SkyWater Technology, Inc (Form: 10-Q, Received: 05/19/2021 16:07:50)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: April 4, 2021

☐	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: 001-40345

LOGO

SkyWater Technology, Inc.

(Exact name of registrant as specified in its charter)

Delaware

37-1839853

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2401 East 86^th Street, Bloomington, Minnesota 55425

(Address of registrant’s principal executive offices and zip code)

Registrant’s telephone number, including area code: (952) 851-5200

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class

Trading

Symbol

Name of Each Exchange

on Which Registered

Common stock, par value $0.01 per share

SKYT

The Nasdaq Stock Market LLC

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 ☒ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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.:

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 17(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

On May 14, 2021, the number of shares of common stock, $0.01 par value, outstanding was 39,059,743.

SkyWater Technology, Inc.

TABLE OF CONTENTS


Forward-Looking Statements		3

Explanatory Note		4

PART I. FINANCIAL INFORMATION		5

Item 1.	Condensed Financial Statements (unaudited)	5

	Condensed Consolidated Balance Sheets as of April 4, 2021 and January 3, 2021	5

	Condensed Consolidated Statements of Operations for the Three Months ended April 4, 2021 and March 29, 2020	6

	Condensed Consolidated Statements of Members’ Equity (Deficit) for the Three Months ended April 4, 2021 and March 29, 2020	7

	Condensed Consolidated Statements of Cash Flows for the Three Months ended April 4, 2021 and March 29, 2020	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION		34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including, without limitation, our expectations regarding our business, results of operations, financial condition and prospects, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “seek,” “potential,” “believe,” “will,” “could,” “should,” “would” and “project” or the negative thereof or variations thereon or similar words or expressions that convey the uncertainty of future events or outcomes are generally intended to identify forward-looking statements.

Our forward-looking statements are subject to a number of risks, uncertainties and assumptions. Key factors that may affect our results include, among others, the following:

•

our goals and strategies;

•

our future business development, financial condition and results of operations;

•

our ability to continue operating our sole semiconductor foundry at full capacity;

•

our ability to appropriately respond to changing technologies on a timely and cost-effective basis;

•

our customer relationships and our ability to retain and expand our customer relationships;

•

our ability to accurately predict our future revenues for the purpose of appropriately budgeting and adjusting our expenses;

•

our expectations regarding dependence on our largest customers;

•

our ability to diversify our customer base and develop relationships in new markets;

•

the performance and reliability of our third-party suppliers and manufacturers;

•

our ability to control costs, including our operating and capital expenses;

•

the size and growth potential of the markets for our solutions, and our ability to serve and expand our presence in those markets;

•

the level of demand in our customers’ end markets;

•

our ability to attract, train and retain key qualified personnel;

•

adverse litigation judgments, settlements or other litigation-related costs;

•

changes in trade policies, including the imposition of tariffs;

•

our ability to raise additional capital or financing;

•

our ability to accurately forecast demand;

•

the impact of the COVID-19 pandemic on our business, results of operations and financial condition;

•

the impact of the COVID-19 pandemic on the global economy;

•

our ability to maintain compliance with certain US government contracting requirements;

•

regulatory developments in the United States and foreign countries;

•

our ability to protect our intellectual property rights; and

•

other factors disclosed in the section entitled “Risk Factors” and elsewhere in our IPO prospectus filed with the Securities and Exchange Commission on April 22, 2021 and in this Quarterly Report on Form 10-Q.

Moreover, our business, results of operations, financial condition and prospects may be affected by new risks that could emerge from time to time. In light of these risks, uncertainties and assumptions, the forward-looking events and outcomes discussed in this Quarterly Report on Form 10-Q may not occur and our actual results could differ materially and adversely from those expressed or implied in our forward-looking statements. No forward-looking statement is a guarantee of future performance. You should not rely on forward-looking statements as predictions of future events or outcomes. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the results, levels of activity, performance or events and circumstances reflected in the forward-looking statements may not be achieved or occur.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views only as of the date hereof. We anticipate that subsequent events and developments will cause our views to change. However, we undertake no obligation to update publicly any forward-looking statements to conform such statements to changes in our expectations or to our actual results, or for any other reason, except as required by law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date hereof.

EXPLANATORY NOTE

On April 14, 2021, CMI Acquisition, LLC, a Delaware limited liability company, converted into SkyWater Technology, Inc., a Delaware corporation, as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Corporate Conversion and Initial Public Offering.” We refer to this transaction herein as the “corporate conversion.” As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to the “Company,” “SkyWater,” “we,” “us,” or “our” refer to CMI Acquisition, LLC, a Delaware limited liability company, and its subsidiaries for periods beginning as of March 1, 2017 and ending immediately before the completion of our corporate conversion and to SkyWater Technology, Inc., a Delaware corporation and its subsidiaries for periods beginning with the completion of our corporate conversion and thereafter. In the corporate conversion, 18,000,000 Class B preferred units of CMI Acquisition, LLC converted into 27,995,400 shares of common stock of SkyWater Technology, Inc. using an approximate one-to-1.56 conversion ratio and 2,105,936 Common Units of CMI Acquisition, LLC converted into 3,060,343 shares of common stock of SkyWater Technology, Inc. using an approximate one-to-1.45 conversion ratio.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Balance Sheets

(Unaudited)


	April 4, 2021			January 3, 2021
	(in thousands, except unit data)
Assets
Current assets:
Cash and cash equivalents	$	4,216		$	7,436
Accounts receivable, net		26,730			29,995
Inventories		31,230			27,169
Prepaid expenses and other current assets		8,009			11,972

Total current assets		70,185			76,572

Property and equipment, net		173,174			178,078
Intangible assets, net		4,345			4,561
Other assets		4,607			3,998

Total assets	$	252,311		$	263,209

Liabilities and Members’ Equity (Deficit)
Current liabilities:
Current portion of long-term debt	$	3,853		$	2,772
Accounts payable		15,845			16,792
Accrued expenses		22,107			25,496
Income taxes payable		4,517			1,710
Current portion of contingent consideration		6,641			8,904
Deferred revenue - current		22,537			30,653

Total current liabilities		75,500			86,327

Long-term liabilities:
Long-term debt, less current portion and unamortized debt issuance costs		81,688			69,828
Contingent consideration, less current portion		959			1,996
Long-term incentive plan		3,415			3,185
Deferred revenue - long-term		89,001			95,399
Deferred income tax liability, net		6,361			8,058

Total long-term liabilities		181,424			178,466

Total liabilities		256,924			264,793

Commitments and contingencies
Members’ equity (deficit):
Class A Preferred Units (2,000,000 Class A Preferred Units authorized; none issued and outstanding)		—			—
Class B Preferred Units (18,000,000 Class B Preferred Units authorized; 18,000,000 Units issued and outstanding)		—			—
Common Units (5,000,000 Common Units authorized; 3,057,344 Units issued and 2,105,936 and 2,107,452 outstanding at April 4, 2021 and January 3, 2021, respectively)		3,772			3,767
Retained deficit		(6,594	)		(3,783	)

Total members’ deficit, CMI Acquisition, LLC		(2,822	)		(16	)
Non-controlling interests		(1,791	)		(1,568	)

Total members’ deficit		(4,613	)		(1,584	)

Total liabilities and members’ deficit	$	252,311		$	263,209

The accompanying notes are an integral part of these condensed consolidated financial statements.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended
	April 4, 2021			March 29, 2020
	(in thousands, except unit and per unit data)
Net sales	$	48,101		$	36,904
Cost of sales		38,935			30,480

Gross profit		9,166			6,424
Research and development		1,927			662
Selling, general and administrative expenses		8,603			5,633
Change in fair value of contingent consideration		56			841

Operating loss		(1,420	)		(712	)
Other expense:
Change in fair value of warrant liability		—			(141	)
Interest expense		(1,058	)		(1,462	)

Total other expense		(1,058	)		(1,603	)

Loss before income taxes		(2,478	)		(2,315	)
Income tax benefit		(425	)		(943	)

Net loss		(2,053	)		(1,372	)
Less: net income attributable to non-controlling interests		758			—

Net loss attributable to CMI Acquisition, LLC	$	(2,811	)	$	(1,372	)

Net loss per unit attributable to Common Unitholders, basic and diluted:	$	(1.04	)

Net loss per unit attributable to Class B Preferred Unitholders, basic and diluted:				$	(0.08	)

Weighted average units used in computing net loss per Common Unit, basic and diluted:		3,060,343

Weighted average units used in computing net loss per Class B Preferred Unit, basic and diluted:					18,000,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Statements of Members’ Equity (Deficit)

(dollars and units in thousands)

(Unaudited)


																	Total
														Retained Earnings (Deficit)			Members’ Equity (Deficit), CMI Acquisition, LLC						Total Members’ Equity (Deficit)
	Class A Units				Class B Units				Common Units											Non-controlling
	Units		Amount		Units		Amount		Units			Amount								Interests
Members’ equity—December 29, 2019		—	$	—		18,000	$	—		—		$	7,333	$	16,834		$	24,167		$	—		$	24,167
Unit-based compensation		—		—		—		—		—			488		—			488			—			488
Net loss		—		—		—		—		—			—		(1,372	)		(1,372	)		—			(1,372	)

Members’ equity—March 29, 2020		—	$	—		18,000	$	—		—		$	7,821	$	15,462		$	23,283		$	—		$	23,283

Members’ equity (deficit)—January 3, 2021		—	$	—		18,000	$	—		2,108		$	3,767	$	(3,783	)	$	(16	)	$	(1,568	)	$	(1,584	)
Unit-based compensation		—		—		—		—		—			5		—			5			—			5
Other		—		—		—		—		(2	)		—		—			—			—			—
Distribution to VIE member		—		—		—		—		—			—		—			—			(981	)		(981	)
Net income (loss)		—		—		—		—		—			—		(2,811	)		(2,811	)		758			(2,053	)

Members’ equity (deficit)—April 4, 2021		—	$	—		18,000	$	—		2,106		$	3,772	$	(6,594	)	$	(2,822	)	$	(1,791	)	$	(4,613	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended
	April 4, 2021			March 29, 2020
	(in thousands)
Cash flows from operating activities:
Net loss	$	(2,053	)	$	(1,372	)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:
Depreciation and amortization		6,482			4,322
Foundry services obligation		—			(2,055	)
Gain on sale of property and equipment		—			(223	)
Amortization of debt issuance costs included in interest expense		160			387
Long-term incentive and unit-based compensation		235			676
Change in fair value of warrant liability		—			141
Change in fair value of contingent consideration		56			841
Cash paid for contingent consideration in excess of initial valuation		(3,356	)		—
Deferred income taxes		(1,697	)		1,146
Non-cash revenue related to customer equipment		(2,481	)		—
Changes in operating assets and liabilities:
Accounts receivable		3,265			13,754
Inventories		(4,061	)		474
Prepaid expenses and other assets		4,546			(3,993	)
Accounts payable		3,595			(696	)
Accrued expenses		(1,408	)		5,835
Deferred revenue		(14,514	)		33,489
Income tax payable and receivable		2,807			(2,275	)

Net cash (used in) provided by operating activities		(8,424	)		50,451

Cash flows from investing activities:
Purchase of software and licenses		(219	)		—
Proceeds from sale of property and equipment		—			650
Purchases of property and equipment		(5,178	)		(11,425	)

Net cash used in investing activities		(5,397	)		(10,775	)

Cash flows from financing activities:
Repayment of term loan		—			(1,787	)
Net repayment on line of credit		—			(9,822	)
Net proceeds from Revolver		13,030			—
Repayment of Financing		(249	)		—
Cash paid for debt issuance costs		—			(100	)
Cash paid for offering costs		(1,199	)		—
Cash paid for contingent consideration		—			(2,539	)
Distributions to VIE member		(981	)		—

Net cash provided by (used in) financing activities		10,601			(14,248	)

Net change in cash and cash equivalents		(3,220	)		25,428
Cash and cash equivalents - beginning of period		7,436			4,605

Cash and cash equivalents - end of period	$	4,216		$	30,033

Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest	$	1,009		$	1,166
Income taxes	$	(1,534	)	$	—
Supplemental disclosures of noncash investing and financing activity:
Capital expenditures incurred, not yet paid	$	6,622		$	12,853
Equipment acquired through capital lease obligations	$	2,470		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

Note 1 Nature of Business

CMI Acquisition, LLC (now known as SkyWater Technology, Inc.), together with its consolidated subsidiaries (collectively, “we”, “us”, “our”, or “SkyWater”), is a U.S. investor-owned, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from our fabrication facility, or fab, in Minnesota and advanced packaging services from our Florida facility. In our technology as a service model, we leverage a strong foundation of proprietary technology to co-develop process technology intellectual property with our customers that enables disruptive concepts through our Advanced Technology Services for diverse microelectronics (integrated circuits, or ICs) and related micro- and nanotechnology applications. In addition to these differentiated technology development services, we support customers with volume production of ICs for high-growth markets through our Wafer Services.

Emerging Growth Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012.

Corporate Conversion and Initial Public Offering

Effective April 14, 2021, we converted into a Delaware corporation pursuant to a statutory conversion and changed our name to SkyWater Technology, Inc. Previously, we operated as a Delaware limited liability company under the name CMI Acquisition, LLC. As a result of the corporate conversion, the holders of the different series of units of CMI Acquisition, LLC, became holders of common stock and options to purchase common stock of SkyWater Technology, Inc. The number of shares of common stock that holders of Class B Preferred Units and Common Units were entitled to receive in the corporate conversion was determined in accordance with a plan of conversion, which was based upon the terms of the CMI Acquisition, LLC operating agreement, and varied depending on which class of Units a holder owned. See Note 8 – Members’ Equity (Deficit).

On April 23, 2021, we completed our initial public offering (“IPO”) and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. We received net proceeds from the IPO of approximately $100,312 after deducting underwriting discounts and commissions of $7,844 and offering costs of approximately $3,900.

Shares of common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”. The shares were registered under the Securities Act on a registration statement on Form S-1, which was declared effective by the Securities and Exchange Commission (“SEC”) on April 20, 2021.

We expect to use the proceeds from the IPO for working capital and other general corporate purposes, which may include financing our growth and funding capital expenditures. We may also use a portion of the proceeds from the offering for acquisitions or strategic investments in businesses or technologies, although we do not currently have any plans or commitments for any such acquisitions or investments.

Note 2 Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements as of April 4, 2021, and for the three months ended April 4, 2021 and March 29, 2020, are presented in thousands of U.S. dollars (except unit and per unit information), are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto as of January 3, 2021. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of our financial position as of April 4, 2021, and our results of operations, cash flows and members’ equity (deficit) for the three months ended April 4, 2021 and March 29, 2020.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

The results of operations for the three months ended April 4, 2021 are not necessarily indicative of the results of operations to be expected for the year ending January 2, 2022, or for any other interim period, or for any other future year.

Principles of Consolidation

Our condensed consolidated financial statements include our assets, liabilities, revenues, and expenses, as well as the assets, liabilities, revenues, and expenses of subsidiaries in which we have a controlling financial interest, SkyWater Technology Foundry, Inc. (“SkyWater Technology Foundry”), SkyWater Federal, LLC (“SkyWater Federal”), and SkyWater Florida, Inc. (“SkyWater Florida”), and variable interest entities (“VIE”) for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated statements of operations, members’ equity (deficit) and cash flows are for the three months ended April 4, 2021 and March 29, 2020. The three months ended April 4, 2021 and March 29, 2020 contained 13 weeks.

Use of Estimates

The preparation of our condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that management believes are reasonable under the circumstances. Actual results could differ from those estimates.

COVID-19

In March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) outbreak a global pandemic. The COVID-19 pandemic has spread throughout the United States and the world, with the continued potential for significant impact. Our business has been adversely affected by the effects of the COVID-19 pandemic. We implemented modifications to employee travel and employee work locations, as required in some cases by federal, state and local authorities, which has had a negative impact on employee productivity. Because we have manufacturing operations, we may be vulnerable to an outbreak of a new coronavirus or other contagious diseases. Although we have not experienced a shutdown of our manufacturing facilities, the effects of such an outbreak could include the temporary shutdown of our operations or the operations of our customers, disruptions or restrictions on the ability to ship our products to our customers as well as disruptions that may affect our suppliers. Any disruption of our ability to manufacture or distribute our products, the ability of our suppliers to deliver key components on a timely basis, or our customers’ ability to order and take delivery of our products could have a material adverse effect on our sales and operating results. The future broader implications of the pandemic remain uncertain and will depend on certain future developments, including the duration, scope and severity of the pandemic and the availability and effectiveness of vaccines.

Net Loss Per Unit

Our Class B Preferred Units contain rights to an 8% “preferred return” on the deemed original equity value of each such Class B Preferred Unit (accrued daily since the date of issuance of each such Class B Preferred Unit) and therefore meet the criteria of a participating security. Under the two-class method, income or losses are allocated between the Common Units and the Class B Preferred Units. The two-class method includes an allocation formula that determines income or loss per unit for each class according to preferred dividends and undistributed earnings or losses for the period. Our reported net loss for the three months ended April 4, 2021 is increased by the amount allocated to the Class B Preferred Units to arrive at the loss allocated to Common Unitholders for purposes of calculating net loss per unit. For the three months ended March 29, 2020, we did not apply the two-class method as no Common Units were outstanding. As a result of our April 2021 corporate conversion and IPO, the number of units used to compute earnings per Common Unit for pre-conversion periods were retrospectively adjusted to reflect the conversion akin to a split-like situation. Our historical balance sheets reflect the number of Common Units outstanding prior to the corporate conversion and no adjustment was made.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

Basic net loss per unit is calculated by dividing the net loss by the weighted-average number of units outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per unit is computed by dividing the net loss by the weighted-average number of units and potentially dilutive securities outstanding for the year determined using the treasury-stock method. Because we reported a net loss for the three months ended April 4, 2021 and March 29, 2020, the number of units used to calculate diluted net loss per unit is the same as the number of units used to calculate basic net loss per unit because the potentially dilutive units would have been anti-dilutive if included in the calculation. Common Unit options totaling 3,052,672 have been excluded from the computation of diluted weighted-average units outstanding for the three moths ended March 29, 2020 because such securities have an anti-dilutive impact. There were no Common Unit options outstanding during the three months ended April 4, 2021.

The following table sets forth the computation of basic and diluted net loss per unit attributable to Common Unitholders for the three months ended April 4, 2021:


	Three Months Ended
	April 4, 2021
Numerator:
Net loss attributable to CMI Acquisition, LLC	$	(2,811	)
Undistributed preferred return to Class B Preferred Unitholders		(359	)

Net loss attributable to Common Unitholders	$	(3,170	)

Denominator:
Weighted-average Common Units outstanding, basic and diluted (1)		3,060,343

Net loss per unit attributable to Common Unitholders, basic and diluted	$	(1.04	)

(1)

This number reflects the April 14, 2021 corporate conversion of 2,105,936 Common Units into 3,060,343 shares of common stock.

The following table sets forth the computation of basic and diluted net loss per unit attributable to Class B Preferred Unitholders for the three months ended March 29, 2020. There were no Common Units outstanding during the period.


	Three Months Ended
	March 29, 2020
Numerator:
Net loss attributable to CMI Acquisition, LLC	$	(1,372	)
Denominator:
Weighted-average Class B Preferred Units outstanding, basic and diluted		18,000,000

Net loss per unit attributable to Class B Preferred Unitholders, basic and diluted	$	(0.08	)

Center for NeoVation

Through our subsidiary, SkyWater Florida, we entered into several agreements on January 25, 2021 with the government of Osceola County, Florida (“Osceola”) and ICAMR, Inc., a Florida non-profit corporation (“BRIDG”), to operate the Center for NeoVation (“CfN”), a semiconductor research and development and manufacturing facility. These agreements included a technology and economic development agreement (the “TED Agreement”), a lease agreement (the “CfN Lease”) and a semiconductor line operation agreement (the “LOA”). Under the TED Agreement and the CfN Lease, we agreed to operate the CfN, including certain semiconductor manufacturing equipment, and an advanced water treatment facility currently owned by Osceola for a period of at least 23 years for a lease payment of $1.00 per year. During the period of the CfN Lease, we are responsible for taxes, utilities, insurance, maintenance and operation of those assets. We may terminate the TED Agreement and CfN Lease with 18 months’ notice. In the event we terminate the agreements, we would be required to continue to operate the center until we find a replacement operator or the 18 months expire and may be required to make a payment of up to $15,000 to Osceola.

We are accounting for the CfN Lease as a lease. Given the nominal minimum lease payments required under the lease ($23.00), no assets were initially recognized on our condensed consolidated balance sheet. As we perform under the agreements, expenses we incur and any revenue we are able to generate from the operations of CfN will be included in our condensed consolidated statements of operations as they are incurred or earned. If we are able to reach and maintain full capacity in the CfN for a minimum period of 20 years, Osceola

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

will convey the land, buildings and equipment to us for no consideration at the end of the CfN Lease. At such time that we believe the conveyance of the land, buildings and equipment is reasonably assured, we will record those assets on our condensed consolidated balance sheet at fair value and record a corresponding deferred gain. We will subsequently amortize the depreciable assets over their remaining economic life and recognize an equivalent amount of income from the amortization of the deferred gain.

Operating Segment Information

Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. We view our operations and manage our business as one operating segment.

Note 3 Summary of Significant Accounting Policies

Our audited consolidated financial statements include an additional discussion of the significant accounting policies and estimates used in the preparation of our consolidated financial statements. There were no material changes to our significant accounting policies and estimates during the three months ended April 4, 2021.

Contingent Consideration

Royalties of $3,356 and $2,539 were paid during the three months ended April 4, 2021 and March 29, 2020, respectively. During the same periods, we recorded royalty expense of $56 and $841 to reflect the change in fair value of the contingent consideration obligation in our condensed consolidated statements of operations.

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (“Topic 842”). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The standard is effective for public business entities for fiscal years beginning after December 15, 2018. As an emerging growth company, we intend to adopt the new standard on January 3, 2022 for our year ending January 1, 2023. However if we lose our emerging growth company status prior to our intended adoption date, we may be required to adopt the new standard in the year we lose such status. We do not expect adopting Topic 842 will have a material impact on our condensed consolidated financial statements.

In June 2016, the FASB issued a new credit loss accounting standard, ASU 2016-13, Current Expected Credit Losses (“Topic 326”). This guidance replaces the current allowance for loan and lease loss accounting standard and focuses on estimation of expected losses over the life of the loans instead of relying on incurred losses. The standard is effective for certain public business entities for fiscal years beginning after December 15, 2019. As an emerging growth company, we intend to adopt the new standard on January 2, 2023 for our year ending December 31, 2023. However if we lose our emerging growth company status prior to our intended adoption date, we may be required to adopt the new standard in the year we lose such status. We do not expect adopting Topic 326 will have a material impact on our condensed consolidated financial statements.

Note 4 Revenue

BRIDG

In connection with the TED Agreement and CfN Lease as discussed in Note 2 – Basis of Presentation and Principles of Consolidation–Center for NeoVation, we executed the LOA pursuant to which we agreed to provide engineering and test wafer services as requested by BRIDG based on our standard hourly and activity-based rates, which we are accounting for as revenue over time as we perform. In addition, we agreed to provide BRIDG access to the cleanrooms in the facilities that are subject to the TED Agreement and the CfN Lease for an access fee of approximately $15,000. We are accounting for the access fee as a stand-ready obligation with revenue recognized ratably over 38 months, the life of BRIDG’s third-party contracts for which we are a subcontractor.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

Disaggregated Revenue

The following table discloses revenue by service type and the timing of recognition of revenue for transfer of goods and services to customers (point-in-time or over time):


	Three Months Ended April 4, 2021
	Point-in-Time		Over Time		Total Topic 606 Revenue		Lease Revenue		Revenue recognized from foundry services obligation		Total Revenue
Wafer Services	$	10,019	$	—	$	10,019	$	—	$	—	$	10,019
Advanced Technology Services
T&M		—		10,792		10,792		—		—		10,792
Fixed Price		—		26,123		26,123		—		—		26,123
Other		—		—		—		1,167		—		1,167

Total Advanced Technology Services		—		36,915		36,915		1,167		—		38,082

Total revenue	$	10,019	$	36,915	$	46,934	$	1,167	$	—	$	48,101


	Three Months Ended March 29, 2020
	Point-in-Time		Over Time		Total Topic 606 Revenue		Lease Revenue		Revenue recognized from foundry services obligation		Total Revenue
Wafer Services	$	12,930	$	—	$	12,930	$	—	$	388	$	13,318
Advanced Technology Services
T&M		—		19,406		19,406		—		—		19,406
Fixed Price		—		4,180		4,180		—		—		4,180
Other		—		—		—		—		—		—

Total Advanced Technology Services		—		23,586		23,586		—		—		23,586

Total revenue	$	12,930	$	23,586	$	36,516	$	—	$	388	$	36,904

The following table discloses revenue by country as determined based on customer address:


	Three Months Ended
	April 4, 2021		March 29, 2020
United States	$	43,621	$	31,470
Canada		1,609		3,036
All others		2,871		2,398

	$	48,101	$	36,904

Deferred Contract Costs

We recognized amortization of deferred contract costs in our condensed consolidated statements of operations totaling $551 and $0 for the three months ended April 4, 2021 and March 29, 2020, respectively.

Contract Assets

Contract assets are $9,874 and $8,147 at April 4, 2021 and January 3, 2021, respectively, and are included in accounts receivable, net in our condensed consolidated balance sheets.

Contract Liabilities

The contract liabilities and other significant components of deferred revenue are as follows:


	April 4, 2021						January 3, 2021
	Contract		Deferred		Total		Contract		Deferred		Total
	Liabilities		Lease Revenue		Deferred Revenue		Liabilities		Lease Revenue		Deferred Revenue
Current	$	17,870	$	4,667	$	22,537	$	25,986	$	4,667	$	30,653
Long-term		74,223		14,778		89,001		79,455		15,944		95,399

Total	$	92,093	$	19,445	$	111,538	$	105,441	$	20,611	$	126,052

The decrease in contract liabilities from January 3, 2021 to April 4, 2021 was primarily the result of completion of specific performance obligations for our customers. Approximately 15% of our total contract liabilities at January 3, 2021 were recognized in revenue in the first three months of 2021.

Remaining Performance Obligations

As of April 4, 2021, we had approximately $86,765 of transaction price allocated to remaining performance obligations that are unsatisfied (or partially satisfied) on contracts with an original expected duration of one year or more, which are primarily related to Advanced Technology Services contracts. We expect to recognize those remaining performance obligations as follows:

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)


Within one year	$	12,542
From one to two years		13,921
From two to three years		12,695
After three years		47,607

Total	$	86,765

We do not disclose the value of remaining performance obligations for contracts with an original expected duration of one year or less. Further, we do not adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Note 5 Balance Sheet Information

Certain significant amounts included in our condensed consolidated balance sheets consist of the following:

Accounts receivable, net:


	April 4, 2021		January 3, 2021
Trade accounts receivable	$	16,372	$	21,357
Unbilled revenue (contract assets)		9,874		8,147
Note receivable		230		230
Employee note receivable		225		222
Other receivables		29		39

Total accounts receivable, net	$	26,730	$	29,995

On December 31, 2020, we entered into a note receivable with a key employee for $222. The note may be repaid any time prior to its maturity date of March 31, 2022 and bears interest at 6%.

Inventories:


	April 4, 2021		January 3, 2021
Raw materials	$	1,867	$	1,463
Work-in-process		23,808		19,719
Supplies and spare parts		5,555		5,987

Total inventories—current		31,230		27,169
Supplies and spare parts classified as other assets		2,160		1,949

Total inventories	$	33,390	$	29,118

Prepaid expenses and other current assets:


	April 4, 2021		January 3, 2021
Prepaid expenses	$	2,101	$	2,761
Equipment purchased for customers (1)		975		5,343
Deferred contract costs		1,459		1,647
Deferred offering costs		3,382		2,183
Other		92		38

Total prepaid assets and other current assets	$	8,009	$	11,972

(1)

We acquired equipment for a customer that we will install and calibrate in our facility. Prior to the customer obtaining ownership and control of the equipment, we recorded costs incurred to date within prepaid expenses and other current assets.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

Property and equipment, net:


	April 4, 2021			January 3, 2021
Land	$	5,396		$	5,396
Buildings and improvements		86,267			85,197
Machinery and equipment		134,875			124,130
Fixed assets not yet in service		11,930			22,602

Total property and equipment, at cost		238,468			237,325
Less: Accumulated depreciation		(65,294	)		(59,247	)

Total property and equipment, net	$	173,174		$	178,078

Depreciation expense was $6,047 and $4,131 for the three months ended April 4, 2021 and March 29, 2020, respectively.

Intangible assets, net:

Intangible assets consist of purchased software and license costs and a customer list from our acquisition of the business in 2017. Intangible assets are summarized as follows:


	April 4, 2021			January 3, 2021
Customer list	$	1,500		$	1,500
Software and licenses		5,627			5,408

Total intangible assets, at cost		7,127			6,908
Less: Accumulated amortization		(2,782	)		(2,347	)

Total intangible assets, net	$	4,345		$	4,561

For the three months ended April 4, 2021 and March 29, 2020, amortization of the customer list intangible asset charged to operations was $88 and amortization of software and licenses was $347 and $103, respectively. Remaining estimated aggregate annual amortization expense is as follows for the years ending:


	Amortization
	Expense
Remainder of 2021	$	1,280
2022		1,117
2023		777
2024		422
2025		421
Thereafter		328

Total	$	4,345

Other assets:


	April 4, 2021		January 3, 2021
Supplies and spare parts	$	2,160	$	1,949
Deferred contract costs		2,028		2,049
Other assets		419		—

Total other assets	$	4,607	$	3,998

Accrued expenses:

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)


	April 4, 2021		January 3, 2021
Accrued compensation	$	6,148	$	6,315
Accrued commissions		2,824		5,183
Accrued fixed asset expenditures		1,885		6,337
Accrued royalties		1,895		2,145
Accrued customer payable		1,119		783
Other accrued expenses		8,236		4,733

Total accrued expenses	$	22,107	$	25,496

Note 6 Debt

The components of debt outstanding are as follows:


	April 4, 2021			January 3, 2021
Revolver, net of unamortized debt issuance costs of $1,460 and $1,537	$	43,873		$	30,766
Financing (by VIE), net of unamortized debt issuance costs of $3,375 and $3,458		35,215			35,381
Paycheck Protection Program loan		6,453			6,453

Total long-term debt		85,541			72,600
Less: Current portion of long-term debt		(3,853	)		(2,772	)

Long-term debt, excluding current portion and unamortized debt issuance costs	$	81,688		$	69,828

Revolver

The outstanding balance of our amended and restated revolving credit agreement with Wells Fargo Bank, National Association (the “Revolver”) was $45,333 as of April 4, 2021 at an interest rate of 3%. Our remaining availability under the Revolver was $19,667 as of April 4, 2021.

Financing

On September 30, 2020, the VIE which we consolidate entered into a loan agreement for $39,000 (the “Financing”) at a fixed interest rate of 3.44%. The outstanding balance of the Financing was $38,590 as of April 4, 2021.

Paycheck Protection Program

On April 18, 2020, we received proceeds of $6,453 pursuant to a loan from TCF Bank under the Paycheck Protection Program (“PPP”). Under the terms of the loan, recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. We have filed an application and supporting documentation for forgiveness in full of the PPP loan, however, no assurance is provided that we will obtain forgiveness of the PPP loan in whole or in part. The PPP loan bears interest at a rate of 1% per annum. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties.

Covenants

On March 19, 2021, we were granted a waiver from the lender through an amendment to our financial covenants related to the Revolver. As of April 4, 2021, we were in compliance with the amended fixed charge coverage ratio and leverage ratio covenants. Based on these modifications, we are in full compliance with the Revolver covenant requirements. Our VIE was in compliance with the financial covenants related to the Financing. No financial covenants exist related to the PPP loan.

Maturities

As of April 4, 2021, the Revolver is due in December 2025. The Financing is repayable in equal monthly installments of $194 over 10 years, with the balance payable at the maturity date of October 6, 2030. If we are required to repay the PPP loan, monthly principal and interest payments of $363 begin in August 2021 and continue until July 2023. Future principal payments of our Revolver, PPP loan and consolidated VIE’s Financing, excluding unamortized debt issuance costs, are as follows:

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)


Remainder of 2021	$	2,523
2022		5,333
2023		1,422
2024		1,094
2025		46,470
Thereafter		33,534

Total	$	90,376

Historically, we have addressed our liquidity needs (including funds required to make scheduled principal and interest payments, refinance debt and fund working capital, and planned capital expenditures) with operating cash flows, borrowings under credit facilities, and proceeds from the term loans. Our ability to execute our operating strategy is dependent on our ability to continue to access capital through our Revolver, public markets and other sources of financing and if we were unable to obtain financing on reasonable terms, this may impact our ability to execute our operating strategy.

Note 7 Income Taxes

The effective tax rates for the three months ended April 4, 2021 and March 29, 2020 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in our deferred tax asset valuation allowance. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective income tax rate for the three months ended April 4, 2021 was 17.2%, compared to 40.7% for the three months ended March 29, 2020. Our income tax benefit was lower for the three months ended April 4, 2021 than our statutory tax rate of 21% applied to our pre-tax loss due to the partial reversal of a deferred tax asset valuation allowance, offset by state income taxes. For the three months ended March 29, 2020, our effective income tax benefit was higher than our statutory tax rate of 21% applied to our pre-tax loss due to excess tax benefits related to unit-based compensation expense, partially offset by a deferred tax asset valuation allowance.

Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this analysis, a valuation allowance of $1,401 was recorded as of April 4, 2021 to reduce our net deferred tax assets to the amount that is more likely than not to be realized. The valuation allowance at January 3, 2021 was $1,609.

No liability has been recorded for uncertain tax positions. We would accrue, if applicable, income tax related interest and penalties in income tax expense in our condensed consolidated statement of operations. There were no interest and penalties incurred during the three months ended April 4, 2021 and March 29, 2020.

Note 8 Members’ Equity (Deficit)

Classes of Equity Units

Until our corporate conversion on April 14, 2021, we had three classes of limited liability interests, designated as Class A Preferred Units, Class B Preferred Units, and Common Units (collectively, the “Unit” or “Units”). There are 2,000,000 Class A Preferred Units authorized specifically for issuance upon exercise of warrants, of which none were issued and outstanding at April 4, 2021 and January 3, 2021. There are 18,000,000 Class B Preferred Units authorized, of which 18,000,000 were issued and outstanding at April 4, 2021 and January 3, 2021. There are 5,000,000 Common Units authorized, of which 3,057,344 were issued as of April 4, 2021 and January 3, 2021 and 2,105,936 and 2,107,452 were outstanding as of April 4, 2021 and January 3, 2021. Class A Preferred Units and Common Units are non-voting classes, and Class B Preferred Units are a voting class.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

Conversion

On April 14, 2021, we completed a corporate conversion. Pursuant to the certificate of incorporation effected in connection with the corporate conversion, our authorized capital stock consists of 200,000,000 shares of voting common stock, par value $0.01 per share, and 80,000,000 shares of preferred stock, par value $0.01 per share. As of April 14, 2021, giving effect to the corporate conversion, 31,055,743 shares of common stock were issued and outstanding. No shares of our preferred stock were outstanding. As discussed in Note 1 – Nature of Business, on April 21, 2021, our common stock began trading on the Nasdaq Stock Market under the symbol “SKYT”.

Upon the corporate conversion, all Units were converted into an aggregate of 31,055,743 shares of our common stock. Each Class B Preferred Unit and Common Unit were converted into a number of shares of common stock determined by dividing (1) the amount that would have been distributed in respect of each such Unit in accordance with CMI Acquisition, LLC’s operating agreement if all assets of CMI Acquisition, LLC had been sold for a cash amount equal to the pre-offering value of CMI Acquisition, LLC, as such value is determined by CMI Acquisition, LLC’s board of managers based on the fair value of each share of common stock (net of any underwriting discounts, fees and expenses), by (2) such per share fair value. The amounts that would have been distributed for this purpose in respect of Class B Preferred Units and Common Units were determined by reference to the terms of CMI Acquisition, LLC’s operating agreement, with different values applicable to each series of Units. Before any distributions were made on Common Units, distributions were made on each Class B Preferred Unit in an amount equal to the sum of an 8% “preferred return” on the deemed original equity value of each such Class B Preferred Unit (accrued daily since the date of issuance of each such Class B Preferred Unit) plus the amount of such original equity value. Only after those distributions were made, the Common Units, together with the Class B Preferred Units, shared in the remainder of the distribution on a pro rata basis. For purposes of the corporate conversion, pre-offering “per share fair value” was determined taking into account an assumed initial public offering price of common stock. Accordingly, the outstanding Units were converted as follows:

•

holders of Class B Preferred Units received an aggregate of 27,995,400 shares of common stock; and

•

holders of Common Units received an aggregate of shares 3,060,343 of common stock.

Restricted Common Units

On November 1, 2020, we granted 4,672 restricted Common Units to two directors. Upon the corporate conversion, such restricted Common Units were converted into 6,788 shares of restricted common stock which continue to vest over a one-year period.

On December 18, 2020, we granted restricted unit units to acquire up to 1,602,588 Common Units to certain key employees. Upon the corporate conversion, such restricted unit units were converted into 2,328,880 shares of restricted common stock units which continue to vest in equal amounts over a three-year period, but only in the event we complete an IPO of our stock or experience a change of control event. These restricted common stock units are issued as common stock upon vesting. The grantee has no rights as a common stockholder until the common stock related to the restricted common stock units have been issued. With our IPO completed on April 23, 2021, these restricted common stock units will begin vesting in accordance with their other terms.

New Share-Based Compensation Plans

2021 Equity Incentive Plan

In connection with our IPO, we adopted the 2021 Equity Incentive Plan (the “2021 Equity Plan”). The 2021 Equity Plan became effective upon the consummation of the IPO and no further awards will be issued under the previous Employee Unit Option Plan. No awards remained outstanding from the Employee Unit Option Plan as of April 4, 2021 and at the corporate conversion date. Under the 2021 Equity Plan, 5,000,000 shares of common stock are available for issuance to eligible individuals in the form of options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, other equity-based awards and cash bonus awards. On April 21, 2021, we granted 645,747 restricted common stock units and 1,087,157 stock options to eligible employees and directors.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

2021 Employee Stock Purchase Plan

In connection with our IPO, we also adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). A maximum of 700,000 shares of our common stock has been reserved for issuance under the 2021 ESPP. Under the 2021 ESPP, eligible employees may purchase our common stock through payroll deductions at a discount not to exceed 15% of the lower of the fair market values of our common stock as of the beginning or end of each offering period, which may range from 6 to 27 months. Payroll deductions are limited to 15% of the employee’s eligible compensation and a maximum of 2,500 shares of our common stock may be purchased by an employee each offering period.

Unit-Based Compensation Expense

Total unit-based compensation expense recorded in general and administrative expenses in our statement of operations was $5 and $488 for the three months ended April 4, 2021 and March 29, 2020, respectively. As of April 4, 2021, there was $9,022 of unrecognized compensation cost related to restricted Common Units and restricted unit units.

Note 9 Fair Value Measurements

The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine fair value, we use a fair value hierarchy categorized into three levels based on inputs used. Generally, the three levels are as follows:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities;

•

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 3 inputs are used in the valuation of our contingent consideration obligation. The change in level 3 assets measured at fair value on a recurring basis is summarized as follows:


	Contingent
	Consideration
Balance at January 3, 2021	$	10,900
Payments		(3,356	)
Change in fair value		56

Balance at April 4, 2021	$	7,600

The change in fair value is reflected in our condensed consolidated statements of operations.

The fair value of our contingent consideration liability at April 4, 2021 and January 3, 2021 was determined using forecasted receipts of projected future revenues of Advanced Technology Services. The royalty is paid out quarterly through 2021. The forecasted future cash flows were discounted reflecting the risk in estimating future revenues. We expect total future cash payments to be between $7,600 and $8,500.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying values of accounts receivable, accounts payable, accrued liabilities, and other financial working capital items approximate fair values at April 4, 2021 and January 3, 2021 due to the short maturity of these items. The carrying values of our borrowings under our Revolver and Financing approximate their fair values due to the frequency of the floating interest rate resets on these borrowings. The fair value of the Revolver and Financing were determined based on inputs that are classified as Level 2 in the fair value hierarchy.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

Our non-financial assets such as property and equipment and intangible assets are recorded at fair value upon acquisition and are remeasured at fair value only if an impairment charge is recognized. As of April 4, 2021 and January 3, 2021, we did not have any assets or liabilities measured at fair value on a non-recurring basis.

Note 10 Commitments and Contingencies

Foundry Services Agreement

Under a Foundry Services Agreement (“FSA”) which expired in June 2020, we were required to provide semiconductor wafers to our main customer over a 40-month period, beginning March 1, 2017, at contractual rates. As part of the FSA, the customer guaranteed certain levels of purchase orders for wafers. Sales of Wafer Services to this customer were $12,545 for the three months ended March 29, 2020.

Litigation

From time to time, we are involved in legal proceedings and subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the resolution of these ordinary-course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Even if any particular litigation is resolved in a manner that is favorable to our interests, such litigation can have a negative impact on us because of defense and settlement costs, diversion of management resources from our business and other factors.

Note 11 Major Customers and Concentration Risk

The following customers accounted for 10% or more of sales for the three months ended April 4, 2021 and March 29, 2020:


	Three Months Ended
	April 4, 2021			March 29, 2020
Customer A		37	%		—
Customer B		19	%		34	%
Customer C		10	%		27	%

		66	%		61	%

We had three major customers that accounted for 24%, 19% and 17% of outstanding trade accounts receivable as of April 4, 2021 and four major customers that accounted for 30%, 20%, 19% and 18% of outstanding trade accounts receivable as of January 3, 2021. The loss of a major customer could adversely affect our operating results and financial condition.

Note 12 Related Party Transactions

Professional Services

Oxbow Industries, LLC (“Oxbow”), our principal owner, provides management and financial consulting services to us for an annual management fee not to exceed $700. We incurred $160 of management fees to Oxbow during the three months ended April 4, 2021 and March 29, 2020, which have been expensed and included in general and administrative expenses in our condensed consolidated statements of operations.

Members of our board of directors provide legal and professional services to us. We incurred fees of $116 and $62 for the three months ended April 4, 2021 and March 29, 2020, respectively, which have been expensed and included in general and administrative expenses in our condensed consolidated statements of operations.

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

Sale-Leaseback Transaction

On September 29, 2020, we entered into an agreement to sell the land and building representing our primary operating location in Bloomington, Minnesota to an entity (“Oxbow Realty”) controlled by our principal owner. We subsequently entered into an agreement to lease the land and building from Oxbow Realty for initial payments of $394 per month over 20 years. The monthly payments are subject to a 2% increase each year during the term of the lease. Future minimum lease commitments to Oxbow Realty as of April 4, 2021 were as follows (such amounts are eliminated from our condensed consolidated financial statements due to the consolidation of Oxbow Realty, see Note 13 – Variable Interest Entities):


Remainder of 2021	$	3,560
2022		4,836
2023		4,932
2024		5,031
2025		5,132
Thereafter		89,350

Total lease payments		112,841
Less: imputed interest		(85,742	)

Total	$	27,099

Note 13 Variable Interest Entities

Oxbow Realty was established for the purpose of holding real estate and facilitating real estate transactions. This included facilitating the purchase of our land and building with proceeds from a bank loan and managing the leaseback of the land and building to us. We determined that Oxbow Realty meets the definition of a VIE under Topic 810, Consolidation, because it lacks sufficient equity to finance its activities. We concluded that we are the primary beneficiary of Oxbow Realty as we have the power to direct operation and maintenance decisions during the lease term, which would most significantly affect the VIE’s economic performance. As the primary beneficiary, we consolidate the assets, liabilities and results of operations of Oxbow Realty, eliminate any transactions between us and Oxbow Realty, and record a non-controlling interest for the economic interest in Oxbow Realty not owned by us because the owners of our Class B and Common Units do not legally have rights or obligations to those profits or losses. In addition, the assets of Oxbow Realty can only be used to settle its liabilities, and the creditors of Oxbow Realty do not have recourse to the general credit of SkyWater.

The following table shows the carrying amounts of assets and liabilities of Oxbow Realty that are consolidated by us as of April 4, 2021 and January 3, 2021. The assets and liabilities are presented prior to consolidation, and thus a portion of these assets and liabilities are eliminated in consolidation.


	April 4, 2021		January 3, 2021
Cash and cash equivalents	$	434	$	860
Prepaid expenses		211		99
Finance receivable		36,810		36,930

Total assets	$	37,455	$	37,889

Accounts payable	$	697	$	672
Accrued expenses		21		9
Debt		38,529		38,776

Total liabilities	$	39,247	$	39,457

CMI ACQUISITION, LLC AND SUBSIDIARIES (now known as SKYWATER TECHNOLOGY, INC.)

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except unit and per unit data)

The following table shows the revenue and expenses of Oxbow Realty that are consolidated by us for the three months ended April 4, 2021, which we began consolidating on September 29, 2020. We have included these amounts, net of eliminations, in the corresponding tables in the notes to our condensed consolidated financial statements.


	Three Months Ended
	April 4, 2021
Revenue	$	1,345

General and administrative expenses		252
Interest expense		335

Total expenses		587

Net income	$	758

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes, included in our prospectus filed with the Securities and Exchange Commission on April 22, 2021 (“Prospectus”) in connection with our initial public offering (“IPO”) of our common stock. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those discussed or implied in our forward-looking statements due to a number of factors, including those described in the sections entitled “Risk Factors” and “Forward-Looking Statements” herein and elsewhere in our Prospectus.

We refer to the three-month periods ended April 4, 2021 and March 29, 2020 as the first quarter of 2021 and first quarter of 2020, respectively. Each of these three-month periods includes 13 weeks. All percentage amounts and ratios presented in this management’s discussion and analysis were calculated using the underlying data in thousands. Unless otherwise indicated, all changes identified for the current period results represent comparisons to results for the prior corresponding period.

For purposes of this section, the terms “we,” “us,” “our,” and “SkyWater” refer to CMI Acquisition, LLC and its subsidiaries collectively before the corporate conversion discussed below and to SkyWater Technology, Inc. and its subsidiaries collectively after the corporate conversion.

Corporate Conversion and Initial Public Offering

On April 14, 2021, in connection with our IPO, CMI Acquisition, LLC filed a certificate of conversion, whereby CMI Acquisition, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to SkyWater Technology, Inc. As part of the corporate conversion, holders of Class B Preferred Units and Common Units of CMI Acquisition, LLC received shares of our common stock for each Unit held immediately prior to the corporate conversion using an approximate one-to-1.56 conversion ratio for Class B Preferred Units and one-to-1.45 conversion ratio for Common Units. In connection with this corporate conversion, we filed a certificate of incorporation. Pursuant to our certificate of incorporation, we are authorized to issue up to 200,000,000 shares of common stock, $0.01 par value per share, and 80,000,000 shares of preferred stock, $0.01 par value per share.

On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. We received net proceeds from the IPO of approximately $100.3 million, after deducting underwriting discounts and commissions and offering costs of approximately $11.7 million.

Shares of our common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”. The shares were registered under the Securities Act on a registration statement on Form S-1, which was declared effective by the Securities and Exchange Commission (“SEC”) on April 20, 2021.

Overview

We are a U.S. investor-owned, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from our fabrication facility, or fab, in Minnesota and advanced packaging services from our Florida facility. In our technology as a service model, we leverage a strong foundation of proprietary technology to co-develop process technology intellectual property (“IP”) with our customers that enables disruptive concepts through our Advanced Technology Services for diverse microelectronics (integrated circuits, or ICs) and related micro- and nanotechnology applications. In addition to differentiated technology development services, we support customers with volume production of ICs for high-growth markets through our Wafer Services.

The combination of semiconductor development and manufacturing services we provide our customers is not available to them from a conventional fab. In addition, our status as a publicly-traded, U.S.- based, U.S. investor-owned pure-play technology foundry with DMEA Category 1A accreditation from the U.S. Department of Defense, or DoD, is expected to position us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and easy access to a U.S. domestic supply chain. In September 2019, we entered into a contract with the DoD to receive up to $170 million to expand and upgrade our manufacturing capabilities, specifically to build next-generation rad-hard wafer solutions for the aerospace and defense sector which will have significant benefits for other commercial markets. Our fab expansion supporting this project began operations in October 2020. In January 2021, we entered into an agreement with Osceola County, Florida to take over operation of the Center for NeoVation facility in Kissimmee, Florida to accelerate pure-play advanced packaging services for differentiated technologies.

We primarily focus on serving diversified, high-growth end users in numerous vertical markets, including (1) advanced computation, (2) aerospace and defense, or A&D, (3) automotive and transportation, (4) bio-health, (5) consumer and (6) industrial/internet of things, or IoT. By housing both development and manufacturing in a single operation, we rapidly and efficiently transition newly-developed processes to high-yielding volume production, eliminating the time it would otherwise take to transfer production to a third-party fab. Through our Advanced Technology Services, we specialize in co-creating with our customers advanced solutions that directly serve our end markets, such as superconducting ICs for quantum computing, integrated photonics, carbon nanotube technologies, or CNTs, microelectromechanical systems, or MEMS, technologies for biomedical and imaging applications, and advanced packaging. Our Wafer Services include the manufacture of silicon-based analog and mixed-signal ICs for our end markets. Our focus on the differentiated analog and mixed-signal and complementary metal-oxide-semiconductor, or CMOS, markets supports long product life-cycles and requirements that value performance over cost-efficiencies, and leverages our portfolio IP.

Before we began independent operations, our fab was owned and operated by Cypress Semiconductor Corporation (“Cypress”) as a captive manufacturing facility for 20 years. We have leveraged the Cypress system, manufacturing technology and process development capabilities to advance our product offerings. We became an independent company in March 2017 when we were acquired by Oxbow Industries, LLC, or Oxbow, as part of a divestiture from Cypress. Cypress was acquired in April 2020 by Infineon Technologies AG (“Infineon”).

Factors and Trends Affecting our Business and Results of Operations

The following trends and uncertainties either affected our financial performance during the first quarter of 2021 or are likely to impact our results in the future.

•

Macroeconomic and competitive conditions, including cyclicality and consolidation, affecting the semiconductor industry.

•

The global economic climate, including the impact on the economy from geopolitical issues and the ongoing COVID-19 pandemic. Our business has been adversely affected by the effects of the COVID-19 pandemic. We implemented modifications to employee travel and employee work locations, as required, in some cases by federal, state and local authorities, which has had a negative impact on our employee productivity. As a result of the COVID-19 pandemic, one customer reduced its research and development expenditures with us, and a second customer experienced facility shutdowns which resulted in delays in project milestones, in each case negatively affecting our revenues. Because we have a manufacturing facility, we may be vulnerable to an outbreak of a new coronavirus or other contagious diseases. The effects of such an outbreak could include the temporary shutdown of our facilities, disruptions or restrictions on the ability to ship our products to our customers, as well as disruptions that may affect our suppliers. Any disruption of our ability to manufacture or distribute our products or of the ability of our suppliers to delivery key components on a timely basis could have material adverse effect on our sales and operating results.

•

On April 18, 2020, we received proceeds of $6.5 million pursuant to a loan under the Paycheck Protection Program, or PPP, under the terms of the Coronavirus Aid, Relief, and Economic Security Act. PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. We expect to obtain forgiveness of the PPP loan. See “Risk Factors—The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition” in our Prospectus and our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information regarding the effects of the COVID-19 pandemic on our business and regarding the PPP loan.

•

The Creating Helpful Incentives to Produce Semiconductors for America Act, in which the United States has committed to a renewed focus on providing incentives and funding for onshore companies to develop and advance the latest semiconductor technologies, supporting onshore manufacturing capabilities, and on strengthening key onshore supply chains.

•

Our overall level of indebtedness from our revolving credit agreement for up to $65 million, which we refer to as the Revolver, and a $39 million financing from the sale of the land and building representing our headquarters in Minnesota, which we refer to as the Financing, the corresponding interest rates charged to us by our lenders and our ability to access borrowings under the Revolver.

•

Identification and pursuit of specific product and geographic market opportunities that we find attractive both within and outside the United States. We will continue to more effectively address these opportunities through research and development and additional sales and marketing resources.

•

Material and other cost inflation. We strive for productivity improvements, and we implement increases in selling prices to help mitigate inflation. We expect the current economic environment will result in continuing price volatility for many of our raw materials.

Financial Performance Metrics

Our senior management team regularly reviews certain key financial performance metrics within our business, including:

•

Net sales and gross profit; and

•

Earnings before interest, taxes, depreciation and amortization, as adjusted, or adjusted EBITDA, which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, that excludes certain items that may not be indicative of our core operating results, as well as items that can vary widely across different industries or among companies within the same industry. For information regarding our non-GAAP financial measure, see the section entitled “—Non-GAAP Financial Measure” below.

Results of Operations

First Quarter of 2021 compared to First Quarter of 2020

The following table summarizes certain financial information relating to our operating results for the first quarter of 2021 and for the first quarter of 2020.


	First Quarter Ended						Dollar			Percentage
(in thousands)	April 4, 2021 (1)			March 29, 2020 (1)			Change			Change
Consolidated Statement of Operations Data:
Net sales	$	48,101		$	36,904		$	11,197			30.3	%
Cost of sales		38,935			30,480			8,455			27.7	%

Gross profit		9,166			6,424			2,742			42.7	%
Research and development		1,927			662			1,265			191.1	%
Selling, general and administrative expenses		8,603			5,633			2,970			52.7	%
Change in fair value of contingent consideration		56			841			(785	)		(93.3	%)

Operating loss		(1,420	)		(712	)		(708	)		99.4	%
Other expense:
Change in fair value of warrant liability		—			(141	)		141			(100.0	%)
Interest expense		(1,058	)		(1,462	)		404			(27.6	%)

Total other expense		(1,058	)		(1,603	)		545			(34.0	%)

Loss before income taxes		(2,478	)		(2,315	)		(163	)		7.0	%
Income tax benefit		(425	)		(943	)		(518	)		54.9	%

Net loss		(2,053	)		(1,372	)		(681	)		49.6	%
Less: net income attributable to non-controlling interests		758			—			758			100.0	%

Net loss attributable to CMI Acquisition, LLC	$	(2,811	)	$	(1,372	)	$	(1,439	)		104.9	%

Other Financial Data:
Adjusted EBITDA (2)	$	5,629		$	5,349		$	280			5.2	%

(1)	The consolidated statements of operations are for the first quarter of 2021 and the first quarter of 2020. The first quarter of 2021 and 2020 each contained 13 weeks.

(2)	See “—Non-GAAP Financial Measure” for the definition of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure.

Net sales

Net sales increased to $48.1 million for the first quarter of 2021, from $36.9 million for the first quarter of 2020. The increase of $11.2 million, or 30.3%, was driven by continued momentum in sales of our Advanced Technology Services. The following table shows net sales by services type for the first quarter of 2021 and 2020:


	First Quarter Ended
(in thousands)	April 4, 2021		March 29, 2020
Wafer Services	$	10,019	$	13,318
Advanced Technology Services		36,915		23,586
Lease revenue		1,167		—

Total	$	48,101	$	36,904

Wafer Services sales for the first quarter of 2021 and 2020 were partially driven by demand in the automotive and transportation market. Advanced Technology Services sales, which for the first quarter of 2021 included $15 million of sales related to services we provide to qualify customer funded tool technologies as our customers invest in our capabilities to expand our technology platforms, were partially attributable to the aerospace and defense and advanced computing markets.

Gross profit

Gross profit increased to $9.2 million for the first quarter of 2021, from $6.4 million for the first quarter of 2020. The increase of $2.7 million, or 42.7%, was due to a continued shift to more profitable Advanced Technology Services sales during the first quarter of 2021 compared to a larger proportion of Wafer Services sales during the first quarter of 2020. For the first quarter of 2021 and 2020, gross profit included $3.5 million of depreciation expense related to the step-up in basis of building and equipment, which were previously fully depreciated, as part of our acquisition of the business in March 2017.

Research and development

Research and development costs increased to $1.9 million for the first quarter of 2021, from $0.7 million for the first quarter of 2020. The increase of $1.3 million, or 191.1%, was attributable to our continued investment in internal personnel and external engineering support.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to $8.6 million for the first quarter of 2021, from $5.6 million for the first quarter of 2020. The increase of $3.0 million, or 52.7%, was due to higher commission expenses due to increased net sales, increased license, professional services consulting and information technology expenses, and an increase in headcount in anticipation of our IPO and hiring supplementary sales team members in the first quarter of 2021.

Change in fair value of contingent consideration

Change in fair value of contingent consideration was $0.1 million for the first quarter of 2021, compared to the $0.8 million for the first quarter of 2020, a decrease of $0.7 million, or 93.3%. We expect the revaluation of future estimated earn-out payments to Infineon and the corresponding change in fair value of the liability to remain at a lower level as we approach the end of these royalty payments to Infineon for Advanced Technology Services sales.

Change in fair value of warrant liability

Change in fair value of warrant liability was expense of $0.1 million for the first quarter of 2020. We had no similar expense for the first quarter of 2021 as the related warrants were repurchased in December 2020.

Interest expense

Interest expense decreased to $1.1 million for the first quarter of 2021, from $1.5 million for the first quarter of 2020. The decrease of $0.4 million, or 27.6%, was a result of lower interest rates on our Revolver and the Financing during the first quarter of 2021 compared to the interest rates charged on our previous line of credit and term loan during the first quarter of 2020.

Income tax benefit

The income tax benefit decreased to $0.4 million for the first quarter of 2021, from a benefit of $0.9 million for the first quarter of 2020. The effective income tax rate for the first quarter of 2021 was a benefit of 17.2%, compared to a benefit of 40.7% for the first quarter of 2020. Our income tax benefit was lower for the first quarter of 2021 than our statutory tax rate of 21% applied to our pre-tax loss due to the partial reversal of a deferred tax asset valuation allowance, offset by state income taxes. For the first quarter of 2020, our effective income tax benefit was higher than our statutory tax rate of 21% applied to our pre-tax loss due to excess tax benefits related to unit-based compensation expense, partially offset by a deferred tax asset valuation allowance.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests reflects the net income of the variable interest entity, or VIE, that we consolidate, representing the economic interest in the profits and losses of Oxbow Realty that the owners of our members’ equity do not legally have rights or obligations to. We began consolidating Oxbow Realty in the fourth quarter of 2020 and therefore have no similar presentation for the first quarter of 2020.

Adjusted EBITDA

Adjusted EBITDA increased $0.3 million, or 5.2%, to $5.6 million for the first quarter of 2021 from $5.3 million for the first quarter of 2020. The increase in adjusted EBITDA primarily reflects increased gross profit due to a shift in mix to more profitable Advanced Technology Services sales, offset by increased labor and infrastructure costs as we continue to scale our business to meet the demands of our customers and as we prepared for our IPO. For a discussion of adjusted EBITDA as well as a reconciliation to the most directly comparable U.S. GAAP measure, see the section below entitled “—Non-GAAP Financial Measure.”

Liquidity and Capital Resources

General

We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations and other commitments, with cash flows from operations and other sources of funding. Our current working capital needs relate mainly to the expansion of our operations, payment of amounts due under our contingent consideration liability, lease obligations and the normal operation of our business. Our ability to meet these working capital needs and grow our business will depend on many factors, including our future working capital needs, the evolution of our operating cash flows and our ability to secure additional sources of financing.

We had $3.8 million in cash and cash equivalents, not including cash held by a variable interest entity that we consolidate, and availability under our Revolver of $19.7 million as of April 4, 2021. We believe our operating cash flows, together with our cash on hand, cash received from the completion of our IPO on April 23, 2021 and current availability under the Revolver completed on December 28, 2020 will be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months. We may, however, need additional cash resources due to changed business conditions or other developments, including significant acquisitions and competitive pressures. We expect our capital expenditures and working capital requirements to continue to increase in the immediate future, as we seek to expand our business. To the extent that our current resources, including our ability to generate operating cash flows, are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in new products and technologies, discontinue further expansion of our business, or scale back our existing operations, which could have an adverse impact on our business and financial prospects.

Initial Public Offering

Capital Expenditures

For the first quarter of 2021, we spent approximately $5.4 million on capital expenditures, including purchases of property, equipment and software. We estimate we will spend between $20 million and $25 million on capital expenditures in our fiscal year ending January 2, 2022. The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed below, and the development of our advanced packaging capabilities at the Center for NeoVation in Florida. We anticipate our cash on hand, our Revolver and future cash flows from operations will provide the funds needed to meet our customer demand and anticipated capital expenditures in 2021.

We have various contracts outstanding with third parties in connection with the completion of a building expansion project to increase manufacturing capacity at our Minnesota facility. We have approximately $13 million of contractual commitments outstanding as of April 4, 2021 that we expect to be paid in 2021, through cash on hand and operating cash flows.

Contingent Consideration

For the first quarter of 2021, we made cash payments of $3.4 million related to our contingent consideration royalty liability. We estimate that we will pay between $7.6 and $8.5 million on contingent consideration related to this liability in the future. We anticipate our cash on hand and cash flows from operations will provide the funds necessary to settle the contingent consideration royalty liability.

Working Capital

Historically, we have depended on cash flows from operations, cash on hand, funds available under our previous line of credit and term loan, funds from the sale of our land and building in Minnesota, funds from our Revolver, and in the future may depend on additional debt and equity financings, similar to our IPO, to finance our expansion strategy, working capital needs and capital expenditures. We believe that these sources of funds will be adequate to provide cash, as required, to support our strategy, ongoing operations, capital expenditures, lease obligations and working capital for at least the next 12 months. However, we cannot be certain that we will be able to obtain future debt or equity financings adequate for our cash requirements on commercially reasonable terms or at all.

As of April 4, 2021, we had available aggregate undrawn borrowing capacity of approximately $19.7 million under our Revolver. For the periods presented, our use of cash was primarily driven by our investing activities, and specifically by our investments in capital expenditures.

The following table sets forth general information derived from our statement of cash flows for the first quarter of 2021 and the first quarter of 2020:


	First Quarter Ended
(in thousands)	April 4, 2021			March 29, 2020
Net cash (used in) provided by operating activities	$	(8,424	)	$	50,451
Net cash used in investing activities	$	(5,397	)	$	(10,775	)
Net cash provided by (used in) financing activities	$	10,601		$	(14,248	)

First Quarter of 2021 Compared to the First Quarter of 2020

Cash and Cash Equivalents

At April 4, 2021 and January 3, 2021, we had $4.2 million and $7.4 million of cash and cash equivalents, respectively, including cash of $0.4 million and $0.8 million, respectively, held by a variable interest entity that we consolidate.

Operating Activities

Net cash used in operating activities was $8.4 million during the first quarter of 2021, a decrease of $58.9 million from $50.5 million of cash provided by operating activities during the first quarter of 2020. The decrease in cash provided by operating activities in the first quarter of 2021 was driven primarily by a change in our working capital accounts, specifically accounts receivable and deferred revenue, due to the timing of cash collected from contracts with customers who funded our building expansion during 2020.

Investing Activities

Capital expenditures are a significant use of our capital resources. These investments are intended to enable sales growth in new and expanding markets, help us meet product demand and increase our manufacturing efficiencies and capacity. During 2020, we had various contracts outstanding with third parties in connection with the construction of a building expansion project to increase manufacturing capacity at our Minnesota fab, a portion of which continues into 2021.

Net cash used in investing activities was $5.4 million during the first quarter of 2021, a decrease of $5.4 million from $10.8 million in the first quarter of 2020. The decrease in cash used in the first quarter of 2021 reflects decreased capital spending on property and equipment as we fully complete our building expansion project, offset by $0.2 million of capital spending on software.

Financing Activities

Net cash provided by financing activities was $10.6 million during the first quarter of 2021, an increase of $24.8 million from net cash used in financing activities of $14.2 million during the first quarter of 2020. The increase in net cash provided by financing activities during the first quarter of 2021 compared to the first quarter of 2020 primarily reflects draws on our Revolver to fund capital spending and working capital needs.

Indebtedness

Off-balance sheet arrangements

As of April 4, 2021, we had no material off-balance sheet arrangements.

Contractual Obligations

There have been no material changes to our contractual obligations as disclosed in our Prospectus.

Sale Leaseback Transaction

On September 29, 2020, we entered into an agreement to sell the land and building representing our primary operating location in Bloomington, Minnesota to Oxbow Realty, LLC, or Oxbow Realty, an entity controlled by our principal owner for $39 million, less applicable transaction costs of $1.5 million and transaction services fees paid to Oxbow Realty of $2.0 million and paid a guarantee fee to our principal owner of $2.0 million. We subsequently entered into an agreement to lease the land and building from Oxbow Realty for initial payments of $0.4 million per month over 20 years. The monthly payments are subject to a 2% increase each year during the term of the lease.

Due to our continuing involvement in the property, we are accounting for the transactions as a failed sale leaseback (a financing transaction). Under failed sale leaseback accounting, we are deemed the owner of the property with the proceeds received recorded as a financial obligation.

Revolving Credit Agreement

On December 28, 2020, we entered into an amended and restated revolving credit agreement with Wells Fargo, our Revolver, of up to $65 million that replaced our previous line of credit and term loan. Under the agreement, the facility is available on a revolving basis, subject to availability under a borrowing base consisting of a percentage of eligible accounts receivable, inventory and owned equipment. The Revolver can be repaid and borrowed again at any time without penalty or premium until the maturity date of December 28, 2025. The Revolver is available for issuance of letters of credit to a specified limit of $10 million.

Under the Revolver, we can elect the base rate (greatest of the federal funds rate plus 0.5%, LIBOR for a one-month period plus 1%, or the institution’s prime rate) or LIBOR for a period of one, two, three or six months as selected by us, plus a margin depending on the amount of borrowings outstanding “prime rate.” We will also pay a commitment fee equal to 0.25% to 0.375% of the average commitment not utilized, depending on the amount not utilized. Interest payments are due monthly.

The Revolver includes a financial covenant that requires us to maintain a fixed charge coverage ratio of at least 1.1 to 1.0 on a rolling twelve-month basis. The fixed charge coverage ratio included in our revolving credit agreement is defined as (A) earnings before interest, taxes, depreciation and amortization, or EBITDA, less unfinanced capital expenditures, divided by (B) fixed charges, which are generally defined as cash interest and income taxes, scheduled principal payments on loans and contingent consideration arrangements, and restricted payments such as dividends. EBITDA, as defined, includes adjustments for such items as unusual gains or losses, equity-based compensation and management fees, as well as other adjustments. The Revolver also includes a financial covenant that requires us to maintain a leverage ratio of no greater than 3.5 to 1.0 on a rolling twelve-month basis measured quarterly. On January 2, 2022, the ratio decreases to 3.0 to 1.0 through the remainder of the agreement. The leverage ratio included in our revolving credit agreement is defined as our funded indebtedness as of the measurement date divided by our EBITDA for the twelve-month period as of the measurement date.

The Revolver contains covenants, including restrictions on indebtedness, liens, mergers, consolidations, investments, acquisitions, disposition of assets, and transactions with affiliates. Dividends, redemptions and other payments on equity (restricted payments) are limited to (1) restricted payments to the loan parties, and (2) declaring and making dividend payments or other distributions payable solely in capital stock. Customary events of default (with customary grace periods, notice and cure periods and thresholds) include payment default, breach of representation in any material respect, breach of certain covenants, default to material indebtedness, bankruptcy, ERISA violations, material judgments, change in control and termination or invalidity of guaranty or security documents.

The Revolver is secured by a security interest in substantially all of our accounts receivable, inventory and equipment. In connection with the Revolver, we repaid all outstanding amounts owed under our previous term loan totaling $28.2 million of principal, accrued interest and prepayment penalties. Amounts owed under our previous line of credit totaling $2.8 million of principal and accrued interest were rolled over into the Revolver and our previous line of credit was discontinued. On December 28, 2020, we also repurchased the warrants held by the lender of our term loan for $14 million from our cash and cash equivalents.

As of January 3, 2021, we were not in compliance with the fixed charge coverage ratio and leverage ratio covenants related to the Revolver. On March 19, 2021, we were granted a waiver from the lender related to these financial covenants. The amendment modified those ratios and we are no longer in an event of default. Based on these modifications, we were in full compliance with the Revolver covenant requirements as of April 4, 2021.

JOBS Act

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on golden parachute compensation.

The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements. The preparation of our financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates, impacting our reported results of operations and financial condition.

There have been no material changes to our critical accounting policies and estimates disclosed in our Prospectus. For more information, refer to “Note 3 — Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in our Prospectus.

Recent Accounting Pronouncements

For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see “Note 3 — Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measure

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. To supplement our condensed consolidated financials presented in accordance with U.S. GAAP, an additional non-GAAP financial measure is provided and reconciled in the following table.

We provide supplemental non-GAAP financial information that our management utilizes to evaluate our ongoing financial performance and provide additional insight to investors as supplemental information to our U.S. GAAP results. We use adjusted EBITDA to provide a baseline for analyzing trends in our business and to exclude certain items that may not be indicative of our core operating results. The use of non-GAAP financial information should not be considered as an alternative to, or more meaningful than, the comparable U.S. GAAP measure. In addition, because our non-GAAP measure is not determined in accordance with U.S. GAAP, it is susceptible to differing calculations, and not all comparable or peer companies may calculate their non-GAAP measures in the same manner. As a result, the non-GAAP financial measure presented in this Quarterly Report on Form 10-Q may not be directly comparable to similarly titled measures presented by other companies.

This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, net income determined in accordance with U.S. GAAP.

Adjusted EBITDA

Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. We define adjusted EBITDA as net income before interest expense, income tax provision (benefit), depreciation and amortization, equity-based compensation and certain other items that we do not view as indicative of our ongoing performance, including fair value changes in contingent consideration, equity-based compensation, fair value changes in warrants and management fees.

We believe adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income determined in accordance with U.S. GAAP. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from adjusted EBITDA. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent or unusual, unless otherwise expressly indicated.

The following table presents a reconciliation of net income (loss) to adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.


	First Quarter Ended
(in thousands)	April 4, 2021			March 29, 2020
Net loss	$	(2,053	)	$	(1,372	)
Interest expense		1,058			1,462
Income tax benefit		(425	)		(943	)
Depreciation and amortization		6,482			4,322

EBITDA		5,062			3,469
Fair value changes in contingent consideration (1)		56			841
Equity-based compensation (2)		235			676
Fair value changes in warrants (3)		—			141
Management fees (4)		276			222

Adjusted EBITDA	$	5,629		$	5,349

(1)	Represents non-cash valuation adjustment of contingent consideration to fair market value during the period.

(2)	Represents non-cash equity-based compensation expense.

(3)	Represents non-cash valuation adjustment of warrants to fair market value during the period.

(4)

Represents a related party transaction with Oxbow, our principal financial investor. As these fees are not part of the core business, will not continue after our IPO and are excluded from management’s assessment of the business, we believe it is useful to investors to view our results excluding these fees.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. Currently, our market risks relate to potential changes in the fair value of our debt due to fluctuations in applicable market interest rates. In the future, our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.

Credit Risk

Financial instruments that potentially subject us to credit risk are cash and cash equivalents and accounts receivable. Cash balances are maintained in financial institutions, which at times exceed federally insured limits. We monitor the financial condition of the financial institutions in which our accounts are maintained and have not experienced any losses in such accounts. We perform ongoing credit evaluations as to the financial condition of our customers with respect to trade receivables. Generally, no collateral is required as a condition of sale. Our consideration of the need for an allowance for doubtful accounts is based upon current market conditions and other factors.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, our principal executive officer and principal financial officer, respectively, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of April 4, 2021.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of April 4, 2021 due to the material weaknesses in our internal control over financial reporting described below. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

Previously Reported Material Weaknesses in Internal Control over Financial Reporting

As disclosed in the section titled “Risk Factors” in our Prospectus, we previously identified material weaknesses in our internal control over financial reporting. As of April 4, 2021, we have material weaknesses in components of the COSO framework, including the control environment and risk assessment due to our limited accounting and finance resources, which resulted in inappropriate preparation, review and maintenance of documentation and information that is critical to the design and consistent execution and monitoring of internal controls. We did not sufficiently design, implement, and maintain control activities related to the recording of revenue to sufficiently capture and measure progress to complete performance obligations and recognize revenue as part of the monthly close process to support the accounting for certain contracts. These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Remediation Plan

To address our material weaknesses, we are in the process of hiring additional qualified accounting and finance personnel in addition to formalizing documentation of policies, procedures and controls and further evolving our accounting processes related the recognition of revenue.

While we believe that these efforts will improve our internal control over financial reporting, the design and implementation of our remediation is ongoing and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained period of financial reporting cycles. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. Until these weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.

Changes in Internal Control Over Financial Reporting

As part of our remediation plan discussed above, we hired one additional resource and continued formalizing documentation of policies, procedures and controls and evaluating the implementation of new and existing controls during the quarter ended April 4, 2021. Such remediation actions were changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended April 4, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management continues to implement the comprehensive remediation program to ensure that control deficiencies contributing to the material weakness are remediated and that our controls operate effectively.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our Prospectus. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Prospectus.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Initial Public Offering of Common Stock

On April 23, 2021, we completed our IPO in which we sold 8,004,000 shares of common stock at a public offering price of $14.00 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to the Company’s registration statement on Form S-1 (File No. 333-254580), as amended, which was declared effective by the SEC on April 20, 2021, and the Company’s registration statement on Form S-1 (File No. 333-255385) filed on April 20, 2021 pursuant to Rule 462(b) under the Securities Act. The use of proceeds from our IPO will be further described in our Quarterly Report for the second quarter of 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report:


Exhibit Number		Description

3.1		Certificate of Incorporation of SkyWater Technology, Inc. (incorporated by reference)

3.2		Bylaws of SkyWater Technology, Inc. (incorporated by reference)

10.1+		SkyWater Technology, Inc. 2021 Equity Incentive Plan (“2021 Equity Incentive Plan”) (incorporated by reference)

10.2+		Form of Nonqualified Stock Option Agreement pursuant to the 2021 Equity Incentive Plan (incorporated by reference)

10.3+		Form of Incentive Stock Option Agreement pursuant to the 2021 Equity Incentive Plan (incorporated by reference)

10.4+		Form of Restricted Stock Unit Agreement pursuant to the 2021 Equity Incentive Plan (incorporated by reference)

10.5+		Form of Restricted Stock Unit Agreement for Directors pursuant to the 2021 Equity Incentive Plan (incorporated by reference)

10.6+		SkyWater Technology, Inc. 2021 Employee Stock Purchase Plan (incorporated by reference)

10.7		Waiver, Consent and First Amendment to Amended and Restated Credit Agreement (incorporated by reference)

10.8		Technology and Economic Development Agreement (incorporated by reference)

10.9		Form of Indemnification Agreement (incorporated by reference)

10.10+		Executive Severance and Change of Control Plan (incorporated by reference)

10.11+		Non-Employee Director Compensation Policy (incorporated by reference)

10.12		Registration Rights Agreement, dated April 23, 2021, among SkyWater Technology, Inc., CMI Oxbow Partners, LLC and the individuals identified on Schedule A thereto.

31.1		Certification of the Chief Executive Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Exchange Act Rules Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2*		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

+	Indicates a management contract or any compensatory plan, contract or arrangement.

The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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.


	SkyWater Technology, Inc.
Date: May 19, 2021	By:	/s/ Thomas Sonderman
	Thomas Sonderman
	President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Steve Manko
	Steve Manko
	Chief Financial Officer (Principal Financial Officer)

Exhibit 10.12

Execution Version

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of April 23, 2021 (the “Effective Date”), is made by and between SkyWater Technology, Inc., a Delaware corporation (together with any successor thereto, the “Company”), CMI Oxbow Partners, LLC, a Delaware limited liability company (together with any successors thereto, “Oxbow”) and the individuals identified on Schedule A hereto.

WHEREAS, on the date hereof, the Company has sold shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”) in an initial public offering (the “IPO”);

WHEREAS, as of the date hereof, Oxbow owns 27,995,400 shares of Common Stock; and

WHEREAS, in connection with the IPO, the Company has agreed to provide the Holders (as defined herein) with the registration rights set forth herein with respect to the shares of Common Stock held by such stockholders.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

“Adverse Offering Effect” has the meaning specified in Section 6(a).

“Affiliate” means, with respect to any specified Person, (a) any Person that directly or through one or more intermediaries controls or is controlled by or is under common control with the specified Person or (b) any Person who is a general partner, member, managing director, manager, officer, director or principal of the specified Person; provided, in each case, that no Person will be deemed an Affiliate of Oxbow solely by reason of being an employee or consultant of the Company or any of its Subsidiaries.

“Agreement” has the meaning specified in the preamble hereto.

“Amendment” has the meaning specified in Section 19(a).

“beneficial owner” and to “beneficially own” have the same meanings as in Rule 13d-3 promulgated under the Exchange Act as in effect on the date hereof.

“Blackout Period” has the meaning specified in Section 9.

“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or other governmental actions to close.

“Closing Date” means the date on which the sale of the Common Stock in the IPO is consummated by the Company and the underwriters of the IPO.

“Common Stock” has the meaning specified in the recitals hereof.

“Company” has the meaning specified in the preamble hereto.

“Company Securities” means (a) the Common Stock and (b) all rights, warrants, options, convertible securities or indebtedness, exchangeable securities or indebtedness, or other rights, in each case convertible into or exercisable or exchangeable for, directly or indirectly, shares of Common Stock, whether at the time of issue or upon the passage of time or the occurrence of a future event.

“control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a legal entity, whether through the ownership of voting interests, by contract or otherwise.

“Demand Notice” has the meaning specified in Section 3(b).

“Demand Registrable Securities” means any Registrable Securities requested to be included in a Demand Registration by a Holder pursuant to Section 3.

“Demand Registration” means any registration of Registrable Securities effected pursuant to Section 3.

“Demand Registration Notice” has the meaning specified in Section 3(a).

“Demand Registration Offer Notice” has the meaning specified in Section 3(a)(i).

“Demand Registration Statement” has the meaning specified in Section 3(a).

“Demand Registration Threshold” has the meaning specified in Section 3(a).

“Effective Date” has the meaning specified in the preamble hereto.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor federal statute, as the same shall be in effect from time to time. Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include reference to the comparable section, if any, of any such successor federal statute.

“Excluded Registration” means (a) a registration of Common Stock under the Securities Act pursuant to a registration statement filed (i) on Form S-4 or Form S-8 under the Securities Act (or any successor registration forms), (ii) in connection with dividend reinvestment plans, direct stock purchase plans or similar plans or (iii) in connection with a registration pursuant to which the Company offers to exchange its own securities for other securities, or (b) a Rule 144A Resale Shelf Registration.

“FINRA” means the Financial Industry Regulatory Authority, Inc.

“Form S-3” means Form S-3 under the Securities Act (or any successor registration form).

“Form S-3 Eligible” means, as of any date of determination, the Company’s eligibility as of such date under SEC rules to register Registrable Securities pursuant to a Shelf Registration Statement on Form S-3 for offering and sale thereunder.

“Free Writing Prospectus” means a free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of Registrable Securities.

“Holders” means each Person holding Class B preferred units or common units in CMI Acquisition, LLC, a Delaware limited liability company, which units will convert into shares of Common Stock upon the Company’s conversion into the Company in connection with the IPO, and each transferee of such shares of Common Stock in compliance with Section 17 of this Agreement.

“Initiating Demand Holders” has the meaning specified in Section 3(a).

“IPO” has the meaning specified in the recitals hereof.

“Lock-up Letter Transactions” means (a) offering, pledging, selling, contracting to sell, selling any option or contract to purchase, purchasing any option or contract to sell, granting any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Company Securities (including Company Securities that may be deemed to be beneficially owned by the applicable Person), (b) entering into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (a) above or this clause (b) is to be settled by delivery of Common Stock or other Company Securities, in cash or otherwise, (c) making any demand that would require the filing during the lock-up period of any registration statement, including any amendments thereto, with respect to the registration of any Company Securities, or (d) publicly disclosing any intention or arrangement to do any of the foregoing; but excludes, if the Holder is a corporation, partnership, limited liability company, trust or other business entity, any transfer (a) to another corporation, partnership, limited liability company, trust or other business entity that is an Affiliate of the Holder (including, for the avoidance of doubt, any wholly-owned direct or indirect Subsidiary of the Holder or to the immediate or indirect parent entity of such Holder), or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control with the Holder (including, for the avoidance of doubt, where the Holder is a partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership), or (b) as part of a distribution, transfer or other disposition by the Holder to its stockholders, partners, members or other equity holders.

“Losses” has the meaning specified in Section 13(a).

“Oxbow” has the meaning specified in the preamble hereto.

“Oxbow Affiliated Fund” means each corporation, trust, limited liability company, general or limited partnership or other entity under common control with Oxbow.

“Person” means an individual, partnership, limited partnership, joint venture, association, corporation, trust, estate, limited liability company, limited liability partnership, unincorporated entity of any kind, governmental entity, or any other legal entity.

“Prospectus” means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by any Registration Statement, and by all other amendments and supplements to such prospectus, including post-effective amendments and all material incorporated by reference into such prospectus.

“Registrable Securities” means, with respect to any Holder, the shares of Common Stock held by such Holder, including any shares of Common Stock paid, issued or distributed by way of stock dividend or distribution or stock split, or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise, and held by such Holder. Securities shall cease to be Registrable Securities in accordance with Section 2(b).

“Registration Expenses” means any and all expenses incident to the Company’s performance of its registration obligations under this Agreement, including: (a) all SEC registration and filing fees and expenses incurred in connection with the preparation, printing and distribution of each Registration Statement and Prospectus and any other document or amendment thereto and the mailing and delivery of copies thereof to each Holder and any underwriters or dealers; (b) fees and expenses of counsel to the Company; (c) fees and expenses incident to any filing with FINRA or to securing any required review by FINRA of the terms of the sale of Registrable Securities; (d) fees and expenses in connection with the qualification of Registrable Securities for offering and sale under state securities laws (including fees and expenses incurred in connection with blue sky qualifications of the Registrable Securities and including all reasonable fees and expenses of counsel in connection with any survey of state securities or blue sky laws and the preparation of any memorandum with respect thereto); (e) fees and expenses incurred in connection with the listing of Registrable Securities on any securities exchange in accordance with this Agreement; (f) the internal expenses of the Company (including all salaries and expenses of its officers and employees performing legal or accounting duties); (g) in connection with any registration, up to $40,000 of the reasonable fees and expenses of a single counsel for the Holders selected by the Holders of a majority of the Registrable Securities that have Registrable Securities registered in connection with such registration; and (h) with respect to each registration, the fees and expenses of all independent public accountants (including the expenses of any audit and “comfort” letters) and the fees and expenses of other persons, including experts, retained by the Company, but excluding (x) any underwriting, discounts, commissions and fees, brokerage and sales commissions, and transfer and documentary stamp taxes, if any, relating to the sale or disposition of the Registrable Securities and (y) any fees or expenses of counsel for the Holders, other than the fees and expenses referred to in clause (g) above.

“Registration Statement” means any registration statement of the Company filed with the SEC and referred to in Section 3 or Section 4, including any Prospectus, amendments and supplements to any such registration statement, including post-effective amendments thereto, and all exhibits and all material incorporated by reference in any such registration statement.

“Rule 144” means Rule 144 (or any similar rule then in effect) promulgated by the SEC under the Securities Act.

“Rule 144A Resale Shelf Registration” means a registration under the Securities Act of convertible notes, convertible preferred stock or Common Stock warrants and the underlying Common Stock for resale of such securities by the purchasers thereof acquired in an offering under the Securities Act made to one or more investment banking firms as initial purchasers for reoffering by such initial purchasers to “qualified institutional buyers” (as defined in Rule 144A), to other institutional “accredited investors” (as defined in Rule 501(a) under the Securities Act), or to investors outside the United States in compliance with Regulation S under the Securities Act.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, or any successor federal statute, as the same shall be in effect from time to time. Reference to a particular section of the Securities Act of 1933, as amended, shall include reference to the comparable section, if any, of any such successor federal statute.

“Shelf Registration Demand Notice” has the meaning specified in Section 3(b).

“Shelf Registration Offer Notice” has the meaning specified in Section 3(a)(i).

“Shelf Registration Period” has the meaning specified in Section 3(b)(ii).

“Shelf Registration Statement” means a Registration Statement for an offering of securities to be made on a delayed or continuous basis, which covers Registrable Securities, on Form S-3 or other appropriate form under Rule 415 of the Securities Act, or any similar rule that may be adopted by the SEC.

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of limited liability company interests, partnership interests, or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons will be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity (other than a corporation) if such Person or Persons will be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or will be or control any of the board of managers, general partner or other similar body of such limited liability company, partnership, association or other business entity.

“Third-Party Security Holder” means any holder (other than a Holder) of Common Stock or other equity securities of the Company that exercises contractual rights to participate in a registered offering of securities of the Company pursuant to an agreement other than this Agreement.

“Underwritten Offering” means an underwritten offering in which securities are sold to one or more underwriters, on a firm commitment basis, for reoffering to the public or pursuant to a “block trade” or “bought deal.”

“voting interests” means, with respect to any legal entity, capital stock, partnership interests, limited liability company interests or other ownership interests entitled generally to vote on the election of directors, managers or other voting members of the governing body of such legal entity.

2. Securities Subject to this Agreement.

(a) The Registrable Securities held in the name of any Holder are the sole securities entitled to the benefits of this Agreement.

(b) Registrable Securities held by any Holder shall cease to be Registrable Securities (and such Holder shall cease to have any registration rights with respect thereto under this Agreement) on the date and to the extent that (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Registrable Securities have been sold or transferred in accordance with the requirements of Rule 144, (iii) such Registrable Securities have been otherwise transferred or disposed of, the Company shall have delivered the Registrable Securities either in certificated form without any legend restricting further transfer or disposition thereof or in book-entry form on the stock transfer records of the Company without notation as to any restrictions on further transfer or disposition thereof and, at such time, subsequent transfer or disposition of such securities shall not require registration

of such securities under the Securities Act, (iv) all Registrable Securities then held in the name of such Holder may be sold or transferred by such Holder pursuant to Rule 144 without limitation or restriction under any of the requirements of Rule 144 (as determined by the Company in good faith) or (v) such Registrable Securities have ceased to be outstanding.

3. Demand Registration Rights.

(a) Demand Rights. At any time, and from time to time, after the nine-month anniversary of the Effective Date, Holders holding at least 20% of the Registrable Securities then outstanding (the “Initiating Demand Holders”) may deliver to the Company a written notice (a “Demand Registration Notice”) requesting that the Company effect the registration under the Securities Act of Registrable Securities held by such Holders having a reasonably anticipated net aggregate offering price (after deduction of underwriter discounts and commissions and offering expenses) of at least $20 million (or, if such Registrable Securities constitute all remaining Registrable Securities beneficially owned by the Initiating Demand Holders that initiated the applicable registration, of at least $10 million) (the “Demand Registration Threshold”) as determined in good faith by the Company at the time of its receipt of the Demand Registration Notice, which Demand Registration Notice shall specify the aggregate number of Registrable Securities requested to be registered and the proposed method of distribution thereof. Upon receipt of the Demand Registration Notice, subject to Section 3(d), the Company will use its reasonable efforts to cause to be filed with the SEC as soon as reasonably practicable after receiving the Demand Registration Notice, but in no event more than 60 days following receipt of such notice (or, if the Company shall be legally prohibited from making such a filing, as soon thereafter as is legally permissible), a Registration Statement and related Prospectus that complies as to form and substance in all material respects with applicable SEC rules providing for the sale by the Initiating Demand Holders and the Holders that elect to register their Registrable Securities as provided below, of all of the Registrable Securities requested to be registered by such Holders (the “Demand Registration Statement”), and agrees (subject to Section 8, Section 9 and Section 11) to use reasonable efforts to cause the Demand Registration Statement to be declared effective by the SEC as soon as practicable following the filing thereof.

(i) Within ten Business Days after its receipt of a Demand Registration Notice pursuant to Section 3(a), the Company shall give written notice of the proposed filing of the Demand Registration Statement under this Section 3(a) or a Shelf Registration Statement under Section 3(b) to each Holder that is not an Initiating Demand Holder (other than any Holder that has provided written notice to the Company that such Holder elects not to receive notices from the Company pursuant to this Section 3), and the notice shall offer such Holders the opportunity to participate in the Demand Registration Statement under this Section 3(a)(i) (the “Demand Registration Offer Notice”) or to participate in the Shelf Registration Statement under Section 3(b) (the “Shelf Registration Offer Notice”) and to register the number of Registrable Securities as each such Holder may request. Holders who wish to include their Registrable Securities in the Demand Registration Statement under this Section 3(a)(i) or in the Shelf Registration Statement under Section 3(b) must notify the Company in writing within ten days of receiving the Demand Registration Offer Notice or the Shelf Registration Offer Notice and include in the written notice the information requested by the Company in the Demand Registration Offer Notice or the Shelf Registration Offer Notice.

(ii) Subject to Section 11, in the case of a Demand Registration that does not contemplate an Underwritten Offering, the Company agrees to use reasonable efforts to keep the Demand Registration Statement continuously effective (including the preparation and filing of any amendments and supplements necessary for that purpose) until the earliest of (i) the date on which all of the Registrable Securities held by the Holders that are registered for resale under the Demand Registration Statement are eligible for immediate sale in a single transaction pursuant to Rule 144 (or any successor provision) under the Securities Act, (ii) the date on which the Holders consummate the sale of all of the Registrable Securities registered for resale under the Demand Registration Statement and (iii) the one-year anniversary of the effectiveness of the Demand Registration Statement.

(b) Shelf Registration Demand Rights. If at any time, and from time to time, when the Company is Form S-3 Eligible, and subject to the requirements of Section 3(a), the Company receives a written notice (a “Shelf Registration Demand Notice” and together with a Demand Registration Notice under Section 3(a), a “Demand Notice”) from an Initiating Demand Holder that the Company file a Shelf Registration Statement with respect to outstanding Registrable Securities of such Initiating Demand Holder having a reasonably anticipated net aggregate offering price which satisfies the Demand Registration Threshold as determined in good faith by the Company at the time of its receipt, which Shelf Registration Demand Notice shall specify the aggregate number of Registrable Securities requested to be registered in the Shelf Registration Statement and the proposed method of distribution thereof, the Company shall, subject to Section 3(d), use its reasonable efforts to cause to be filed with the SEC as soon as reasonably practicable, but in no event more than 45 days following receipt of such notice (or, if the Company shall be legally prohibited from making such a filing, as soon thereafter as is legally permissible), a Shelf Registration Statement and related Prospectus that complies as to form and substance in all material respects with applicable SEC rules providing for the sale by the Initiating Demand Holders (and the Holders that elect to register their Registrable Securities as provided below) of all of the Registrable Securities requested to be registered by such Holders. The Company agrees (subject to Section 8, Section 9 and Section 11) to use reasonable efforts to cause the Shelf Registration Statement to be declared effective by the SEC as soon as practicable following the filing thereof.

(i) In connection with the receipt of any Shelf Registration Demand Notice, the Company shall comply with the requirements of Section 3(a)(i).

(ii) Subject to Section 11, the Company agrees to use reasonable efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of 180 days or such shorter period that will terminate when all the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement (in any such case, the “Shelf Registration Period”), subject to the requirements of Section 3(e). The Company shall be deemed not to have used reasonable efforts to keep the Shelf Registration Statement effective during the Shelf Registration Period if it voluntarily takes any action that would result in the Holders not being able to offer and sell their Registrable Securities during that period, unless the action is (i) required by applicable law, or (ii) taken by the Company in good faith and for valid business reasons (not including avoidance of the Company’s obligation hereunder), including the acquisition or divestiture of assets, so long as the Company promptly thereafter complies with any notice requirements related thereto.

(c) Underwritten Offering. If Initiating Demand Holders intend to distribute the Registrable Securities covered by their Demand Notice by means of an Underwritten Offering, they shall so advise the Company as a part of their Demand Notice, in which case the provisions of Section 5, Section 6 and Section 7 shall apply with respect to such Underwritten Offering.

(d) Notwithstanding the provisions of Section 3(a) and Section 3(b), the Company shall not be required to take any action with respect to a registration requested pursuant to this Section 3:

(i) if at the time of its receipt of the Demand Notice for such requested registration (other than a request for an Underwritten Offering made in accordance with this Section 3) the Company shall have effective under the Securities Act a Shelf Registration Statement pursuant to which the Holders could effect the disposition of their Registrable Securities according to their proposed method of distribution;

(ii) if, within the 120-day period immediately preceding delivery of the Demand Notice for such requested registration, the Initiating Demand Holders shall have consummated a Demand Registration; or

(iii) during the pendency of any Blackout Period;

provided, however, that the Company shall be permitted to satisfy its obligations under Section 3(a) or Section 3(b) by amending (to the extent permitted by applicable law) within 30 days after a written request for registration thereunder, any Registration Statement previously filed by the Company under the Securities Act so that such Registration Statement (as so amended) shall permit the disposition (in accordance with the intended methods of disposition, including, without limitation, an Underwritten Offering, specified by the Holders as aforesaid) of all of the Registrable Securities for which a Demand Registration has been made pursuant to Section 3(a) or Section 3(b). If the Company shall so amend a previously filed Registration Statement, it shall be deemed to have effected a registration for purposes of Section 3(a) and Section 3(b).

(e) Subject to Section 3(f), a Demand Registration shall not be deemed to be effected for purposes of this Section 3 or Section 8: (i) if the Registration Statement for such Demand Registration has not been declared effective by the SEC or become effective in accordance with the Securities Act and the rules and regulations thereunder; (ii) in the case of a Demand Registration that does not contemplate an Underwritten Offering, if the Registration Statement therefor does not remain effective for at least the period set forth in Section 3(a) or Section 3(b), as applicable; (iii) in the case of a Demand Registration that contemplates an Underwritten Offering, if (A) the Registration Statement therefor does not remain effective for such period as, in the opinion of counsel for the managing underwriters thereof, is required by law for the delivery of a Prospectus in connection with the sale of Registrable Securities by an underwriter or dealer, or (B) the conditions to closing specified in the applicable underwriting agreement are not satisfied by reason of a violation or breach of such underwriting agreement or this Agreement by the Company; or (iv) if, as a result of a determination made by the managing underwriters of an Underwritten Offering pursuant to Section 6(a), the Initiating Demand Holders shall not be entitled to include in such Demand Registration at least 75% of the Registrable Securities that such Initiating Demand Holders requested pursuant to Section 3(a) or Section 3(b), as applicable, to be so included in such Demand Registration.

(f) Initiating Demand Holders may, at any time prior to the effective date of the Registration Statement relating to such Demand Registration, or in the case of a Registration Statement that has already become effective, before the pricing of the applicable offering, revoke the Demand Notice delivered pursuant to Section 3(a) or Section 3(b), as applicable, by providing a written notice to the Company revoking such Demand Notice. The Initiating Demand Holders shall be deemed to have effected a Demand Registration for purposes of Section 3(e) and Section 8 in the case of any withdrawal of a Demand Registration in accordance with this Section 3(f), unless: (i) such withdrawal is based on a reasonable determination, made by the Initiating Demand Holders holding a majority of the Registrable Securities to be included in the Registration Statement therefor, that there has been, since the date of the applicable Demand Notice pursuant to Section 3(a) or Section 3(b), as applicable, a material adverse change in business, financial condition, results of operations or prospects of the Company; or (ii) the Initiating Demand Holders reimburse the Company for all Registration Expenses incurred by the Company with respect to such withdrawn Demand Registration. Unless such Initiating Demand Holders otherwise agree, such Initiating Demand Holders shall provide the reimbursement contemplated by clause (ii) of the immediately preceding sentence pro rata based on the relative number of Registrable Securities requested to be included in such withdrawn Demand Registration by each such Initiating Demand Holder. Except as otherwise contemplated by such clause (ii), no revocation pursuant to this Section 3(f) shall relieve the Company of its obligation hereunder to pay the Registration Expenses in connection with any such request.

(g) Subject to the limitations set forth in Section 6(a), the Company shall have the right to register pursuant to a Demand Registration, and the Company and Third-Party Security Holders shall have the right to include in such Demand Registration, such number of shares of Common Stock or other equity securities of the Company as the Company and such Third-Party Security Holders may specify.

(h) The Initiating Demand Holders delivering a Demand Notice pursuant to Section 3(a) or Section 3(b), as applicable, may distribute the Registrable Securities covered by such demand by means of an Underwritten Offering or any other method of distribution permitted in accordance with the Registration Statement, with such method to be determined by the Initiating Demand Holders holding a majority of the Registrable Securities so requested to be registered by the Initiating Demand Holders.

4. Piggyback Registration Rights.

(a) If at any time after the Closing Date the Company shall propose to file a Registration Statement under the Securities Act relating to a public offering of the Common Stock or other equity securities of the Company (other than in connection with an Excluded Registration) for the Company’s own account or for the account of any holder of the Company’s equity securities, in each case, on a registration form and in a manner that would permit the registration of Registrable Securities for sale to the public under the Securities Act, the Company shall (i) give written notice at least 20 days before the anticipated filing date to each Holder (other than any Holder that has provided written notice to the Company that such Holder elects not to receive notices from the Company pursuant to this Section 4(a)), specifying the approximate date on which the Company proposes to file such Registration Statement and advising such Holder of its right to have any and all of the Registrable Securities of such Holder included among the securities to be covered thereby, subject to reduction in accordance with Section 6, and (ii) at the written request of any such Holder given to the Company within ten days after written notice from the Company has been given to such Holder, include among the securities covered by such Registration Statement the number of Registrable Securities which such Holder shall have requested to be so included, subject to reduction in accordance with Section 6.

(b) Nothing in this Section 4 shall create any liability on the part of the Company to any Holder if for any reason the Company shall decide not to file, or to delay the filing of, a Registration Statement proposed to be filed pursuant to Section 4(a) or to withdraw such Registration Statement subsequent to the filing thereof, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Company of any notice hereunder or otherwise; provided, however, that the Company shall not be relieved of its obligation hereunder to pay the Registration Expenses in connection with any such filing or proposed filing.

5. Holdback. In the case of an Underwritten Offering of securities of the Company, each Holder agrees, if requested by the managing underwriter or underwriters of such Underwritten Offering, to enter into a lock-up agreement with the Company and the underwriters of such Underwritten Offering, as of any date requested by such underwriters, in which such Holder shall agree that it shall not effect any Lock-up Letter Transactions during the period beginning seven days before, and ending 90 days (or such shorter period as may be permitted by such lead managing underwriters) after, the date of the Prospectus used in connection with such Underwritten Offering, except for the offering and sale of Registrable Securities included in such registration and except for such other transactions as are customarily excepted from such a lock-up agreement.

6. Cutbacks.

(a) In connection with any Demand Registration contemplating an Underwritten Offering, if the managing underwriters of such offering shall give notice to the Company (it being understood that the Company shall as soon as reasonably practicable provide any such notice to all Holders who have requested to include Registrable Securities in such offering) that, in their opinion, the number of Registrable Securities requested to be included in such offering and the number of any equity securities which the Company and any Third-Party Security Holders propose to include in such offering for sale for their respective accounts exceed the number of Registrable Securities and such other equity securities which can be offered or sold in such offering without being reasonably likely to have a material adverse effect on the offering price, timing or distribution of the Registrable Securities or the market for the Common Stock (an “Adverse Offering Effect”), there shall be included in such offering only the number of Registrable Securities and any such other equity securities that, in the opinion of such managing underwriters, can be included without being reasonably likely to have an Adverse Offering Effect. In such event, the Registrable Securities and any such other equity securities shall be included in the offering pursuant to such Demand Registration in the following priority:

(i) first, all of the Demand Registrable Securities which can be so included without being reasonably likely to have an Adverse Offering Effect; and

(ii) second, if all of the Demand Registrable Securities may be so included in such offering, such number of equity securities proposed to be sold by the Company and Third-Party Security Holders in such offering which can be included therein without being reasonably likely to have an Adverse Offering Effect (with any reduction in such number being allocated among the Company and such Third-Party Security Holders in accordance with their separate agreements).

(b) If not all of the Demand Registrable Securities may be included in such offering without being reasonably likely to have an Adverse Offering Effect, any reduction in such number shall be allocated among the Initiating Demand Holders and all other Holders electing to participate in such offering pursuant to Section 3(a) or Section 3(b) pro rata based on the relative number of Demand Registrable Securities beneficially owned by each such Holder as of the date on which the Demand Notice related thereto was received by the Company.

(c) Each Holder wishing to include Registrable Securities pursuant to Section 4(a) in any offering covered by a Registration Statement filed by the Company relating to a public offering of Common Stock or other equity securities for its own account or for the account of any security holder (other than any Holder) shall have the right to include such Registrable Securities in any such offering only to the extent that the inclusion of such Registrable Securities shall not reduce the number of shares of Common Stock or other equity securities to be offered and sold therein for the account of the Company or any such other security holder. In connection with the inclusion of Registrable Securities pursuant to Section 4(a) in any such offering, if the managing underwriters of an Underwritten Offering deliver a notice to the Company (it being understood that the Company shall as soon as reasonably practicable provide any such notice to all Holders who have requested to include Registrable Securities in such offering), that, in their opinion, the number of securities the Company proposes to sell for its own account or for the account of any such other security holder and the number of such Registrable Securities exceeds the number of securities which can be offered or sold in such offering without being reasonably likely to have an Adverse Offering Effect with respect to the securities to be offered for the account of the Company or such other security holder, there shall be included in such offering only the number of Registrable Securities that, in the opinion of such managing underwriters, can be included without being reasonably likely to have an Adverse Offering Effect. If not all of the Registrable Securities requested to be included in such offering may be so included without being reasonably likely to have an Adverse Offering Effect, the reduction in the aggregate number of Registrable Securities that shall be included in such offering shall be allocated among the Holders who have requested Registrable Securities to be so included pro rata based on the relative number of Registrable Securities beneficially owned by each such Holder as of the date on which the Company provides notice of its proposed filing of a Registration Statement pursuant to Section 4(a).

7. Selection of Underwriters. The Initiating Demand Holders shall have the right to select the underwriter or underwriters to administer any Underwritten Offering in connection with a Demand Registration; provided, that the underwriter or underwriters shall be reasonably acceptable to the Company.

8. Limitations of Registration Rights.

Notwithstanding the provisions of Section 3 and this Section 8, at such time or times as the Company is not Form S-3 Eligible, the Initiating Demand Holders shall have the right hereunder to effect a maximum of three Demand Registrations in the aggregate, and the Company shall in no event be obligated to take any action to effect more than three such Demand Registrations. From and after such time as the Company has become Form S-3 Eligible, and for so long as the Company remains Form S-3 Eligible, the Initiating Demand Holders shall have the right hereunder, subject to Section 3 and this Section 8, to effect an unlimited number of Demand Registrations.

9. Blackout Restrictions. If the Company determines in good faith that the registration and distribution of Registrable Securities (a) would materially impede, delay, interfere with or otherwise materially adversely affect any pending financing, registration of securities by the Company in a primary offering for its own account, acquisition, corporate reorganization, debt restructuring or other material transaction involving the Company or (b) would require disclosure of material non-public information that the Company has a bona fide business purpose for preserving as confidential, the Company shall be entitled to defer the filing or effectiveness of a Registration Statement, or to suspend the use of an effective Registration Statement, for the shortest period of time reasonably required (each such period, a “Blackout Period”); provided, however, that the Company shall not be entitled to obtain deferrals or suspensions under (i) clause (a) of this Section 9 for more than an aggregate of 90 days in any 12-month period, or (ii) clause (b) of this Section 9 on more than two occasions or for more than an aggregate of 60 days in any 12-month period; provided, further, that the Company shall not under any circumstances be entitled to obtain deferrals or suspensions for more than an aggregate of 120 days in any 12-month period. The Company shall notify each Holder of the initiation and expiration or earlier termination of a Blackout Period and, as soon as reasonably practicable after such expiration or termination, shall amend or supplement any effective Registration Statement and the related Prospectus to the extent necessary to permit the Holders to resume use of such Prospectus in connection with the offer and sale of the Registrable Securities in accordance with applicable law. Each Holder agrees to treat as confidential the delivery of any notice by the Company to such Holder pursuant to this Section 9 and the information set forth in any such notice. For the avoidance of doubt, except as would otherwise constitute a Blackout Period in accordance with the first sentence of this Section 9, any period during which the directors and officers of the Company are prohibited from purchasing, selling or otherwise engaging in transactions in securities of the Company pursuant to any internal Company policy restricting trading during specified periods of the Company’s fiscal year or otherwise shall not be deemed a Blackout Period for purposes of this Agreement.

10. Registration Procedures. In connection with the registration obligations of the Company under Section 3, the Company shall:

(a) prior to filing a Registration Statement or related Prospectus or any amendment or supplement thereto, furnish to a single counsel selected by the Holders holding a majority of the Registrable Securities included or to be included in such Registration Statement (and, if requested in writing by a Holder, to such Holder) copies of such Registration Statement or Prospectus (or amendment or supplement) as proposed to be filed (including, upon the request of the Holders or counsel, documents to be incorporated by reference therein), which documents shall be subject to the reasonable review and comments of the Holders holding the Registrable Securities included or to be included in such Registration Statement and their counsel;

(b) prepare and file with the SEC amendments and post-effective amendments to each Registration Statement and such amendments and supplements to the related Prospectus as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder necessary to keep such Registration Statement effective until the Holders of the Registrable Securities covered by such Registration Statement have completed the distribution related thereto or for such shorter period permitted under this Agreement;

(c) promptly notify each Holder holding Registrable Securities covered by a Registration Statement, through its counsel, when such Registration Statement and any amendment or post-effective amendment thereto and the related Prospectus and any amendment or supplement to such Prospectus have been filed and, with respect to such Registration Statement or any amendment and post-effective amendment thereto, when such Registration Statement or such post-effective amendment has become effective;

(d) furnish to each Holder such number of copies of the applicable Registration Statement and of each amendment and post-effective amendment thereto and the related Prospectus or Prospectus supplement as such Holder may reasonably request in order to facilitate such Holder’s disposition of Registrable Securities (the Company hereby consenting to the use (subject to the limitations set forth in Section 11(b)) of the Prospectus or any amendment or supplement thereto in connection with such disposition);

(e) promptly notify each Holder holding Registrable Securities covered by a Registration Statement, through its counsel, at any time when the related Prospectus is required to be delivered under the Securities Act, that the Company has become aware that such Prospectus, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and prepare and furnish to such Holder, as soon as reasonably practicable, without charge to such Holder, a reasonable number of copies of an amendment to such Registration Statement or supplement to such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(f) use reasonable efforts to register or qualify Registrable Securities covered by a Registration Statement under such securities or blue sky laws of such jurisdictions as each Holder holding such Registrable Securities shall reasonably request, and to do any and all other acts and things which may be reasonably necessary to enable such Holder to consummate the disposition in such jurisdictions of such Registrable Securities, except that the Company shall not be required for any such purpose to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 10(f), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction;

(g) make available to its stockholders, as soon as reasonably practicable, an earnings statement that shall satisfy the provisions of Section 11(a) of the Securities Act, provided that the Company shall be deemed to have complied with this Section 10(g) if it has complied with Rule 158 under the Securities Act;

(h) if the registration involves an Underwritten Offering, enter into a customary underwriting agreement and in connection therewith:

(i) to the extent reasonably practicable, make such representations and warranties to the underwriters in such form and with such substance and scope as are customarily made by issuers to underwriters in comparable Underwritten Offerings;

(ii) use reasonable efforts to obtain opinions of counsel to the Company (in form, scope and substance reasonably satisfactory to the managing underwriters), addressed to the underwriters, and covering the matters customarily covered in opinions requested in comparable Underwritten Offerings;

(iii) use reasonable efforts to obtain “comfort” letters and bring-downs thereof from the Company’s independent registered public accounting firm addressed to the underwriters, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters by independent registered public accounting firms in connection with Underwritten Offerings; and

(iv) deliver such documents and certificates as may be reasonably requested by the managing underwriters to evidence compliance with any customary conditions contained in the underwriting agreement;

(i) cooperate with the Holders holding Registrable Securities covered by a Registration Statement and the managing underwriter or underwriters or agents, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing the securities to be sold under such Registration Statement, or the transfer of such securities into book-entry form (not subject to any stop transfer instruction), and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters or agents, if any, or such Holders, may request;

(j) if reasonably requested by the managing underwriter or underwriters or a Holder holding Registrable Securities being sold in a Demand Registration or in connection with another registration involving an Underwritten Offering, incorporate in a Prospectus supplement or post-effective amendment to the applicable Registration Statement such information as the managing underwriters and the Holders holding a majority of the Registrable Securities being sold by all Holders agree should be included therein relating to the plan of distribution with respect to such Registrable Securities, including information with respect to the amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and any other terms of the Underwritten Offering of the Registrable Securities to be sold in such offering and make all required filings of such Prospectus supplement or post-effective amendment upon being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment;

(k) in the event of the issuance of any stop order by the SEC of which the Company is aware suspending the effectiveness of a Registration Statement, or of any order suspending or preventing the use of any related Prospectus or suspending the qualification of any Registrable Securities included in such Registration Statement for sale in any jurisdiction, promptly notify each Holder holding any Registrable Securities included in such Registration Statement of the issuance thereof, use its reasonable efforts to obtain the withdrawal of such stop order or other order at the earliest practicable time, and promptly notify each such Holder of the withdrawal thereof;

(l) use its reasonable efforts to cause all Common Stock covered by such Registration Statement to be listed on any securities exchange on which the Common Stock covered by such Registration Statement is not already so listed and if such listing is then permitted under the rules of such securities exchange;

(m) provide a CUSIP number for all Registrable Securities and, unless such Registrable Securities shall be registered in book-entry form, provide the applicable transfer agent and registrar for such Registrable Securities with printed certificates for the Registrable Securities, which certificates shall be in a form eligible for deposit with The Depository Trust Company;

(n) cooperate with each Holder of Registrable Securities covered by a Registration Statement and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA;

(o) use its reasonable efforts to comply with all applicable rules and regulations of the SEC;

(p) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by the applicable Registration Statement;

(q) make available upon reasonable notice at reasonable times during normal business hours and for reasonable periods for inspection by one representative appointed by the Holders of a majority of the Registrable Securities covered by the applicable Registration Statement, by any managing underwriter or underwriters participating in any Underwritten Offering to be effected pursuant to a Registration Statement, and by any attorney, accountant or other agent retained by such Holders or any such managing underwriter or underwriters, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause the proper officers and other employees of the Company and representatives of the independent registered public accounting firm that has certified the Company’s financial statements to make themselves available during normal business hours to discuss the business of the Company and to supply all information reasonably requested by any such managing underwriter or underwriters or agents thereof in connection with such Registration Statement as shall be necessary to enable such Persons to exercise their due diligence responsibility (subject to the entry by each Person referred to in this Section 10(q) into customary confidentiality agreements in a form reasonably acceptable to the Company); and

(r) in the case of an Underwritten Offering, cause the senior executive officers of the Company to participate in such customary “road show” presentations as may be reasonably requested by the lead managing underwriter of any such Underwritten Offering and otherwise to cooperate with and participate in customary selling efforts related thereto.

11. Agreements of Holders.

(a) As a condition to the Company’s obligation under this Agreement to cause Registrable Securities of any Holder to be included in a Registration Statement, such Holder shall timely provide the Company with all of the information required to be provided in such Registration Statement with respect to such Holder pursuant to Items 507 and 508 (or any successor Items) of Regulation S-K under the Securities Act and such other information as otherwise may reasonably be requested by the Company to comply with applicable law in connection with such Registration Statement.

(b) Each Holder shall comply with the prospectus delivery requirements of the Securities Act in connection with the offer and sale of Registrable Securities made by such Holder pursuant to any Registration Statement. Upon receipt of any notice from the Company of the occurrence of any event of the kind described in Section 10(e) or Section 10(k) or of the imposition of any Blackout Period, each

Holder holding Registrable Securities shall forthwith discontinue the disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities and the related Prospectus until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 10(e) or the withdrawal of any stop order or other order referred to in Section 10(k), and, if so directed by the Company, shall deliver to the Company all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities at the time of receipt of such notice.

(c) Each Holder shall comply with Regulation M under the Exchange Act in connection with the offer and sale of Registrable Securities made by such Holder pursuant to any Registration Statement.

12. Registration Expenses. The Company shall pay all Registration Expenses in connection with all registrations pursuant to this Agreement to the extent provided herein. In connection with all such registrations, each Holder shall pay all underwriting discounts, commissions and fees, brokerage and sales commissions, and transfer and documentary stamp taxes, if any, relating to the sale or disposition of such Holder’s Registrable Securities pursuant to the Registration Statement, and, except as provided for in clause (g) of the definition of “Registration Expenses,” all fees and expenses of counsel to such Holder.

13. Indemnification; Contribution.

(a) The Company agrees to indemnify and hold harmless each Holder in any offering or sale of Registrable Securities pursuant to this Agreement, each Person, if any, who participates as an underwriter in any such offering and sale of Registrable Securities, and each Person, if any, who controls such Holder or such underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and their respective directors, trustees, officers, partners, agents, employees and Affiliates against all losses, claims, damages, liabilities and expenses (including reasonable attorneys’ fees and expenses, as incurred, and any amounts paid in any settlement effected with the Company’s consent, which consent shall not be unreasonably withheld or delayed) (collectively, “Losses”) incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact contained in, or any omission or alleged omission of a material fact required to be stated in, any Registration Statement, Prospectus, Free Writing Prospectus or “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or necessary to make the statements therein (in the case of a Prospectus, a Free Writing Prospectus or “issuer information,” in the light of the circumstances then existing) not misleading, except in each case insofar as such statements or omissions arise out of or are based upon (i) any such untrue statement or alleged untrue statement or omission or alleged omission made in reliance on and in conformity with information with respect to such Holder furnished in writing to the Company by such Holder or its counsel expressly for use therein, (ii) the use of any Prospectus, Free Writing Prospectus or “issuer information” after such time as the obligation of the Company to keep effective the Registration Statement of which such Prospectus forms a part has expired or (iii) the use of any Prospectus, Free Writing Prospectus or “issuer information” after such time as the Company has advised the Holders that the filing of an amendment or supplement thereto is required, except such Prospectus, Free Writing Prospectus or “issuer information” as so amended or supplemented.

(b) In connection with any Registration Statement filed pursuant to this Agreement, each Holder holding Registrable Securities to be covered thereby agrees, severally and not jointly with any other Holders, to indemnify and hold harmless the Company, each Person, if any, who participates as an underwriter in any such offering and sale of Registrable Securities and each Person, if any, who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and their respective directors, trustees, officers, partners, agents, employees and

Affiliates, against all Losses incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact contained in, or any omission or alleged omission of a material fact required to be stated in, any Registration Statement, Prospectus, Free Writing Prospectus or “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or necessary to make the statements therein (in case of a Prospectus, a Free Writing Prospectus or “issuer information,” in the light of the circumstances then existing) not misleading, but only to the extent that any such untrue statement or omission is made in reliance on and in conformity with information with respect to such Holder furnished in writing to the Company by such Holder or its counsel specifically for use therein; provided, however, that no Holder shall be required to indemnify the Company or any other indemnified party under this Section 13(b) with respect to any amount in excess of the amount of the gross proceeds, after deducting any underwriting discounts and commissions, received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c) Any Person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such indemnified party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such indemnified party may claim indemnification or contribution pursuant to this Agreement, provided that failure to give such notification shall not affect the obligations of the indemnifying party pursuant to this Section 13 except to the extent the indemnifying party shall have been actually and materially prejudiced as a result of such failure. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall so elect, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation, unless in the reasonable judgment of any indemnified party, based on the opinion of counsel, a conflict of interest is likely to exist between the indemnifying party and such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall not be liable for the fees and expenses of (i) more than one counsel for all Holders holding Registrable Securities who are indemnified parties, selected by the Holders holding a majority of the Registrable Securities held by all Holders who are indemnified parties (which selection shall be reasonably satisfactory to the Company), (ii) more than one counsel for the underwriters in an Underwritten Offering or (iii) more than one counsel for the Company, in each case in connection with any one action or separate but similar or related actions. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, based on the opinion of counsel, a conflict of interest is likely to exist between an indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel, provided that the indemnifying party shall not be liable for the fees and expenses of (A) more than one counsel for all Holders holding Registrable Securities who are indemnified parties, selected by the Holders holding a majority of the Registrable Securities who are indemnified parties (which selection shall be reasonably satisfactory to the Company), (B) more than one counsel for the underwriters in an Underwritten Offering or (C) more than one counsel for the Company, in each case in connection with any one action or separate but similar or related actions. No indemnifying party, in defense of any such action, suit, proceeding or investigation, shall, except with the consent of each indemnified party, consent to the entry of any judgment or entry into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such action, suit, proceeding or investigation to the extent such liability is covered by the indemnity obligations set forth in this Section 13. No indemnified party shall consent to entry of any judgment or entry into any settlement without the consent of each indemnifying party.

(d) If the indemnification from the indemnifying party provided for in this Section 13 is unavailable to an indemnified party hereunder in respect of any Losses, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations; provided, however, that no Holder shall be required to contribute any amount in excess of the amount of the gross proceeds, after deducting any underwriting discounts and commissions, received by such Holder upon the sale of the Registrable Securities giving rise to such contribution obligation. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other matters, whether any action in question, including any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Losses referred to above shall be deemed to include, subject to the limitations set forth in Section 13(c), any legal or other fees and expenses reasonably incurred by such indemnified party in connection with any investigation or proceeding. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The parties agree that it would not be just and equitable if contribution pursuant to this Section 13(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the consideration referred to in this Section 13(d). If indemnification is available under this Section 13, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 13(a) or Section 13(b), as the case may be, without regard to the relative fault of such indemnifying parties or indemnified party or any other equitable consideration provided for in this Section 13(d).

(e) The provisions of this Section 13 shall be in addition to any liability which any indemnifying party may have to any indemnified party and shall survive the termination of this Agreement.

(f) The indemnification and contribution required by this Section 13 shall be made by periodic payments of the amount thereof during the course of any action, suit, proceeding or investigation, as and when invoices are received or Losses are incurred.

14. Confidentiality. To the extent that the information and other material in connection with the registration rights contemplated in this Agreement (in any case, whether furnished before, on or after the date hereof) constitutes or contains confidential business, financial or other information of the Company, the Holders or their respective Affiliates, each party to this Agreement covenants for itself andits directors, officers, employees and stockholders that it shall use due care to prevent its directors, officers, partners, members, managers, employees, counsel, accountants and other representatives from disclosing such information to persons other than to their respective authorized employees, counsel, accountants, advisers, stockholders, partners, limited partners, managers or members (or proposed stockholders, partners, limited partners, managers, members or advisers of such persons), and other authorized representatives, in each case, for so long as such person agrees to keep such information confidential in accordance with the terms hereof; provided, however, that each Holder or the Company may disclose or deliver any information or other material disclosed to or received by it if the Holder or the Company is advised by its counsel that disclosure or delivery is required by law, regulation or judicial or administrative order or process and, in any such instance, the Holder or the Company, as the case may be, making the

disclosure uses reasonable efforts to consult with the Company or Holder, as applicable, prior to making any such disclosure. Notwithstanding the foregoing, a Holder will be permitted to disclose any information or other material disclosed to or received by it hereunder and shall not be required to provide the aforementioned notice to the Company, if the disclosure is in connection with a routine audit by a regulatory or self-regulatory authority that maintains jurisdiction over the Holder; provided, however, that the Holder must file an appropriate request seeking to have any information disclosed in connection with the routine audit treated confidentially. For purposes of this Section 14, “due care” means at least the same level of care that such Holder or the Company would use to protect the confidentiality of its own sensitive or proprietary information. This Section 14 shall not apply to information that is or becomes publicly available (other than to a person who has caused such information to become publicly available through a breach of this Agreement).

15. Participation in Underwritten Offerings. No Holder may include Registrable Securities in any Demand Registration or other Underwritten Offering pursuant to this Agreement unless such Holder (a) agrees to sell such Holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Company (subject to the rights of the Holders provided for herein), which approval shall not be unreasonably withheld, conditioned or delayed, and (b) completes and executes all questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements.

16. Reports Under the Exchange Act. For so long as any Registrable Securities remain outstanding and the Company is required under the Exchange Act and rules and regulations thereunder to file with the SEC reports pursuant to Section 13 or 15(a) of the Exchange Act, the Company shall (a) use reasonable efforts to satisfy the conditions of Rule 144 required thereunder to make Rule 144 available to the holders for the sale of Registrable Securities, including filing with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, and (b) reasonably promptly upon written request therefor by any Holder, furnish to such Holder a written statement by the Company as to its compliance with its reporting obligations under the Exchange Act.

17. Assignment of Registration Rights. The right to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned (but only with all related obligations hereunder) solely by an Holder in connection with a transfer of such Registrable Securities in accordance with the Company’s Certificate of Incorporation (including, without limitation, by a distribution (tax-free or otherwise) of such Registrable Securities) to a Person that is either (a) an Oxbow Affiliated Fund or (b) a Person receiving Registrable Securities in connection with an in-kind distribution by any Holder to its stockholders, partners, members or other equity holders; provided that, in each case, as a condition to the effectiveness of any such assignment, such Person shall be required to execute a counterpart of this Agreement. Upon such Person’s execution of such counterpart, such Person shall be a Holder under this Agreement and shall be entitled to the benefits of, and shall be subject to the restrictions contained in, this Agreement, as amended from time to time, that are applicable hereunder to the Holder from whom such rights hereunder were assigned. From and after the date of any such effective assignment, the term “Holders” as used herein shall also refer to such Person.

18. Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, any Holder and any successor and permitted assignee thereof; provided, however, that, except as provided for in Section 17, this Agreement and the provisions of this Agreement that are for the benefit of the Holders shall not be assignable by any Holder, and any such purported assignment shall be null and void. Except to the extent provided for in Section 13, nothing in this Agreement, expressed or implied, is intended to confer upon any Person other than the Company, the Holders and their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement. No purchaser of Registrable Securities from a Holder shall be deemed to be a successor or assignee of such Holder merely by reason of such purchase.

19. Amendments and Waivers.

(a) The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions of this Agreement, including the provisions of this sentence (each such amendment, modification, supplement, waiver or consent, an “Amendment”), may not be given, unless the Company consents thereto and has obtained the written consent thereto of Holders holding a majority of the Registrable Securities; provided, however, that if any Amendment would materially and adversely affect any Holder disproportionately relative to any other Holder or Holders, such Amendment shall also require the written consent of Holders holding a majority of the Registrable Securities held by all Holders so disproportionately affected.

(b) Notwithstanding Section 19(a), an Amendment with respect to a matter that relates exclusively to the rights of (i) Holders holding Registrable Securities whose securities are being included in a Registration Statement shall be effective only if consented to by Holders holding a majority of the Registrable Securities being included in such Registration Statement and (ii) the Initiating Demand Holder or Initiating Demand Holders with respect to a particular Demand Registration or Underwritten Offering shall be effective only if consented to by such Initiating Demand Holder or Initiating Demand Holders.

(c) Each Holder from time to time shall be bound by any Amendment effected pursuant to this Section 19, whether or not any notice, writing or marking indicating such Amendment appears on the Registrable Securities or is delivered to such Holder.

20. Notices; Designated Company Representative. All notices, demands, requests, consents or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when (a) delivered personally to the recipient, (b) sent by confirmed facsimile or confirmed e-mail transmission before 5:00 p.m. New York City time on a Business Day, and otherwise on the next Business Day, or (c) one Business Day after being sent to the recipient by reputable overnight courier service (charges prepaid). Such notices, demands, requests, consents and other communications shall be sent (i) if to the Company, to: SkyWater Technology, Inc., 2401 E. 86th St., Bloomington, Minnesota 55425, Attn: Jason Stokes, Chief Legal Officer and General Counsel, jason.stokes@skywatertechnology.com, or to such other address, facsimile number or e-mail address as the Company shall designate in writing to the Holders from time to time, and (ii) if to any Holder, to such Holder at the address of such Holder set forth on the signature pages hereto, or to such other address of any Holder as such Holder shall designate in writing to the Company upon becoming a Holder hereunder and from time to time thereafter. The designated representative of the Company shall be its Chief Executive Officer or such other officer as the Company shall designate in writing to the Holders from time to time.

21. Interpretation. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

22. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Subject to Section 25, this Agreement shall become effective as between the Company and any Holder when the Company and such Holder shall have received a copy of counterparts hereof signed by the other party hereto.

23. Governing Law. This Agreement and all claims or causes of action (whether in tort, contract or otherwise) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts laws.

24. Submission to Jurisdiction; WAIVER OF JURY TRIALS.

(a) Each of the parties hereto herby irrevocably acknowledges and consents that any legal action or proceeding brought with respect to this Agreement or any of the obligations arising under or relating to this Agreement shall be brought and determined exclusively in the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any federal court of the United States of America sitting in the State of Delaware), and each of the parties hereto hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any federal court of the United States of America sitting in the State of Delaware). Each party hereby further irrevocably waives any claim that the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any federal court of the United States of America sitting in the State of Delaware) lacks jurisdiction over such party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or the transactions contemplated hereby brought in the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any federal court of the United States of America sitting in the State of Delaware) that any such court lacks jurisdiction over such party.

(b) Each party irrevocably consents to the service of process in any legal action or proceeding brought with respect to this Agreement or any of the obligations arising under or relating to this Agreement by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party, at its address for notices as provided for in Section 20, such service to become effective ten days after such mailing. Each party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other documents contemplated hereby, that service of process was in any way invalid or ineffective. Subject to Section 24(c), the foregoing shall not limit the rights of any party to serve process in any other manner permitted by applicable law. The foregoing consents to jurisdiction shall not constitute general consents to service of process in the State of Delaware for any purpose except as provided above and shall not be deemed to confer rights on any Person other than the respective parties to this Agreement.

(c) Each of the parties hereto hereby waives any right it may have under the laws of any jurisdiction to commence by publication any legal action or proceeding with respect to this Agreement or any of the obligations under or relating to this Agreement. To the fullest extent permitted by applicable law, each of the parties hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding with respect to this Agreement or any of the obligations arising under or relating to this Agreement in the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any federal court of the United States of America sitting in the State of Delaware), and hereby further irrevocably waives and agrees not to plead or claim that the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any federal court of the United States of America sitting in the State of Delaware) is not a convenient forum for any such suit, action or proceeding.

(d) The parties hereto agree that any judgment obtained by any party hereto or its successors or permitted assignees in any action, suit or proceeding referred to above may, in the discretion of such party (or its successors or permitted assignees), be enforced in any jurisdiction, to the extent permitted by applicable law.

(e) EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY SUIT, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER MATTERS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 24(e).

25. Effectiveness; Termination.

(a) Notwithstanding any other provision of this Agreement, this Agreement shall become effective on the Closing Date.

(b) This Agreement shall terminate with respect to any Holder on the earliest to occur of (i) the date on which such Holder first ceases to hold any Registrable Securities or (ii) the date on which such Holder notifies the Company in writing that such Holder irrevocably withdraws as a Holder under this Agreement. Notwithstanding any such termination of this Agreement by any Holder, all rights, liabilities and obligations of such Holder and the Company under Sections 12, 13, 19, 23, 24, 25 and 27 shall remain in effect in accordance with their terms. No termination of any provision of this Agreement shall relieve any party of any liability for any breach of such provision occurring prior to such termination.

26. Entire Agreement. This Agreement is intended by the parties to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. No party hereto shall have any rights, duties or obligations other than those specifically set forth in this Agreement. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights.

27. Specific Performance. Without limiting the rights of each party hereto to pursue all other legal and equitable rights available to such party for any other parties’ failure to perform their obligations under this Agreement, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their obligations hereunder would be inadequate and that each of them, respectively, to the extent permitted by applicable law, shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure, without bond or other security being required.

28. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the parties shall negotiate in good faith with a view to the substitution therefor of a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision, provided, however, that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.

[Signature pages follow]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth in the first paragraph hereof.


COMPANY:

SKYWATER TECHNOLOGY, INC.

By:		/s/ Jason Stokes
Name:		Jason Stokes
Title:		Chief Legal Officer and General Counsel

OXBOW:

CMI OXBOW PARTNERS, LLC

By:		/s/ Loren Unterseher
Name:		Loren Unterseher
Title:		Managing Director

By:		/s/ Thomas R. Lujan
Name:		Thomas R. Lujan

By:		/s/ Dana Nazarian
Name:		Dana Nazarian

By:		/s/ Gary J. Obermiller
Name:		Gary J. Obermiller

By:		/s/ Thomas J. Sonderman
Name:		Thomas J. Sonderman

By:		/s/ Steven P. Wold
Name:		Steven P. Wold

By:		/s/ Khoua Yang
Name:		Khoua Yang

[Signature Page to Registration Rights Agreement]

SCHEDULE A

Thomas Lujan

Dana Nazarian

Gary Obermiller

Thomas Sonderman

Steven Wold

Khoua Yang

Exhibit 31.1

Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

I, Thomas Sonderman, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of SkyWater Technology, 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:

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;

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

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):

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.

Exhibit 31.2

Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

I, Steve Manko, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of SkyWater Technology, 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:

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):

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.

Exhibit 32.1

Certification of the Chief Executive Officer

Pursuant to Rule 18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q of SkyWater Technology, Inc. (the “Company”) for the period ended April 4, 2021, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Thomas Sonderman, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Exhibit 32.2

Certification of the Chief Financial Officer

Pursuant to Rule 18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q of SkyWater Technology, Inc. (the “Company”) for the period ended April 4, 2021, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Steve Manko, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company