Cost of Goods Sold and Gross Margin. Cost of goods sold increased $1,114 thousand, or 42.5%, to $3,734 thousand for the three months ended June 30, 2026, compared to $2,620 thousand for the three months ended June 30, 2025. This increase in cost of goods sold was primarily due to the increase in the number of our systems sold. Gross margin for the three months ended June 30, 2026 increased to 78.3%, compared to 76.2% for the three months ended June 30, 2025.
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Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $7,237 thousand, or 56.3%, to $20,086 thousand for the three months ended June 30, 2026, compared to $12,849 thousand for the three months ended June 30, 2025. This increase in selling, general and administrative expenses was primarily due to a $3,066 thousand increase in personnel-related expenses as a result of increased headcount of our commercial organization, a $2,079 thousand increase in commissions and sales related costs due to higher sales of our systems, a $891 thousand increase in stock-based compensation expense, a $736 thousand increase in general corporate costs such as information technology, business development and insurance costs including costs associated with becoming a public company and a $465 thousand increase in depreciation primarily of surgical instruments.
Research and Development Expenses. Research and development expenses increased $1,985 thousand, or 141.2%, to $3,391 thousand for the three months ended June 30, 2026, compared to $1,406 thousand for three months ended June 30, 2025. The increase in research and development expenses was due to our investment in new product development efforts, including an increase in external consulting fees of $1,499 thousand primarily related to the robotic platform strategic partnership.
Interest (Income) Expense, Net. Interest expense, net decreased $889 thousand, or 411.6%, to interest income, net of $673 thousand for the three months ended June 30, 2026, compared to interest expense, net of $216 thousand for the three months ended June 30, 2025. This decrease in interest expense, net was due to higher interest earned on marketable securities.
Change in Fair Value of Series E Purchase Option. Change in fair value of Series E purchase option was $0 for the three months ended June 30, 2026, compared to $11,719 thousand for the three months ended June 30, 2025. The Series E purchase option was issued in connection with the Company’s Series E preferred stock financing entered into during the first quarter of 2025 and the increase resulted from recognition of the fair value change between issuance and the exercise of the Series E preferred stock purchase option in June 2025.
Loss on Extinguishment of Debt. Loss on extinguishment of debt was $589 thousand for the three months ended June 30, 2026 and resulted from repaying the Trinity Loan Agreement. There was no loss on extinguishment of debt in 2025.
Other Expense, Net. Other expense, net decreased by $1,198 thousand, or 85.6%, to $201 thousand for the three months ended June 30, 2026, compared to other expense, net of $1,399 thousand for the three months ended June 30, 2025. This decrease in other expense, net was due to a decrease of $1,415 thousand related to changes in the fair value of our preferred stock warrant liability offset by an increase of $217 thousand in loss on marketable securities.
Comparison of the Six Months Ended June 30, 2026 and 2025
The following table sets forth the components of our statements of operations for the periods presented below:
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Six Months Ended June 30, 2026Change
20262025$%
(unaudited)
($ in thousands)
Net revenue$33,883 $21,145 $12,738 60.2 %
Cost of goods sold7,456 4,961 2,495 50.3 %
Gross profit26,427 16,184 10,243 63.3 %
Operating expenses:
Selling, general and administrative expenses(1)
38,294 23,351 14,943 64.0 %
Research and development expenses7,145 2,989 4,156 139.0 %
Total operating expenses45,439 26,340 19,099 72.5 %
Operating loss(19,012)(10,156)(8,856)(87.2)%
Other (income) expense
Interest (income) expense, net(1,109)583 (1,692)(290.2)%
Change in fair value of Series E purchase option— 11,719 (11,719)(100.0)%
Loss on extinguishment of debt589 — 589 *
Other expense, net40 1,400 (1,360)(97.1)%
Total other (income) expense(480)13,702 (14,182)(103.5)%
Loss before income tax expense(18,532)(23,858)5,326 22.3 %
Income tax expense$— $— $— *
Net loss$(18,532)$(23,858)$5,326 22.3 %
_______________
(1)Includes stock-based compensation expense of $1,807 thousand and $317 thousand for the six months ended June 30, 2026 and 2025, respectively.
*Not meaningful
Net Revenue. Net revenue increased $12,738 thousand, or 60.2%, to $33,883 thousand for the six months ended June 30, 2026, compared to $21,145 thousand for the six months ended June 30, 2025. The increase in net revenue was due to an increase in the number of implant systems sold, as well as an increase in the number of customers.
Cost of Goods Sold and Gross Margin. Cost of goods sold increased $2,495 thousand, or 50.3%, to $7,456 thousand for the six months ended June 30, 2026, compared to $4,961 thousand for the six months ended June 30, 2025. This increase in cost of goods sold was primarily due to the increase in the number of our systems sold. Gross margin for the six months ended June 30, 2026 increased to 78.0%, compared to 76.5% for the six months ended June 30, 2025.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $14,943 thousand, or 64.0%, to $38,294 thousand for the six months ended June 30, 2026, compared to $23,351 thousand for the six months ended June 30, 2025. This increase in selling, general and administrative expenses was primarily due to a $6,312 thousand increase in personnel-related expenses as a result of increased headcount of our commercial organization, a $4,250 thousand increase in commissions and sales related costs due to higher sales of our systems, a $1,960 thousand increase in general corporate costs such as information technology, business development and insurance costs, a $1,491 thousand increase in stock-based compensation expense and a $930 thousand increase in depreciation primarily of surgical instruments.
Research and Development Expenses. Research and development expenses increased $4,156 thousand, or 139.0%, to $7,145 thousand for the six months ended June 30, 2026, compared to $2,989 thousand for the six months ended June 30, 2025. The increase in research and development expenses was due to our investment in new product development efforts, including an increase in external consulting fees of $3,778 thousand primarily related to the robotic platform strategic partnership.
Interest (Income) Expense, Net. Interest expense, net decreased $1,692 thousand, or 290.2%, to interest income, net of $1,109 thousand for the six months ended June 30, 2026, compared to interest expense, net of $583 thousand for the six months ended June 30, 2025. This decrease in interest expense, net was due to higher interest earned on marketable securities.
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Change in Fair Value of Series E Purchase Option. Change in fair value of Series E purchase option was $0 for the six months ended June 30, 2026, compared to $11,719 thousand for the six months ended June 30, 2025. The Series E purchase option was issued in connection with the Company’s Series E preferred stock financing entered into during the first quarter of 2025 and the increase resulted from recognition of the fair value change between issuance and the exercise of the Series E preferred stock purchase option in June 2025.
Loss on Extinguishment of Debt. Loss on extinguishment of debt was $589 thousand for the six months ended June 30, 2026 and resulted from repaying the Trinity Loan Agreement. There was no loss on extinguishment of debt in 2025.
Other Expense, Net. Other expense, net decreased by $1,360 thousand, or 97.1%, to $40 thousand for the six months ended June 30, 2026, compared to other expense, net of $1,400 thousand for the six months ended June 30, 2025. This decrease in other expense, net was due to a decrease of $1,415 thousand related to changes in the fair value of our preferred stock warrant liability offset by an increase of $55 thousand in loss on marketable securities.

Liquidity and Capital Resources
To date, our primary sources of capital have been from net revenue received from the sale of our implant systems, the sale of common stock in our IPO, proceeds from private placements of our convertible preferred stock and debt financing arrangements. On August 1, 2025, we completed our IPO, selling 5,000,000 shares of our common stock at $15.00 per share. Upon completion of our IPO, we received net proceeds of approximately $64,212 thousand, after deducting underwriting discounts and commissions and offering expenses. Since inception, we have raised a total of $114,600 thousand in net proceeds from private placements of our convertible preferred stock. As of June 30, 2026, we had cash, cash equivalents and marketable securities of $98,993 thousand and $15,000 thousand of principal outstanding under the Loan Agreement.
We have generated losses from our operations since our inception as reflected in our accumulated deficit of $115,932 thousand as of June 30, 2026. Our losses primarily resulted from the costs incurred in the development, sales, and marketing of our systems and providing support for our operations. We expect to continue to incur losses for the foreseeable future and to expend significant amounts of cash for the foreseeable future as we continue to scale our business, increase selling, general and administrative expenses to support the expansion of our commercial organization and efforts, increase general and administrative expenses to support being a publicly-traded company and invest in research and development activities.
Indebtedness
On June 26, 2026 the Company entered into a Loan and Security Agreement (the “Loan Agreement”), by and between the Company, as borrower, and Stifel Bank, as lender (the “Lender”). The Loan Agreement provides for (i) a senior secured term loan in the aggregate principal amount of $15,000 thousand (the “Term Loan”) and (ii) a senior secured asset-based revolving line of credit in the aggregate principal amount of $30,000 thousand, which, subject to certain conditions, may be increased by $5,000 thousand at the Company’s request (the “Revolving Facility”). Proceeds from the Loan Agreement were used to pay off the term loan outstanding under the Trinity Loan and Security Agreement (the “Trinity Loan Agreement”). The Trinity Loan Agreement was terminated on June 26, 2026.
Availability under the Revolving Facility is subject to a borrowing base consisting of specified percentages of eligible accounts receivable, subject to adjustments established by the Lender; provided that, up to $15,000 thousand of the Revolving Facility is available on a non-formula basis so long as the Company meets certain liquidity requirements.
The aggregate principal amount of borrowings outstanding under the Term Loan accrue interest at a rate per annum equal to the greater of (i) 0.75% below the prime rate and (ii) 5.00%. The aggregate principal amount of borrowings outstanding under the Revolving Facility will accrue interest at a rate per annum equal to the greater of: (i) the prime rate and (ii) 5.00%.
The Company’s obligations under the Loan Agreement are secured by substantially all assets of the Company, except for any copyrights, patents, trademarks, service marks and applications now owned or hereafter acquired by the Company or any claims for damages by way of any past, present and future infringement of any of the foregoing intellectual property.
The Term Loan and Revolving Facility may be prepaid at any time and without penalty, except that any prepayment of the aggregate principal amount of borrowings outstanding under the Term Loan made prior to June 26, 2027 is subject to a
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prepayment premium equal to 1.00% of the aggregate principal amount of borrowings outstanding under the Term Loan immediately prior to such prepayment. The Term Loan matures on June 1, 2031, and the Revolving Facility matures on June 26, 2029.
The Loan Agreement contains customary affirmative and negative covenants and covenants limiting the ability of the Company to, among other things, incur debt, grant liens, pay dividends and distributions on capital stock, and make investments and acquisitions, in each case subject to exceptions customary for secured financings.
As of June 30, 2026, the Company was in compliance with all covenants contained in the Loan Agreement.
As of June 30, 2026, there was $15,000 thousand in outstanding borrowings under the Term Loan and no outstanding borrowings under the Revolving Facility.
Future Funding Requirements
Based on our current operating plan, we believe that the expected cash generated from the sale of our systems, our existing cash, cash equivalents and marketable securities and amounts under our Loan Agreement, will be sufficient to fund our planned operating expenses and capital expenditure requirements for at least 12 months from the date hereof. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. We may experience lower than expected cash generated from operating activities or greater than expected capital expenditures, cost of goods sold, or operating expenses, and may need to raise additional capital to fund operations, increase our commercial organization and efforts, further research and development activities, or acquire, invest in, or in-license other businesses, assets, or technologies.
Our future capital needs will depend upon many factors, including:
•the market awareness and adoption of our systems, including our InSet Glenoid and InSet humeral stem products;
•the scope, timing and costs of supporting the growth and expansion of our commercial organization and efforts;
•the cost and pace of our research and development activities;
•the costs associated with any product recall that may occur;
•the costs associated with the manufacture and supply of our products at increased production levels;
•the costs associated with securing additional suppliers and service providers;
•the scope, rate of progress and costs of our current or future clinical and registries as well as costs associated with complying with regulatory requirements;
•the cost and timing of additional regulatory clearances or approvals;
•the costs of attaining, defending, and enforcing our intellectual property rights;
•whether we acquire third-party products or technologies;
•the terms and timing of any other distribution, collaborative, licensing, and other arrangements that we may establish;
•the emergence of competing technologies or other adverse market developments;
•our ability to raise additional funds to finance our operations;
•debt service requirements;
•the rate at which we expand internationally; and
•the cost associated with being a public company.
We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If we are unable to satisfy our liquidity requirements, including because of the risks included in “Risk Factors” contained in Part I, Item 1A of the Company’s 2025 Annual Report, we may seek to raise any necessary additional capital through public or private equity offerings or debt financings, credit or loan facilities or a
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combination of one or more of these or other funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities or convertible debt, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we raise additional capital through collaboration agreements, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights, future revenue streams, research programs or product or grant licenses that may not be favorable to us. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.
Cash Flows
The following table shows a summary of our cash flows for each of the periods presented:
Six Months Ended June 30Change
20262025$%
(unaudited)
($ in thousands)
Net cash (used in) provided by:
Operating activities$(19,750)$(11,274)$(8,476)(75.2)%
Investing activities17,322 (5,879)23,201 394.6 %
Financing activities17 38,084 (38,067)(100.0)%
Net change in cash for period
$(2,411)$20,931 $(23,342)(111.5)%
_______________
*Not meaningful
Operating Activities
For the six months ended June 30, 2026, net cash used in operating activities was $19,750 thousand, consisting primarily of a net loss of $18,532 thousand and net cash used by changes in our operating assets and liabilities of $6,311 thousand, partially offset by non-cash charges of $5,093 thousand. The non-cash charges primarily consisted of depreciation and amortization expense of $2,265 thousand, stock-based compensation expense of $1,807 thousand and loss on extinguishment of debt of $589 thousand. Net cash used by changes in our operating assets and liabilities primarily consisted of an increase of $2,857 thousand in trade accounts receivable, a decrease of $2,222 thousand in accounts payable, an increase of $1,329 thousand to inventory, and an increase of $811 thousand in prepaid expenses, partially offset by an increase of $908 thousand in other current liabilities.
For the six months ended June 30, 2025, net cash used in operating activities was $11,274 thousand, consisting primarily of a net loss of $23,858 thousand and net cash used by changes in our operating assets and liabilities of $2,270 thousand, partially offset by non-cash charges of $14,854 thousand. The non-cash charges primarily consisted of changes in the fair value of our preferred stock warrant liability and Series E purchase option of $13,134 thousand, depreciation and amortization expense of $1,385 thousand and stock-based compensation expense of $317 thousand, partially offset by realized gain on marketable securities of $207 thousand. Net cash used by changes in operating assets and liabilities primarily consisted of an increase of $3,126 thousand in inventory and an increase in accounts receivable of $1,820 thousand, partially offset by an increase of $1,954 thousand in other current liabilities and an increase of $982 thousand in accounts payable.
Investing Activities
For the six months ended June 30, 2026, net cash provided by investing activities was $17,322 thousand, consisting primarily of proceeds of $40,384 thousand from sales of our marketable securities, partially offset by purchases of $18,170 thousand in marketable securities and $4,892 thousand in fixed assets purchases.
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For the six months ended June 30, 2025, net cash used in investing activities was $5,879 thousand, consisting primarily of purchases of $20,477 thousand in marketable securities and $2,311 thousand in fixed assets purchases, partially offset by cash proceeds of $16,909 thousand from sales of our marketable securities.
Financing Activities
For the six months ended June 30, 2026, net cash provided by financing activities was $17 thousand, resulting from proceeds of $15,000 thousand from debt issuance and proceeds of $524 thousand from exercise of common stock options, partially offset by payments of $15,000 thousand of payments of long-term debt and $507 thousand of payments of debt issuance and extinguishment costs.
For the six months ended June 30, 2025, net cash provided by financing activities was $38,084 thousand, consisting of proceeds of $39,553 thousand from the issuance and sale of shares of our Series E convertible preferred stock, proceeds of $362 thousand from the exercise of warrants for our Series Seed preferred stock and proceeds of $151 thousand from the exercise of common stock options, partially offset by $1,982 thousand of payments of deferred IPO costs.
Contractual Obligations and Commitments
Our contractual commitments will have an impact on our future liquidity. These commitments include future payments on our Loan Agreement, future payments on facility leases and certain royalty obligations. Where applicable, we calculate our obligation based on termination fees that can be paid to exit the contract.
Debt
The principal outstanding under the Loan Agreement was $15,000 thousand as of June 30, 2026, however, we are required to make monthly payments of interest only through July 1, 2029 followed by twenty-four equal monthly installments of principal plus accrued interest. The unpaid balance of principal and accrued interest is due on the maturity date.
Leases
We have entered into an operating lease for office space in Michigan. The lease has a five-year term, which commenced in July 2021 and is renewable for one additional five-year term upon expiration, and was renewed in April 2026. We have also entered into an operating lease for warehouse space in California. The lease has a three-year term, which commenced in March 2025 and is renewable for one additional one-year term upon expiration. In April 2026, we entered into a new lease, which includes the construction of a new commercial building in Michigan that is expected to be substantially completed around the fourth quarter of 2027, which we intend to use as our corporate headquarters. As of June 30, 2026, the operating lease obligations under these operating leases were $71 thousand.
Royalties
On October 22, 2020, we entered into a software license agreement with Genesis Software Innovations, LLC (“Genesis Software”), which was amended and restated on January 1, 2023, and subsequently amended and restated on June 10, 2025 (as amended and restated, the “License Agreement”), pursuant to which we are required to pay Genesis Software certain payments, including royalty payments, until such time we have paid Genesis Software an aggregate of $7,000 thousand under the License Agreement. As of June 30, 2026, we have paid an aggregate of $7,000 thousand of the total $7,000 thousand, including royalties of $666 thousand and $398 thousand in the three months ended June 30, 2026 and 2025, respectively.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Annual Report for further discussion of critical accounting estimates. There were no material changes to our critical accounting policies with which the estimates are developed since December 31, 2025.
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Recently Issued Accounting Pronouncements

See Note 1 to our unaudited condensed financial statements included elsewhere in this Quarterly Report for a description of recent accounting pronouncements applicable to our financial statements.
Emerging growth company status

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we may take advantage of specified reduced disclosure and other reporting requirements that are otherwise applicable generally to public companies. In particular, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we may adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The primary risk associated with fluctuating interest rates is related to our debt. The Term Loan bears interest at an annual rate equal to the greater of the prime rate less 0.75% and 5.00%. Under the terms of the Loan Agreement, the prime rate is equal to the prime rate as reported in The Wall Street Journal. In addition, we hold cash and cash equivalents as well as marketable securities, all of which may generate interest income. The primary objectives of our investment activities are to preserve principal and provide liquidity. Since our results of operations are not dependent on investments, we believe the risk associated with fluctuating interest rates is limited. We do not believe that a hypothetical 10% increase or decrease in interest rates during any of the periods presented would have had a material negative effect on our unaudited condensed financial statements included elsewhere in this Quarterly Report considering the balance of outstanding debt compared to the balance of marketable securities on the Company’s condensed balance sheets. We do not currently use or plan to use financial derivatives in our investment portfolio and we do not currently engage in hedging transactions to manage our exposure to interest rate risk.
Financial Institution Risk
Substantially all of our cash, cash equivalents and marketable securities are held with two financial institutions. Cash amounts held at financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000.
Inflation Risk
Inflation generally affects us by increasing our cost of labor. Inflationary and supply chain pressures may adversely impact our future financial results. Our operating costs have increased and may continue to increase because of these pressures, and we may not be able to fully offset these cost increases by raising prices for products or other mitigation efforts, which could result in downward pressure on margins.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2026, our disclosure controls and procedures were effective at the reasonable assurance level.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
From time to time, we may be party to legal proceedings that arise in the ordinary course of our business, some of which may be covered by insurance. Except for the description of legal proceedings disclosed in Note 8 to our unaudited condensed financial statements, which is incorporated herein by reference, management believes that we do not have any pending legal proceedings that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows. No material legal proceedings were terminated, settled or otherwise resolved during the three months ended June 30, 2026.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. Risk factors describing the major risks to our business can be found under Part I, Item 1A, “Risk Factors” in the Company’s 2025 Annual Report. You should consider carefully the risks and uncertainties described therein, together with all of the other information in this Quarterly Report, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed financial statements and related notes, before deciding whether to purchase shares of our common stock. Our business, financial condition, results of operations and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of these risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. Unless otherwise indicated, references in these risk factors to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects. In such event, the market price of shares of our common stock could decline, and you could lose all or part of your investment.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
None.
Use of Proceeds
On August 1, 2025, we completed our initial public offering (“IPO”) in which we issued and sold 5,000,000 shares of common stock at a public offering price of $15.00 per share. Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and Piper Sandler & Co. acted as lead underwriters for the IPO. We raised net proceeds of $64,212 thousand after deducting underwriter discounts and commissions and fees and expenses payable by us. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.
All shares issued and sold in the IPO were registered under the Securities Act pursuant to the Registration Statement on Form S-1 (File No. 333-288549), as amended, declared effective by the SEC on July 30, 2025 (the “Registration Statement”).
There has been no material change in the expected use of the net proceeds from our IPO as described in our Registration Statement. Certain of the net proceeds from our IPO have been invested primarily in savings and money market accounts.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
On June 12, 2026, Robert Ball, Chief Executive Officer and Executive Chairman, adopted a trading plan intended to satisfy Rule 10b5-1(c), to sell up to 100,000 shares of our common stock between September 11, 2026 and June 12, 2027, subject to certain conditions.
Item 6. Exhibits
(a)Exhibits.
The following documents are filed as exhibits to this Quarterly Report.
Incorporated by Reference
Exhibit
Number		Exhibit DescriptionFormFile No.
Exhibit
Filing DateFiled/
Furnished
Herewith
3.18-K001-427713.18/4/2025
3.28-K001-427713.28/4/2025
10.1^*
10.2*
10.3^*
10.4*
10.5*
10.6*
10.7*
31.1*
31.2*
32.1**
32.2**
101.INSInline XBRL Instance Document*
101.SCHInline XBRL Taxonomy Extension Schema Document*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*
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101.LABInline XBRL Taxonomy Extension Label Linkbase Document*
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*
104Cover Page Interactive Data File (embedded within the Inline XBRL document)*
__________________
* Filed herewith.
^ Pursuant to Item 601(a)(5) of Regulation S-K, the Registrant has omitted schedules (or similar attachments) to this exhibit. The Registrant agrees to furnish supplementally a copy of the omitted schedules (or similar attachments) to the SEC upon request.
** The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of Shoulder Innovations, Inc. under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in such filing.
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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.
SHOULDER INNOVATIONS, INC.
Date:August 6, 2026
By:
/s/ Robert Ball
Robert Ball
Chief Executive Officer and Executive Chairman
(Principal Executive Officer)


August 6, 2026
By:
/s/ Jeffrey Points
Jeffrey Points
Chief Financial Officer
(Principal Financial Officer)
33
Exhibit 10.1
SHOULDER INNOVATIONS, INC.

STIFEL BANK

LOAN AND SECURITY AGREEMENT


This LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of June 26, 2026, by and between STIFEL BANK, a Missouri state-chartered bank (“Bank”), each Additional Borrower from time to time party hereto, each Guarantor from time to time party hereto, and SHOULDER INNOVATIONS, INC., a Delaware corporation (“Original Borrower”).
Recitals
Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
Agreement
The parties to this Agreement agree as follows:
1.Definitions And Construction.
1.1Definitions. As used in this Agreement, the following terms shall have the following definitions:
“Account Control Agreement” means any control agreement among (a) the depository institution at which a Loan Party (or, as applicable, its Subsidiary) maintains a Deposit Account or the securities intermediary or commodity intermediary at which such Loan Party (or, as applicable, its Subsidiary) maintains a Securities Account or a Commodity Account, (b) such Loan Party (or, as applicable, its Subsidiary), and (c) Bank, pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.
“Account Debtor” means any “account debtor” as defined in the Code.
“Accounts” is, as to any Person, any “account” of such Person as “account” is defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to such Person.
“Additional Borrower” means a Person who becomes a Borrower after the Closing Date in accordance with Section 6.12.
“Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility.
“Advance Request Form” means an advance request form in substantially the form of Exhibit B attached hereto.
“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.
“Agreement” is defined in the preamble hereof.
“Ancillary Services” means any products, services or financial accommodations requested by Borrower and approved by Bank, or otherwise provided by Bank (or any of its Affiliates) to Borrower or any of its Subsidiaries, including and without limitation, Letters of Credit, cash management services, FX Contracts, or other treasury management services.
“Ancillary Services Agreement” means an agreement pursuant to which Bank (or its Affiliate) provides Ancillary Services.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to each Loan Party or any of its Affiliates from time to time concerning or relating to bribery or corruption, including without


limitation the United States Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act 2010 and other similar legislation in any other jurisdictions.
“Anti-Terrorism Laws” means any laws, rules, regulations or orders relating to terrorism or money laundering, including without limitation Executive Order No. 13224 (effective September 24, 2001), the Patriot Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by OFAC.
“Applicable Law” means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of courts or governmental authorities and all orders and decrees of all courts and arbitrators.
“Authorized Debit Account” is defined in Section 2.7.
“Availability Amount” means, at any time, an amount equal to (a) the lesser of (i) the Revolving Line and (ii) the sum of (A) the amount available under the Borrowing Base, plus (B) the Non-Formula Sublimit, minus (b) the outstanding aggregate principal balance of all Advances at such time.
“Bank Expenses” means all: (a) reasonable and documented out-of-pocket costs or expenses (including reasonable and documented outside counsel attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents, (b) reasonable and documented Collateral audit fees, and (c) Bank’s reasonable and documented outside counsel attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
“Blocked Person” means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person with which Bank is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) a Person that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list.
“Board of Directors” means, with respect to any Person that is a corporation, its board of directors, with respect to any Person that is a limited liability company, its board of managers, board of members or similar governing body, and with respect to any other Person that is another form of a legal entity, such Person’s governing body in accordance with its organizational documents.
“Books” means all the books and records of any Loan Party, including: ledgers; records concerning the assets or liabilities of such Loan Party, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
“Borrower” means, individually and collectively, jointly and severally, the Original Borrower and each Additional Borrower.
“Borrowing Base” means, as of any date of determination, an amount equal to eighty percent (80.0%) of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate and financial reporting delivered by Borrower (and as may subsequently be updated by Bank based upon information received by Bank including, without limitation, Accounts that are paid and/or billed following the date of such Borrowing Base Certificate); provided, however, that Bank has the right to decrease the foregoing percentages in its good faith business judgment to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the Collateral or its value.
“Borrowing Base Certificate” means the form of document on Exhibit C attached hereto.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of New York are authorized or required to close.
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“Cash Collateral Account” is defined in Section 6.15.
“Cash Burn” shall mean (a) Net Income, plus (b) to the extent deducted in the calculation of Net Income (i) depreciation expense and amortization expense, and (ii) non-cash, stock-based compensation expense.
“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.
“Change in Control” means (a) a transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Original 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 Original Borrower, who did not have such power before such transaction, or (b) during any period of twelve (12) consecutive months, a majority of the members of the Board of Directors of any Loan Party cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first (1st) day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body.
“Change in Law” means the occurrence after the date of this Agreement of any of the following: (a) the adoption of or taking effect of any law, rule, regulation or treaty; (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation, or application thereof by any governmental authority; or (c) compliance by Bank with any request, guideline, requirement or directive (whether or not having the force of law) of any governmental authority made or issued after the date of this Agreement; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith or in the implementation thereof, and (y) all requests, rules, guidelines, requirements or directives promulgated by Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted, issued or implemented.
“Closing Date” means the date of this Agreement.
“Code” means the Uniform Commercial Code as in effect from time to time in the State of New York.
“Collateral” means the property described on Exhibit A attached hereto.
“Collateral Account” means any Deposit Account, Securities Account, or Commodity Account.
“Commodity Account” means a “commodity account” as defined in the Code.
“Compliance Certificate” means a compliance certificate in substantially the form of Exhibit D attached hereto.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (a) any indebtedness, lease (excluding operating leases of real property),
3

dividend, letter of credit or other obligation of another Person; (b) any obligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (c) all obligations arising under any agreement or arrangement designed to protect such Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall, without duplication of the primary obligation, be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Bank in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof.
“Credit Extension” means each Advance, Term Loan Advance, use of the Ancillary Services, or any other extension of credit by Bank for the benefit of Borrower.
“Daily Balance” means the amount of the Obligations owed at the end of a given day.
“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.
“Deposit Account” means a “deposit account” as defined in the Code, and includes any checking account, savings account, or certificate of deposit.
“Designated Deposit Account” means Borrower’s deposit account number ending in , which is maintained by Borrower with Bank.

“Division” means, in reference to any Person which is an entity, the division of such Person into two (2) or more separate Persons, with the dividing Person either continuing or terminating its existence as part of such division, including, without limitation, as contemplated under Section 18-217 of the Delaware Limited Liability Company Act for limited liability companies formed under Delaware law, Section 17-220 of the Delaware Revised Uniform Limited Partnership Act for limited partnerships formed under Delaware law, or any analogous action taken pursuant to any other Applicable Law with respect to any corporation, limited liability company, partnership or other entity.
“Dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.
“Early Termination Fee” shall be an additional fee, payable to Bank, with respect to any termination of the Revolving Line prior to the Revolving Maturity Date, in an amount equal to one percent (1.00%) of the Revolving Line.
“Eligible Accounts” means those Accounts that arise in the ordinary course of Borrower’s business that comply with all of Borrower’s representations and warranties to Bank set forth in Section 5.4; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank’s reasonable judgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:
(a)Accounts that the Account Debtor has failed to pay within ninety (90) days of invoice date;
(b)Accounts with respect to an Account Debtor, twenty-five percent (25%) of whose Accounts the Account Debtor has failed to pay within ninety (90) days of invoice date;
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(c)Accounts with respect to which the Account Debtor is an officer, employee, or agent of Borrower;
(d)Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the Account Debtor may be conditional;
(e)Prebillings, prepaid deposits, retention billings, or progress billings;
(f)Accounts with respect to which the Account Debtor is an Affiliate of Borrower;
(g)Accounts with respect to which the Account Debtor does not have its principal place of business in the United States;
(h)Accounts with respect to which the Account Debtor is the United States of America or any state, local government, or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of the foregoing, unless all necessary steps are taken to comply with the Assignment of Claims Act of 1940 (31 U.S.C. 3727), as amended, or with any comparable state or local law, if applicable, and all other necessary steps are taken to perfect and protect Bank’s security interest in such Account;
(i)Accounts with respect to which Borrower is liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower or for deposits or other property of the Account Debtor held by Borrower, but only to the extent of any amounts owing to the Account Debtor against amounts owed to Borrower;
(j)Accounts with respect to an Account Debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed thirty percent (30%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank;
(k)Accounts with respect to which the Account Debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole but commercially reasonable discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(l)Accounts the collection of which Bank reasonably determines to be doubtful.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“ERISA Affiliate” is any trade or business (whether or not incorporated) under common control with any Loan Party or Subsidiary thereof within the meaning of Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended, (and Sections 414(m) and (o) thereof for purposes of provisions relating to Section 412 thereof).
“Event of Default” has the meaning assigned in Article 8.
“Excluded Account” means any of the following Deposit Accounts which are designated as such in writing to Bank as of the Closing Date or, with respect to any Deposit Account opened after the Closing Date, in the next Compliance Certificate delivered after such Deposit Account is opened: (a) Deposit Accounts exclusively used for payroll, payroll taxes, and other employee wage and benefit payments to or for the benefit of a Loan Party’s employees holding an aggregate amount across all such accounts of not more than amounts needed for the then-next two (2) payroll cycles, (b) any Deposit Account which is a zero-balance disbursement account, (c) any Deposit Account which is solely used for disbursements and payments of withheld income taxes, payroll taxes and/or federal, state or local employee taxes, (d) any Deposit Account which is solely used as a trust account, escrow account, or other fiduciary account or (e) any Deposit Account with respect to which the aggregate amount on deposit, collectively for all such accounts under this clause (e), does not exceed One Hundred Thousand Dollars ($100,000) at any time.
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“Excluded Taxes” means any of the following Taxes imposed on or with respect to Bank or required to be withheld or deducted from a payment to Bank, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of Bank being organized under the laws of, or having its principal office or its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding Taxes imposed on amounts payable to or for the account of Bank with respect to an applicable interest in a Credit Extension or the Revolving Line pursuant to a law in effect on the date on which (i) Bank acquires such interest in the Credit Extensions or Revolving Line or (ii) Bank changes its lending office, except in each case to the extent that, pursuant to Section 2.3, amounts with respect to such Taxes were payable either to Bank’s assignor immediately before Bank became a party hereto or to Bank immediately before it changed its lending office, (c) Taxes attributable to Bank’s failure to comply with Section 2.3(d), and (d) any withholding Taxes imposed under FATCA.
“FATCA” means Sections 1471 through 1474 of the IRC, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations, official guidance or interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the IRC as of the date of this Agreement (or any amended or successor version described above) and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreements (or related legislation or official administrative rules or practices) implementing any of the foregoing.
“Final Payment” is a payment (in addition to and not in substitution for the regular monthly payments of principal plus accrued interest) equal to Three Hundred Thirty-Seven Thousand Five Hundred Dollars ($337,500), which payment shall be fully earned as of the date hereof, but payment shall be deferred until the earliest to occur of (a) the Term Loan Maturity Date, (b) the payment in full of the Term Loan Advance, or (c) the termination of this Agreement.
“Fiscal Quarter” means each period of three fiscal months, ending on March 31, June 30, September 30 and December 31 of each Fiscal Year.
“Fiscal Year” means the fiscal year of Borrower and its Subsidiaries for accounting and tax purposes, ending on December 31 of each year (or such other date as updated by Borrower in accordance with Section 7.2).
“FX Contracts” are any foreign exchange contract by and between a Loan Party and Bank under which such Loan Party commits to purchase from or sell to Bank a specific amount of foreign currency at a set price or on a specified date.
“GAAP” means generally accepted accounting principles in the United States, as in effect from time to time.
“Good Faith Deposit” is defined in Section 2.5(f).
“Guarantor” means, individually and collectively, jointly and severally, each Person who becomes a Guarantor after the Closing Date in accordance with Section 6.12.
“Guaranty” and “Guaranty Documents” are defined in Section 8.11.
“Indebtedness” means all indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including reimbursement and other obligations with respect to surety bonds and letters of credit (solely to the extent drawn but not reimbursed), (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.
“Indemnified Person” is defined in Section 13.2(a).
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of Borrower under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
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“Initial Audit” means an audit of the Collateral completed by a third party, the results of which shall be satisfactory to Bank in its sole but commercially reasonable discretion.
“Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, receivership or other relief.
“Intellectual Property” means all of each Loan Party’s right, title, and interest of ownership in and to the following: Copyrights, Trademarks and Patents; all trade secrets, all design rights, claims for damages by way of past, present and future infringement of any of the rights included above, all licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and all proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.
“Inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
“Investment” means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
“Key Person” is each of Borrower’s (a) Chief Executive Officer, who is Robert Ball as of the Closing Date, and (b) Chief Financial Officer who is Jeffrey Points as of the Closing Date.
“Letter of Credit” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
“Liquidity Trigger Amount” is, as of any time of measurement, the greater of (a) the product of (i) Total Debt Outstanding multiplied by (ii) two (2), and (b) the product of (i) the absolute value of Borrower’s Cash Burn multiplied by (ii) twelve (12); provided however, the Liquidity Trigger Amount shall not exceed Sixty Five Million Dollars ($65,000,000).
“Liquidity Trigger Event” means the aggregate amount of Borrower’s unrestricted and unencumbered cash maintained at Bank or in a Deposit Account subject to an Account Control Agreement is less than the Liquidity Trigger Amount.
“Liquidity Trigger Period” means the period commencing upon the occurrence of a Liquidity Trigger Event and continuing until the date that the aggregate amount of Borrower’s unrestricted and unencumbered cash maintained at Bank or in a Deposit Account subject to an Account Control Agreement is greater than or equal to the Liquidity Trigger Amount, in each case as determined by Bank in its sole, but commercially reasonable discretion.
“Loan Documents” means, collectively, this Agreement and any related schedules, exhibits, certificates and notices, the Perfection Certificate, any Account Control Agreement, any Ancillary Services Agreement, any Guaranty Documents, any subordination agreement, any guaranty, note or related security agreements executed by any Loan Party, landlord waivers and consents, bailee waivers and consents, any agreement identified therein as a “Loan Document” by Borrower and Bank, and any other agreement entered into in connection with this Agreement, all as amended, restated, extended, supplemented, or otherwise modified from time to time.
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“Loan Party” means a Borrower or a Guarantor, as applicable.
“Material Adverse Effect” means a material adverse effect on (a) the business operations, condition (financial or otherwise) or prospects of Borrower and its Subsidiaries taken as a whole, (b) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents, (c) the value, perfection, or priority of Bank’s security interests in the Collateral, or (d) the ability of Bank to enforce any of its rights or remedies with respect to the Obligations.
“Negotiable Collateral” means all letters of credit of which any Loan Party is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, in each case for the benefit of any Loan Party, and such Loan Party’s Books relating to any of the foregoing.
“Net Income” means, as calculated for Borrower for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower for such period taken as a single accounting period.
“Non-Formula Sublimit” mean (a) so long as a Liquidity Trigger Event has not occurred and is not continuing, Fifteen Million Dollars ($15,000,000) and (b) during a Liquidity Trigger Period, Zero Dollars ($0).
“Obligations” means all debt, principal, interest, the Final Payment, the Prepayment Premium, each Anniversary Fee, the Early Termination Fee, Bank Expenses and other amounts owed to Bank by the Loan Parties pursuant to this Agreement, any other Loan Document or otherwise, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from the Loan Parties to others that Bank may have obtained by assignment or otherwise.
“OFAC” means the U.S. Department of Treasury Office of Foreign Assets Control.
“OFAC Lists” means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.
“Original Borrower” has the meaning given in the preamble hereto.
“Other Connection Taxes” means, with respect to Bank, Taxes imposed as a result of a present or former connection between Bank and the jurisdiction imposing such Tax (other than connections arising from Bank having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Credit Extension or Loan Document).
“Other Taxes” means all present or future stamp, court, documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.
“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
“Participant Register” is defined in Section 13.1.
“Patriot Act” is defined in Section 13.10.
“Payment in Full” means (a) the termination of Bank’s commitment to make a Credit Extension hereunder and (b) the payment in full in cash of (i) all outstanding Credit Extensions, together with accrued and unpaid interest thereon, (ii) the accrued and unpaid fees under the Loan Documents, if any, (iii) all Bank Expenses, and (iv) all other outstanding Obligations (other than inchoate indemnity obligations and other obligations extending beyond maturity
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(including any obligations with respect to Ancillary Services under Ancillary Services Agreements) that have been cash collateralized in an amount and manner satisfactory to Bank or otherwise subject to arrangements satisfactory to Bank). “Paid in Full” has a corresponding meaning.
“Periodic Payments” means all installments or similar recurring payments that the Loan Parties may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of a Loan Document or any other instrument or agreement now or hereafter in existence between any Loan Party and Bank.
“Perfection Certificate” is defined in Section 3.1(d).
“Permitted Indebtedness” means:
(a)Indebtedness of a Loan Party in favor of Bank arising under this Agreement or any other Loan Document;
(b)Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c)Indebtedness secured by a lien described in clause (c) of the defined term “Permitted Liens”, provided (i) such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed Two Hundred Thousand Dollars ($250,000)in the aggregate at any given time;
(d)Subordinated Debt;
(e)unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(f)unsecured Indebtedness pursuant to corporate credit cards (other than the corporate credit cards issued by Bank or its Affiliates) in the ordinary course of business, provided such Indebtedness shall be in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) at any time;
(g)Indebtedness in respect of netting services, overdraft protections and otherwise in connection with Deposit Accounts, in each case, in the ordinary course of business in an aggregate amount not to exceed Fifty Thousand Dollars ($50,000);
(h)Indebtedness consisting of the financing of insurance premiums in the ordinary course of business and provided such financing arrangement has been approved in writing by Bank;
(i)Indebtedness to carriers, warehousemen, mechanics, and materialmen, in each case arising in the ordinary course of business in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) which are not delinquent or remain payable under penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(j)to the extent constituting Indebtedness, judgments not constituting an Event of Default;
(k)Indebtedness representing taxes and assessments not yet due and payable without penalty or, if due and payable, being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained in accordance with GAAP pursuant to Section 5.13;
(l)Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(m)other unsecured Indebtedness not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate at any time outstanding; and
(n)extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (i) above; provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon a Loan Party or its Subsidiary, as the case may be.
“Permitted Investment” means:
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(a)Investments existing on the Closing Date disclosed in the Schedule;
(b)Investments consisting of Cash Equivalents;
(c)Investments accepted in connection with Transfers permitted by Section 7.1; and
(d)Investments (i) by a Loan Party in another Loan Party, and (ii) by Subsidiaries (other than any Subsidiary that is a Loan Party) in other Subsidiaries or in Loan Parties;
(e)Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of a Loan Party;
(f)Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;
(g)Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph shall not apply to Investments of Borrower in any Subsidiary;
(h)other Investments not otherwise permitted by Section 7.7 not exceeding One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year; and
(i)Investments consisting of Deposit Accounts and Securities Accounts (but only to the extent that a Loan Party or its Subsidiary is permitted to maintain such accounts in accordance with Section 6.8) in which Bank has a perfected security interest.
“Permitted Liens” means the following:
(a)Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;
(b)Liens for Taxes, fees, assessments or other governmental charges or levies, not yet due or payable without penalty or, if due and payable, those being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained in accordance with GAAP, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code;
(c)Liens (i) upon or in any equipment which was not financed by Bank acquired or held by a Loan Party or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment;
(d)Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;
(e)non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business;
(f)Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(g)easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(h)leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases,
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non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein
(i)Liens arising from attachments or judgments, orders or decrees in circumstances not constituting an Event of Default;
(j)Liens on insurance policies and the proceeds thereof granted to secure the financing of insurance premiums with respect thereto to the extent permitted under clause (f) of the definition of Permitted Indebtedness;
(k)customary Liens of any bank in connection with statutory, common law and contractual rights of setoff and recoupment with respect to any Deposit Account or Securities Account of any Loan Party, provided that (i) Bank has a first priority perfected security interest in such account to the extent required pursuant to Section 6.8 and (ii) such account is permitted to be maintained pursuant to Section 6.8; and
(l)other Liens not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate at any time.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
“Prepayment Premium” shall be an additional fee, payable to Bank, with respect to the Term Loan Advance, in an amount equal to:
(a)for a prepayment of the Term Loan Advance made on or prior to the first (1st) anniversary of the Closing Date, one percent (1.00%) of the outstanding principal amount of the Term Loan Advance immediately prior to the date of such prepayment; and
(b)for a prepayment of the Term Loan Advance made after the first (1st) anniversary of the Closing Date, Zero Dollars ($0).
Notwithstanding the foregoing, the Prepayment Premium shall not be due hereunder if Bank provided the financing in connection with the refinance and redocumentation of the Term Loan Advance prior to the Term Loan Maturity Date.
“Prime Rate” means the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement; and provided further that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, ceases to exist or becomes unavailable for any reason as determined by Bank (which determination shall be conclusive absent manifest error), the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of Missouri (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors); provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in Prime Rate.
“Reg W Affiliate” means an “affiliate” as such term is set forth in Section 23A(b)(1) of the Federal Reserve Act (12 USC 371c) and 12 C.F.R. 223.2.
“Register” is defined in Section 13.1.
“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.
“Restricted License” is any material license or other material agreement with respect to which a Loan Party is the licensee (a) that prohibits or otherwise restricts such Loan Party from granting a security interest in such
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Loan Party’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with Bank’s right to sell any Collateral. Off-the-shelf software, open source code, application programming interfaces (APIs) and/or other intellectual property, trademarks, copyrights or patents of others that are commercially available to the public under shrinkwrap licenses, clickwrap licenses, or online terms of service agreements shall not constitute a Restricted License.
“Restricted Payment” is defined in Section 7.6.
“Revolving Facility” means the facility under which Borrower may request Bank to issue Advances, as specified in Section 2.1(a).
“Revolving Line” means the commitment of Bank hereunder to make Advances in an aggregate principal amount of up to Thirty Million Dollars ($30,000,000); provided, however, if Bank, in its sole and absolute discretion, grants any request by Borrower to make the Uncommitted Accordion available to Borrower, “Revolving Line” shall mean the commitment of Bank hereunder to make Advances in an aggregate principal amount of up to Thirty Five Million Dollars ($35,000,000).
“Revolving Maturity Date” means June 26, 2029.
“Sanctioned Country” means, at any time, a country or territory which is the subject or target of any Sanctions.
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or by the United Nations Security Council, the European Union or any EU member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.
“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or His Majesty’s Treasury of the United Kingdom.
“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
“Securities Account” means a “securities account” as defined in the Code.
“Shares” means one hundred percent (100%) of the issued and outstanding capital stock, membership units, general partnership interest or other securities owned or held of record by any Loan Party in any Subsidiary of such Loan Party.
“Subordinated Debt” means any debt incurred by any Loan Party that is subordinated to the debt owing by such Loan Party to Bank on terms acceptable to Bank (and identified as being such by such Loan Party (or Borrower on its behalf) and Bank).
“Subsidiary” means any corporation, company or partnership in which (i) any general partnership interest or (ii) more than fifty percent (50%) of the capital stock, membership units or other securities which by the terms thereof has the ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any governmental authority, including any interest, additions to tax or penalties applicable thereto.
“Term Loan Advance” means a cash advance under Section 2.1(d).
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“Term Loan Maturity Date” means June 1, 2031.
“Total Debt Outstanding” means, at any date, the aggregate outstanding amount of the Term Loan Advance and all Advances owing to Bank hereunder as of such date other than accrued and unpaid interest not yet due and payable pursuant to the terms of this Agreement.
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of a Loan Party connected with and symbolized by such trademarks.
“Uncommitted Accordion” is defined in Section 2.1(a)(iv).
1.2Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms “financial statements” shall include the notes and schedules thereto.
2.Loan and terms of payment.
2.1Credit Extensions.
Borrower promises to pay to the order of Bank, in Dollars, the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with the terms hereof.
(a)Revolving Advances.
(i)Subject to and upon the terms and conditions of this Agreement and after completion of the Initial Audit, Borrower may request Advances in an aggregate outstanding amount not to exceed the Availability Amount. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium.
(ii)Whenever Borrower desires an Advance, Borrower will notify Bank no later than 3:00 p.m. Eastern time, on the Business Day that the Advance is to be made. Each such notification shall be made (i) by telephone or in-person followed by written confirmation from Borrower within 24 hours, (ii) by electronic mail or facsimile transmission, or (iii) by delivering to Bank an Advance Request Form. Bank is authorized to make Advances under this Agreement, based upon instructions received from a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any notice given by a person who Bank reasonably believes to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. So long as all of the conditions for a Credit Extension are met, in accordance with the Loan Documents, Bank will credit the amount of that Advance made under this Section 2.1(a) to Borrower’s Designated Deposit Account.
(iii)The Revolving Line terminates on the Revolving Maturity Date, when the outstanding principal amount of all Advances, the accrued and unpaid interest thereon, and all other outstanding Obligations relating to the Revolving Line shall be immediately due and payable.
(iv)At any time prior to the Revolving Maturity Date, Borrower may request that Bank increase the original principal amount available to be borrowed under the Revolving Line by an additional aggregate amount not to exceed Five Million Dollars ($5,000,000) (the “Uncommitted Accordion”). Bank, in its sole and absolute discretion, may grant or deny any such request from Borrower to add the Uncommitted Accordion to the Revolving Line. If, and only if, Bank, in its sole discretion, agrees to grant any such request from Borrower to add the Uncommitted Accordion to the Revolving Line, any such advance made thereunder shall each be considered an “Advance” hereunder and added to the definition thereof; provided that, the terms of the making of any advance under the Uncommitted Accordion shall be outlined in an amendment to this Agreement to be entered into by the parties hereto.
(b)Reserved.
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(c)Reserved.
(d)Term Loan Advance.
(i)Subject to and upon the terms and conditions of this Agreement, Borrower shall request on the Closing Date and, on or about the Closing Date, Bank shall make one (1) Term Loan Advance to Borrower in an aggregate amount equal to Fifteen Million Dollars ($15,000,000), the proceeds of which shall be used to repay all of Borrower’s outstanding indebtedness and obligations owing to Trinity Capital Inc. as of the Closing Date and thereafter for general corporate purposes.
(ii)Interest shall accrue from the date of each Term Loan Advance at the rate specified in Section 2.3, and shall be payable monthly on the first (1st) day of each month so long as any Term Loan Advances are outstanding. Any Term Loan Advances that are outstanding on June 30, 2029 shall be payable in twenty-four (24) equal monthly installments of principal, plus all accrued interest, beginning on July 1, 2029 and continuing on the same day of each month thereafter through the Term Loan Maturity Date, at which time all amounts owing under this Section 2.1(d) and any other amounts owing under this Agreement shall be immediately due and payable. Term Loan Advances, once repaid, may not be reborrowed.
(iii)When Borrower desires to obtain the Term Loan Advance, Borrower shall notify Bank (which notice shall be irrevocable) by delivery of an Advance Request Form at no later than 3:00 p.m. Eastern time three (3) Business Days before the day on which the Term Loan Advance is to be made. The notice shall be signed by a Responsible Officer. Bank shall be entitled to rely on any notice given by a person who Bank reasonably believes to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. So long as all of the conditions for the Term Loan Advance are met, in accordance with the Loan Documents, Bank will credit the amount of that Term Loan Advance made under this Section 2.1(d) to Borrower’s Designated Deposit Account.
2.2Overadvances. If the aggregate amount of the outstanding Advances exceeds (a) the lesser of (i) the Revolving Line and (ii) the sum of (A) the amount available under the Borrowing Base, plus (B) the Non-Formula Sublimit, at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.3Interest Rates, Payments, and Calculations.
(a)Interest Rates.
(i)Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to the greater of (A) the Prime Rate and (B) five percent (5.00%).
(ii)Term Loan Advance. Except as set forth in Section 2.3(b), the Term Loan Advance shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to the greater of (A) three-quarters of one percent (0.75%) below the Prime Rate and (B) five percent (5.00%).
(b)Late Fee; Default Rate. If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5.00%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under all Applicable Law, not in any case to be less than Twenty-Five Dollars ($25). Upon the occurrence and during the continuance of an Event of Default, all Obligations shall bear interest at a rate equal to three (3) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default, unless Bank otherwise elects, in its sole discretion, to impose a lesser increase or no increase.
(c)Payments. Interest hereunder shall be due and payable on the first (1st) calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s Deposit Accounts, or, to the extent not paid when due, against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. Bank may debit any of Borrower’s Deposit Accounts maintained with Bank, including each Authorized Debit Account, for principal and interest payments or any other amounts Borrower owes Bank when due under the Loan Documents. These debits shall not constitute a set-off.
(d)Withholding. All payments by or on account of any obligation of Borrower under any Loan Document shall be free and clear of any Taxes except as required by Applicable Law or international agreement. If at any time any Applicable Law or international agreement requires Borrower to make any withholding or deduction for Tax from any such payment or other sum payable hereunder to Bank, Borrower
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shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant governmental authority. If such Tax deducted or withheld is an Indemnified Tax, then the sum payable by such Borrower shall be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant governmental authority. Borrower will, upon request, furnish Bank with proof satisfactory to Bank indicating that it has made such withholding payment. If a payment made to Bank under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if Bank were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), Bank shall deliver to Borrower at the time or times prescribed by law and at such time or times reasonably requested by Borrower such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by Borrower as may be necessary for Borrower to comply with its obligations under FATCA and to determine that Bank has complied with Bank’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of the preceding sentence, “FATCA” shall include any amendments made to FATCA after the date of this Agreement. Bank agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify Borrower in writing of its legal inability to do so.
(e)Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed.
2.4Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to the Designated Deposit Account. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 3:00 p.m. Eastern time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
2.5Fees. Borrower shall pay to Bank the following:
(a)Final Payment. The Final Payment, when due hereunder;
(b)Prepayment Premium. The Prepayment Premium, when due hereunder;
(c)Revolving Line Facility Fee. On the Closing Date, a facility fee equal to Twenty-Five Thousand Dollars ($25,000), which shall be nonrefundable;
(d)Revolving Line Anniversary Fee. An anniversary fee equal to Twenty-Five Thousand Dollars ($25,000) (each, an “Anniversary Fee”), which is due and payable on the earlier to occur of (i) each anniversary of the Closing Date occurring prior to the Revolving Maturity Date, (ii) the termination of this Agreement, or (iii) the occurrence of an Event of Default, and shall be fully earned and non-refundable as of such date; and
(e)Early Termination Fee. The Early Termination Fee, due upon the termination of the Revolving Line for any reason prior to the Revolving Line Maturity Date, which shall be fully earned and non-refundable as of such date; and
(f)Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date, including reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees and expenses, as and when they are incurred by Bank. Borrower has paid to Bank a good faith deposit of Fifty Thousand Dollars ($50,000) (the “Good Faith Deposit”) to initiate Bank’s due diligence review process. The Good Faith Deposit will be applied to Bank Expenses incurred as of the Closing Date, provided, the Good Faith Deposit may not be sufficient to cover all Bank Expenses incurred as of that date. Bank may, at its option, charge any other Bank Expenses, whether incurred as of the Closing Date or at any other time, against any of
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Borrower’s deposit accounts as provided in Section 2.7 or against the Revolving Line as additional principal thereunder, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder.
2.6Term. This Agreement shall become effective on the Closing Date and, subject to Section 13.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.
2.7Irrevocable Authorization Concerning Automatic Debits. On the Closing Date, Bank is IRREVOCABLY authorized, but is not required, to debit Borrower’s Deposit Accounts, including the Designated Deposit Account (collectively, the “Authorized Debit Accounts”) for principal and interest payments or any other amounts Borrower owes hereunder when due, for so long as this Agreement remains in effect. Bank shall be entitled to rely on this IRREVOCABLE authorization to debit Borrower’s Deposit Accounts, and Borrower shall indemnify on DEMAND and hold harmless Bank for any damages or loss suffered by Bank as a result of such reliance. The debits described in this Section shall not constitute a set-off.
2.8Borrower further understands and agrees that if the Authorized Debit Accounts do not have a sufficient balance on a day that a payment is to be debited from the Authorized Debit Account, or, if Bank is prohibited from making such debit, Bank may, at Bank’s option suspend further efforts to debit the Authorized Debit Accounts and look to Borrower for the current payment and all subsequent payments until such time as all payments under this Agreement are current. In no event shall the availability of any credit line that Borrower may have with Bank be used in determining whether the Borrower’s Accounts have a sufficient balance. At Bank’s option and sole discretion, Bank may resume debiting the Authorized Debit Accounts without further instructions from Borrower once all payments are current. In the event that Bank does not resume debiting the Authorized Debit Accounts, Bank will provide Borrower with a written termination notice.
3.Conditions of loans.
3.1Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:
(a)duly executed counterparts of this Agreement and the other Loan Documents to be entered into on the Closing Date;
(b)the formation documents of Borrower as certified by the Secretary of State (or equivalent agency) of Delaware no earlier than thirty (30) days prior to the Closing Date, and the current bylaws or limited liability company agreement (as applicable) of such Loan Party;
(c)(i) a long-form good standing certificate of Borrower certified by the Secretary of State (or equivalent agency) of Delaware and (ii) a good standing/foreign qualification certificate of each Loan Party certified by the Secretary of State (or equivalent agency) of the jurisdiction of such Loan Party’s headquarters or principal place of business, in each case no earlier than thirty (30) days prior to the Closing Date;
(d)a duly executed perfection certificate delivered by each Loan Party in connection with this Agreement (the “Perfection Certificate”);
(e)a certificate of the Secretary of each Loan Party with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
(f)UCC National Form Financing Statements, naming each Loan Party as a debtor, to be filed with the Secretary of State or equivalent agency of such Loan Party’s jurisdiction of organization on the Closing Date;
(g)evidence of insurance coverage certificates in compliance with the terms of Section 6.7;
(h)a customary legal opinion, duly executed by Borrower’s counsel;
(i)duly executed payoff letters from Trinity Capital Inc., together with evidence that all documents executed in connection therewith have been terminated and all amounts owing thereunder have been paid in full;
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(j)evidence that (i) the Liens securing Indebtedness owed by the Loan Parties to Trinity Capital Inc. will be terminated and (ii) the documents and/or filings evidencing the perfection of such Liens, including without limitation any Uniform Commercial Code financing statements and/or account control agreements, have or will, concurrently with the initial Credit Extension, be terminated;
(k)payment of the fees and Bank Expenses then due specified in Section 2.5(f);
(l)Intellectual Property search results;
(m)(i) audited consolidated financial statements for Borrower for the Fiscal Years ended as of December 31, 2025 and (ii) unaudited interim consolidated financial statements of Borrower for each fiscal quarter ended after December 31, 2025 for which a Form 10-Q has been filed with the Securities and Exchange Commission;
(n)(i) all documentation and other information regarding the Loan Parties requested by Bank in connection with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, (ii) a properly completed and signed IRS Form W-8 or W-9 (as applicable) for or with respect to each Loan Party, and (iii) to the extent any Loan Party qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a Beneficial Ownership Certification in relation to such Loan Party;
(o)an Irrevocable Authorization for Automatic Debit and Payment on a Credit Extension with Bank; and
(p)such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
3.2Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:
(a)solely with respect to Advances and the Term Loan Advance, timely receipt by Bank of the Advance Request Form or as otherwise provided in Section 2.1; and
(b)if the aggregate amount of outstanding Advances (after giving effect to the contemplated Credit Extension) is less than or equal to the Non-Formula Sublimit and solely with respect to Advances, receipt of a certificate of a Responsible Officer certifying that a Liquidity Trigger Event has not occurred;
(c)if the aggregate amount of outstanding Advances (after giving effect to the contemplated Credit Extension) is greater than the Non-Formula Sublimit and solely with respect to Advances, a Borrowing Base Certificate for the month most recently ended for the month Borrower was required to provide one under Section 6.4
(d)the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Advance Request Form and on the effective date of each Credit Extension as though made at and as of each such date (except to the extent that such representations and warranties relate specifically to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date), and no Default or Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension. The making of each Credit Extension shall be deemed to be a representation and warranty by each Loan Party on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2;
(e)Bank determines to its satisfaction that a Material Adverse Effect has not occurred; and
(f)with respect to the initial Advance, Bank shall have completed the Initial Audit.
4.Creation of security interest.
4.1Grant of Security Interest. Each Loan Party grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by such Loan Party of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof.
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4.2Authorization to File Financing Statements. Each Loan Party hereby authorizes Bank to file financing statements, without notice to any Loan Party, with all jurisdictions deemed necessary or appropriate by Bank to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either a Loan Party or any other Person, shall be deemed to violate the rights of Bank under the Code. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect. Each Loan Party, to the extent permitted by Applicable Law, waives the right to receive a copy of any financing statement or financing change statement registered in connection with this Agreement or any other Loan Document or any verification statement issued with respect to any such financing statement or financing change statement.
4.3Delivery of Additional Documentation Required. Each Loan Party shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue the perfection of Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Each Loan Party from time to time may deposit with Bank specific time deposit accounts to secure specific Obligations. Each Loan Party authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any request by such Loan Party or any other Person to pay or otherwise transfer any part of such balances for so long as the Obligations are outstanding.
4.4Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice (which shall be at least five (5) Business Days), from time to time during Borrower’s usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect any Loan Party’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify such Loan Party’s financial condition or the amount, condition of, or any other matter relating to, the Collateral; provided that any copies of confidential information made during such inspection shall be subject to the confidentiality provisions of Section 13.8. The Initial Audit shall be completed prior to the earlier to occur of (a) the date that is ninety (90) days after the Closing Date and (b) the funding date of the initial Advance. Bank will work with Borrower in good faith to conduct any such actions without unreasonable disruption to Borrower’s normal business activities.
4.5Pledge of Shares. Each Loan Party hereby pledges, assigns and grants to Bank a security interest in all the Shares, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security for the performance of the Obligations. To the extent required by the terms and conditions governing the Shares, each Loan Party shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect the pledge of the Shares. Upon the occurrence of an Event of Default hereunder, Bank may effect the transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Bank and cause new certificates representing such securities to be issued in the name of Bank or its transferee. Each Loan Party will execute and deliver such documents, and take or cause to be taken such actions, as Bank may reasonably request to perfect or continue the perfection of Bank’s security interest in the Shares. Unless an Event of Default shall have occurred and be continuing, each Loan Party shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event of Default.
5.Representations and warranties.
Each Loan Party represents and warrants as follows:
5.1Due Organization and Qualification. Each Loan Party and each Subsidiary is a corporation, limited liability company or limited partnership, as applicable, duly existing under the laws of its state of incorporation or formation, as applicable, and qualified and licensed to do business in (a) its state of incorporation or formation, as applicable, and (b) any other state or jurisdiction in which the conduct of its business or its ownership of property requires that it be so qualified, except with respect to this clause (b) where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.
5.2Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within each Loan Party’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in such Loan Party’s organizational documents, nor will they constitute an event of default under any material agreement to which any Loan Party is a party or by which any Loan Party is bound, nor will they contravene, conflict with or violate any applicable order, writ, judgment, injunction, decree, determination or award of any government authority by which any Loan Party or any of such Loan Party’s property or assets may be bound or affected. No Loan Party is in default under any material agreement to which it is
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a party or by which it is bound, except where such default would not reasonably be expected to cause a Material Adverse Effect.
5.3No Prior Encumbrances. Each Loan Party and each Subsidiary has good and marketable title to its property, free and clear of Liens, except for Permitted Liens.
5.4Eligible Accounts. The Eligible Accounts are bona fide existing obligations. The property and services giving rise to such Eligible Accounts has been delivered or rendered to the Account Debtor or to the Account Debtor’s agent for immediate and unconditional acceptance by the Account Debtor. No Loan Party has received notice of actual or imminent Insolvency Proceeding of any Account Debtor.
5.5Merchantable Inventory. All Inventory is in all material respects of good and marketable quality (allowing for normal wear and tear), free from all material defects, except for Inventory for which adequate reserves have been made.
5.6Intellectual Property. The Loan Parties are the sole owner of the Intellectual Property, except for non-exclusive licenses granted by any Loan Party to its customers in the ordinary course of business. Each of the issued Patents that is Intellectual Property is in good standing and enforceable, and no part of the issued Intellectual Property has been judged invalid or unenforceable, in whole or in part, and no claim has been made against any Loan Party that any part of the Intellectual Property violates the rights of any third party, except in each case as such Intellectual Property has no material value. Except as set forth in the Schedule, the Loan Parties’ rights as a licensee of intellectual property do not directly give rise to more than ten percent (10%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. Except as set forth in the Schedule, no Loan Party is a party to, or bound by, any agreement that restricts the grant by such Loan Party of a security interest in such Loan Party’s rights under such agreement.
5.7Name; Location of Chief Executive Office. Except as disclosed in the Schedule, no Loan Party has done business during the five (5) years prior to the Closing Date under any name other than that specified on the signature page hereof. The chief executive office of such Loan Party is located at the address indicated in Section 10. All such Loan Party’s Inventory and Equipment (other than Equipment or Inventory that is temporarily out of the possession of a Loan Party, in transit, or out for repair) is located only at the locations set forth in that certain Perfection Certificate delivered by Borrower to Bank on or prior to the Closing Date.
5.8Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against any Loan Party or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect, or a material adverse effect on any Loan Party’s interest or Bank’s security interest in the Collateral.
5.9No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to any Loan Party and any Subsidiary that Bank has received from the Loan Parties fairly present in all material respects, to the extent applicable, each Loan Party’s and each Subsidiary’s financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or the consolidating financial condition of any Loan Party since the date of the most recent of such financial statements submitted to Bank.
5.10Solvency, Payment of Debts. Each Loan Party is able to pay its debts (including trade debts) as they mature; the fair saleable value of each Loan Party’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and no Loan Party is left with unreasonably small capital after the transactions contemplated by this Agreement.
5.11Regulatory Compliance. Each Loan Party and each of its respective Subsidiaries (and with respect to any plan subject to Title IV of ERISA, each of the Loan Parties’ and their respective Subsidiaries’ ERISA Affiliates) has met the minimum funding requirements of ERISA applicable to it with respect to any employee benefit plans subject to ERISA, and no event has occurred resulting from any Loan Party’s failure to comply with ERISA that could result in such Loan Party or any Subsidiary incurring any material liability under ERISA. No Loan Party is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Each Loan Party has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower and each of its Subsidiaries (a) have complied in all material respects with all Applicable Law, and (b) have not violated any Applicable Law the violation of which could reasonably be expected to have a Material Adverse Effect on Borrower’s business or operations. Neither Borrower nor any of its Subsidiaries is in violation in any material respect of any applicable requirement of law relating to terrorism or money laundering, including Executive Order
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No. 13224, effective September 24, 2001, The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act,” 31 U.S.C. §§ 5311 5330), the Trading With the Enemy Act (50 U.S.C. §§1-44, as amended), the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107 56, signed into law October 26, 2001, the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 as amended and the Criminal Justice (Terrorist Offences) Act 2005.
5.12Environmental Condition. Except as disclosed in the Schedule, none of such Loan Party’s or any Subsidiary’s properties or assets has ever been used by such Loan Party or any Subsidiary or, to the best of such Loan Party’s knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with all Applicable Law; to the best of such Loan Party’s knowledge, none of such Loan Party’s properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by such Loan Party or any Subsidiary; and neither such Loan Party nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by such Loan Party or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment.
5.13Taxes. Each Loan Party and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except (i) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (ii) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Fifty Thousand Dollars ($50,000).
5.14Subsidiaries. No Loan Party owns any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
5.15Government Consents. Each Loan Party and each Subsidiary have obtained all material consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of each Loan Party’s business as currently conducted.
5.16Accounts. Except as set forth in the Schedule, none of such Loan Party’s nor any Subsidiary’s property is maintained or invested with a Person other than Bank.
5.17Shares. Each Loan Party has full power and authority to create a first lien on the Shares and no disability or contractual obligation exists that would prohibit such Loan Party from pledging the Shares pursuant to this Agreement. To such Loan Party’s knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable. To such Loan Party’s knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and no Loan Party knows of reasonable grounds for the institution of any such proceedings.
5.18Full Disclosure. No representation, warranty or other statement made by a Loan Party in any certificate or written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact as of the time when made or delivered or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading as of the time when made or delivered in light of the circumstances in which they were made, it being recognized by Bank that the projections and forecasts provided by such Loan Party in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.
5.19Compliance.
(a)None of the Loan Parties, any of their Subsidiaries or any of their respective directors, officers or employees, or to the knowledge of each Loan Party, any agent for a Loan Party or its Subsidiaries that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Credit Extension, use of proceeds or other transaction contemplated by this Agreement will violate Anti-Corruption Laws or applicable Sanctions.
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(b)None of the Loan Parties, any of their Subsidiaries, or any of the Loan Parties or their Subsidiaries’ Affiliates or any of their respective agents acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law, (ii) engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person. None of the Loan Parties, any Subsidiary, or to the knowledge of the Loan Parties and their Affiliates or agents, acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (x) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law. None of the funds to be provided under this Agreement will be used, directly or indirectly, (a) for any activities in violation of any applicable anti-money laundering, economic sanctions and anti-bribery laws and regulations or (b) for any payment to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
6.Affirmative Covenants.
Each Loan Party shall (and, where applicable, cause each of its Subsidiaries to) do all of the following:
6.1Good Standing. Each Loan Party shall maintain its and each of its Subsidiaries’ corporate existence and good standing in its jurisdiction of incorporation or formation, as applicable, and maintain qualification and good standing in each other jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect. Each Loan Party shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a Material Adverse Effect.
6.2Compliance.
(a)Each Loan Party shall maintain, and shall cause its Subsidiaries to maintain, compliance in all material respects with all Applicable Law (including any law, rule or regulation with respect to the making or brokering of loans or financial accommodations), and shall, or cause its Subsidiaries to, obtain and maintain all required governmental authorizations, approvals, licenses, franchises, permits or registrations reasonably necessary in connection with the conduct of such Loan Party’s business.
(b)Each Loan Party has implemented and shall maintain in effect policies and procedures designed to ensure compliance by itself, its Subsidiaries and its respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and each Loan Party, its Subsidiaries and their respective officers and employees and, to the knowledge of each Loan Party, its directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions.
(c)Neither the Loan Parties nor any of their Subsidiaries shall, nor shall any Loan Party or any Subsidiary permit any Affiliate to, directly or indirectly, knowingly enter into any documents, instruments, agreements or contracts with any Person listed on the OFAC Lists. Neither the Loan Parties nor any of their Subsidiaries shall, nor shall any Loan Party or any of its Subsidiaries, permit any Affiliate to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224 or any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law.
6.3ERISA. Each Loan Party shall meet, and shall cause each Subsidiary (and with respect to any plan subject to Title IV of ERISA, each of the Loan Parties’ and their respective Subsidiaries’ ERISA Affiliates) to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Each Loan Party shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect.
6.4Financial Statements, Reports, Certificates. Borrower shall deliver the following to Bank:
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(a)as soon as available, but in any event within thirty (30) days after the end of each fiscal quarter, a company prepared consolidated and consolidating balance sheet, income statement, and cash flow statement covering Borrower’s and each of its Subsidiaries’ operations during such period, prepared in accordance with GAAP, consistently applied, in a form reasonably acceptable to Bank and certified by a Responsible Officer;
(b)as soon as available, but in any event within one hundred eighty (180) days after the end of each Fiscal Year, audited consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank (provided that such unqualified opinion may contain a going concern qualification with respect to Borrower’s liquidity) (the “Annual Financial Statements”); provided however, if Borrower’s Board of Directors does not require audited Annual Financial Statements for any fiscal year of Borrower, then Borrower shall instead, within sixty (60) days after the last day of such fiscal year, deliver company-prepared Annual Financial Statements for such fiscal year only and Bank shall waive the opinion required in connection therewith for such fiscal year only;
(c)prompt copies of all statements, reports and notices sent or made available generally by a Loan Party to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission;
(d)promptly upon receipt of notice thereof, a notice of any legal actions pending or threatened in writing against any Loan Party or any Subsidiary that could reasonably be expected to result in damages or costs to any Loan Party or any Subsidiary of Five Hundred Thousand Dollars ($500,000) or more;
(e)as soon as available, but in any event within ninety (90) days after the end of each Fiscal Year, (i) annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the then-current Fiscal Year, and (ii) annual financial projections for the then-current Fiscal Year as approved by Borrower’s Board of Directors, together with any related business forecasts used in the preparation of such annual financial projections;
(f)prompt written notice of the occurrence of a Default or an Event of Default;
(g)such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time;
(h) promptly, from time to time, such other information or reports regarding Borrower or any of its Subsidiaries or compliance with the terms of any Loan Documents as reasonably requested by Bank;
(i)within thirty (30) days after the last day of each month, a Borrowing Base Certificate signed by a Responsible Officer, together with aged listings of accounts receivable and accounts payable, in each case setting forth financial information as of the preceding month end.
(j)along with the quarterly financial statements required under clause (a) above, a Compliance Certificate signed by a Responsible Officer; and
(k)promptly (and in any event within three (3) calendar days) following any Loan Party’s creation or acquisition of any commercial tort claim (as defined in the Code), such Loan Party shall notify Bank in writing of the general details thereof (with such written notice being deemed as such Loan Party’s authorization for Bank to file a UCC-1 financing statement with respect to such commercial tort claim) and shall provide such other details thereof as reasonably requested by Bank. Notwithstanding the foregoing, any reporting requirement listed above shall be deemed satisfied upon the timely filing by Borrower of such reporting requirement with the Securities and Exchange Commission (the "SEC"), so long as such filing is made available on Borrower’s website (https://ir.shoulderinnovations.com/) or the SEC's Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR") prior to the deadline for such reporting requirement.
6.5Inventory; Returns. Each Loan Party shall keep all Inventory in good and marketable condition (allowing for normal wear and tear), free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between a Loan Party and its Account Debtors shall be on the same basis and in accordance with the usual customary practices of such Loan Party, as they exist at the time of the execution and delivery of this Agreement. Each Loan Party shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than One Hundred Thousand Dollars ($100,000).
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6.6Taxes. Each Loan Party shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local Taxes required of it by applicable law, and will execute and deliver to Bank, on reasonable written demand as soon as practicable, appropriate certificates attesting to the payment or deposit thereof; and each Loan Party will make, and will cause each Subsidiary to make, timely payment or deposit of all material Tax payments and withholding Taxes required of it by all applicable laws, regulations and international treaties, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income Taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that such Loan Party or a Subsidiary has made such payments or deposits; provided that such Loan Party or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by such Loan Party.
6.7Insurance.
(a)Each Loan Party, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where such Loan Party’s business is conducted on the date hereof. Each Loan Party shall also maintain insurance relating to such Loan Party’s business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to such Loan Party’s.
(b)All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional lender’s loss payee thereof, and all liability insurance policies shall show Bank as an additional insured and shall specify that the insurer must give at least twenty (20) days’ prior written notice to Bank before canceling its policy for any reason. Upon Bank’s request, such Loan Party shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations.
6.8Accounts.
(a)Within thirty (30) days after the Closing Date (the “Transition Period”), Borrower shall maintain account balances in its accounts with Bank or Bank Affiliates representing at least eighty percent (80.0%) of the dollar equivalent value of all account balances of Borrower maintained at all financial institutions globally; provided however, at all times during the Transition Period Borrower shall maintain at least Ten Million Dollars ($10,000,000) in its accounts with Bank.
(b)Borrower shall deliver written notice to Bank five (5) days prior to the establishment by any Loan Party of any Collateral Account at or with any bank, broker or other financial institution other than with Bank or Bank’s Affiliates. Subject to Section 6.16, for each Collateral Account (other than an Excluded Account) that any Loan Party at any time maintains other than with Bank, such Loan Party shall cause the applicable bank, broker or financial institution at or with which such Collateral Account is maintained to execute and deliver an Account Control Agreement or other appropriate instrument with respect to such Collateral Account, each in form and substance satisfactory to Bank, to perfect Bank’s Lien in such Collateral Account.
6.9Financial Covenant. Commencing on the date on which Total Debt Outstanding exceeds Fifteen Million Dollars ($15,000,000) during any Liquidity Trigger Period and continuing through the earlier of (a) the end of such Liquidity Trigger Period and (b) the date on which Total Debt Outstanding is less than or equal to Fifteen Million Dollars ($15,000,000), Borrower shall achieve revenue (calculated in accordance with GAAP and measured on a trailing six (6) month basis) of not less than the following amounts for the corresponding measuring periods to be tested quarterly on the last day of the following fiscal quarter for each applicable period set forth in the chart below; provided that, if a Liquidity Trigger Event occurs following the end of a fiscal quarter but prior to the date that the financial statements for such fiscal quarter are required to be delivered to Bank pursuant to Section 6.4(a) hereof, then such revenue requirements shall be required as of the last date of the prior fiscal quarter and shall be reflected on the Compliance Certificate delivered pursuant to Section 6.4(j) with respect to such fiscal quarter:
Measuring Period Ending
Minimum Revenue
(measured on a trailing 6-month basis)
June 30, 2026
$25,300,000
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September 30, 2026
$27,300,000
December 31, 2026
$31,400,000

The required minimum revenue covenant levels for the measuring periods ending after December 31, 2026, shall be set by Bank and Borrower and equal an amount representing not less than a twenty percent (20.0%) increase in actual year-over-year revenue growth for Borrower as compared to the corresponding period of the immediately preceding year. The new covenant levels shall be documented in an amendment to this Agreement to be entered into on or prior to February 28th of each year, and Borrower’s failure to enter into such amendment to this Agreement to reset such covenant levels on or prior to February 28th of any year shall be an immediate and non-curable Event of Default hereunder.

6.10Intellectual Property Rights.
(a)The Loan Parties agree to (i) protect, defend and maintain the validity and enforceability of Borrower’s and each Subsidiary’s Intellectual Property, except to the extent that such failure to do so would not reasonably be expected to have a material adverse effect on Borrower’s business or operations; (ii) promptly advise Bank in writing of infringements or any other event that could reasonably be expected to materially and adversely affect the value Borrower’s and each Subsidiary’s Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s or any Subsidiary’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent (not to be unreasonably withheld, conditioned or delayed). Additionally, the Loan Parties will provide written notice to Bank within thirty (30) days of entering or becoming bound by any Restricted License. Borrower shall take such steps as Bank requests in its commercially reasonable discretion to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any such Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.
(b)Each Loan Party shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any. Each Loan Party shall give Bank not less than thirty (30) days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed.
(c)Bank may audit each Loan Party’s Intellectual Property to confirm compliance with this Section, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrower’s sole expense, any actions that any Loan Party is required under this Section to take but which such Loan Party fails to take, after fifteen (15) days’ notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable and documented out-of-pocket expenses incurred in the reasonable exercise of its rights under this Section.
6.11Use of Proceeds. Borrower shall apply the proceeds of the Credit Extensions towards (a) the repayment of all of Borrower’s outstanding indebtedness and obligations owing to Trinity Capital Inc. as of the Closing Date, and (b) the funding of the working capital needs and general corporate purposes of Borrower. The proceeds of the Credit Extensions will not be used in violation of Anti-Corruption Laws or applicable Sanctions and not for personal, family, household, or agricultural purposes.
6.12Formation or Acquisition of Subsidiaries. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7, at the time any Loan Party forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date (including, without limitation, pursuant to a Division), such Loan Party shall (a) cause such new Subsidiary to provide to Bank (i) a joinder to this Agreement to become a Borrower or (ii) a joinder to this Agreement to become a Guarantor, in each case, at Bank’s sole, but commercially reasonable discretion, together with such appropriate documentation (including financing statements and/or Control Agreements), all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank; and (c)
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provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed, issued, provided or delivered pursuant to this Section 6.12 shall be a Loan Document.
6.13Landlord Waivers; Bailee Waivers. In the event that Borrower or any of its Subsidiaries, after the Closing Date, intends to add any new offices or business locations, including warehouses, or otherwise store any portion of the Collateral with, or deliver any portion of the Collateral to, a bailee, in each case pursuant to Section 7.2, Borrower shall notify Bank within thirty (30) days after the Collateral at any new warehouse location is valued in excess of Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate, then Borrower or such Subsidiary will use commercially reasonable efforts to cause such bailee or landlord, as applicable, to execute and deliver a bailee waiver or landlord waiver, as applicable, in form and substance reasonably satisfactory to Bank in respect of any new offices or business locations, or any such storage with or delivery to any such bailee, as the case may be.
6.14Further Assurances. At any time and from time to time each Loan Party shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.
6.15Collection of Accounts. Promptly following the funding date of any Advance hereunder that is not an Advance under the Non-Formula Sublimit, Borrower shall ensure that all payments on and proceeds of Accounts paid by Account Debtors into an account outside of Bank shall be swept into a lockbox account, or such other “blocked account” as specified by Bank (either such account, the “Cash Collateral Account”) in a frequency and manner acceptable to Bank in its sole but commercially reasonable discretion unless otherwise agreed to by Bank. All amounts received in the Cash Collateral Account shall be, so long as no Event of Default has occurred and is continuing, transferred on a daily basis to Borrower’s operating account with Bank.
6.16Post-Closing Conditions.
(a)On or prior to the date that is thirty (30) days after the Closing Date, Borrower shall transfer to its accounts at Bank an amount representing at least eighty percent (80%) of the aggregate cash and Cash Equivalent assets of Borrower and all its Subsidiaries maintained at all financial institutions globally.
(b)On or prior to the date that is thirty (30) days after the Closing Date (or such longer period as is approved by Bank in writing in its sole discretion), Borrower shall deliver to Bank (i) a duly executed Account Control Agreement from each of Silicon Valley Bank, and U.S. Bank, National Association and (ii) evidence of insurance coverage endorsements in compliance with the terms of Section 6.7.
(c)On or prior to the date that is forty-five (45) days after the Closing Date (or such longer period as is approved by Bank in writing in its sole discretion), Borrower shall use commercially reasonable efforts to deliver a duly executed landlord’s consent in favor of Bank for each Loan Party’s leased locations containing more than Seven Hundred Fifty Thousand Dollars ($750,000) of such Loan Party’s assets or property.
(d)On or prior to the date that is forty-five (45) days after the Closing Date (or such longer period as is approved by Bank in writing in its sole discretion), Borrower shall use commercially reasonable efforts to deliver a duly executed bailee’s waiver in favor of Bank for each warehouse location where a Loan Party maintains more than Seven Hundred Fifty Thousand Dollars ($750,000) of such Loan Party’s assets or property with a third party, by each such third party.
(e)On or prior to the date that is sixty (60) days after the Closing Date (or such longer period as is approved by Bank in writing in its sole discretion), Borrower shall deliver to Bank a duly executed Account Control Agreement from JPMorgan Chase Bank.
(f)On or prior to the earlier to occur of (i) the date that is ninety (90) days after the Closing Date and (ii) the funding date of the initial Advance, Bank and Borrower shall complete the Initial Audit.
7.Negative Covenants.
No Loan Party shall (nor shall it, where applicable, permit each of its Subsidiaries to), directly or indirectly, do any of the following:
7.1Dispositions. Convey, sell, lease, transfer or otherwise dispose of (including, without limitation, by the formation of any Subsidiary or pursuant to a Division) (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (a) Transfers of Inventory in the
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ordinary course of business; (b) Transfers consisting of non-exclusive licenses and similar arrangements for the use of the property of such Loan Party or its Subsidiaries in the ordinary course of business; (c) Transfers of worn-out or obsolete or surplus Equipment, so long as Bank did not specifically finance the purchase of such Equipment, (d) Transfers constituting any Loan Party’s use or transfer of cash or Cash Equivalents in the ordinary course of business and not otherwise prohibited by the terms of this Agreement or any other Loan Document, (e) Transfers consisting of Permitted Liens, (f) the abandonment, lapse, expiration or other disposition of Intellectual Property that is in the reasonable business judgment of such Loan Party no longer material or useful in or to the business of such Loan Party, or (g) other Transfers not otherwise permitted in clauses (a) through (f) above involving tangible assets of Borrower (but specifically excluding any Transfers of Accounts, monthly recurring revenue, annual recurring revenue or any other recurring revenue of Borrower in any factoring, sale-leaseback, future receipts purchase agreement or other similar agreement) having a fair market value of not more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year so long as no Event of Default has occurred or would occur immediately following any such Transfer.
7.2Change in Business; Change in Control or Executive Office. (a) Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by such Loan Party or such Subsidiary, as applicable, or any business substantially similar or related thereto (or incidental thereto); (b) cease to conduct business in the manner conducted by Borrower as of the Closing Date; (c) suffer or permit a Change in Control without the Bank’s prior written consent; (d) without fifteen (15) days prior written notification to Bank, relocate its chief executive office or state of incorporation or change its legal name; (e) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed by any Loan Party within five (5) Business Days after their departure from such Loan Party, or (f) without Bank’s prior written consent, change the date on which the Fiscal Year ends.
7.3Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock, equity securities, or property of another Person (including, without limitation, by the formation of any Subsidiary or pursuant to a Division).
7.4Indebtedness. Create, incur, assume or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness.
7.5Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to any of its property (including without limitation, its Intellectual Property), or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its property (including without limitation, its Intellectual Property), or permit any Subsidiary to do so, except as is otherwise permitted by Section 7.1 and the definition of “Permitted Liens” herein.
7.6Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock (each of the foregoing, a “Restricted Payment”), or permit any of its Subsidiaries to do so, except that the Loan Parties may (a) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase and the aggregate amount of all such repurchases does not exceed One Hundred Thousand Dollars ($100,000) in any twelve (12) month period, and (b) make Restricted Payments (i) to the extent financed with the aggregate amount of net cash proceeds received in exchange for capital stock or other equity interests or (ii) payable solely in the form of capital stock or other equity interests.
7.7Investments. (a) Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments; (b) maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so unless such Person has entered into an Account Control Agreement with Bank in form and substance satisfactory to Bank; or (c) suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to any Loan Party.
7.8Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of a Loan Party (other than a Loan Party or a Subsidiary) except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to such Loan Party than would be obtained in an arm’s length transaction with a non-affiliated Person other than that certain Consulting Agreement, dated as of April 30, 2015 (as amended, supplemented or otherwise modified from time to time), by and between the Borrower and Genesis Innovation Group LLC. Without the prior written consent of Bank in its sole and absolute discretion, no part of the proceeds of the Credit Extensions may be used (a) to purchase any asset or securities (i) issued by any Reg W Affiliate of Bank, (ii) in respect of which, and
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during any period when, any Reg W Affiliate of Bank has acted as an underwriter, (iii) sold by any Reg W Affiliate of Bank acting as a principal, (iv) if the transaction would otherwise result in a violation of Regulation W issued by the Board of Governors of the Federal Reserve System of the United States, as may be amended from time to time, or (v) if the transaction would not comply with 12 C.F.R. 223.16; (b) to pay, in whole or in part, directly or indirectly, any loan made by any Reg W Affiliate of Bank; or (c) for the benefit of, or to transfer such proceeds to, any Reg W Affiliate of Bank.
7.9Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
7.10Inventory and Equipment. (a) Store Inventory or Equipment (other than Equipment or Inventory that is temporarily out of the possession of a Loan Party, in transit, or out for repair) with a value in excess of Fifty Thousand Dollars ($50,000) with a bailee, warehouseman, or other third party unless the third party has been notified of Bank’s security interest therein and (i) Borrower has used commercially reasonable efforts to provide to Bank an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit with a value in excess of Seven Hundred Fifty Thousand Dollars ($750,000) or (ii) Bank is in pledged possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment; or (b) store or maintain any Equipment or Inventory at a location that has not been disclosed in Section 3(d) of the Perfection Certificate or otherwise disclosed in writing to Bank no later than the due date of the next Compliance Certificate to be delivered to Bank pursuant to Section 6.4(j) hereof, in each case, other than Equipment or Inventory that is temporarily out of the possession of a Loan Party, in transit, or out for repair.
7.11Compliance. (a) Become an “investment company” or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for such purpose; or (b) fail to meet the minimum funding requirements of ERISA, permit a Reportable Event (other than any such event where the applicable 30 day notice requirement has been waived) or Prohibited Transaction, as defined in ERISA, to occur as it relates to any employee benefit plan (as defined under Section 3(3) of ERISA sponsored by any Loan Party, which in each case, could have a Material Adverse Effect, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank’s Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
7.12Delisting. Borrower’s common stock shares are delisted from the New York Stock Exchange because of Borrower’s failure to comply with continued listing standards thereof or due to a voluntary delisting which results in such shares not being listed on such exchange.
8.Events of Default.
Any one or more of the following events shall constitute an event of default under this Agreement (each, an “Event of Default”).
8.1Payment Default. (i) If a Loan Party fails to pay, when due, any principal of, or interest on, any of the Obligations, such failure shall constitute an immediate Event of Default, or (ii) if any Loan Party fails to pay, when due, any other Obligation, and such failure continues for three (3) Business Days after such due date, such failure shall constitute an Event of Default;
8.2Covenant Default.
(a)If a Loan Party fails to perform any obligation under Sections 6.1 (solely with respect to existence), 6.4, 6.6, 6.7, 6.8, 6.9, 6.11, 6.12, 6.14, and 6.16 or violates any of the covenants contained in Article 7; or
(b)If a Loan Party fails or neglects to perform, keep or observe any other material term, provision, condition or covenant contained in this Agreement, or in any of the Loan Documents, or in any other present or future agreement between a Loan Party and Bank and as to any default (other than those specified in this Article 8) under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten (10) days after any Loan Party receives notice thereof or any officer of a Loan Party becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by such Loan Party be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then such Loan Party shall have an additional reasonable period (which shall
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not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (but no Credit Extensions will be made during such cure period). Cure periods provided under this Section shall not apply, among other things, to financial covenants or any other covenants that are required to be satisfied, completed or tested by a date certain or any covenants set forth in clause (a) above;
8.3Material Adverse Effect. If there occurs any circumstance or circumstances that could reasonably be expected to have a Material Adverse Effect;
8.4Attachment. If a material portion of a Loan Party’s or any of its Subsidiaries’ assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if a Loan Party or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of a Loan Party’s or any of its Subsidiaries’ assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of a Loan Party’s or any of its Subsidiaries’ assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after such Loan Party or Subsidiary receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by such Loan Party or Subsidiary (provided that no Credit Extensions will be required to be made during such cure period);
8.5Insolvency. If a Loan Party or any of its Subsidiaries becomes insolvent, or if an Insolvency Proceeding is commenced by a Loan Party or any of its Subsidiaries, or if an Insolvency Proceeding is commenced against a Loan Party or any of its Subsidiaries and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made while any of the conditions described in this Section 8.5 exist or until any such Insolvency Proceeding is dismissed);
8.6Other Agreements. If there is a default or other failure to perform in any agreement to which a Loan Party or any of its Subsidiaries is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount, individually or in the aggregate, in excess of Five Hundred Thousand Dollars ($500,000) or which could have a Material Adverse Effect;
8.7Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000) shall be rendered against a Loan Party or any of its Subsidiaries and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction or stay of such judgment);
8.8Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any Loan Document, certificate or other writing delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document;
8.9Lien Priority. There is an impairment in the perfection or priority of Bank’s security interest in the Collateral;
8.10Subordinated Debt. Any document, instrument, or agreement evidencing the subordination of any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or any applicable subordination or intercreditor agreement; or
8.11Guaranty. If any guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for any reason to be in full force and effect, or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Guaranty, or any Guarantor fails to perform any obligation under this Agreement or a security agreement securing the Guaranty (collectively, the “Guaranty Documents”), any event of default occurs under any Guaranty Document or any Guarantor revokes or purports to revoke the Guaranty, any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth in any Guaranty Document or in any certificate delivered to Bank in connection with any Guaranty Document, if any Guarantor dies or becomes subject to any criminal prosecution, or any circumstances arise causing Bank, in good faith, to become insecure as to the satisfaction of any of any guarantor’s obligations under the Guaranty Documents.
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9.Bank’s Rights and Remedies.
9.1Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by the Loan Parties:
(a)Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall become immediately due and payable without any action by Bank);
(b)Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other Loan Document or agreement between Borrower and Bank;
(c)Settle or adjust disputes and claims directly with Account Debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
(d)Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. The Loan Parties agree to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Each Loan Party authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of a Loan Party’s owned premises, such Loan Party hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise. Each Loan Party authorizes Bank to place a “hold” on any account it maintains with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Account Control Agreement or similar agreements providing control of any Collateral;
(e)Demand that the Loan Parties (i) deposit cash with Bank in an amount equal to at least one hundred five percent (105.0%) of the aggregate face amount of any Letters of Credit remaining undrawn (plus all interest, fees, and costs due or estimated by Bank to become due in connection therewith), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and each Loan Party shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;
(f)Terminate any FX Contracts (it being understood and agreed that (i) Bank is not obligated to deliver the currency which Borrower has contracted to receive under any FX Contract, and Bank may cover its exposure for any FX Contracts by purchasing or selling currency in the interbank market as Bank deems appropriate; (ii) Borrower shall be liable for all losses, damages, costs, margin obligations and expenses incurred by Bank arising from Borrower’s failure to satisfy its obligations under any FX Contract or the execution of any FX Contract; and (iii) Bank shall not be liable to Borrower for any gain in value of a FX Contract that Bank may obtain in covering Borrower’s breach);
(g)Set off and apply to the Obligations any and all (i) balances and deposits of a Loan Party held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of a Loan Party held by Bank;
(h)Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, any Loan Party’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, each Loan Party’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit solely to the extent necessary for such disposition;
(i)Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including a Loan Party’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate;
(j)Bank may credit bid and purchase at any public sale;
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(k)Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower; and
(l)Exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code or any Applicable Law.
9.2Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, each Loan Party hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as such Loan Party’s true and lawful attorney to: (a) send requests for verification of Accounts or notify Account Debtors of Bank’s security interest in the Accounts; (b) endorse such Loan Party’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign such Loan Party’s name on any invoice or bill of lading relating to any Account, drafts against Account Debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to Account Debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to such Loan Party’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with Account Debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) to file, in its sole, but commercially reasonable discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral. The appointment of Bank as each Loan Party’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is terminated.
9.3Accounts Collection. At any time after the occurrence of an Event of Default, Bank may notify any Person owing funds to a Loan Party of Bank’s security interest in such funds and verify the amount of such Account. Each Loan Party shall collect all amounts owing to such Loan Party for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the Account Debtor, with proper endorsements for deposit.
9.4Bank Expenses. If a Loan Party fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.7, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by the Loan Parties.
9.6Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on a Loan Party’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given.
9.7Demand; Protest. Each Loan Party waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which any Loan Party may in any way be liable.
10.Notices. All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address
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indicated below. Bank or the Loan Parties may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
If to any Loan Party:
Shoulder Innovations, Inc.
1535 Steele Avenue SW, Suite B
Grand Rapids, MI 49507
Attn: Jeffrey Points, Chief Executive Officer
Email: 
With a copy (which shall not constitute notice) to:
Honigman LLP
660 Woodward Ave.
2290 First National Building
Detroit, MI 48226
Attention: Michelle Bleda Drew
Email:
If to Bank:





With a copy (which shall not constitute notice) to:
STIFEL BANK
501 North Broadway
St. Louis, Missouri 63102
Attn: Legal Department
EMAIL:


STIFEL BANK
16870 West Bernardo Drive, Suite 150
San Diego, California 92127
Attn: Milo Bissin
EMAIL:

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
11.Governing Law. This Agreement shall be deemed to have been made under and shall be governed by the laws of the State of New York (without regard to choice of law principles except as set forth in Section 5-1401 of the New York General Obligations Law) in all respects, including matters of construction, validity and performance, and that none of its terms or provisions may be waived, altered, modified or amended except as Bank may consent thereto in writing duly signed for and on its behalf.
12.Jurisdiction and Jury Trial Waiver.
12.1Each Loan Party hereby irrevocably consents that any suit, legal action or proceeding against Borrower or any of its properties with respect to any of the rights or obligations arising directly or indirectly under or relating to this Agreement or any other Loan Document may be brought in any jurisdiction, including, without limitation, any New York state or United States Federal Court located in the southern district of New York, as Bank may elect, and by execution and delivery of this Agreement, each Loan Party hereby irrevocably submits to and accepts with regard to any such suit, legal action or proceeding, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Loan Party hereby irrevocably consents to the service of process in any such suit, legal action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, return receipt requested, to Borrower at its address set forth herein. The foregoing shall not limit the right of Bank to serve process in any other manner permitted by law or to bring any suit, legal action or proceeding or to obtain execution of judgment in any other jurisdiction.
12.2Each Loan Party hereby irrevocably waives any objection which Borrower may now or hereafter have to the laying of venue of any suit, legal action or proceeding arising directly or indirectly under or relating to this Agreement or any other Loan Document in any state or federal court located in any jurisdiction, including without limitation, any state or federal court located in the southern district of New York chosen by Bank in accordance with this Article 12 and hereby further irrevocably waives any claim that a court located in the southern district of New York is not a convenient forum for any such suit, legal action or proceeding.
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12.3Each Loan Party hereby irrevocably agrees that any suit, legal action or proceeding commenced by any Loan Party with respect to any rights or obligations arising directly or indirectly under or relating to this Agreement or any other Loan Document (except as expressly set forth therein to the contrary) shall be brought exclusively in any New York state or United States Federal Court located in the southern district of New York.
12.4Each Loan Party hereby waives any defense or claim based on marshaling of assets or election or remedies or guaranties.
12.5Each Loan Party and Bank (by its entry into this Agreement) hereby irrevocably waive all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to any obligation of such Loan Party or this Agreement or any other Loan Document.
13.General Provisions.
13.1Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by a Loan Party without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to any Loan Party to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder. Bank, acting solely for this purpose as a non-fiduciary agent of Borrower, shall maintain a register for the recordation of the names and addresses of the applicable lenders hereunder, and the applicable commitment(s) of, and principal amount (and stated interest) of the applicable loans owing to, each lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and Borrower, Bank and the other lenders hereunder shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a lender hereunder for all purposes of this Agreement and the other Loan Documents. The Register shall be available for inspection by Borrower and any lender hereunder, at any reasonable time and from time to time upon reasonable prior notice. Bank and each other lender hereunder that sells a participation in any Advance or commitment, acting solely for this purpose as a non-fiduciary agent of Borrower, shall maintain a register on which it enters the name and address of each participant and the principal amounts (and stated interest) of each participant’s interest in the applicable Advances or other Obligations under the Loan Documents (the “Participant Register”); provided that neither Bank nor any other lender hereunder shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any participant or any information relating to a participant's interest in any Advances, Letters of Credit or its other Obligations under any Loan Document) to any Person. The entries in the Participant Register shall be conclusive absent manifest error, and such lender hereunder shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement and the other Loan Documents notwithstanding notice to the contrary.
13.2Indemnification.
(a)Each Loan Party shall defend, indemnify and hold harmless Bank and its Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors, agents, and representatives of Bank and its Affiliates (each, an “Indemnified Person”) against: (i) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (ii) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and any Loan Party whether under this Agreement, or otherwise contemplated by the Loan Documents (including without limitation reasonable attorneys’ fees and expenses), except for losses caused by such Indemnified Person’s bad faith, gross negligence or willful misconduct. All amounts due under this Section 13.2 shall be payable promptly upon DEMAND therefor. This Section shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(b)To the fullest extent permitted by Applicable Law, no Loan Party shall assert, and each Loan Party hereby waives, any claim against any Indemnified Person, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) or any loss of profits arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Credit Extension, or the use of the proceeds thereof. No Indemnified Person shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
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13.3Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
13.4Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
13.5Amendments in Writing, Integration. Neither this Agreement nor the Loan Documents can be amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into this Agreement and the Loan Documents.
13.6Counterparts/Acceptance. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. This Agreement may be executed in facsimile or other electronic counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same document. Counterparts may be delivered via facsimile, portable document format (.pdf), electronic mail or other transmission method (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other Applicable Law, e.g. www.docusign.com), and any counterpart so delivered shall be fully binding, deemed to have been duly and validly delivered and be valid and effective for all purposes, and the parties waive any rights they may have to object to such treatment. Bank hereby acknowledges and agrees that this Agreement has been executed and accepted by Bank in the state of Missouri.
13.7Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrower. The obligations of each Loan Party to indemnify Indemnified Persons with respect to the expenses, damages, losses, costs and liabilities described in Section 13.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
13.8Confidentiality. In handling any confidential information Bank and all employees and agents of Bank, including but not limited to accountants, shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (a) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower, provided such subsidiaries or affiliates agree to be bound by confidentiality obligations substantially similar to those set forth herein, (b) to prospective transferees or purchasers of any interest in the Advances or the Term Loan Advance, provided such prospective transferees or purchasers agree to be bound by confidentiality obligations substantially similar to those set forth herein prior to any such disclosure, (c) as required by law, regulations, rule or order, subpoena, judicial order or similar order, provided that, to the extent legally permitted, Bank shall endeavor to provide Borrower with prompt written notice of such requirement prior to any such disclosure so that Borrower may seek a protective order or other appropriate remedy, provided however, Bank’s failure to provide such notice shall not constitute a default hereunder, (d) as may be required in connection with the examination, audit or similar investigation of Bank and (e) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (i) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (ii) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.
13.9Marketing Consent.  Notwithstanding Section 13.8, Borrower hereby authorizes Bank and its affiliates, at their respective commercially reasonable discretion and expense, to publish tombstones and give such other publicity to this Agreement and the Loan Documents as it may from time to time determine in its commercially reasonable discretion ; provided, however, that Bank shall provide Borrower with a copy of any proposed tombstone or other publicity material at least five (5) Business Days prior to publication and shall incorporate any reasonable comments from Borrower.  The foregoing authorization shall remain in effect unless Borrower notifies Bank in writing that such authorization is revoked.
13.10Patriot Act Notice. Bank notifies Borrower that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001) (the “Patriot Act “), it is required to obtain, verify and record information that identifies Borrower, which information includes names and addresses and other information that will allow Bank to identify Borrower in accordance with the Patriot Act.
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13.11Increased Costs. If any Change in Law shall impose, modify, or make applicable any Taxes (except other than (a) Indemnified Taxes, (b) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes, and (c) Connection Income Taxes), reserve requirements, liquidity requirements, capital adequacy requirements, Federal Deposit Insurance Corporation (FDIC) deposit insurance premiums or assessments, or other obligations which would (A) increase the cost to Bank for extending, maintaining or funding the Credit Extensions, (B) reduce the amounts payable to Bank under this Agreement, or (C) reduce the rate of return on Bank's capital as a consequence of Bank's obligations with respect to the Credit Extensions, then Borrower agrees to pay Bank such additional amounts as will compensate Bank therefor, within five (5) days after Bank's written demand for such payment. Bank's demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error.
13.12BY SIGNING THIS DOCUMENT EACH PARTY TO THIS AGREEMENT REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN ALL PARTIES TO THIS AGREEMENT, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES TO THIS AGREEMENT, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF ANY OF THE PARTIES TO THIS AGREEMENT.
[Balance of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
General Use of Electronic Signatures and Records for Agreement and All Notices and Amendments: An electronic or other copy of a signed document shall be considered as effective as an original. Notwithstanding any other provision of the Agreement, at Bank’s option and pursuant to such format and delivered in such manner as Bank may specify, the Agreement or any amendment, information, notice, certificate, request, statement, disclosure, or authorization related to the Agreement (each a “Communication”), including such Communications required to be in writing, may be in the form of an electronic record and be executed using electronic signatures. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by Bank of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format), or an electronically signed Communication converted into another format, for transmission, delivery and/or retention. Any Communication may be executed in one or more counterparts, each of which may be executed on paper or electronically. Each executed counterpart (and any copy of an executed counterpart that is an electronic record) shall be deemed an original, and shall constitute one and the same Communication. “Authorized Email Address” means any email address the Loan Party executing this Agreement has provided to Bank as the email address for the Loan Party executing this Agreement. Communications may be sent electronically by Bank to the Loan Party executing this Agreement (i) by sending the Communication to the Authorized Email Address for the Loan Party executing this Agreement, or (ii) by posting the Communication on a website and sending a notice to the postal address for the Loan Party executing this Agreement or Authorized Email Address informing the Loan Party executing this Agreement that the Communication has been posted, its location, and instructing the Loan Party executing this Agreement on how to view it. In the absence of actual notice of non-delivery received by the sender, and except as otherwise expressly required by applicable law, Communications sent electronically pursuant to this paragraph shall be deemed received when the Communication, or notice of posting, is sent and shall constitute notice of the Communication.
[Signature Page to Loan and Security Agreement]


BORROWER:
SHOULDER INNOVATIONS, INC.

By: /s/ Jeffrey Points    
Name: Jeffrey Points
Title: Chief Financial Officer

BANK:
STIFEL BANK

By:/s/ Milo Bissin    
Name: Milo Bissin
Title: Managing Director

2

EXHIBIT A
DEBTOR:    SHOULDER INNOVATIONS, INC.
SECURED PARTY:    STIFEL BANK
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of such Loan Party (herein referred to as “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a)    all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements, including but not limited to all of Debtor’s right, title and interest in security entitlements to financial assets consisting of rights to payment under the Insured Cash Sweep program maintained by Secured Party for the benefit of Debtor, and the proceeds thereof), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records.
(b)    any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the New York Uniform Commercial Code, as amended or supplemented from time to time.
(c)    all of Debtor's right, title, and interest in and to that certain commercial tort claim against Catalyst Orthoscience Inc. (“Catalyst”) arising out of Catalyst’s alleged patent infringement through Catalyst’s making, using, selling, offering for sale in the United States, and/or importing into the United States, reverse shoulder systems, including without limitation the claims asserted in Shoulder Innovations, Inc. v. Catalyst Orthoscience Inc., in the United States District Court for the District of Delaware, Case No. 1:24cv266, and all proceeds and products thereof, including all damages, awards, settlements, and judgments.
Notwithstanding the foregoing, the Collateral shall not include any copyrights, patents, trademarks, servicemarks and applications therefor, now owned or hereafter acquired, or any claims for damages by way of any past, present and future infringement of any of the foregoing (collectively, the “Excepted Intellectual Property”); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Excepted Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the Closing Date, include the applicable Excepted Intellectual Property solely to the limited extent required to permit perfection of Bank’s security interest in the Rights to Payment, and for no other purpose.
A-1

EXHIBIT B
ADVANCE REQUEST FORM
B-1

EXHIBIT C

BORROWING BASE CERTIFICATE
C-1

EXHIBIT D

COMPLIANCE CERTIFICATE

D-1
Exhibit 10.2

SECOND AMENDMENT TO LEASE AGREEMENT
This Second Amendment to Lease Agreement is effective April 16, 2026, is by and between STEELE AVE LLC, a Michigan limited liability company (“Landlord”), and SHOULDER INNOVATIONS, INC., a Delaware foreign corporation (“Tenant”). This Second Amendment is made with reference to the following facts and circumstances:
A.This Second Amendment to Lease Agreement amends the Lease Agreement dated January 13, 2021, as amended (“Lease”), between the above-named Landlord and Tenant.
B.Landlord is currently building a new facility for Tenant to rent, which is located at 2131 – 64th Street SW, Byron Center, Michigan 49315 (Lot #8 Ventura Office Park) (the "New Facility"), which will be leased to Tenant pursuant to a separate Lease Agreement between Ventura Office Park Lot #8, LLC, as landlord, and Tenant (the "New Facility Lease").
C.The Landlord and Tenant wish to extend the Term of the Lease on a month-to-month basis to allow Tenant to continue occupying the current premises at 1535 Steele Ave SW, Grand Rapids, Michigan 49507 (the "Current Premises") until Tenant takes possession of the New Facility.
It is therefore agreed that the Lease is hereby amended as follows:
1. Extension of Term. Notwithstanding any provision of the Lease to the contrary, the Term of the Lease is hereby extended on a month-to-month basis commencing on the date hereof and continuing until the earlier of (a) thirty (30) days after Tenant takes possession of the New Facility under the New Facility Lease, or (b) the date Tenant delivers written notice to Landlord of Tenant's intent to terminate this Lease (with at least thirty (30) days' prior notice). During such month-to-month extension period, Tenant shall continue to occupy the Current Premises under the same terms and conditions as are contained in the Lease, except as follows: (i) Base Rent shall be adjusted upward by two and 50/100 percent (2.5%) on an annual basis, calculated from the first day of the month following the commencement of this extension period, over the Base Rent amount in effect immediately prior to such adjustment (as if such extension period were a Renewal Period under the Lease) and (ii) Tenant's pro rata share of Operating Expenses shall not be subject to the $2.50 per square foot cap applicable during the Initial Term (as if such extension period were a Renewal Period under the Lease); provided, however, that Tenant will only be responsible for fifty percent (50%) of any increase in Operating Expenses over the Operating Expenses in effect as of the last month of the Initial Term.
2. Return of Security Deposit. Upon expiration or termination of the Lease as provided herein, Landlord shall return Tenant's security deposit in accordance with the terms of the Lease


within thirty (30) days following Tenant's surrender of the Current Premises, less any amounts properly applied in accordance with the Lease.
3. Cooperation. Landlord agrees to cooperate with Tenant in connection with Tenant's transition to the New Facility, including without limitation by providing reasonable access to the Current Premises for purposes of moving Tenant's furniture, fixtures, equipment, and personal property; provided, however, that Landlord's obligation to provide such access shall terminate upon the expiration or termination of the Lease as provided in Section 1 above.
4. Ratification. Except as expressly modified by this Second Amendment, all terms and conditions of the Lease remain in full force and effect and are hereby ratified and confirmed. In the event of any conflict between the terms of this Second Amendment and the terms of the Lease, the terms of this Second Amendment shall control.
5. Counterparts; Electronic Signatures. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. The parties agree that this Second Amendment may be executed and delivered by electronic signature (including signatures transmitted by PDF, DocuSign, or similar electronic signature technology), and that such electronic signatures shall be deemed original signatures for all purposes and shall be binding on the parties.
6. Defined Terms. Capitalized terms used but not defined in this Second Amendment shall have the meanings given to them in the Lease.

IN WITNESS WHEREOF, the parties hereto have signed this Second Amendment to Lease on the day and year first above written.


STEELE AVE LLC


SHOULDER INNOVATIONS, INC.

/s/ Jeffrey D. Leeuw


/s/ Matthew Ahearn
By:
Jeffrey D. Leeuw

By:
Matthew Ahearn
Its:
Manager

Its:
Chief Operating Officer


Exhibit 10.3


LEASE AGREEMENT

This Lease Agreement (“Lease”) is made and executed as of the last date signed below (“Effective Date”), between VENTURA OFFICE PARK LOT #8, LLC, a Michigan limited liability company, whose address is 1535 Steele Ave SW, Ste C, Grand Rapids, MI 49507 (“Landlord”), and SHOULDER INNOVATIONS, INC., a Delaware foreign corporation authorized to do business in Michigan, whose address is 1535 Steele Ave SW, Grand Rapids, MI 49507 (“Tenant”).

1.Property. Landlord owns certain real property situated in Byron Township, Kent County, Michigan, and commonly known as 6320 Venture Hills Blvd SW, Lot 8, Byron Center, Michigan 49315, bearing parcel No. 41-21-03-100-034, as legally described on the attached Exhibit A (“Property”).

2.Leased Premises. Landlord will improve the Property with a newly constructed commercial building consisting of approximately 15,200 square feet (the "Leased Premises" or "Premises"), together with a parking lot and related site improvements, as depicted on the attached Exhibit B, which Landlord lets and leases to Tenant, and Tenant hires and leases from Landlord, at the rents and under the terms and conditions set forth in this Lease. For the avoidance of doubt, the Premises is limited to the building only and does not include the parking lot or other site improvements, which shall be available for Tenant's non-exclusive use in common with other parties. The newly constructed commercial building is referred to on Exhibit B as “Proposed Building.” Exhibit B also depicts a potential "Future Building" that may be constructed on the Property as contemplated in Section 19 below.

3.Construction Plan. Landlord agrees to construct a building and related site improvements to Tenant’s specific designs and requirements per the conceptual plans attached hereto as Exhibit C. Landlord will provide Tenant with monthly written updates on construction progress and will promptly notify Tenant (but in no event later than five (5) business days after Landlord becomes aware) of any delays that may affect the scheduled Possession Date, as defined in Section 5. Tenant shall have the right to inspect the construction site upon reasonable prior notice during normal business hours. Any material deviation from the budget and floor plans set forth in Exhibit C shall require Tenant's prior written approval.

a)Construction Cost. The Premises will be constructed in accordance with the budget attached hereto as Exhibit D (“Construction Budget”). Any construction costs that exceed the Construction Budget will be the sole responsibility of Landlord, except to the extent such overruns are a direct result of change orders requested in writing by Tenant and approved in writing by Tenant after receipt of a written cost estimate from Landlord. Tenant shall approve or disapprove any change order within five (5) business days after receipt of Landlord's written cost estimate. Landlord shall provide Tenant with
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an itemized accounting of all construction costs within thirty (30) days after substantial completion of construction.

b)Construction Savings. If the actual cost of construction is less than the Construction Budget (“Savings”), then the Savings will be applied as follows:

i.First, to cover abated Base Rent, as defined in Section 7 below, for any time Tenant has possession prior to the Rent Commencement Date, as defined in Section 7,

ii.Second, to cover any Additional Rent, as defined in Section 7 below, for any time Tenant has possession prior to the Rent Commencement Date, and

iii.Lastly, any remaining Savings shall be divided equally between Landlord and Tenant. Tenant’s share of the remaining Savings shall be applied in the form of rent reduction spread over the initial term of the Lease.

c)Construction Down Payment. In consideration of building the Premises to Tenant’s specific designs and requirements, Tenant shall pay Landlord Five Hundred Thousand and 00/100 Dollars ($500,000.00) (“Construction Down Payment”). The Construction Down Payment shall be paid in two equal installments of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00), with the first installment being due on or before October 1, 2026, and the second installment due on or before January 1, 2027. Tenant’s obligation to pay each installment of the Construction Down Payment is contingent upon Landlord providing Tenant with reasonably satisfactory assurance of construction progress, including lien waivers from all contractors and subcontractors for work completed to date.

d)Acceptance of Premises. Upon Landlord's notice of substantial completion of construction of the Premises, Tenant shall have thirty (30) days to conduct a walk-through inspection with Landlord and prepare a punch list of any deficiencies or incomplete items. Landlord shall complete all punch list items within thirty (30) days after receipt of the punch list. Upon completion of all punch list items, Tenant agrees to complete the Acceptance of Premises form attached hereto as Exhibit E. Tenant's execution of the Acceptance of Premises form shall not constitute a waiver of any latent defects or any claims arising from Landlord's failure to construct the Premises in accordance with the plans and specifications set forth in Exhibit C, and Landlord shall remain responsible for correcting any such defects for a period of one (1) year following Tenant's acceptance.

e)Fire Suppression System. As part of Landlord's construction work under this Section 3, Landlord will install a fire suppression system in the Building in accordance with all applicable codes and regulations (the "Fire Suppression System").
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Prior to commencing installation, Landlord will submit plans and specifications for the Fire Suppression System to Tenant for Tenant's review and written approval, which approval will not be unreasonably withheld, conditioned, or delayed. The cost of the Fire Suppression System will not exceed Sixty-Five Thousand and 00/100 Dollars ($65,000.00) (the "Fire Suppression Cap"). Any costs in excess of the Fire Suppression Cap will be the sole responsibility of Landlord. Within thirty (30) days after substantial completion of the Fire Suppression System, Landlord will provide Tenant with reasonable documentation (including invoices) evidencing the actual cost of the Fire Suppression System. The actual cost of the Fire Suppression System (not to exceed the Fire Suppression Cap) will be amortized over the Initial Term on a straight-line basis, without interest, and built into Tenant's payments of Base Rent. Landlord shall be responsible for the maintenance, repair, and replacement of the Fire Suppression System throughout the Term, subject to reimbursement as part of Operating Expenses to the extent permitted under Section 7(b). Landlord warrants that the Fire Suppression System shall be free from defects in materials and workmanship for a period of one (1) year following substantial completion, and Landlord shall promptly correct any such defects at Landlord's sole cost and expense.

4.Intentionally deleted.

5.Possession Date. Tenant will receive possession of the Premises when the certificate of occupancy is issued for the Premises and all of Landlord’s work is substantially completed in accordance with the plans and specifications set forth in Exhibit C (“Possession Date”). Notwithstanding the foregoing, Landlord will permit Tenant early access to the Premises at least thirty (30) days before the anticipated Possession Date, for purposes of installing furniture, fixtures, equipment, cabling, and other improvements needed for Tenant’s business activities, provided such access does not unreasonably interfere with construction. During such early access period, Tenant shall not be obligated to pay Base Rent or Additional Rent, but shall maintain adequate insurance coverage as required under this Lease.

a)If the Possession Date is after October 1, 2027, unless due to force majeure events lasting no more than sixty (60) cumulative days, then:

i.Tenant will receive one (1) day of free Base Rent for each day of delay after October 1, 2027, for the first sixty (60) days of delay;

ii.Tenant will receive two (2) days of free Base Rent for each day of delay exceeding sixty (60) days after October 1, 2027; and

iii.If Landlord fails to deliver the Premises within one hundred eighty (180) days after October 1, 2027, Tenant will have the right to terminate this Lease Agreement upon written notice to Landlord, and Landlord shall, within fifteen (15) days of such termination, return all
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amounts paid by Tenant hereunder, including the Construction Down Payment and any other deposits or prepaid amounts.

6.Lease Term. Landlord agrees to lease the Premises to Tenant for an initial term lasting ten (10) years (“Initial Term”) beginning on the Possession Date, unless sooner terminated as provided in this Lease.

a)Renewal Periods. Provided Tenant is not then in default in the performance of any of its covenants and agreements under this Lease beyond any applicable notice and/or cure periods, Tenant shall have the right, but not the obligation, to extend for two (2) additional five (5) year periods upon written notice to Landlord, upon the same terms and conditions as provided in this Lease. Notice of Tenant's intent to renew must be provided at least six (6) months before the expiration of the then-current term. For purposes of this Lease, the word “Term” shall refer to the Initial Term of this Lease and any properly and timely exercised renewal term(s).

7.Rent. Tenant covenants and agrees to pay Landlord as rent for the Premises during the Term as follows:

a)Base Rent. Annual base rent shall be Three Hundred Ninety-Six Thousand and 00/100 Dollars ($396,000.00), payable in monthly installments of Thirty-Three Thousand and 00/100 Dollars ($33,000.00) (“Base Rent”). Tenant shall pay Landlord first month’s Base Rent and the Security Deposit, as defined below in Section 9, on the Effective Date. Base Rent shall be paid in advance on the first day of each month, beginning on October 1, 2027, or one month after the Possession Date, whichever is later (“Rent Commencement Date”). Notwithstanding the foregoing, Base Rent shall be fully abated from the Possession Date through the day immediately preceding the Rent Commencement Date (the "Abatement Period"), and Tenant shall have no obligation to pay Base Rent during the Abatement Period.

Throughout the Term of this Lease, Base Rent will increase by two and a half percent (2.5%) annually on the anniversary of the Rent Commencement Date, as follows:

Year
Annual Base Rent
Monthly Base Rent
1
$396,000.00
$33,000.00
2
$405,900.00
$33,825.00
3
$416,047.50
$34,670.63
4
$426,448.00
$35,537.39
5
$437,109.91
$36,425.82
4


6
$448,037.65
$37,336.47
7
$459,238.60
$38,269.88
8
$470,719.56
$39,226.63
9
$482,487.55
$40,207.30
10
$494,549.74
$41,212.48

b)Additional Rent. Commencing on the Possession Date, Tenant shall pay to Landlord as additional rent all utilities, building maintenance, common area maintenance ("CAM"), property insurance, and other operating expenses related to the Premises (collectively, the “Operating Expenses”).

As used in this Section 7, Operating Expenses shall include all costs of operating and maintaining the Property, including, without limitation, the following costs and expenses: utility costs and expenses including water, sewer, electricity, gas and other sources of power for heating, lighting, ventilating or air conditioning; property management fees (not to exceed three percent (3%) of Base Rent); casualty and property insurance premiums; building maintenance costs; fire suppression system maintenance, inspection, and testing costs (but excluding the initial installation costs addressed in Section 3(e); garbage and waste removal services; association fees or assessments, if any; snow removal, lawn care, landscaping, parking, and other exterior grounds maintenance and repair; and common area maintenance costs. Notwithstanding the foregoing, Operating Expenses shall expressly exclude the following: (a) costs incurred due to Landlord's negligence or willful misconduct; (b) capital expenditures, except to the extent amortized over their useful life in accordance with generally accepted accounting principles (GAAP); (c) costs of repairs covered by insurance proceeds or warranties; (d) legal fees for disputes with other tenants, ground lessors, or lenders; (e) executive salaries and corporate overhead of Landlord; (f) costs incurred in connection with the original construction of the Premises; (g) leasing commissions; (h) costs of any work or service performed for any other tenant; (i) depreciation and amortization (except as expressly permitted above); (j) interest and principal payments on any mortgage or other debt; (k) ground lease payments; (l) costs of correcting defects in construction or design of the Building or Property; and (m) fines, penalties, or late fees incurred by Landlord.

Such Additional Rent shall be computed on the basis of each calendar year and shall be adjusted in January of each year during the Term. Tenant shall pay the Operating Expenses in monthly installments on or before the first day of each calendar month, in advance, in an amount estimated by Landlord each year, beginning on the Possession Date. Within ninety (90) days after the end of each calendar year, Landlord shall furnish
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Tenant with a written statement itemizing the Operating Expenses for that calendar year, including reasonable supporting documentation. If the total amount paid by Tenant for the prior calendar year was less than the actual amount due from Tenant for that year, Tenant shall, within thirty (30) days after receipt of such statement, pay to Landlord the difference between the amount paid by Tenant and the actual amount due. If the total amount paid by Tenant for the prior calendar year exceeds the actual amount due from Tenant for that year, Tenant shall receive a credit for such amount against rent next coming due under this Lease, or if the Term has expired, a refund of such excess from Landlord within thirty (30) days. Tenant shall have the right, upon at least fifteen (15) days' prior written notice to Landlord, to audit or inspect Landlord's books and records relating to Operating Expenses for any calendar year within twelve (12) months after Tenant's receipt of Landlord's annual statement for such year. Such audit shall be conducted at Landlord's office during normal business hours and at Tenant's expense; provided, however, that if such audit reveals that Landlord overstated Operating Expenses by more than five percent (5%), Landlord shall reimburse Tenant for the reasonable cost of such audit. Any overpayment discovered through such audit shall be refunded to Tenant within thirty (30) days, together with interest at the rate of five percent (5%) per annum from the date of overpayment.

8.Intentionally deleted.

9.Security Deposit. Upon execution of this Lease, Tenant shall deposit Thirty-Three Thousand and 00/100 Dollars ($33,000.00) with Landlord as a security deposit (“Deposit”). The Deposit will be held by Landlord as security for the faithful performance by Tenant of the terms of this Lease. Landlord may only apply the Deposit to compensate Landlord for actual damages sustained as a result of an uncured default by Tenant after expiration of all applicable notice and cure periods, and Landlord shall provide Tenant with an itemized written statement of any amounts so applied within fifteen (15) days of such application. Tenant may not apply the Deposit to any payment of Rent or other sums payable to Landlord. Should Landlord apply any portion of the Deposit, Tenant will, upon written demand of Landlord accompanied by reasonable documentation of the claimed default and damages, remit to Landlord a sufficient amount to restore the Deposit to the original sum within thirty (30) days after receipt of such demand. The Deposit shall be returned to Tenant within thirty (30) days after the later of (i) the expiration or earlier termination of this Lease, or (ii) Tenant's surrender of possession of the Premises in accordance with this Lease.

10.Late Charges. All payments due to Landlord under this Lease, if not paid within five (5) days after they become due, shall be subject to a late charge equal to five percent (5%) of the payment amount.

11.Utilities. Tenant shall pay all charges for utility services provided to the Leased Premises which are separately metered directly to the applicable utility provider. Subject to Section 7(b) above, Landlord shall pay all charges for all other utility services necessary for the
6


reasonable use and operation of the Leased Premises and the Property. Landlord shall not be liable in damages or otherwise for any interruptions or failure in the supply of any utilities or utility service to the Leased Premises except such failure or interruption which results from the gross negligence or willful misconduct of Landlord, its agents or employees.

12.Taxes. Landlord shall pay all real property taxes and special assessments imposed on the Property directly to the applicable taxing authority before they become subject to penalties. Commencing on the Possession Date and continuing throughout the Term, the parties acknowledge and agree that Tenant will be responsible for (a) one hundred percent (100%) of the Taxes (as defined below) attributable to the Proposed Building (i.e., the Premises) and (b) sixty percent (60%) of the Taxes attributable to the remainder of the Property (i.e., the land and common areas comprising tax parcel no. 41-21-03-100-034 excluding the Proposed Building) ("Tenant's Tax Share"), and Landlord will be responsible for the remaining forty percent (40%) of the Taxes attributable to the remainder of the Property ("Landlord's Tax Share"). Upon receipt of any tax bills, the parties will confer and cooperate in good faith to review such bills and determine each party's respective share of the amounts due in accordance with the foregoing allocation. To the extent that tax bills do not separately itemize amounts attributable to the Proposed Building and the remainder of the Property, the parties will use commercially reasonable efforts to apportion such amounts based on the relative assessed values, square footage or such other methodology as the parties may mutually agree. Tenant will reimburse Landlord for Tenant's Tax Share as Additional Rent. Landlord shall provide Tenant with copies of all tax bills and evidence of payment within thirty (30) days of Landlord's payment thereof. Tenant shall pay Tenant's Tax Share to Landlord within thirty (30) days after receipt of Landlord's invoice therefor, accompanied by copies of the applicable tax bills. As used herein, “Taxes” means all real property taxes and assessments, general, special or otherwise, levied or assessed against the land, buildings and improvements comprising the Property; provided, however, that Taxes shall not include (i) any income, franchise, estate, inheritance, succession, capital gains, or transfer taxes of Landlord, (ii) any penalties or interest resulting from Landlord's failure to timely pay Taxes, (iii) any taxes attributable to Landlord's sale, exchange, or other disposition of the Property or any interest therein, (iv) any taxes resulting from Landlord's failure to file required tax returns or documents, or (v) any increase in Taxes attributable to improvements made by Landlord for other tenants or to portions of the Property not included in the Premises. Tenant shall have the right at any time to contest Taxes or seek to prevent an increase in Taxes, and Landlord shall cooperate in such efforts at no cost to Landlord. Any refund or reduction in Taxes resulting from Tenant's contest shall be credited to Tenant in proportion to Tenant's Tax Share. Tenant may elect to pay its Tax Share of special assessments in installments over the longest period available, and only the installments then falling due during the Term shall be payable by Tenant. Upon expiration or earlier termination of this Lease, Taxes shall be prorated as of the date of such expiration or termination based on the most recent available tax information. Tenant shall also pay directly all personal property taxes assessed against any personal property owned or leased by Tenant, including personal property taxes attributable to all improvements made by Tenant, which come due during the Term.

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13.Repair and Maintenance.
(a)    Tenant, at its expense, shall keep the interior of the Leased Premises in good maintenance, condition, and repair, reasonable wear and tear, casualty, condemnation, and Landlord's obligations set forth in subsection (b) below excepted, including, without limitation, the maintenance and repair of all HVAC, plumbing and electrical systems serving the Leased Premises. Tenant shall also perform all other maintenance, repair and replacement upon the Leased Premises necessitated by the negligent acts of Tenant, its agents, employees or invitees. Tenant shall keep the Leased Premises in a neat and clean condition, shall not allow refuse to accumulate, and shall conduct its business in such a manner that the risk of fire to the Leased Premises shall not be increased beyond the hazard normal and usual for its type of business. At Tenant’s sole cost and expense, Tenant shall maintain a preventive maintenance contract providing for the regular inspection and maintenance of the HVAC system serving the Leased Premises by a heating and air conditioning contractor, such contracts and such contractors shall be subject to Landlord’s prior reasonable written approval. Tenant shall provide proof of such preventative maintenance contract to Landlord upon request.

(b)    Notwithstanding the foregoing and subject to reimbursement to the extent provided in Section 7(b) above, Landlord shall be responsible for (i) all structural maintenance, repairs and replacements to the Premises, including, without limitation, the roof, foundation, exterior walls, and load-bearing elements, (ii) maintenance, repairs and replacements to the parking lot, driveways, and all other exterior common areas; (iii) maintenance, repairs and replacements necessitated by Landlord's negligence; and (iv) maintenance, repair, and replacement of the Fire Suppression System, as set forth in Section 3(e). Landlord shall commence maintenance, repairs or replacements for which it is responsible within fifteen (15) days after receipt of written notice from Tenant (or promptly in the case of emergencies) and shall diligently pursue such repairs to completion.
14.Use. Tenant shall occupy and use the Leased Premises for the purpose of warehouse/distribution, office space, research and development, and related activities, but for no other purpose without the written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed. The Leased Premises shall not be used for any purpose which would: a) violate any law, ordinance; or b) in any way create any nuisance or trespass. Notwithstanding the foregoing, Tenant’s current use does not violate any of the above.

15.Insurance and Indemnity. Tenant shall have an updated Certificate of Insurance on file with Landlord prior to taking possession of the Premises, including Worker’s Compensation, Auto and General Liability, naming Landlord as additional insured with respect to General Liability coverage. Tenant shall keep in force without interruption during the course of this Lease, policies of insurance covering Tenant for Worker’s Compensation, Commercial General Liability insurance and a Business Auto policy (including hired and non-owned automobile liability) with minimum limits set forth on Exhibit F. Subject to the applicable notice and cure period, Tenant’s failure to comply with this provision shall be deemed a breach of this Lease.
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Subject to Section 7(b) above, Landlord shall keep the Property insured against the loss or damage by fire and those risks covered by “extended coverage” as provided in a Michigan standard fire insurance policy in the amount of the full replacement cost of the Property. All such policies of insurance shall be payable to Landlord or as Landlord specifies.

Tenant shall indemnify Landlord against and save Landlord harmless from any liability, claim, cost or expense (including reasonable attorney’s fees) which may be asserted against or incurred by Landlord by reason of any accident or casualty occurring in, on or about the Leased Premises except such as arise from the negligence or willful misconduct of Landlord, its agents or employees.

Tenant, at its own expense, shall keep all of its furnishings, equipment and other personal property located on the Leased Premises fully insured against loss or damage by fire and those risks covered by “extended coverage” as provided in a Michigan standard fire insurance policy. Such policy of insurance shall be payable to Tenant or as Tenant specifies. Tenant hereby releases Landlord from any and all liability for any damage to or loss of such personal property from any cause whatsoever except to the extent such loss or damage is the result of the negligence or willful misconduct of Landlord, its agents or employees and is not otherwise covered by insurance required to be carried by Tenant under this Lease.

Landlord agrees to indemnify and hold harmless Tenant for any loss, injury or damage of any kind or nature arising from the Building, Improvements and Property (including the common areas), except when such injury or damage is caused by Tenant's negligent act and/or willful misconduct.

16.Waiver of Subrogation. Each policy of insurance authorized or required of either party under this Lease shall contain a clause or endorsement under which the insurer waives all right of subrogation against the other party, its agents and employees with respect to losses payable under such policy, and each party hereby waives all right of recovery it might otherwise have against the other party, its agents and employees for any loss or injury which is covered by such a policy of insurance, notwithstanding that such loss or injury may result from the negligence or fault of such other party, its agents or employees.

17.Alterations and Improvements. Tenant may make non-structural alterations, additions or improvements in, upon or to the Leased Premises that do not exceed Fifty Thousand Dollars ($50,000.00) in cost for each individual alteration, addition or improvement, without the prior written consent of Landlord, provided that such alterations, additions or improvements do not affect the Building's structure, roof, mechanical, electrical, plumbing or HVAC systems, or exterior appearance. All other alterations, additions or improvements shall require the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. In the event Landlord's consent is required and obtained, or in the case of any alterations, additions or improvements made without Landlord's consent as permitted herein, all
9


such work shall be performed at the expense of Tenant in a good, workmanlike manner, free from faults and defects and in accordance with all applicable laws and building codes and, if Landlord's consent is required, plans and specifications approved by Landlord. Tenant shall not allow any construction liens to attach to the Leased Premises or Property in connection with any such alteration and the failure of Tenant to have any such lien released within thirty (30) days after written notice from Landlord shall constitute a default under this Lease. In addition, Tenant shall indemnify, defend and hold Landlord harmless from any and all costs and expenses incurred by Landlord in connection with such construction liens, including, without limitation, attorneys’ fees and costs of litigation. All alterations, additions or improvements (except trade fixtures) so made and installed by Tenant shall become part of the realty, shall become the property of Landlord and shall remain for the benefit of Landlord at the end of the Term or other expiration of this Lease in as good condition as they were when installed, reasonable wear and tear excepted. Notwithstanding the foregoing, Tenant shall have the right to remove any alterations, additions or improvements made by Tenant at Tenant's option at the end of the Term or other expiration of this Lease, provided Tenant repairs any damage caused by such removal and restores the Leased Premises to their condition prior to the making of such alteration, addition or improvement, reasonable wear and tear excepted.

Notwithstanding the foregoing, Tenant may make strictly cosmetic changes to the finish work in the Premises, not including any changes affecting the Premises' or Building's roof, structure, systems, or exterior appearance (“Cosmetic Alterations”), without Landlord's consent (but subject to all other terms of this Lease), provided that such Cosmetic Alterations do not require any substantial modifications to the Premises. Tenant shall also have the right to install furnishings, equipment, wiring and connections, fixtures and trade fixtures within the Premises without Landlord's consent.

Tenant agrees to surrender to Landlord, at the end of the Lease Term, Renewal Lease Term, or upon any termination of this Lease, the Premises in as good condition as the Premises were at the Rent Commencement Date, ordinary wear and tear and damage by casualty or condemnation excepted. Tenant shall not be obligated to remove any Cosmetic Alterations or other alterations that Landlord and Tenant agree shall remain with the Premises as provided above or that Tenant elects to leave. Tenant shall have the right to remove movable trade fixtures, furniture, and equipment at the end of the Term. In the event Tenant elects to remove any improvements, fixtures or other items, Tenant shall do so in a good and workmanlike manner and shall reasonably repair and patch all floors, ceilings and other affected areas.

18.Signs. Upon the Future Building being constructed and occupied (in whole or in part), Landlord shall construct a monument sign at the Property for shared use by the occupants of the Proposed Building and the Future Building. The monument sign shall be designed to accommodate identification for multiple tenants, and each tenant shall have proportionate rights to signage space based on their respective square footage. The costs of constructing and maintaining the monument sign shall be included in Operating Expenses as set forth in Section 7(b). In addition to the shared monument sign (if applicable), Tenant has the right to building
10


signage on the Proposed Building, including building-top signage, at Tenant’s sole cost and expense, subject only to applicable laws and Landlord’s reasonable approval of the design.

19.Parking and Common Areas; Future Building; Future Addition. Tenant shall have the right to use the driveways, walkways and parking areas located on the Property. Tenant shall require its employees (other than those with temporary or permanent disabilities) to park in the areas designated by Landlord. Tenant shall have exclusive use of at least fifty (50) parking spaces. Landlord reserves the right in its absolute discretion to create, modify, change or alter any common area provided such change or alteration does not alter the amount of available parking spaces or the accessibility or effective usage of the Leased Premises. It is anticipated that a second building may be constructed on the Property, as depicted and labeled "Future Building" on Exhibit B. Landlord reserves the right to construct the Future Building, provided that such construction and the subsequent occupancy thereof shall not materially and adversely impact Tenant's use and enjoyment of the Leased Premises, including Tenant's parking rights and access. The parties acknowledge and agree that upon the Future Building being leased to a third party or otherwise occupied, the parties shall enter into an amendment to this Lease to provide for the following: (i) a proportionate share allocation methodology with respect to Operating Expenses as set forth in Section 7(b), whereby Tenant's share of Operating Expenses shall be based on the ratio of the square footage of the Leased Premises to the total square footage of all occupied buildings on the Property; and (ii) a potential revision to Tenant's Tax Share and Landlord's Tax Share as set forth in Section 12, as may be reasonably necessary to reflect the occupancy of multiple buildings on the Property. Landlord shall provide Tenant with at least ninety (90) days' prior written notice of the anticipated occupancy of the Future Building to allow the parties reasonable time to negotiate and execute such amendment in good faith. It is also anticipated that an addition to the Proposed Building may be constructed, as depicted and labeled "Future Addition" on Exhibit B. With Tenant's prior written approval, Landlord may construct the Future Addition, which, if constructed, would be leased by Tenant as an expansion to the Leased Premises. The parties acknowledge and agree that upon the Future Addition being constructed and leased by Tenant, the parties will enter into an amendment to this Lease to incorporate the Future Addition into the Leased Premises and to address the rent, Operating Expenses, and other terms applicable to the expanded Leased Premises.

20.Restrictive Covenants. Landlord covenants and agrees that, during the Term (including any extensions or renewals), neither the Property nor any building thereon (including the Leased Premises and the Future Building) shall be used for any of the following purposes: (a) any use that would constitute a nuisance or would be illegal, immoral, or disreputable; (b) adult entertainment or adult bookstores; (c) massage parlors (other than licensed therapeutic massage); (d) tattoo or body piercing parlors; (e) pawn shops; (f) check cashing or payday loan establishments; (g) off-track betting or gambling facilities; (h) gun shops or firearms dealers; (i) smoke shops, vape shops, tobacco stores, or cannabis dispensaries; (j) bars, taverns, or nightclubs (as distinguished from restaurants that serve alcohol); (k) flea markets, second-hand stores, or thrift shops; (l) industrial or manufacturing uses that generate excessive noise, odors, or emissions; (m) vehicle sales, service, or repair (other than incidental fleet maintenance); (n)
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storage or self-storage facilities; (o) funeral homes, mortuaries, or crematoriums; or (p) any use that would materially interfere with Tenant's use and enjoyment of the Leased Premises. Landlord shall include substantially similar use restrictions in any lease for the Future Building or any other building on the Property. This covenant shall run with the land and bind Landlord's successors and assigns.

21.Assignment and Sublease. Tenant shall not assign this Lease, or sublease all or any part of the Leased Premises without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Tenant shall have the unrestricted right to assign, sublet, license or transfer, in whole or in part, (hereinafter collectively “Transfer”) any or all of its rights and privileges under the Lease to an Affiliate (hereafter defined), provided that no such Transfer shall operate to relieve Tenant of its obligations under the Lease, including the payment of Rent and other charges. For purposes of this provision, “Affiliate” shall mean any entity which controls, is controlled by or is under common control with Tenant, any franchisee of Tenant, any franchisor of Tenant, any franchisee of Tenant's franchisor, or any entity which serves as a secured lender to Tenant. The consent of Landlord to any other Transfer to an entity or person which is not an Affiliate shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, the issuance, sale, purchase or other disposition of the interests of Tenant or an Affiliate of Tenant, any merger or consolidation or sale of all or substantially all of Tenant's or an Affiliate of Tenant's assets by Tenant or an Affiliate of Tenant, or any change in control, directors, management or organization of Tenant or an Affiliate of Tenant shall not be deemed to be a Transfer requiring the consent of Landlord, and in connection with any such transaction, Tenant shall be released from all obligations under this Lease first arising from and after the effective date of such transaction, provided that the successor entity assumes in writing all of Tenant's obligations under this Lease. Similarly, in the event of any Transfer to a third party that is approved by Landlord (or that does not require Landlord's consent), Tenant shall be released from all obligations under this Lease first arising from and after the effective date of such Transfer, provided that the transferee assumes in writing all of Tenant's obligations under this Lease.

Landlord shall have ten (10) calendar days after receipt of notice from Tenant to review and approve any proposed assignment or subletting. Landlord shall have no right to recapture said space and all consideration attributable to any assignment or sublease shall inure to the benefit of the Tenant.

22.Right of First Refusal to Purchase. Upon receipt of a bona fide written offer from any party to purchase all or any part of the Property, Landlord shall first send Tenant a copy of the offer (including all material terms and conditions) and notify Tenant of Landlord’s intent to accept the offer. Tenant shall have the right for thirty (30) days to match the terms of the offer, in writing. If Tenant does not elect to match the offer in writing within thirty (30) days, Landlord may then sell or transfer the Property to the third party offeror, provided the sale is on substantially the same terms and conditions as specified in the offer sent to Tenant (and in no event on terms more favorable to the third party than those offered to Tenant). If the sale to the
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third party is not consummated within one hundred twenty (120) days after Tenant's election period expires, or if Landlord proposes to sell on terms materially different from or more favorable than those contained in the original offer, Landlord must again offer the Property to Tenant pursuant to this Section before selling to any other party.

23.Right of First Offer to Lease. Landlord hereby grants Tenant a continuing right of first offer to lease any additional buildings constructed on the Property, including without limitation the Future Building depicted on Exhibit B (collectively, "Additional Space"). Prior to offering any Additional Space for lease to any third party or entering into a letter of intent or lease with any third party for such Additional Space, Landlord shall first deliver to Tenant a written notice ("Offer Notice") setting forth the material terms on which Landlord is willing to lease such Additional Space, including the proposed rent, lease term, tenant improvement allowance (if any), and other material economic terms. Tenant shall have thirty (30) days after receipt of the Offer Notice to elect in writing to lease such Additional Space on the terms set forth in the Offer Notice. If Tenant timely elects to lease such Additional Space, the parties shall negotiate in good faith and execute a lease or amendment to this Lease within sixty (60) days after Tenant's election, on the terms set forth in the Offer Notice and otherwise on terms consistent with this Lease to the extent applicable. If Tenant does not timely elect to lease such Additional Space, or if the parties fail to execute a lease or amendment within such sixty (60) day period despite good faith efforts, Landlord may lease such Additional Space to a third party, provided that such lease is on terms no more favorable to the third party than those offered to Tenant. If Landlord does not enter into a lease with a third party for such Additional Space within twelve (12) months after Tenant's election period expires, or if Landlord proposes to lease such Additional Space on terms materially more favorable to the third party than those offered to Tenant, Landlord must again offer such Additional Space to Tenant pursuant to this Section before leasing to any third party.

24.Intentionally deleted.

25.Performance by Landlord. In the event Tenant fails to perform any of its covenants and agreements as set forth in this Lease and such failure continues for a period of thirty (30) days after written notice from Landlord specifying the nature of the default with reasonable particularity (except that in a bona fide emergency posing imminent threat of material damage to the Property or injury to persons, such notice period shall be reduced to a reasonable period under the circumstances, but in no event less than twenty-four (24) hours if practicable), Landlord shall have the option to undertake such performance for Tenant. The reasonable and documented costs and expenses actually incurred by Landlord by reason of such undertaking shall be due and payable by Tenant to Landlord within thirty (30) days after Tenant's receipt of an invoice therefor accompanied by reasonable supporting documentation, as Additional Rent under this Lease.

26.Compliance with Public Authority Requirements. Tenant agrees, at its own expense, to promptly comply with all requirements of any legally constituted public authority with respect to Tenant’s use of the Premises. Notwithstanding the foregoing, Landlord shall be responsible, at Landlord's sole cost and expense (subject to inclusion in Operating Expenses to
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the extent permitted under Section 7(b)), for compliance with all requirements of any legally constituted public authority with respect to (a) the Building's structure, roof, foundation, exterior walls, and common areas, (b) any condition existing prior to the Possession Date or arising from Landlord's acts or omissions, and (c) any requirements applicable to the Property generally and not specifically triggered by Tenant's particular use.

27.Hazardous Materials.

a)Definitions. For purposes of this Lease, the terms “Hazardous Materials” and “Relevant Environmental Laws” shall be defined as follows:

i.“Hazardous Materials” shall mean all solids, liquids and gasses, including but not limited to solid waste, asbestos, crude petroleum and petroleum fractions, toxic chemicals, polychlorinated biphenyls, paint containing lead, volatile organic chemicals, chlorinated organic compounds, and urea formaldehyde foam insulation, which are governed or regulated by Relevant Environmental Laws.

ii.“Relevant Environmental Laws” shall include but not be limited to all federal, state or local laws, rules, regulations, orders or determinations established or issued by any judicial, legislative or executive body, of any governmental or quasi-governmental entity which govern or regulate the existence, storage, use, disposal, or release of any solid, liquid or gas on, in or under the Leased Premises, or which govern or regulate the environmental effect of any activity currently or previously conducted on the Leased Premises.

b)Tenant’s Obligations; Indemnification. Tenant shall not, nor shall it permit its employees, business invitees, contractors or subcontractors (collectively “Tenant’s Agents”), to bring upon, keep, store, use, or dispose of any Hazardous Materials on, in, under, or about the Leased Premises, the Property or any adjacent property except for the following: (i) Hazardous Materials contained within Tenant’s products, equipment, or inventory and which do not pose any significant threat of being released into the environment; or (ii) general office supplies (including, without limitation, ordinary cleaning chemicals and solutions) used for their intended purpose and not posing any significant threat of contamination of the Leased Premises, the Property or any adjacent property. Tenant shall cause the presence, use, storage and/or disposal of any Hazardous Materials on, in, under, or about the Leased Premises by Tenant or Tenant’s Agents to be in complete compliance with Relevant Environmental Laws. Tenant shall defend, indemnify, protect, and hold Landlord harmless from and against all claims, costs, fines, judgments, and liabilities, including reasonable attorneys’ fees and costs, arising out of or in connection with the presence, storage, use, or disposal of Hazardous Materials in, on, under, or about the Leased Premises to the extent caused by
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the negligent or wrongful acts or omissions of Tenant and/or Tenant’s Agents. Tenant’s obligations under this subsection (b) shall survive the termination of this Lease.

c)Landlord’s Obligations; Indemnification. Neither Landlord nor Landlord’s employees, business invitees, agents, contractors, or subcontractors (collectively “Landlord’s Agents”) shall bring upon, keep, store, use, or dispose of any Hazardous Materials in, on, under, or about the Leased Premises, the Property or any adjacent property except in complete compliance with all Relevant Environmental Laws. Landlord shall defend, indemnify, protect, and hold Tenant harmless from and against all claims, costs, fines, judgments, and liabilities, including reasonable attorneys' fees and costs, arising out of or in connection with (i) the presence, storage, use, or disposal of Hazardous Materials in, on, under, or about the Property caused by the acts, omissions, or negligence of Landlord and/or Landlord's Agents, or (ii) any Hazardous Materials existing on, in, or under the Property prior to the Possession Date. Landlord's obligations under this subsection (c) shall survive the termination of this Lease.

Landlord, to the best of its knowledge, represents and warrants to Tenant that (i) there are no Hazardous Materials on or about the Property and (ii) the Property is in compliance with all Relevant Environmental Laws. In addition, Landlord represents and warrants to Tenant that no toxic, explosive or other dangerous materials or hazardous substances are present in the Leased Premises, Building or on the Property or have been concealed within, buried beneath, released on or from, or removed from the Building or and that Landlord has not received any written notice of any pending or threatened action, claim, or investigation relating to Hazardous Materials on or about the Property. Landlord shall, prior to lease execution and at Tenant's request, fully disclose any and all reports, analyses, studies or other documents in Landlord's possession or control, including environmental and air quality studies, that would identify contaminants on the Property. Landlord shall promptly notify Tenant of any environmental claims, notices, or investigations relating to the Property that come to Landlord's attention during the Term. Landlord shall defend, indemnify and hold harmless Tenant from and against any and all third-party claims, actions, damages, liability and expense (including all reasonable attorney’s, consultant’s and expert’s fees, expenses and liabilities incurred in defense of any such claim or any action or proceeding brought thereon) arising from environmental conditions not solely caused by Tenant, including, without limitation, any and all costs incurred by Tenant because of any investigation of any portion of the Property or any cleanup, removal or restoration of any portion of the Property to remove or remediate Hazardous Materials not deposited by Tenant. This subsection (c) shall survive the termination of this Lease.

28.Damage to Leased Premises. In the event the Leased Premises and/or the Building are damaged by fire, the elements, acts of God, or other cause to such extent that either the Leased Premises are rendered untenantable by Tenant or more than fifty percent (50%) of the Building is rendered untenantable, Landlord shall, within thirty (30) days of the date the damage
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occurred, notify Tenant in writing whether Landlord elects to rebuild and, if so, provide an estimate of the time required to complete restoration. If Landlord elects not to rebuild, or if the estimated restoration period exceeds two hundred seventy (270) days, either party may terminate this Lease by written notice within fifteen (15) days thereafter, and this Lease shall be canceled as of the date the damage occurred, with rent prorated to such date.

If Landlord elects to rebuild, Landlord shall promptly commence and diligently pursue restoration. During any period the Leased Premises is untenantable or Tenant's use is materially impaired, rent shall abate proportionately. If restoration is not substantially completed within the estimated period (plus sixty (60) days for force majeure delays), Tenant may terminate this Lease upon thirty (30) days' written notice.

Landlord shall not be liable to Tenant for any loss occasioned by damage to the Leased Premises, other than rent abatement as provided herein, except for losses resulting from Landlord's gross negligence or willful misconduct. Rent abatement shall apply regardless of the cause of damage; provided, however, Tenant shall remain liable for uninsured damage caused by Tenant's negligence.

29.Eminent Domain. In the event that the whole of the Leased Premises shall be taken or condemned for any public or quasi-public use or purpose by any competent authority in appropriation proceedings or by any right of eminent domain, then this Lease shall terminate as of the date title vests in the condemning authority, all rents and other payments shall be prorated and paid up to that date, and Landlord and Tenant shall have no further obligations by reason of the provisions of this Lease, except for those obligations that expressly survive termination. .

In the event that less than the whole of the Leased Premises or any substantial portion of the Property is so taken or condemned, then either Landlord or Tenant shall have the right to terminate this Lease upon written notice to the other party given within thirty (30) days after receipt of notice of such taking, and this Lease shall terminate as of the date title vests in the condemning authority, all rents and other payments shall be prorated and paid up to that date, and Landlord and Tenant shall have no further obligations by reason of the provisions of this Lease, except for those obligations that expressly survive termination. In the event that neither party elects to so terminate this Lease, Landlord shall, at Landlord's sole cost and expense (but Landlord may apply condemnation proceeds toward such restoration), promptly repair and restore the portion not affected by the taking so as to constitute the remaining premises a complete architectural unit suitable for Tenant's continued use. During any such restoration period, Base Rent and Additional Rent shall be equitably abated to reflect the portion of the Leased Premises that is unusable by Tenant. Upon completion of any such restoration, the Base Rent shall be equitably reduced to reflect the reduced square footage of the Leased Premises.

Tenant shall have no interest in any award resulting from any condemnation or eminent domain or similar proceedings whether such award be for diminution in value to the leasehold or to the fee of the Leased Premises, except that Tenant shall be entitled to claim, prove and receive
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in such proceedings such award as may be allowed it for loss of business, relocation, and for Tenant’s trade fixtures and personal property which are removable by Tenant at the end of the Term, provided such award shall be in addition to the award for land, buildings and other improvements.

30.Defaults of Tenant. The following occurrences shall be deemed defaults by Tenant:

a)Tenant fails to pay when due any rent or other sum payable under this Lease and such failure continues for five (5) days after written notice from Landlord,

b)Tenant makes a general assignment for the benefit of creditors, becomes insolvent, files for bankruptcy or reorganization, has a bankruptcy or insolvency proceeding filed against it, or has a receiver or trustee appointed (or requested to be appointed) over Tenant or Tenant’s assets, or

c)Tenant breaches any other obligation under this Lease, and such breach shall continue for thirty (30) days after written notice from Landlord; provided, however, that if such breach is of a nature that cannot reasonably be cured within such thirty (30) day period, Tenant shall not be in default if Tenant commences to cure such breach within such thirty (30) day period and thereafter diligently pursues such cure to completion.

31.Remedies of Landlord. In the event of a default by Tenant, Landlord shall have the following rights and remedies in addition to all other rights and remedies otherwise available to Landlord:

a)Landlord shall have the right to terminate this Lease upon written notice to Tenant without prejudice to any claim for rents or other sums due or to become due under this Lease or damages.

b)Landlord shall have the immediate right of re-entry and may remove all persons and property from the Leased Premises. Such property may be removed and stored at the cost of Tenant. Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings, Landlord may either terminate this Lease or, from time-to-time, without terminating this Lease, relet the Leased Premises or any part thereof for such term or terms (which may be for a term extending beyond the Term) and at such rental or rentals and upon such other terms and conditions as Landlord, in the exercise of its sole discretion, deems advisable, with the right to make alterations and repairs to the Leased Premises. Upon each such reletting, (i) Tenant shall be immediately liable to pay to Landlord, in addition to any indebtedness other than rent due hereunder, the cost and expense of such reletting and of any such alterations and repairs incurred by Landlord, and the amount, if any, by which the rent
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reserved in this Lease for the period of the reletting as accelerated under Subsection a) of this Section, exceeds the amount agreed to be paid for rent for the Leased Premises by the reletting Tenant; or (ii) at the option of Landlord, rents received by Landlord from such reletting shall be applied first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such reletting and of such alterations and repairs; third, to the payment of rent unpaid hereunder; and the residue, if any held by Landlord and applied in payment of future unaccelerated rent as the same may become due and payable hereunder.

c)Subject to Landlord’s duty to mitigate its damages, Landlord may immediately sue to recover from Tenant all damages Landlord may incur by reason of Tenant’s default, including the cost of recovering the Leased Premises, and including the rent reserved and charged in this Lease for the remainder of the stated Term as accelerated under Subsection a) of this Section; provided, however, that any such accelerated rent shall be discounted to present value using a discount rate equal to the prime rate as published in The Wall Street Journal (or if no longer published, a comparable publication) as of the date of Tenant's default, plus one percent (1%). Landlord shall use commercially reasonable efforts to relet the Leased Premises and mitigate damages, and any amounts actually received by Landlord from reletting shall be credited against Tenant's obligations.

32.Landlord Default; Tenant Remedies. Landlord shall be in default if Landlord fails to perform any obligation hereunder and such failure continues for thirty (30) days after written notice from Tenant (or such longer period as reasonably necessary to cure if Landlord commences cure within such period and diligently pursues completion). Upon any such default: (a) Tenant may perform Landlord's obligation and offset the reasonable, documented costs thereof against rent, provided Tenant shall not offset more than 50% of any single monthly Base Rent installment and (b) Tenant shall be entitled to any other remedies available at law and/or in equity.

33.Right of Access. Tenant agrees to permit Landlord, and Landlord’s agents, to inspect or examine the Leased Premises at any reasonable time upon reasonable prior notice (except in emergencies), and to permit Landlord to make such repairs, decorations, alterations, improvements or additions in the Leased Premises or to the Building as Landlord may reasonably deem necessary or which Tenant has covenanted in this Lease to do but has failed to do, without the same being construed as an eviction of Tenant, in whole or in part, by reason of loss or interruption of the business of Tenant because of the prosecution of such work; provided, however, that if such work materially interferes with Tenant's use of the Leased Premises for more than five (5) consecutive business days, Base Rent shall abate proportionately during such interference. Tenant shall have the right to accompany Landlord on any such inspections and examinations, which shall be scheduled to suit the reasonable convenience of both parties.

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Landlord shall have the right to enter upon the Leased Premises at any reasonable time during the Term for the purpose of exhibiting the Leased Premises to prospective tenants or purchasers, provided at least twenty-four (24) hours' advance notice is given to Tenant, and provided such exhibitions are scheduled to suit the reasonable convenience of both parties and do not unreasonably interfere with Tenant's business operations. For a period commencing six (6) months prior to the termination of this Lease and any renewals, Landlord may also place signs in, or upon the Leased Premises to indicate that the same are for rent, subject to Tenant's reasonable approval as to size and placement. Signs indicating the Building is for sale may be placed on the Building (but not within the Leased Premises without Tenant's consent) at any time.

34.Surrender of Leased Premises. Tenant covenants and agrees to surrender possession of the Leased Premises to Landlord upon the expiration of the Term, or upon earlier termination of this Lease, in as good condition and repair as the same shall be at the Rent Commencement Date, or as the same may have been put by Landlord or Tenant during the continuance of this Lease and any renewals, or extensions, ordinary wear and tear, casualty, and condemnation excepted. In addition, Tenant shall remove all of its personal property from the Leased Premises in accordance with Section 17 above and shall repair any damage to the Leased Premises caused by such removal. Any improvements made to the Premises, whether initially paid for by Landlord or by Tenant under Section 17 above, shall become the sole property of Landlord and Tenant shall not remove any part of the improvement, except for its portable personal property (i.e., nothing that is attached to any structure of the Premises), unless specifically authorized in writing by Landlord under the terms of Section 17 above.

Subject to Section 17 above, any personal property of Tenant or of anyone claiming under Tenant which shall remain on the Leased Premises more than fifteen (15) days after the expiration or termination of this Lease and written notice from Landlord shall be deemed to have been abandoned by Tenant, and either may be removed by Landlord as its property or may be disposed of in such a manner as Landlord may see fit, and Landlord shall not be in any way responsible for such property.

35.Holding Over. In the event Tenant shall continue to occupy all or any part of the Leased Premises after the expiration of the Term with the consent of Landlord, such holding over shall be deemed to constitute a tenancy from month-to-month, upon the same terms and conditions as are contained in this Lease, except as to term; provided, however, if such holding over is without Landlord’s written consent, Tenant shall pay to Landlord as rent for each month, or part of a month, that Tenant remains in possession of the Leased Premises, one hundred and fifty percent (150%) of the monthly rental rate in effect immediately prior to the date of termination.

36.Subordination. This Lease is and shall be subject and subordinate to any mortgage or mortgages now in force, or which shall at any time be placed upon the Leased Premises or the Property or any part thereof, and to each and every advance made pursuant to any such mortgage; provided, however, that such subordination shall be conditioned upon
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Tenant's receipt of a subordination, non-disturbance, and attornment agreement ("SNDA") from such mortgagee in a form reasonably acceptable to Tenant. Tenant agrees that it will, within fifteen (15) business days after request, execute and deliver such instruments as shall be reasonably required by any mortgagee or proposed mortgagee to confirm or to effect more fully such subordination of this Lease to the lien of any such mortgage or mortgages; provided that such instruments do not materially increase Tenant's obligations or materially diminish Tenant's rights under this Lease. Landlord shall use commercially reasonable efforts to obtain an SNDA from any existing mortgagee within sixty (60) days after the Effective Date.

Notwithstanding anything to the contrary, as a condition to Tenant’s subordination and attornment, any mortgagee, or successor to mortgagee’s interest, must agree in writing that (a) it will not disturb Tenant’s right to occupy the Premises under the terms of the Lease for the Term (including any extension thereof), (b) this Lease shall not be terminated, (c) Tenant’s rights under this Lease and Tenant’s leasehold estate created hereby shall not be diminished by reason of any default under a mortgage affecting the Property or foreclosure thereof, and (d) all prepaid rent and security deposits shall be honored, so long as Tenant is not in default in performance of its obligations under the Lease beyond any applicable cure period provided in the Lease.

37.Attornment. In the event any proceedings are brought for the foreclosure of any mortgage covering the Leased Premises, or in the event of the conveyance by deed in lieu of foreclosure, or in the event of exercise of the power of sale under any such mortgage, or in the event of the sale or transfer of the Leased Premises by Landlord, Tenant shall attorn to the new owner upon the new owner's written assumption of Landlord's obligations under this Lease, and Tenant covenants and agrees to execute an instrument in writing reasonably satisfactory to both parties whereby Tenant attorns to such successor in interest and recognizes such successor as Landlord under this Lease.

38.Sale or Transfer by Landlord. If Landlord shall sell or transfer the Leased Premises, Landlord shall be released of all covenants and obligations under this Lease accruing from and after the date of such conveyance or transfer, provided (a) the purchaser on such sale has assumed in writing and agreed to carry out all covenants and obligations of Landlord under this Lease and (b) Landlord has provided Tenant with written notice of such sale or transfer and the name and address of the purchaser within ten (10) days thereof.

39.Estoppel Certificate. At the request of either party, the other party shall within ten (10) days deliver a certificate stating the Commencement Date and the termination date of the Term and certifying as of the date of the certificate as to the amount of Base Rent, Additional Rent and other charges paid by Tenant under this Lease, whether this Lease has been modified and is in full force and effect, whether the other party is in default under this Lease and the nature of any such default.

40.Quiet Enjoyment. Subject to the terms and conditions of this Lease, on paying the rent and on performing all of the covenants and agreements on its part to be performed under
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the provisions of this Lease, Tenant shall peacefully and quietly have, hold and enjoy the Leased Premises for the Term without hindrance or interference by Landlord, by any predecessor in interest to Landlord, by any mortgagee or ground lessor, or by anyone claiming an interest in the Leased Premises by or through Landlord or any such predecessor in interest.

41.Benefit and Obligation. The benefits of this Lease shall accrue to, and the burdens of this Lease shall be the liabilities of, the heirs, personal representatives, successors and permitted assigns of Landlord and Tenant.

42.Notices. All notices required under any provision of this Lease shall be deemed to be properly served if (a) delivered personally, (b) sent by registered or certified mail, return receipt requested, (c) sent by nationally recognized overnight courier, or (d) sent by email to the email address designated by the receiving party, to each party at their address as stated above or at such other address or email address as each party shall designate in writing delivered to the other party. Notices shall be effective (i) upon delivery if delivered personally, (ii) three (3) business days after mailing if sent by registered or certified mail, (iii) one (1) business day after deposit with the courier if sent by overnight courier, or (iv) upon transmission if sent by email, provided the sender does not receive an automated delivery failure notification.

43.Waiver. The failure of either party to enforce any covenant or condition of this Lease shall not be deemed a waiver thereof or of the right of either party to enforce each and every covenant and condition of this Lease, and no provision of this Lease shall be deemed to have been waived unless such waiver is in writing signed by the waiving party. One or more waivers of any covenant or condition by Landlord or Tenant shall not be construed as a waiver of a subsequent breach of the same covenant or condition, nor shall the acceptance of rent or other payment by Landlord at any time when Tenant is in default under any term, covenant or condition of this Lease constitute a waiver of such default, nor shall any waiver or indulgence granted by either party be taken as an estoppel against the party granting the indulgence or waiver.

44.Unenforceability. In the event any covenant, term, provision, obligation, agreement or condition of this Lease is held to be unenforceable, it is mutually agreed and understood, by and between the parties hereto, that the other covenants, terms, provision, obligations, agreements and conditions herein contained shall remain in full force and effect.

45.Captions. All headings contained in this Lease are intended for convenience only and are not to be deemed or taken as a summary of the provisions to which they pertain or as a construction thereof.

46.Governing Law. This Lease shall be governed by the laws of the State of Michigan.

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47.Additional Covenants of Tenant. Tenant shall not perform or permit any of the following acts to be performed by Tenant or its agents, employees, or invitees without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed:

a)Occupy the Leased Premises in any other manner or for any other purpose than as set forth in this lease.

b)Use or operate any machinery that, in Landlord’s reasonable opinion, is harmful to the Property or Premises or would materially disturb other tenants or occupants of the Property.

c)Inscribe, paint or affix or permit to be inscribed, painted or affixed any sign, advertisement or notice on any part of the exterior of the Property or Premises, unless first approved by Landlord in writing, which approval shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Tenant may install interior signage within the Leased Premises without Landlord's consent.

d)Place any telecommunications lines or other wires and instruments in the Leased Premises unless coordinated with Landlord as to where and how the same are to be placed, which coordination shall not be unreasonably withheld or delayed; provided, however, Tenant shall be permitted to install standard telephone, internet, data and computer lines at Tenant’s expense within Tenant’s leased area without Landlord's prior approval, so long as such installation does not affect the Building's structure or systems.

e)Store or use any article or substance that is explosive, highly flammable, or otherwise hazardous in violation of applicable laws, including but not limited to ether, naphtha, phosphorus, benzol, gasoline, benzine, petroleum or any product thereof, crude or refined earth or coal oils, flashlight powder, or other explosives, kerosene, camphene, burning fluid or any dangerous, explosive or rapidly burning matter or material of any kind; provided, however, that Tenant may use and store reasonable quantities of cleaning supplies and other materials customarily used in Tenant's business in compliance with applicable laws.

f)Use electricity in the Leased Premises in excess of the capacity of any of the electrical conductors and equipment in or otherwise serving the Leased Premises, nor connect any additional fixtures, appliances or equipment to the Property electric distribution system or make any alteration or addition to the electric system (other than installing a sub-meter) of the Leased Premises other than the connection of lamps, desktop computers, laptop computers, servers, and similar office machines and equipment reasonably necessary for Tenant’s use of the Leased Premises as permitted under this Lease.

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g)Make or permit any improper noises or odors in the Leased Premises or on the Property, create a nuisance, or do or permit anything which materially interferes with neighboring property owners and their business (except for Tenant’s uses already disclosed and permitted in Section 14 above). In the event Tenant’s business creates noise or odors that materially interfere with neighboring tenants or property owners after Landlord has provided Tenant with written notice thereof and a reasonable opportunity to cure, Landlord may require Tenant, at Tenant’s sole cost, to install in the Leased Premises such sound insulation, air circulation devices and/or other commercially reasonable improvements necessary to mitigate the noise or odor to a reasonable level.

48.Additional Rights Reserved to Landlord. Subject to the terms and conditions of this Lease, Landlord shall have the right, but shall be under no obligation, to do the following things in or about the Leased Premises and the Property, provided that Landlord shall use commercially reasonable efforts to minimize interference with Tenant's business operations:

a)Make such reasonable rules and regulations as in its judgment may from time to time be necessary for the safety, care and cleanliness of the Leased Premises, and the Property, and for the preservation of good order therein; provided, however, such rules and regulations (i) are reasonable and customary for buildings of this character, (ii) are of uniform application to all tenants, (iii) are uniformly enforced against all tenants, (iv) are not inconsistent with the provisions of this Lease, (v) do not materially increase Tenant's obligations or materially diminish Tenant's rights under this Lease, and (vi) are provided to Tenant in writing at least thirty (30) days prior to becoming effective. Tenant and its agents, employees, invitees, and licensees shall comply with all such rules and regulations.

b)Control and prevent access to any part of the Property or adjacent property by persons whose presence in the reasonable judgment of Landlord will be prejudicial to the safety, character, reputation or interest of the Property and its respective tenants; provided, however, that Landlord shall not unreasonably interfere with access by Tenant's employees, agents, contractors, customers, or invitees.

49.Force Majeure. The time within which either party shall be required to perform any act or acts under this Lease (other than the payment of money) shall be extended to the extent that the performance of such act or acts shall be delayed by acts of God, fire, windstorm, flood, explosion, collapse of structures, riot, war, terrorism, pandemic, governmental orders, strikes, or labor disputes; provided, however, that the party seeking such extension hereunder shall give notice to the other party of the occurrence causing such delay no later than seven (7) days following such occurrence. Such extension shall apply equally to both parties.

50.Entire Agreement; Amendment. This Lease contains all of the representations and statements by each party to the other and expresses the entire understanding between the parties with respect to this transaction. All prior communications concerning this transaction are
23


merged in and replaced by this Lease. This Lease may not be amended except by a further agreement in writing signed by both Landlord and Tenant.

51.Waiver of Right to Trial by Jury. EACH PARTY HEREBY VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THIS LEASE, INCLUDING BUT NOT LIMITED TO ACTIONS INVOLVING SUMMARY PROCEEDINGS. THIS PROVISION IS A MATERIAL INDUCEMENT TO EACH PARTY TO ENTER INTO THIS TRANSACTION.

52.Floor Load. Tenant shall not place upon any portion of the floor of the Leased Premises a load exceeding such floor’s load-bearing capacity. Landlord reserves the right to reasonably prescribe the position of all safes, business machines, or other heavy apparatus, provided such requirements do not unreasonably interfere with Tenant's business operations. Such safes, business machines, or other heavy apparatus shall be maintained by Tenant at Tenant’s expense in settings reasonably sufficient to absorb and prevent vibration, noise, and annoyance to other tenants.

53.Limitation of Landlord’s Liability. Notwithstanding anything contained in this Lease to the contrary, Landlord’s liability hereunder shall be limited to, and any judgment against Landlord may only be satisfied out of, (a) the proceeds of sales received on execution of the judgment and levy against the right, title, and interest of Landlord in the Property; (b) rent and other income from the Property receivable by Landlord; and (c) the consideration received by Landlord from the sale or other disposition of all or any part of Landlord’s right, title, and interest in the Property. In no event shall any partner, member, manager, officer, director, shareholder, or beneficial owner of Landlord have any personal liability for the obligations of Landlord under this Lease; provided, however, that this limitation shall not limit Tenant's right to seek injunctive or other equitable relief.

54.Rules and Regulations. The current rules and regulations for the Building and Landlord’s Property (“Rules”) are attached as Exhibit G. Tenant shall observe and comply with and shall require Tenant’s Agents to observe and comply with all Rules and any reasonable additions or amendments thereto which shall from time to time be adopted by Landlord; provided, however, that (a) such additions and amendments shall be provided to Tenant in writing at least thirty (30) days prior to becoming effective, (b) shall be of uniform application and uniformly enforced against all tenants, (c) shall not be inconsistent with Tenant's rights under this Lease, and (d) shall not materially increase Tenant's obligations or materially diminish Tenant's rights under this Lease. In the event of any conflict between the Rules and this Lease, the terms of this Lease shall control.

55.Landlord's Representations and Warranties. Landlord represents and warrants to Tenant that: (a) Landlord is seized in fee simple title to the Property; (b) Landlord has the
24


authority to enter into this Lease; (c) the person executing this Lease is duly authorized to execute and deliver this Lease on behalf of Landlord; (d) Landlord will deliver the Premises, Building, Property and Improvements in compliance with all applicable governmental rules, laws and regulations, without regard to grandfathering or other variances; (e) all utility and mechanical systems, including plumbing, electrical and HVAC systems, are established, connected to the Premises and are in good working condition and repair; (f) the Fire Suppression System will be installed, fully operational, and in compliance with all applicable codes and regulations as of the Possession Date; (g) the Premises is in compliance with all applicable laws, codes, rules, regulations and ordinances, Landlord has not received any notice of violations of any health, safety, pollution, zoning or other laws, ordinances, rules or regulations including, without limitation, the ADA with respect to any portion of the Leased Premises; and (h) the Premises has access to sufficient parking and a public road, either directly or as benefited by easements. Landlord shall assign to Tenant, to the extent assignable and to the extent Tenant is responsible for the maintenance, repair, or replacement of such items under this Lease, all warranties relating to the base building, building systems, and equipment, including without limitation any warranties from contractors, subcontractors, manufacturers, and suppliers. Landlord shall cooperate with Tenant in enforcing any such warranties that are not assignable.

56.Authority. Tenant and Landlord represent and warrant that Tenant and Landlord, respectively, have the capacity and authority to enter into this Lease. If Tenant or Landlord is a corporation, Tenant and Landlord, respectively, represent and warrant that it is duly organized and a validly existing corporation in good standing and that the person executing this Lease has the requisite authority to bind the corporation to the terms of this Lease. If Tenant is a partnership (see above), Tenant represents and warrants that it validly exists and that the person executing this Lease has the requisite authority to bind the partnership to the terms of this Lease.

57.Existing Lease Coordination. Landlord and Tenant acknowledge that Tenant currently occupies space under an existing lease with Landlord. The parties agree to negotiate in good faith regarding the coordination of Tenant’s transition from the existing premises to the new Premises, including an early termination of existing lease if and to the extent necessary to facilitate such transition.

58.Contingency. The parties’ obligations under this Lease are contingent upon Landlord closing on the purchase of the Property. Landlord shall notify Tenant in writing within five (5) business days after such closing has occurred. If Landlord has not closed on the purchase of the Property within ninety (90) days after the Effective Date, Tenant may terminate this Lease upon written notice to Landlord, and neither party shall have any further obligations hereunder. Upon any such termination, Landlord shall promptly refund to Tenant all amounts previously paid by Tenant under this Lease, including without limitation any Security Deposit and Construction Down Payment.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first identified above.
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                        LANDLORD:
        Ventura Office Park Lot #8, LLC,
        a Michigan limited liability company

Date: April 13, 2026            By: /s/ Jeff Leeuw
                Jeff Leeuw
            Its:    Member

            TENANT:
            Shoulder Innovations, Inc.,
            a Delaware corporation

Date: April 13, 2026            By: /s/ Matt Ahearn
                Matt Ahearn
            Its:    Chief Operating Officer


EXHIBIT A

Land Description


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EXHIBIT B

Leased Premises
27





EXHIBIT C

Construction Plans

28



EXHIBIT D

Construction Budget (excludes Fire Suppression System costs, which are addressed separately in Section 3(e))

29






EXHIBIT E

Acceptance of Premises






30


EXHIBIT F

Insurance Requirements
31


EXHIBIT G

Rules and Regulations
32

Exhibit 10.4

SHOULDER INNOVATIONS, INC. AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM
Eligible Directors (as defined below) on the board of directors (the “Board”) of Shoulder Innovations, Inc. (the “Company”) shall be eligible to receive cash and equity compensation as set forth in this Amended and Restated Non-Employee Director Compensation Program (this “Program”), effective as of May 5, 2026. The cash and equity compensation described in this Program shall be paid or be made, as applicable, automatically as set forth herein and without further action of the Board, to each member of the Board who is not an employee of the Company or any of its parents or subsidiaries (each, an “Eligible Director”) unless such member is determined by the Board to not be an Eligible Director or unless such Eligible Director declines the receipt of such cash or equity compensation by written notice to the Company.
This Program shall remain in effect until it is revised or rescinded by further action of the Board. This Program may be amended, modified or terminated by the Board at any time in its sole discretion. No Eligible Director shall have any rights hereunder, except with respect to equity awards granted pursuant to Section 2 of this Program. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Equity Plan.
1.Cash Compensation.
a.Annual Retainers. Each Eligible Director shall be eligible to receive an annual cash retainer of $45,000 for service on the Board.
b.Additional Annual Retainers. An Eligible Director shall be eligible to receive the following additional annual retainers, as applicable:
(i)Lead Independent Director. An Eligible Director serving as Lead Independent Director of the Board shall be eligible to receive an additional annual retainer of $35,000 for such service.
(ii)Non-Executive Chair. An Eligible Director serving as Non-Executive Chair of the Board shall be eligible to receive an additional annual retainer of $40,000 for such service.
(iii)Committee Chair. An Eligible Director serving as Chair of the Audit Committee, the Compensation Committee or the Nominating and Corporate Governance Committee shall be eligible to receive an additional annual retainer of $20,000, $15,000 or $10,000, respectively, for such service on such committee.
(iv)Non-Chair Committee Member. An Eligible Director serving as a non-Chair member of the Audit Committee, Compensation Committee or the Nominating and Corporate Governance Committee shall be eligible to receive an additional annual retainer of $10,000, $7,500 or $5,000, respectively, for such service on such committee.
c.Payment of Retainers. The annual cash retainers described in Sections 1(a) and 1(b) (the “Annual Retainers”) shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than 30 days following the end of
1


each calendar quarter; provided however, that if any Eligible Director has made a Retainer RSU Election (as defined below), then the Annual Retainers shall be paid by the Company no later than the fifth day of the month immediately following the end of the quarter (or if such fifth day falls on a non-trading date, the next trading date immediately thereafter). In the event an Eligible Director does not serve as a director, or in the applicable positions described in Section 1(b), for an entire calendar quarter, the retainer paid to such Eligible Director shall be prorated for the portion of such calendar quarter actually served as a director, or in such position, as applicable.
d.Election to Defer Equity Compensation. Each Eligible Director may elect to have all or a portion of his or her Annual Retainer deferred in accordance with the provisions of the Shoulder Innovations, Inc. Director Equity Deferral Plan (as may be amended from time to time, the “Deferral Plan”). Participation in the Deferral Plan is subject to separate documentation, agreements and elections that will be provided by the Company on request.
e.Election to Receive Restricted Stock Units (“RSUs”) in Lieu of Annual Retainers.
(i)General. The Board or the Compensation Committee may, in its discretion, provide Eligible Directors with the opportunity to elect to convert all or a portion of their Annual Retainers into awards of RSUs (the “Retainer RSU Awards”) granted under the Company’s 2025 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (such plan, as may be amended from time to time, the “Equity Plan”), with each such Retainer RSU Award covering a number of shares of the Company’s Common Stock with a grant date value equal to the amount of the Annual Retainer subject to the Eligible Director’s election that would have otherwise been paid to such Eligible Director in cash on the applicable grant date (such election, a “Retainer RSU Election”). Unless otherwise determined by the Board or Compensation Committee, Retainer RSU Elections shall be administered in tandem with Deferral Elections under the Deferral Plan. The portion of the Annual Retainer not payable in the form of Retainer RSU Awards shall be payable in cash, unless otherwise deferred under the Deferral Plan. Each Retainer RSU Award will automatically be granted on the fifth day of the month immediately following the end of the quarter for which the corresponding portion of the Annual Retainer was earned (or if such fifth day falls on a non-trading date, the next trading date immediately thereafter). Each Retainer RSU Award will fully vest and settle on the grant date.
(ii)First Year of Eligibility Election Method. Each newly Eligible Director shall be permitted to make an initial Retainer RSU Election with his or her Deferral Election during the Plan Year in which such Eligible Director is first eligible to participate in this Program and the Deferral Plan (and in any other plan that would be aggregated with the Deferral Plan under Section 409A of the Code, as determined in accordance with Treasury Regulation Section 1.409A-2(a)(7)); provided, however, that such Retainer RSU Election (A) is made and becomes irrevocable no later than the 30th day after the date that such Eligible Directors first becomes eligible to participate in this Program and the Deferral Plan (or by such earlier date as specified by the Board or a committee thereof), and (B) shall apply only to the portion of the Annual Retainers earned for services performed after the date that the Retainer RSU Election becomes irrevocable; as determined by the Board or a committee thereof in accordance with the Deferral Plan and Section 409A of the Code. Capitalized terms in this Section 1(e)(ii) not otherwise defined in this Program have the meanings set forth in the Deferral Plan.
(iii)Annual Election Method. Following the first year of eligibility, Eligible Directors wishing to receive all or a portion of their Annual Retainer for a specific calendar year in Retainer RSU Awards must make a Retainer RSU Election in writing in the form and manner specified by the Board or the Compensation Committee and no later than the last day of the calendar year immediately prior to the calendar year in which the Annual Retainer
2


is earned. Such Retainer RSU Election shall continue for each calendar year through and until the calendar year that commences after such time as the Eligible Director files a new Retainer RSU Election that is received by the Company modifying or terminating such prior election. An Eligible Director who fails to make a timely Retainer RSU Election will not receive a Retainer RSU Award and instead will receive the applicable Annual Retainer in cash. A Retainer RSU Election may not be made during any “blackout period” as contemplated by the Company’s Insider Trading Policy. If, as of the grant date of any Retainer RSU Awards, it is determined by the Compensation Committee that there are an insufficient number of shares of Common Stock under the Equity Plan to grant the Retainer RSU Awards then contemplated by the current Retainer RSU Elections, the Compensation Committee (or its delegate) may act to suspend all Retainer RSU Elections, and all Annual Retainers shall be paid in cash until the Compensation Committee determines otherwise.
2.Equity Compensation.
a.General. Eligible Directors shall be granted the equity awards described below without further action from the Board. The awards described below shall be granted under and shall be subject to the terms and provisions of the Equity Plan and may be granted subject to the execution and delivery of award agreements in substantially the forms approved by the Board prior to or in connection with such grants. All applicable terms of the Equity Plan apply to this Program as if fully set forth herein, and all grants of equity awards hereby are subject in all respects to the terms of the Equity Plan.
b.Annual Awards. An Eligible Director who is serving on the Board as of the date of the annual meeting of the Company’s stockholders (the “Annual Meeting”) each calendar year beginning with calendar year 2026 shall be granted a RSU award with a value of $115,000 (an “Annual Award”). The number of RSUs subject to an Annual Award will be determined by dividing $115,000 by the closing price for the Company’s common stock on the applicable grant date. Each Annual Award shall be granted on the applicable Annual Meeting date, and shall vest in full on the earlier to occur of (x) the one-year anniversary of the applicable grant date and (y) the date of the next Annual Meeting following the grant date, subject to continued service through the applicable vesting date.
c.Accelerated Vesting Events.    Notwithstanding the foregoing, an Eligible
Director’s Annual Award shall vest in full immediately prior to the occurrence of a Change in Control, to the extent outstanding at such time.
d.Election to Defer Equity Compensation. Each Eligible Director may elect to have all or a portion of his or her Annual Award deferred in accordance with the provisions of the Deferral Plan. Participation in the Deferral Plan is subject to separate documentation, agreements and elections that will be provided by the Company on request.
3.Compensation Limits. Notwithstanding anything to the contrary in this Program, all compensation payable under this Program will be subject to any limits on the maximum amount of non-employee Director compensation set forth in the Equity Plan, as in effect from time to time.

3

Exhibit 10.5

SHOULDER INNOVATIONS, INC.
DIRECTOR COMPENSATION DEFERRAL PLAN
Shoulder Innovations, Inc. (the “Company”) hereby establishes the Shoulder Innovations, Inc. Director Compensation Deferral Plan (the “Plan”), effective on the Effective Date (as defined below). The purpose of the Plan is to attract and retain members of the Board by providing such persons with an opportunity to defer receipt of a portion of their Equity Awards and Cash Retainers (each as defined below) as provided in the Plan.
ARTICLE 1.
DEFINITIONS

For purposes of the Plan, the following words and phrases shall have the meanings set forth below, unless their context clearly requires a different meaning:
“Administrator” means the Board or a committee thereof or of Company officers appointed as such by the Board.
“Beneficiary” or “Beneficiaries” means the person or persons, including one or more trusts, designated by a Participant in accordance with the Plan to receive distribution of any shares (or other consideration) subject to any Deferred Awards in the event of the death of the Participant prior to the Participant’s receipt of any such shares or other consideration.
“Beneficiary Designation Form” means the form established from time to time by the Administrator (in a paper or electronic format) that a Participant may complete, sign and return to the Company to designate one or more Beneficiaries.
“Board” means the Board of Directors of the Company.
“Cash Retainer” means the annual cash retainers payable by the Company to a member of the Board for services as a director pursuant to the Company’s Compensation Program (or any successor compensation policy or program), including the basic annual retainer and any additional annual retainers payable for service as Lead Independent Director, Non-Executive Chair, or as chair or non-chair member of any committee of the Board, but excluding expense reimbursements and any per-meeting fees, in each case prior to the application of any deferrals under this Plan.
“Change in Control” means a “Change in Control” as such term is defined in the Equity Plan.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” means Shoulder Innovations, Inc. and its successors, including, without limitation, the surviving corporation resulting from any merger or consolidation of Shoulder


Innovations, Inc. with any other corporation, limited liability company, joint venture, partnership or other entity or entities.
“Compensation Committee” means the Compensation Committee of the Board.
“Compensation Program” means the Company’s Amended and Restated Non-Employee Director Compensation Program (or any successor compensation policy or program).
“Deferral Election” means the Participant’s election on a form approved by the Administrator (in a paper or electronic format) to defer all or a portion of the Participant’s Equity Awards and/or Cash Retainer in accordance with the provisions of Article III.
“Deferred Award” means (a) any Equity Award, or portion thereof, that a Participant has elected to defer pursuant to a Deferral Election under this Plan and (b) any DSU credited to a Participant pursuant to Section 3.3 in respect of a deferred Cash Retainer. Each Deferred Award shall be granted under the Equity Plan and shall be evidenced by an individual award agreement.
“Deferred Stock Unit” or “DSU” means an award of deferred Restricted Stock Units granted under the Equity Plan and credited to a Participant under this Plan in respect of a deferred Cash Retainer pursuant to Section 3.3. Each DSU represents the right to receive one share (or, to the extent permitted under the Equity Plan and at the election of the Administrator, an equivalent amount in cash or a combination of shares and cash) on the applicable settlement date determined under the Plan. DSUs shall be fully vested upon grant.
“Effective Date” means May 5, 2026.
“Eligible Participant” has the meaning set forth in Section 2.1.
“Equity Awards” means annual awards of Restricted Stock Units granted by the Company (other than DSUs) during a Plan Year, prior to the application of any deferrals under this Plan; provided, however, that Equity Awards shall not include any Equity Awards of which all or a portion has been deferred pursuant to any other Company plan. For the avoidance of doubt, any Equity Awards deferred under this Plan shall be granted pursuant to the Company’s Equity Plan and shall be subject to individual award agreements (providing, among other things, for any applicable dividend equivalent rights (if any)).
“Equity Plan” means the Company’s 2025 Incentive Award Plan (or any subsequent equity incentive plan adopted by the Company).
“Participant” means any member of the Board who at any time has elected to defer the receipt of Equity Awards and/or a Cash Retainer in accordance with the Plan.
“Plan” means this Shoulder Innovations, Inc. Director Compensation Deferral Plan, as it may be amended from time to time.
“Plan Year” means the period from the Effective Date through December 31, 2026 and each calendar year beginning thereafter.
    2

“Restricted Stock Unit” means an award of restricted stock units granted pursuant to the Equity Plan covering a number of shares that may be settled in cash, shares or a combination of cash and shares upon vesting.
“Separation from Service” means a Participant’s termination of service as a member of the Board, other than as a result of the Participant’s death, in such a manner as to constitute a “separation from service” from the Company as contemplated under Section 409A of the Code and its underlying regulations.
“Specified Employee” means a “specified employee” as determined by the Company in accordance with Section 409A of the Code.
“Subsequent Deferral Election” has the meaning set forth in Section 4.1(b).
ARTICLE II.
ELIGIBILITY

1.1.Eligibility. Participation in the Plan is limited to any member of the Board who is selected by the Administrator, in its sole discretion, to participate in the Plan (each an “Eligible Participant”). In lieu of designating individual Eligible Participants for Plan participation, the Administrator may establish eligibility criteria (consistent with the requirements of this Section 2.1) providing for participation of all Eligible Participants who satisfy such criteria. The Administrator may at any time, in its sole discretion, change the eligibility criteria for Eligible Participants, or determine that one or more Participants will cease to be an Eligible Participant.
1.2.Enrollment Requirements. Except as otherwise determined by the Administrator, as a condition to participation, each Eligible Participant shall complete, execute and return to the Company a Deferral Election no later than the date or dates specified by the Administrator in accordance with the Plan. In addition, the Administrator may establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary.
1.3.Commencement Date. Except as otherwise may be provided by the Administrator pursuant to Section 3.1, each Eligible Participant shall be eligible to commence participation in accordance with the terms and conditions of this Plan effective as of January 1 of the Plan Year next following the Plan Year in which he or she becomes an Eligible Participant pursuant to Section 2.1. Notwithstanding the foregoing, the Administrator, in its sole discretion, may permit an Eligible Participant to commence participation in the Plan upon such earlier date as may be specified by the Administrator, consistent with the Plan and the provisions of the Code (including, without limitation, Section 409A of the Code) and as pursuant to Section 3.1. For the avoidance of doubt and notwithstanding any other provision of the Plan to the contrary, those Eligible Participants selected by the Administrator for the Plan Year beginning on the Effective Date shall be required to make any Deferral Election with respect to such Plan Year (subject to Section 3.1) no later than June 4, 2026 and may commence participation in the Plan on the Effective Date.
1.4.Termination. An Eligible Participant’s right (if any) to defer Equity Awards or Cash Retainers shall immediately cease upon a Separation from Service.
ARTICLE III.
DEFERRAL ELECTIONS

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1.1.Certain Newly Eligible Participants. Newly Eligible Participants shall be permitted to make initial Deferral Elections during the Plan Year in which such Eligible Participants are first eligible to participate in the Plan (and in any other plan that would be aggregated with the Plan under Section 409A of the Code, as determined in accordance with Treasury Regulation Section 1.409A-2(a)(7)); provided, however, that such Deferrals Elections (a) are made and become irrevocable no later than the 30th day after the date that such Eligible Participants first become eligible to participate in the Plan (or by such earlier date as specified by the Administrator), and (b) shall apply only to (i) Equity Awards granted and (ii) the portion of Cash Retainers earned for services performed after the date that the Deferral Elections become irrevocable; as determined by the Administrator in accordance with Section 409A of the Code.
1.2.Annual Deferral Elections. Except as otherwise determined by the Administrator or as set forth in Sections 2.3 or 3.1 of the Plan, a Deferral Election with respect to Equity Awards and/or a Cash Retainer must be filed with the Company by, and shall become irrevocable as of, December 31 (or such earlier date as specified by the Administrator) of the Plan Year immediately preceding the Plan Year for which such Equity Awards would be granted and the Plan Year in which the services giving rise to such Cash Retainer will be performed, respectively.
1.3.Amount Deferred.
(a)A Participant shall designate on each Deferral Election the portion of each applicable Equity Award and/or Cash Retainer that is to be deferred, if any, with respect to the applicable Plan Year in accordance with this Article III. For each Plan Year, a Participant may defer up to 100% (in 25% increments) of his or her applicable Equity Awards and/or up to 100% (in 25% increments) of his or her Cash Retainer; for the avoidance of doubt, the deferral percentages applicable to each Participant’s Equity Awards shall be based on the number of shares subject to such Equity Awards (rounded down to the nearest whole share) and not the value of such Equity Awards (e.g., a 20% deferral of an Equity Award covering 200 shares would defer 40 shares).
(b)Any portion of a Cash Retainer that a Participant elects to defer pursuant to this Plan shall be converted, on each date such Cash Retainer would otherwise have been paid to the Participant pursuant to the Compensation Program, into a number of DSUs granted under the Equity Plan equal to (i) the dollar amount of the Cash Retainer that would otherwise have been payable to the Participant on such date and that is subject to the Deferral Election, divided by (ii) the Fair Market Value (as defined in the Equity Plan) of a share on such date (or such other date as the Administrator may determine in a manner consistent with Section 409A of the Code), with any resulting fractional DSU rounded down to the nearest whole unit and the value of such fractional DSU paid to the Participant in cash. DSUs credited under this Plan shall be fully vested upon grant and shall be subject to individual award agreements (providing, among other things, for any applicable dividend equivalent rights (if any)).
(c)Except as otherwise determined by the Administrator, adjustments or substitutions to Equity Awards made by the Company under the Equity Plan shall also apply to Deferred Awards. To the extent that any Deferred Award was granted with dividend equivalent rights, except as otherwise determined by the Administrator, any such dividend equivalents shall be credited to the Participant and settled pursuant to the schedule specified in the applicable Deferral Election or otherwise pursuant to the terms of this Plan.
1.4.Elections as to Timing of Settlement. Each Deferral Election will specify the allocation of the Participant’s deferrals for a Plan Year in accordance with this Plan.
    4

(a)Participant Deferral Elections. Other than pursuant to deferral under this Section 3.4(a), on each Deferral Election with respect to a Plan Year, the Participant may elect the time upon which settlement of such Deferred Awards will be made, as set forth below; provided, however, that if Participant elects to receive his or her settlement in a specified calendar year, then such calendar year must be no earlier than the second calendar year after the Plan Year to which such Deferral Election relates. A Participant may elect to receive settlement of each such Deferred Award, subject to the provisions of Article IV, in a specified calendar year as indicated in the Participant’s Deferral Election.
Notwithstanding the foregoing, in no event shall any Deferred Award that is a deferred Equity Award be settled prior to the date on which such Equity Award has vested in full. To the extent that any deferral pursuant to this Plan would otherwise result in settlement of a deferred Equity Award prior to the date on which such Equity Award is vested in full, such Deferred Award shall be settled following the final vesting date of such Equity Award. To the extent that any unvested portion of a deferred Equity Award is forfeited prior to the date the deferred Equity Award would have vested, then such forfeited portion shall not be settled pursuant to this Plan. The vesting limitations set forth in this paragraph shall not apply to DSUs credited in respect of a deferred Cash Retainer, which DSUs are fully vested upon grant.
Subject to the provisions of Article IV, settlement pursuant to this Section 3.4(a) shall occur during January of the calendar year specified in the applicable Deferral Election. Pursuant to a validly executed and timely submitted Deferral Election, Participant may choose a different calendar year for payment of each Deferred Award in accordance with this Section 3.4(a).
Notwithstanding the foregoing, any Deferred Award shall be settled and paid in a single lump sum, upon the earliest to occur of any of the following: (u) the date specified in a Participant’s Deferral Election, (v) Participant’s Separation from Service as described in Section 4.3, (w) Participant’s death as described in Section 4.4, or (x) a Change in Control of the Company.
(b)Default Time and Form of Payment. To the extent that a Participant does not designate the time and form of payment of a Deferred Award on a Deferral Election as provided in Section 3.4(a) (or such designation does not comply with the terms of the Plan), the Participant shall be deemed to have elected that such Deferred Award shall be settled in a single lump sum, subject to the provisions of Article IV, upon the Participant’s Separation from Service.
1.5.Duration and Cancellation of Deferral Elections.
(a)Duration. Once irrevocable, a Deferral Election shall only be effective for the Plan Year with respect to which such election was timely filed with the Administrator. Notwithstanding the preceding sentence, the Administrator may provide in advance, in its sole discretion, that any Deferral Elections shall apply from Plan Year to Plan Year, until terminated or modified prospectively by a Participant in accordance with the terms of this Article III by the applicable deadlines. Any such “evergreen” Deferral Elections so provided for by the Administrator will become effective with respect to Equity Awards and/or Cash Retainers, as applicable, on the date such election becomes irrevocable under this Article III. Except as provided in Section 3.5(b) hereof, a Deferral Election, once irrevocable, cannot be canceled or modified during a Plan Year.
(b)Cancellation.
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(i)The Administrator may, in its sole discretion, cancel a Participant’s Deferral Election where such cancellation occurs by the later of the end of the Plan Year in which the Participant incurs a “disability” or the 15th day of the third month following the date the Participant incurs a “disability.” For purposes of this Section 3.5(b)(i), a disability refers to any medically determinable physical or mental impairment resulting in the Participant’s inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months.
(ii)If a Participant’s Deferral Election is canceled with respect to a particular Plan Year in accordance with this Section 3.5(b), such Participant may make a new Deferral Election for a subsequent Plan Year, as the case may be, only in accordance with Section 3.2 hereof.
ARTICLE IV.
SETTLEMENTS

1.1.Date of Settlement. Except as otherwise provided in this Article IV, a Participant’s Deferred Awards shall be settled in accordance with the applicable time and form of payment/settlement determined for each Deferred Award pursuant to Section 3.4.
(a)Payment Timing. In general, a Participant’s Deferred Awards shall be settled (in the case of deferred Equity Awards, to the extent vested) at the time specified by the Participant for such Deferred Awards in accordance with Section 3.4(a) hereof, or if earlier, following the Participant’s Separation from Service, death, or a Change in Control.
(b)Subsequent Deferral Elections. A Participant may elect, on a form provided by the Administrator in accordance with this Section 4.1(b), to change the time and/or form of settlement with respect to one or more of his or her Deferred Awards to a later time in accordance with this Section 4.1(b) (a “Subsequent Deferral Election”). A Participant may make no more than one Subsequent Deferral Election with respect to each Deferred Award. Any such Subsequent Deferral Election must be filed with the Administrator at least 12 months prior to the first day of the calendar year that the Deferred Award would otherwise have been settled under the Plan, in accordance with the subsequent deferral election guidance provided under Section 409A of the Code. Any such Subsequent Deferral Election may not go into effect until at least 12 months following the date on which such election is made. On each such Subsequent Deferral Election, the Participant must delay the payment date for a period of at least five years after the first day of the calendar year that the Deferred Award would otherwise have been settled under the Plan, except with respect to settlement in the event of the Participant’s death.
1.2.Form of Consideration for Settlement of Deferred Awards. Any Deferred Awards shall be settled in shares (or, to the extent permitted under the applicable equity plan and at the election of the Administrator, settled in cash or a combination of shares and cash) pursuant to the schedule(s) set forth in the applicable Deferral Election(s) and in accordance with the terms of this Plan. To the extent a Deferred Award is settled in shares, the source of the shares distributed pursuant to this Plan shall be the Equity Plan or any successor equity incentive plan adopted by the Company. If, following certain adjustment events, a Participant’s Deferred Award is settleable in fractional shares at the time of distribution, such fractional share shall be paid in cash and rounded down to the nearest whole cent.
1.3.Termination of Participant. Notwithstanding any other provision of this Plan, in the event of the Participant’s Separation from Service, any of the Participant’s Deferred Awards that have not yet been settled shall be settled on or within 30 days following the date of the Participant’s Separation from Service consistent with Section 4.8. Notwithstanding the
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foregoing, to the extent required by Section 409A of the Code, in no event may payments triggered by the Separation from Service of a Specified Employee be paid or commence until the first business day following six months following the Specified Employee’s Separation from Service (or if earlier, within 90 days after the Specified Employee’s death).
1.4.Death of Participant. Notwithstanding any other provision of this Plan, in the event of the Participant’s death, any of the Participant’s remaining Deferred Awards shall be settled and paid to the Participant’s Beneficiary or Beneficiaries designated on a Beneficiary Designation Form (or, if no such Beneficiary, to the Participant’s estate). Notwithstanding anything else contained herein to the contrary, payment of such death benefit shall be made on any date within the period beginning on the Participant’s date of death and ending on December 31 of the calendar year immediately following the calendar year during which the Participant’s death occurs, pursuant to Section 409A of the Code and Proposed Treasury Regulation Section 1.409A-3(d)(2). A Participant’s Beneficiary Designation Form may be changed at any time prior to his death by the execution and delivery of a new Beneficiary Designation Form. The Beneficiary Designation Form on file with the Administrator that bears the latest date at the time of the Participant’s death shall govern. If a Participant fails to properly designate a Beneficiary in accordance with this Section 4.4, then settlement pursuant to this Section 4.4 shall be made to the Participant’s estate. If there is a dispute as to the proper beneficiary to receive payment hereunder, the Company shall, to the extent consistent with Section 409A of the Code and any regulations thereunder, have the right to withhold such payment until the matter is finally resolved or adjudicated; provided, that any payment made in good faith by the Company shall fully discharge the Company and Administrator from all further obligations with respect to that payment.
1.5.Limited Additional Settlement. The Administrator may, in its sole discretion, require a mandatory settlement of a Participant’s Deferred Awards, if the amount deferred under the Plan does not exceed the applicable dollar amount under Section 402(g)(1)(B) of the Code, provided that such settlement results in the termination and liquidation of the entirety of the Participant’s interest under the Plan, including all agreements, methods, programs or other arrangements with respect to which deferrals of compensation are treated as having been deferred under a single nonqualified deferred compensation plan under Section 409A of the Code.
1.6.Discretionary Acceleration of Payments/Settlements. The Board or Compensation Committee may, in its sole discretion, accelerate the time or schedule of a settlement under the Plan to a time otherwise permitted under Section 409A of the Code in accordance with the requirements, restrictions and limitations of Treasury Regulation Section 1.409A-3(j); provided that in no event may a settlement to a Specified Employee be accelerated following the Specified Employee’s Separation from Service to a date that is prior to the first business day following the six month anniversary of such Specified Employee’s Separation from Service (or if earlier, within 90 days after the Specified Employee’s death) unless otherwise permitted pursuant to Treasury Regulation Section 1.409A-3(j).
1.7.Discretionary Delay of Payments/Settlements. The Board or Compensation Committee may, in its sole discretion, delay any settlement under the Plan to a time otherwise permitted under Section 409A of the Code in accordance with the requirements, restrictions and limitations of Treasury Regulation Section 1.409A-2(b)(7).
1.8.Actual Date of Payment. To the extent permitted by Section 409A of the Code, the Administrator, in its sole discretion, may cause any settlements under this Plan to be made or commence on any later date that occurs in the same calendar year as the date on which settlement otherwise would be required to be made under this Plan, or, if later, by the 15th day of the third month after the date on which settlement would otherwise be required to be made under this
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Plan. Further, to the extent permitted by Section 409A of the Code, the Administrator may delay settlement in the event that it is not administratively possible to settle on the date (or within the periods) specified in this Article IV, or the making of the settlement would jeopardize the ability of the Company (or any entity which would be considered to be a single employer with the Company under Section 414(b) or Section 414(c) of the Code) to continue as a going concern. Notwithstanding the foregoing, settlement must be made no later than the latest possible date permitted under Section 409A of the Code.
1.9.Discharge of Obligations. The settlement to a Participant (or to his or her Beneficiary or estate) of any Deferred Awards as provided pursuant to this Plan shall discharge all obligations of the Company to such Participant (and Beneficiary or estate) under the Plan with respect to that sub-account.
1.10.Change in Control. Notwithstanding anything else provided herein, in the event the Company undergoes a Change in Control all outstanding deferrals pursuant to this Plan will become fully vested and, notwithstanding any prior Deferral Elections, all Deferred Awards will be settled to the Participants, on or within 30 days following the Change in Control, less applicable withholding taxes. Notwithstanding the foregoing, and provided such payment is consistent with Section 409A of the Code, a Participant’s Deferred Awards payable on a Change in Control shall be paid on the same terms and in the same form of consideration as payments made to other Company stockholders.
ARTICLE V.
ADMINISTRATION

1.1.General. The Administrator shall be responsible for the general administration of the Plan and shall have the full power, discretion and authority to carry out the provisions of the Plan. Without limiting the foregoing, the Administrator shall have full discretion to (a) interpret all provisions of the Plan; (b) resolve all questions relating to eligibility for participation in the Plan and the deferrals of any Participant and all questions pertaining to claims for benefits and procedures for claim review; (c) resolve all other questions arising under the Plan, including any factual questions and questions of construction; (d) determine all claims for benefits; and (e) adopt such rules, regulations or guidelines for the administration of the Plan and take such further action as the Company shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Administrator hereunder shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Eligible Participants, Participants, and their estates and Beneficiaries. The Administrator may delegate to one or more officers of the Company, subject to such terms as the Administrator shall determine, the authority to administer all or any portion of the Plan, or the authority to perform certain functions, including administrative functions. In the event of such delegation, all references to the Administrator in this Plan (other than such references in the immediately preceding sentence) shall be deemed references to such officers as it relates to those aspects of the Plan that have been delegated.
ARTICLE VI.
AMENDMENT AND TERMINATION

1.1.Amendment. The Board or Compensation Committee reserves the right to amend, terminate or freeze the Plan, in whole or in part. In no event shall any such action by the Board or Compensation Committee adversely affect the amounts deferred by any Participant or result in any change in the timing or manner of payment of the amount of any deferred amounts (except as otherwise permitted under the Plan, including under Sections 4.4 and 4.5), without the consent of the Participant, unless the Board or Compensation Committee determines in good faith that such action is necessary to ensure compliance with Section 409A of the Code. To the
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extent permitted by Section 409A of the Code, the Administrator may, in its sole discretion, modify the rules applicable to Deferral Elections to the extent necessary to satisfy the requirements of the Uniformed Service Employment and Reemployment Rights Act of 1994, as amended, 38 U.S.C. 4301-4334.
1.2.Conversion to Private Company. If, for any reason, the Company ceases to be a publicly-traded Company, then the Board or Compensation Committee may discontinue the Plan, in whole or in part; provided, however, that such discontinuation of the Plan shall not effect any elections already made pursuant to the Plan or any Participant’s accounts then-outstanding pursuant to the Plan.
1.3.Payments Upon Termination of Plan. Except as otherwise provided pursuant to Section 4.5, in the event that the Plan is terminated, all amounts deferred by a Participant shall be paid to the Participant or the Participant’s Beneficiary, as applicable, on the dates on which the Participant or his or her Beneficiary would otherwise receive payments hereunder without regard to the termination of the Plan.
ARTICLE VII.
MISCELLANEOUS

1.1.Non-Alienation of Deferred Compensation. Except as permitted by the Plan, no right or interest under the Plan of any Participant or Beneficiary shall, without the written consent of the Company, be (a) assignable or transferable in any manner, (b) subject to alienation, anticipation, sale, pledge, encumbrance, attachment, garnishment or other legal process, or (c) in any manner liable for or subject to the debts or liabilities of the Participant or Beneficiary. Notwithstanding the foregoing, to the extent permitted by Section 409A of the Code and Sections 4.6 and 4.7 hereof, the Administrator shall honor a judgment, order or decree from a state domestic relations court which requires the payment of part or all of a Participant’s or Beneficiary’s interest under this Plan to an “alternate payee” as defined in Section 414(p) of the Code.
1.2.Compliance with Section 409A of the Code. It is intended that the Plan comply with the provisions of Section 409A of the Code, so as to prevent the inclusion in gross income of any amounts deferred hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise actually be paid or made available to Participants (or their Beneficiaries or estates). This Plan shall be construed, administered, and governed in a manner that effects such intent, and the Administrator shall not take any action that would be inconsistent with such intent. Although the Administrator shall use its best efforts to avoid the imposition of taxation, interest and penalties under Section 409A of the Code, the tax treatment of deferrals under this Plan is not warranted or guaranteed. To the extent that any provision of this Plan is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Neither the Company nor the Administrator (nor its delegate(s)) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant, Beneficiary or other taxpayer as a result of the Plan. Any reference in this Plan to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section 409A of the Code by the U.S. Department of Treasury or the Internal Revenue Service. For purposes of the Plan, the phrase “permitted by Section 409A of the Code,” or words or phrases of similar import, shall mean that the event or circumstance shall only be permitted to the extent it would not cause an amount deferred or payable under the Plan to be includible in the gross income of a Participant or Beneficiary under Section 409A(a)(1) of the Code. For purposes of this Plan, a termination of service or Separation from Service will be determined consistent with the rules relating to a “separation from service” as defined in Section
    9

409A of the Code. If at the time of the Participant’s separation from service the Participant is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then, to the extent required by Section 409A of the Code, no payments shall be payable or provided until the date that is the earlier of (A) six months and one day after such Participant’s separation from service, or (B) the Participant’s death. Payments pursuant to the Plan are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
1.3.No Guarantee of Continued Service. Nothing in the Plan shall be construed as guaranteeing continued service on the Board to any Participant.
1.4.Claims of Other Persons. The provisions of the Plan shall in no event be construed as giving any other person any legal or equitable right as against the Company or the officers, employees or directors of the Company, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan.
1.5.Severability. The invalidity and unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted.
1.6.Governing Law. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Delaware, without application of the conflicts of law principles thereof.
1.7.Successors. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume this Plan. This Plan shall be binding upon and inure to the benefit of the Company and any successor of or to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by sale, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the “Company” for the purposes of this Plan), and the heirs, beneficiaries, executors and administrators of each Participant.
1.8.Electronic or Other Media. Notwithstanding any other provision of the Plan to the contrary, including any provision that requires the use of a written instrument, the Administrator may establish procedures for the use of electronic or other media in communications and transactions between the Plan or the Administrator and Participants and Beneficiaries. Electronic or other media may include, but are not limited to, e-mail, the Internet, and e-signature.
1.9.Headings; Interpretation. Headings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof. Unless the context clearly requires otherwise, the masculine pronoun wherever used herein shall be construed to include the feminine pronoun.
1.10.Participants Deemed to Accept Plan. By accepting any benefit under the Plan, each Participant and each person claiming under or through any such Participant shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, all of the terms and conditions of the Plan and any action taken under the Plan by the Administrator and the Company, in any case in accordance with the terms and conditions of the Plan.
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SHOULDER INNOVATIONS, INC.
DIRECTOR COMPENSATION DEFERRAL PLAN

FORM OF IRREVOCABLE DEFERRAL ELECTION
ELECTION INSTRUCTIONS: IF YOU WISH TO ELECT TO (A) DEFER RECEIPT OF ALL OR A PORTION OF YOUR ANNUAL EQUITY AWARDS GRANTED AND/OR CASH RETAINER EARNED IN CONNECTION WITH YOUR SERVICES TO SHOULDER INNOVATIONS, INC. (THE “COMPANY”) AS A MEMBER OF THE COMPANY’S BOARD OF DIRECTORS AND/OR (B) RECEIVE ALL OR A PORTION OF YOUR CASH RETAINER IN VESTED RESTRICTED STOCK UNITS (“RSUS”), PLEASE COMPLETE THIS FORM (THIS “ELECTION”), SIGN IT, AND SUBMIT IT TO _______________, ______________ VIA EMAIL (___________________) OR AT SHOULDER INNOVATIONS, INC., ____________________________________. THIS ELECTION MUST BE DELIVERED TO THE COMPANY (I) WITHIN 30 DAYS OF YOUR INITIAL ELIGIBILITY TO PARTICIPATE IN THE COMPANY’S DIRECTOR COMPENSATION DEFERRAL PLAN (THE “PLAN”) AND/OR (II) PRIOR TO DECEMBER 31 OF THE CALENDAR YEAR IMMEDIATELY PRIOR TO THE CALENDAR YEAR IN WHICH THIS ELECTION IS INTENDED TO TAKE EFFECT (THE “ELECTION DEADLINE”).
THIS ELECTION SHALL ONLY BE EFFECTIVE AS TO (A) TIME-BASED RSUS GRANTED PURSUANT TO THE COMPANY’S 2025 INCENTIVE AWARD PLAN, EACH OF WHICH SHALL BE SUBJECT TO AN INDIVIDUAL AWARD AGREEMENT PROVIDING THE TERMS THEREOF (INCLUDING, IF APPLICABLE, ANY DIVIDEND EQUIVALENT RIGHTS), AND (B) CASH RETAINERS PAYABLE PURSUANT TO THE COMPANY’S AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM (OR ANY SUCCESSOR COMPENSATION POLICY OR PROGRAM). TO THE EXTENT THAT ANY EQUITY AWARD OR DEFERRED STOCK UNIT IS SUBJECT TO DIVIDEND EQUIVALENT RIGHTS, ANY DIVIDEND EQUIVALENTS SHALL BE CREDITED TO YOU AND PAID OUT PURSUANT TO YOUR ELECTION SET FORTH BELOW.
WITH RESPECT OF THE INITIAL ELECTION PURSUANT TO THIS FORM, OCCURRING IN CALENDAR YEAR 2026, SUCH ELECTION MUST BE FILED WITH THE COMPANY AND IRREVOCABLE BY NO LATER THAN JUNE 4, 2026. SUCH ELECTION SHALL ONLY BE EFFECTIVE WITH RESPECT OF (A) ANY EQUITY AWARDS GRANTED AFTER JUNE 4, 2026 AND (B) THE PORTION OF ANY CASH RETAINER EARNED FOR SERVICES PERFORMED AFTER JUNE 30, 2026, IN EACH CASE AS CONSISTENT WITH THE REQUIREMENTS OF SECTION 409A.
MNPI ATTESTATION:
I, ____________________, acknowledge and agree that this Election is entirely voluntary while I am not in possession of material non-public information and during an open trading window pursuant to the Company’s Insider Trading Compliance Policy.
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PART A — Election to Defer all or a portion of my Equity Awards:
Check one of the two boxes below to defer all or a portion of the Equity Awards (as defined in the Plan) to be granted to you in your role as a member of the Company’s Board of Directors pursuant to the terms of the Plan and the remainder of this Election.
I hereby elect to defer settlement of [25/50/75/100]% of my Equity Awards granted under the Equity Plan (based on the number of shares subject to such Equity Awards (rounded down to the nearest whole share) and not the value of such Equity Awards) granted in the calendar year of _____ pursuant to the Plan.
Pursuant to the terms of the Plan (including the acceleration events set forth therein), I hereby elect that the portion of my Equity Awards deferred pursuant to this Election will be settled in:
[ ] Settlement of the deferred portion in calendar year _____ (must be later than 2028).
[ ] Settlement of the deferred portion upon your Separation from Service (as defined in the Plan).
NOTWITHSTANDING THE FOREGOING, IN NO EVENT SHALL ANY EQUITY AWARD DEFERRED PURSUANT TO THIS ELECTION BE SETTLED PRIOR TO THE DATE ON WHICH SUCH EQUITY AWARD HAS VESTED IN FULL.
TO THE EXTENT THAT ANY DEFERRAL PURSUANT TO THIS ELECTION WOULD OTHERWISE RESULT IN SETTLEMENT PRIOR TO THE DATE ON WHICH AN EQUITY AWARD IS VESTED IN FULL, SUCH EQUITY AWARD SHALL BE SETTLED FOLLOWING THE FINAL VESTING DATE OF SUCH EQUITY AWARD.
PART B — Election to Defer all or a portion of my Cash Retainer:
Check one of the two boxes below to defer all or a portion of your Cash Retainer (as defined in the Plan) payable to you for your services as a member of the Company’s Board of Directors pursuant to the terms of the Plan and the remainder of this Election. Any portion of your Cash Retainer that you elect to defer will be converted into deferred RSUs (“DSUs”) granted under the Equity Plan, as described in the Plan.
I hereby elect to defer [25/50/75/100]% of my Cash Retainer for the calendar year of _____ pursuant to the Plan. DSUs credited under the Plan shall be fully vested upon grant.
Pursuant to the terms of the Plan (including the acceleration events set forth therein), I hereby elect that the DSUs credited in respect of my deferred Cash Retainer pursuant to this Election will be settled in:
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[ ] Settlement of the deferred portion in calendar year _____ (must be later than 2028).
[ ] Settlement of the deferred portion upon your Separation from Service (as defined in the Plan).
PART C — Election to Receive Cash Retainer in Fully Vested RSUs:
In lieu of electing to defer your Cash Retainer under Part B above, you may elect to receive all or a portion of your Cash Retainer currently in fully vested RSUs. If you make this Election, the applicable portion of your Cash Retainer will be converted, on each date such Cash Retainer would otherwise have been paid to you in cash, into a number of fully vested shares of Company common stock granted under the Equity Plan equal to (i) the dollar amount of the Cash Retainer subject to this Election, divided by (ii) the Fair Market Value (as defined in the Equity Plan) of a share on such date, with any resulting fractional share rounded down to the nearest whole share and the value of such fractional share paid to you in cash. Shares issued under this Part C shall be issued to you promptly following each applicable payment date and shall not be subject to any deferral.
I hereby elect to receive [25/50/75/100]% of my Cash Retainer for the calendar year of _____ in fully vested shares of Company common stock in lieu of cash, pursuant to the terms described above.
NOTE: THE AGGREGATE PERCENTAGE OF YOUR CASH RETAINER SUBJECT TO ELECTIONS UNDER PART B AND PART C MAY NOT EXCEED 100%. IF NO ELECTION IS MADE UNDER PART B OR PART C, YOUR CASH RETAINER WILL BE PAID TO YOU ENTIRELY IN CASH IN ACCORDANCE WITH THE COMPENSATION PROGRAM.
ACKNOWLEDGEMENTS:
    Notwithstanding the foregoing, all or a portion of your Deferred Awards (as defined in the Plan) pursuant to this Election shall accelerate and be settled upon the occurrence of certain trigger events, as set forth in the Plan.
This Election shall only become effective if it is received by the Company by the Election Deadline.
I understand that I will incur a tax obligation in connection with the vesting and settlement of any Deferred Awards pursuant to this Election.
If at the time any Deferred Awards are settled and the shares thereunder issued, the Company has a designated broker with whom share issuances under the Equity Plan (or any subsequent equity incentive plan adopted by the Company) are to be deposited, then I understand that such shares shall be deposited in my name in my account with such designated broker.

PRINT NAME:     

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SIGNATURE:     

DATE:     
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Exhibit 10.6

SHOULDER INNOVATIONS, INC.
2025 INCENTIVE AWARD PLAN
DEFERRED STOCK UNIT GRANT NOTICE (NON-EMPLOYEE DIRECTOR)
Shoulder Innovations, Inc., a Delaware corporation (the “Company”), has granted to the participant listed below (“Participant”) the Deferred Stock Units (the “DSUs”) described in this Deferred Stock Unit Grant Notice (this “Grant Notice”), subject to the terms and conditions of the Shoulder Innovations, Inc. 2025 Incentive Award Plan (as amended from time to time, the “Plan”), the Deferred Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”), the Shoulder Innovations, Inc. Director Compensation Deferral Plan (as amended from time to time, the “Deferral Plan”) and Participant’s Deferral Election (as defined in the Deferral Plan), each of which is incorporated into this Grant Notice by reference. The DSUs are granted under the Plan and represent the portion of Participant’s annual Restricted Stock Unit award that Participant has elected to defer until a date in the future pursuant to a Deferral Election under the Deferral Plan. Capitalized terms not specifically defined in this Grant Notice or the Agreement have the meanings given to them in the Plan.

Participant:[To be specified]
Grant Date:[To be specified]
Number of DSUs:[To be specified]
Vesting Commencement Date:
[To be specified]
Vesting Schedule:[To be specified]
Settlement Date:Settlement occurs as elected in the Participant’s Deferral Election (generally during January of the calendar year specified in the Deferral Election) or, if earlier, upon the Participant’s Separation from Service (as defined in the Deferral Plan), death or a Change in Control (as defined in the Plan).
By accepting (whether in writing, electronically or otherwise) the DSUs, Participant agrees to be bound by the terms of this Grant Notice, the Plan, the Deferral Plan and the Agreement. Participant has reviewed the Plan, the Deferral Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, the Deferral Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Deferral Plan, this Grant Notice or the Agreement.


[Signature page follows]





1


SHOULDER INNOVATIONS, INC.PARTICIPANT
By:
Name:[Participant Name]
Title:
2


DEFERRED STOCK UNIT AGREEMENT (NON-EMPLOYEE DIRECTOR)
Capitalized terms not specifically defined in this Deferred Stock Unit Agreement (this “Agreement”) have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.
ARTICLE I.
GENERAL
1.1 Award of DSUs and Dividend Equivalents.
(a) The Company has granted the DSUs to Participant effective as of the Grant Date set forth in the Grant Notice (the “Grant Date”). Each DSU represents the right to receive one Share as set forth in this Agreement, the Plan and the Deferral Plan. The DSUs are credited under the Deferral Plan in respect of the portion of Participant’s annual Restricted Stock Unit award that Participant elected to defer pursuant to a Deferral Election. Participant will have no right to the distribution of any Shares until the time (if ever) the DSUs have vested and settled in accordance with this Agreement and the Participant’s Deferral Election.
(b) The Company hereby grants to Participant, with respect to each DSU granted hereunder, a Dividend Equivalent for ordinary cash dividends paid to substantially all holders of outstanding Shares with a record date after the Grant Date and prior to the date the applicable DSU is settled, forfeited or otherwise expires. Each Dividend Equivalent entitles Participant to receive the equivalent value of any such ordinary cash dividends paid on a single Share. The Company will establish a separate Dividend Equivalent bookkeeping account (a “Dividend Equivalent Account”) for each Dividend Equivalent and credit the Dividend Equivalent Account (without interest) on the applicable dividend payment date with the amount of any such cash paid.
1.2 Incorporation of Terms of Plan. The DSUs and Dividend Equivalents are subject to the terms and conditions set forth in this Agreement and the Plan, each of which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
1.3 Unsecured Promise. The DSUs and Dividend Equivalents will at all times prior to settlement represent an unsecured Company obligation payable only from the Company’s general assets.

ARTICLE II.
VESTING; FORFEITURE AND SETTLEMENT

2.1 Vesting; Forfeiture. The DSUs will vest according to the vesting schedule in the Grant Notice except that any fraction of a DSU that would otherwise be vested will be accumulated and will vest only when a whole DSU has accumulated. Dividend Equivalents (including any Dividend Equivalent Account balance) will vest upon the vesting of the DSUs with respect to which the Dividend Equivalent (including the Dividend Equivalent Account) relates; provided, however, that, once vested, Dividend Equivalents will continue to be credited with respect to each DSU after such DSU has vested and until such DSU is settled. In the event of Participant’s Separation from Service for any reason, (a) all unvested DSUs will immediately and automatically be cancelled and forfeited, except as otherwise determined by the Administrator or provided in a binding written agreement between Participant and the Company (after taking into consideration any accelerated vesting which may occur in connection with such Separation from Service) and (b) Dividend Equivalents (including any Dividend Equivalent Account balance) will be forfeited upon the forfeiture of the DSUs with respect to which the Dividend Equivalent (including the Dividend Equivalent Account) relates.
2.2 Settlement.
(a) The DSUs will, to the extent vested, be paid in Shares, and Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid in cash or, if approved by the Administrator, Shares, in each case at the time and in the form set forth in the Grant Notice and the
3


Participant’s Deferral Election, and the Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid upon settlement of the DSUs to which they relate, consistent with the Participant’s Deferral Election. Subject to the terms of the Deferral Plan, settlement of the DSUs will occur during January of the calendar year specified in the Participant’s Deferral Election or, if earlier, upon the Participant’s Separation from Service, the Participant’s death or a Change in Control, in each case as provided in, and within the time periods prescribed by, the Deferral Plan. Notwithstanding the foregoing, in no event will any DSU be settled prior to the date on which it has vested in full.
(b) Notwithstanding the foregoing, the Company may delay any payment under this Agreement that the Company reasonably determines would violate Applicable Law until the earliest date the Company reasonably determines the making of the payment will not cause such a violation (in accordance with Treasury Regulation Section 1.409A-2(b)(7)(ii)); provided the Company reasonably believes the delay will not result in the imposition of excise taxes under Section 409A. Any Dividend Equivalents granted in connection with the DSUs issued hereunder, and any amounts that may become distributable in respect thereof, shall be treated separately from such DSUs and the rights arising in connection therewith for purposes of the designation of time and form of payments required by Section 409A.
(c) If a Dividend Equivalent is paid in Shares, the number of Shares paid with respect to the Dividend Equivalent will equal the quotient, rounded down to the nearest whole Share, of the Dividend Equivalent Account balance divided by the Fair Market Value of a Share on the day immediately preceding the payment date.

ARTICLE III.
TAXATION AND TAX WITHHOLDING

3.1 Representation. Participant represents to the Company that Participant has reviewed with Participant’s own tax advisors the tax consequences of this award of DSUs and Dividend Equivalents (the “Award”) and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents.
3.2 Responsibility for Taxes; Withholding.
As a non-employee Director, Participant is responsible for satisfying any income, self-employment or other tax obligations arising in connection with the DSUs and Dividend Equivalents, and the Company does not expect to withhold taxes with respect to the Award. However, to the extent the Company determines that it is required by Applicable Law to withhold any federal, state, local or foreign taxes in connection with the DSUs or Dividend Equivalents, the Company (or, if Participant is subject to Section 16 of the Exchange Act, the Administrator) may satisfy such withholding obligation by any means determined by the Company, including by withholding Shares otherwise vesting or issuable under this Award, valued at their Fair Market Value on the date of delivery, by requiring a cash payment from Participant, or by permitting Participant to deliver to the Company irrevocable instructions to a broker acceptable to the Company to sell Shares issuable upon settlement of the Award and to remit the proceeds sufficient to satisfy such withholding to the Company.
Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the DSUs and Dividend Equivalents, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the DSUs or Dividend Equivalents. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax in connection with the awarding, vesting or payment of the DSUs or the Dividend Equivalents or the subsequent sale of Shares. The Company and its Subsidiaries do not commit and are under no obligation to structure the DSUs or Dividend Equivalents to reduce or eliminate Participant’s tax liability.
4



ARTICLE IV.
OTHER PROVISIONS

4.1 Adjustments. Participant acknowledges that the DSUs and the Shares subject to the DSUs and the Dividend Equivalents are subject to adjustment, modification and termination in certain events as provided in this Agreement, the Plan and the Deferral Plan.
4.2 Clawback. The Award and the Shares issuable hereunder shall be subject to any clawback or recoupment policy in effect on the Grant Date or as may be adopted or maintained by the Company following the Grant Date, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.

4.3 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Company’s Chief Financial Officer at the Company’s principal office or the Chief Financial Officer’s then-current email address or facsimile number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if Participant is then deceased, to the Designated Beneficiary) at Participant’s last known mailing address, email address or facsimile number in the Company’s records. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
4.4 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.5 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.
4.6 Successors and Assigns. The Company may assign any of its rights under this Agreement to a single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in this Agreement or the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
4.7 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the DSUs and Dividend Equivalents will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
4.8 Entire Agreement; Amendment. The Plan, the Deferral Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof. To the extent permitted by the Plan and the Deferral Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that except as may otherwise be provided by the Plan or the Deferral Plan, no amendment, modification, suspension or termination of this Agreement shall materially and adversely affect the DSUs or Dividend Equivalents without the prior written consent of Participant.
5


4.9 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
4.10 Limitation on Participant’s Rights. Participation in the Plan and the Deferral Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor the Deferral Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the DSUs and Dividend Equivalents, and rights no greater than the right to receive cash or the Shares as a general unsecured creditor with respect to the DSUs and Dividend Equivalents, as and when settled pursuant to the terms of this Agreement and the Deferral Plan.
4.11 No Right to Continued Service. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue to serve as a Director or in any other capacity with the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company, its Subsidiaries and the stockholders of the Company, which rights are hereby expressly reserved, to remove or terminate the service of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4.12 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.

4.13 Section 409A. This Agreement, the DSUs and the Dividend Equivalents are intended to comply with the requirements of Section 409A of the Code, and this Agreement shall be interpreted, construed and administered in a manner consistent with such intent. For purposes of Section 409A of the Code, each settlement of DSUs and each payment of Dividend Equivalents shall be treated as a separate payment. References in this Agreement to a “Change in Control” shall have the meaning given to such term in the Plan, and the terms “separation from service” and “specified employee” shall each be interpreted within the meaning of Section 409A of the Code (consistent with Sections 10.6(b) and (c) of the Plan). Notwithstanding anything in this Agreement, the Grant Notice or the Plan to the contrary, if Participant is a specified employee as of the date of Participant’s Separation from Service, then, to the extent required to avoid the imposition of additional taxes or interest under Section 409A of the Code, any settlement of DSUs or payment of Dividend Equivalents that is payable on account of such Separation from Service shall not be made before the date that is the first business day following the six-month anniversary of such Separation from Service (or, if earlier, Participant’s death). Neither the Company nor any of its Subsidiaries or affiliates makes any representation or warranty, and shall have no liability to Participant or any other person, if any amounts payable under this Agreement are determined to constitute deferred compensation subject to, but not in compliance with, Section 409A of the Code.
* * * * *

6

Exhibit 10.7
SHOULDER INNOVATIONS, INC.
2025 INCENTIVE AWARD PLAN
DEFERRED STOCK UNIT GRANT NOTICE (NON-EMPLOYEE DIRECTOR)
Shoulder Innovations, Inc., a Delaware corporation (the “Company”), has granted to the participant listed below (“Participant”) the Deferred Stock Units (the “DSUs”) described in this Deferred Stock Unit Grant Notice (this “Grant Notice”), subject to the terms and conditions of the Shoulder Innovations, Inc. 2025 Incentive Award Plan (as amended from time to time, the “Plan”), the Deferred Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”), the Shoulder Innovations, Inc. Director Compensation Deferral Plan (as amended from time to time, the “Deferral Plan”) and Participant’s Deferral Election (as defined in the Deferral Plan), each of which is incorporated into this Grant Notice by reference. The DSUs are granted under the Plan and represent the portion of Participant’s Cash Retainer (as defined under the Deferral Plan) that Participant has elected to defer into the right to receive Shares of equivalent value at a date in the future pursuant to a Deferral Election under the Deferral Plan. Capitalized terms not specifically defined in this Grant Notice or the Agreement have the meanings given to them in the Plan.

Participant:[To be specified]
Grant Date:[To be specified]
Number of DSUs:[To be specified]
Vesting Schedule:
Fully vested as of the Grant Date.
Settlement Date:Settlement occurs as elected in the Participant’s Deferral Election (generally during January of the calendar year specified in the Deferral Election) or, if earlier, upon the Participant’s Separation from Service (as defined in the Deferral Plan), death or a Change in Control (as defined in the Plan).
By accepting (whether in writing, electronically or otherwise) the DSUs, Participant agrees to be bound by the terms of this Grant Notice, the Plan, the Deferral Plan and the Agreement. Participant has reviewed the Plan, the Deferral Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, the Deferral Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Deferral Plan, this Grant Notice or the Agreement.
SHOULDER INNOVATIONS, INC.PARTICIPANT
By:
Name:[Participant Name]
Title:
1



DEFERRED STOCK UNIT AGREEMENT (NON-EMPLOYEE DIRECTOR)
Capitalized terms not specifically defined in this Deferred Stock Unit Agreement (this “Agreement”) have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.
ARTICLE I.
GENERAL

1.1 Award of DSUs and Dividend Equivalents.
(a) The Company has granted the DSUs to Participant effective as of the Grant Date set forth in the Grant Notice (the “Grant Date”). Each DSU represents the right to receive one Share as set forth in this Agreement, the Plan and the Deferral Plan. The DSUs are credited under the Deferral Plan in respect of the portion of Participant’s Cash Retainer that Participant elected to defer pursuant to a Deferral Election. Participant will have no right to the distribution of any Shares until the time the DSUs are settled in accordance with this Agreement, the Deferral Plan and the Participant’s Deferral Election.
(b) The Company hereby grants to Participant, with respect to each DSU granted hereunder, a Dividend Equivalent for ordinary cash dividends paid to substantially all holders of outstanding Shares with a record date after the Grant Date and prior to the date the applicable DSU is settled, forfeited or otherwise expires. Each Dividend Equivalent entitles Participant to receive the equivalent value of any such ordinary cash dividends paid on a single Share. The Company will establish a separate Dividend Equivalent bookkeeping account (a “Dividend Equivalent Account”) for each Dividend Equivalent and credit the Dividend Equivalent Account (without interest) on the applicable dividend payment date with the amount of any such cash paid.
1.2 Incorporation of Terms of Plan. The DSUs and Dividend Equivalents are subject to the terms and conditions set forth in this Agreement and the Plan, each of which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
1.3 Unsecured Promise. The DSUs and Dividend Equivalents will at all times prior to settlement represent an unsecured Company obligation payable only from the Company’s general assets.

ARTICLE II.
VESTING; FORFEITURE AND SETTLEMENT

2.1 Vesting. The DSUs are fully vested as of the Grant Date. Dividend Equivalents (including any Dividend Equivalent Account balance) are fully vested as of the Grant Date and will not be subject to forfeiture, but will continue to be credited in accordance with Section 1.1(b) until the DSUs are settled.
2.2 Settlement.
(a) The DSUs will be paid in Shares, and Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid in cash or, if approved by the Administrator, Shares, in each case at the time and in the form set forth in the Grant Notice and the Participant’s Deferral Election, and the Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid upon settlement of the DSUs to which they relate, consistent with the Participant’s Deferral Election. Subject to the terms of the Deferral Plan, settlement of the DSUs will occur during January of the calendar year specified in the Participant’s Deferral Election or, if earlier, upon the Participant’s Separation from Service, the Participant’s death or a Change in Control, in each case as provided in, and within the time periods prescribed by, the Deferral Plan.
(b) Notwithstanding the foregoing, the Company may delay any payment under this Agreement that the Company reasonably determines would violate Applicable Law until the earliest date
2


the Company reasonably determines the making of the payment will not cause such a violation (in accordance with Treasury Regulation Section 1.409A-2(b)(7)(ii)); provided the Company reasonably believes the delay will not result in the imposition of excise taxes under Section 409A. Any Dividend Equivalents granted in connection with the DSUs issued hereunder, and any amounts that may become distributable in respect thereof, shall be treated separately from such DSUs and the rights arising in connection therewith for purposes of the designation of time and form of payments required by Section 409A.
(c) If a Dividend Equivalent is paid in Shares, the number of Shares paid with respect to the Dividend Equivalent will equal the quotient, rounded down to the nearest whole Share, of the Dividend Equivalent Account balance divided by the Fair Market Value of a Share on the day immediately preceding the payment date.

ARTICLE III.
TAXATION AND TAX WITHHOLDING

3.1 Representation. Participant represents to the Company that Participant has reviewed with Participant’s own tax advisors the tax consequences of this award of DSUs and Dividend Equivalents (the “Award”) and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents.
3.2 Responsibility for Taxes; Withholding.
As a non-employee Director, Participant is responsible for satisfying any income, self-employment or other tax obligations arising in connection with the DSUs and Dividend Equivalents, and the Company does not expect to withhold taxes with respect to the Award. However, to the extent the Company determines that it is required by Applicable Law to withhold any federal, state, local or foreign taxes in connection with the DSUs or Dividend Equivalents, the Company (or, if Participant is subject to Section 16 of the Exchange Act, the Administrator) may satisfy such withholding obligation by any means determined by the Company, including by withholding Shares otherwise vesting or issuable under this Award, valued at their Fair Market Value on the date of delivery, by requiring a cash payment from Participant, or by permitting Participant to deliver to the Company irrevocable instructions to a broker acceptable to the Company to sell Shares issuable upon settlement of the Award and to remit the proceeds sufficient to satisfy such withholding to the Company.
Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the DSUs and Dividend Equivalents, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the DSUs or Dividend Equivalents. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax in connection with the awarding, vesting or payment of the DSUs or the Dividend Equivalents or the subsequent sale of Shares. The Company and its Subsidiaries do not commit and are under no obligation to structure the DSUs or Dividend Equivalents to reduce or eliminate Participant’s tax liability.

ARTICLE IV.
OTHER PROVISIONS

4.1 Adjustments. Participant acknowledges that the DSUs and the Shares subject to the DSUs and the Dividend Equivalents are subject to adjustment, modification and termination in certain events as provided in this Agreement, the Plan and the Deferral Plan.
4.2 Clawback. The Award and the Shares issuable hereunder shall be subject to any clawback or recoupment policy in effect on the Grant Date or as may be adopted or maintained by the Company
3


following the Grant Date, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.

4.3 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Company’s Chief Financial Officer at the Company’s principal office or the Chief Financial Officer’s then-current email address or facsimile number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if Participant is then deceased, to the Designated Beneficiary) at Participant’s last known mailing address, email address or facsimile number in the Company’s records. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
4.4 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.5 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.
4.6 Successors and Assigns. The Company may assign any of its rights under this Agreement to a single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in this Agreement or the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
4.7 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the DSUs and Dividend Equivalents will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
4.8 Entire Agreement; Amendment. The Plan, the Deferral Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof. To the extent permitted by the Plan and the Deferral Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that except as may otherwise be provided by the Plan or the Deferral Plan, no amendment, modification, suspension or termination of this Agreement shall materially and adversely affect the DSUs or Dividend Equivalents without the prior written consent of Participant.
4.9 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
4.10 Limitation on Participant’s Rights. Participation in the Plan and the Deferral Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor the Deferral Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and
4


benefits payable, if any, with respect to the DSUs and Dividend Equivalents, and rights no greater than the right to receive cash or the Shares as a general unsecured creditor with respect to the DSUs and Dividend Equivalents, as and when settled pursuant to the terms of this Agreement and the Deferral Plan.
4.11 No Right to Continued Service. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue to serve as a Director or in any other capacity with the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company, its Subsidiaries and the stockholders of the Company, which rights are hereby expressly reserved, to remove or terminate the service of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4.12 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.

4.13 Section 409A. This Agreement, the DSUs and the Dividend Equivalents are intended to comply with the requirements of Section 409A of the Code, and this Agreement shall be interpreted, construed and administered in a manner consistent with such intent. For purposes of Section 409A of the Code, each settlement of DSUs and each payment of Dividend Equivalents shall be treated as a separate payment. References in this Agreement to a “Change in Control” shall have the meaning given to such term in the Plan, and the terms “separation from service” and “specified employee” shall each be interpreted within the meaning of Section 409A of the Code (consistent with Sections 10.6(b) and (c) of the Plan). Notwithstanding anything in this Agreement, the Grant Notice or the Plan to the contrary, if Participant is a specified employee as of the date of Participant’s Separation from Service, then, to the extent required to avoid the imposition of additional taxes or interest under Section 409A of the Code, any settlement of DSUs or payment of Dividend Equivalents that is payable on account of such Separation from Service shall not be made before the date that is the first business day following the six-month anniversary of such Separation from Service (or, if earlier, Participant’s death). Neither the Company nor any of its Subsidiaries or affiliates makes any representation or warranty, and shall have no liability to Participant or any other person, if any amounts payable under this Agreement are determined to constitute deferred compensation subject to, but not in compliance with, Section 409A of the Code.
* * * * *

5

Exhibit 31.1
CERTIFICATION

I, Robert Ball, certify that:
1. I have reviewed this Annual Report on Form 10-K of Shoulder Innovations, Inc.;
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)) 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) [Omitted];
(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 the registrant’s board of directors (or persons performing the equivalent functions):
(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.
SHOULDER INNOVATIONS, INC.
Date:August 6, 2026
By:
/s/ Robert Ball
Robert Ball
Chief Executive Officer and Executive Chairman
(Principal Executive Officer)

Exhibit 31.2
CERTIFICATION

I, Jeffrey Points, certify that:
1. I have reviewed this Annual Report on Form 10-K of Shoulder Innovations, Inc.;
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)) 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) [Omitted];
(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 the registrant’s board of directors (or persons performing the equivalent functions):
(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.
SHOULDER INNOVATIONS, INC.
Date:August 6, 2026
By:
/s/ Jeffrey Points
Jeffrey Points
Chief Financial Officer
(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Shoulder Innovations, Inc. (the “Company”) for the period ended June 30, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 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 Company.
SHOULDER INNOVATIONS, INC.
Date:August 6, 2026
By:
/s/ Robert Ball
Robert Ball
Chief Executive Officer and Executive Chairman
(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Shoulder Innovations, Inc. (the “Company”) for the period ended June 30, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 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 Company.
SHOULDER INNOVATIONS, INC.
Date:August 6, 2026
By:
/s/ Jeffrey Points
Jeffrey Points
Chief Financial Officer
(Principal Financial Officer)