| ADVANCED POWER TECHNOLOGY INC ITEM 1A RISK FACTORS Risk Factors Affecting Business and Results of Operations Some of the statements under “Risk Factors Affecting Business and Results of Operations,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this report constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act |
| In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology |
| For example, we make statements regarding: • Future growth of the semiconductor capital equipment, industrial and medical equipment and military and aerospace markets, and the factors affecting such growth; • Increased production volume from our manufacturing facilities and its related margin impact; • Favorable changes in our gross profit margins and increased sales of our RF products as part of overall sales; • Implementation of our restructuring plans; • Our prospects for future long term profitability; • Our future tax expenses and effective tax rate; • Our expectations with regard to research and development expenses; • Our expectations for funding future liquidity needs; and • Potential acquisitions and equity investments |
| These and other forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements |
| These factors include, among other things, those listed under “Risk Factors Affecting Business and Results of Operations” and elsewhere in this report |
| Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements |
| Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements |
| We are under no duty to update any of the forward-looking statements after the date of this report |
| In addition, you should consider the risks associated with the merger, which are discussed below |
| See “Part II Item 7 |
| Managements Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments - Pending Merger” |
| 10 ______________________________________________________________________ Business Risks The semiconductor industry is very cyclical, and an industry downturn could reduce our revenue |
| The semiconductor industry is characterized by: • rapid technological change; • cyclical market patterns; • significant price erosion; • periods of over-capacity and production shortages; • variations in manufacturing costs and yields; and • significant expenditures for capital equipment and product development |
| The semiconductor industry has from time to time experienced depressed business conditions |
| In the past, business conditions in this industry have rapidly changed from periods of strong demand to periods of weak demand |
| For example, according to the SIA, the semiconductor industry declined 31dtta9prca in 2001, after growing 36dtta9prca in 2000 |
| Any future downturn in the industry could harm our business and cause our operating results to suffer |
| We cannot assure you that we will not experience substantial period-to-period fluctuations in operating results due to general semiconductor industry conditions or other factors beyond our control |
| Certain of the markets we serve are cyclical and our ability to grow and sustain growth levels may be adversely affected by a slowdown in the global economy |
| We serve customers and end users in the military and aerospace, semiconductor capital equipment, medical and industrial, and communications and data processing markets |
| The slowdown in the global economy during the early part of this decade generally reduced capital spending and consumer confidence, and caused us to experience weakness in our end markets and reduced our profitability |
| Slowdowns in the semiconductor and telecommunications industries were particularly severe and adversely affected the sales of our products used in these applications |
| Should the demand for our products in any of our primary target markets decline in the future, our business, financial condition and results of operations may be adversely affected |
| We have historically experienced fluctuations in our operating results and we expect these fluctuations to continue, which may cause our common stock price to decline |
| Our quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect our net revenue, gross profits and operating results |
| These factors include: • the volume and timing of orders received; • market acceptance of our products and the products of our customers; • competitive pricing pressures; • our ability to expand manufacturing output to meet increasing demand; • the cyclical needs of our customers; • the timing of goodwill impairments or restructuring or other accounting-related charges; • the timing and extent of our research and development expenses; • the timing and extent of significant capital equipment purchases; • fluctuations in manufacturing yields; and • litigation expenses |
| Our business is characterized by short-term orders and shipment schedules, and customer orders typically can be canceled or rescheduled without penalty to the customer |
| Because most of our backlog is cancelable without penalty, we typically plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially |
| In addition, because of our fixed costs, we are limited in our ability to reduce costs quickly in response to any revenue shortfalls |
| As a result of the foregoing factors, or the other risk factors discussed in this prospectus, we may experience material adverse fluctuations in our future operating results on a quarterly or annual basis |
| We cannot assure you that we will be profitable on a quarterly or annual basis in future periods |
| 11 ______________________________________________________________________ We have incurred significant losses in certain recent periods, and there can be no assurance that we will be able to sustain profitability in the future |
| We recorded net losses in three of the last five full fiscal years |
| We may incur losses in subsequent periods |
| Our ability to maintain profitability on a quarterly or fiscal year basis in the future will depend on a variety of factors, including our ability to increase net revenue, expand gross margins, introduce new products on a timely basis, secure sufficient fabrication capacity and control operating expenses |
| If we cannot introduce new products on a timely basis, our financial results may suffer |
| The markets for our products are characterized by rapid technological change and frequent new product introductions |
| Historically in the semiconductor industry, average selling prices of products have decreased over time |
| If we are unable to introduce new proprietary products with higher margins or reduce manufacturing costs to offset anticipated decreases in the prices of our existing products, then our operating results will be harmed |
| Our success depends upon our ability to develop improved power semiconductors for new and existing markets, to introduce these products in a timely manner, and to have these products gain market acceptance |
| The development of new power semiconductors is highly complex and from time to time we have experienced delays in developing and introducing new products |
| Successful product development and introduction depends on a number of factors, including: • proper new product definition; • timely completion of design and testing of new products; • cost-effectiveness; • achievement of acceptable manufacturing yields; and • market acceptance of our products and the products of our customers |
| We cannot assure you we will be able to meet these challenges or adjust to changing market conditions as quickly and cost-effectively as necessary to compete successfully |
| Due to the complexity and variety of power semiconductors, the limited number of qualified development engineers and the limited effectiveness of computer-aided design systems in the design of such circuits, we cannot assure you that we will be able to successfully develop and introduce new products on a timely basis |
| We cannot assure you that any products introduced by us will be adopted by existing or potential customers, or that any products initially accepted by our customers will become industry standard products |
| Our failure to develop and introduce new products successfully could significantly harm our business and cause our operating results to suffer |
| If we cannot optimize our mix of product sales, our financial results may suffer |
| If we are unable to optimize the mix of sales of relatively higher margin but lower volume products and relatively higher volume but lower margin products, our operating results may be harmed |
| In order to improve our margins through sales of higher margin products it is important that in the future they represent a greater percentage of our net revenue, requiring us to develop, introduce and market new proprietary products |
| We cannot assure you that we will be successful in developing new proprietary products with the features and functionality that customers in our key markets will demand |
| Our revenue depends upon our products being designed into our customers’ products |
| We generally work closely with our customers in the design stage and as a result of this collaboration from time to time we will be notified that some of our new products are incorporated into customers’ products or systems |
| Assuming we believe some volume of our products is likely to be purchased, we typically refer to this event as a design win |
| The value of any design win largely depends upon the customer’s decision to manufacture the designed product in production quantities, the commercial success of the customer’s product and on the extent to which the design of the customer’s system also accommodates incorporation of components manufactured by our competitors |
| In addition, our customers could subsequently redesign their products or systems so that they no longer require our products |
| For these or other reasons, we may not achieve design wins or our design wins may not result in future revenue |
| Strong competition in the power semiconductor market may reduce the demand for our products or the prices of our products, which could reduce our revenue and harm our business |
| The power semiconductor industry is highly competitive |
| Significant competitive factors in the power semiconductor market include: • product features and performance; 12 ______________________________________________________________________ • product quality; • product reliability; • technical knowledge; • breadth of product line; • competitive pricing; and • customer service and support |
| Because the market for power semiconductors is diverse and highly fragmented, we encounter different competitors in our various product markets |
| Our principal competitors in one or more of our product areas include Fairchild Semiconductor, Integra, International Rectifier, IXYS, MA/COM, Philips and ST Microelectronics |
| Many of our competitors have substantially greater technical, financial and marketing resources and greater name recognition than we do and may be on more approved vendor lists than we are |
| We expect intensified competition from existing power semiconductor suppliers and the possible entry of new competitors |
| Increased competition could harm our business |
| We cannot assure you that we will be able to compete successfully in the future or that competitive pressures will not harm our financial condition or our operating results |
| Competitive pressures could reduce market acceptance of our products and result in price reductions and increases in expenses that could harm our business and our financial condition |
| Our financial results could be harmed if we were to lose one of our major customers or key distributors |
| Several of our major customers account for a significant portion of our net sales each year |
| During 2005, our top five customers accounted for 37dtta7prca of our net revenue, and one distributor, Richardson Electronics, accounted for 19dtta7prca of our net revenue |
| If we lost Richardson Electronics or one of our other major customers, or if one of them reduced or canceled significant orders, our net income and operating results could be harmed |
| If our relationship with Richardson Electronics were discontinued, or if Richardson Electronics should fail to provide adequate service to our customers, we could lose revenue and our operating results would suffer |
| We rely heavily on our key subcontractors |
| If they fail to produce needed goods and services, our business and results of operations may suffer |
| We increasingly rely on third party subcontractors in Europe and Asia to manufacture, assemble and test most of our products |
| We rely on Infineon Technologies, an outside foundry located in Europe, and Episil Technologies, located in Taiwan, which collectively produce a significant percentage of our wafers |
| In addition, we entered into a wafer production agreement in 2005 with CSMC Manufacturing Co, Ltd, located in China |
| Production is expected to begin the second half of 2006 |
| The contract does not have an expiration date and is cancelable upon twenty-four months prior written notice to terminate the agreement |
| Our agreement with Infineon provides for fixed prices and a guaranteed purchase commitment and may be terminated upon two years’ notice |
| We also rely on Team Pacific and PSI Technologies, subcontractors in the Philippines, to assemble and test most of our switching power semiconductor products |
| We also rely on Kyocera as our sole source of ceramic packaging for certain discrete RF power semiconductors |
| We do not have long-term fixed price contracts with any of these key subcontractors other than Infineon |
| Disruption or termination of these arrangements or any capacity constraints that our subcontractors experience could harm our business and operating results |
| Political instability, labor disputes, natural disasters and other factors could disrupt the operations of our subcontractors |
| If any of our subcontractors experience financial, operational, production or quality assurance difficulties resulting in a reduction or interruption in supply to us, our operating results could suffer |
| Additionally, our subcontractors may not be able to maintain the technological capability to meet our future needs |
| Working with such subcontractors may lead to reduced control over product quality and delivery schedules |
| In addition, our subcontractors also manufacture and package products for our competitors, and there is a risk that our subcontractors could allocate less of their production capacity and resources to our needs or demand price increases |
| If our subcontractors fail to provide needed products and services in a timely and cost effective manner, our revenue, business and results of operations may suffer |
| Interruptions in wafer production may harm our operating results |
| Any prolonged inability to utilize our Bend, Oregon, Santa Clara, California or third party foundries as a result of fire, natural disaster or otherwise could harm our financial condition and cause our operating results to suffer |
| While we do carry business interruption insurance, there is no assurance that it would be available or sufficient in the event that one of our facilities was rendered unavailable |
| Also, at times, there are shortages of foundry capacity in the industry |
| For example, in 2000, our sales were limited by the wafer fabrication capacity available to us |
| If we are not able to obtain additional foundry capacity as required, our relationships with our customers may be harmed and our sales would likely be limited |
| We may not be able to make 13 ______________________________________________________________________ arrangements for additional foundry capacity in a timely fashion or at all, and such arrangements, if any, may not be on terms favorable to us, and could entail significant delay and additional expense |
| In addition, qualifying a new foundry could require the consent of or requalification by our customers |
| Moreover, if we are able to secure additional foundry capacity, we may be obligated to utilize all of that capacity or incur penalties |
| These penalties may be expensive and could harm our operating results |
| Intellectual property litigation may harm our business |
| The semiconductor industry in general is characterized by frequent litigation regarding patent and other intellectual property rights |
| This may require us to defend against assertions of intellectual property infringement or misappropriation raised by our competitors |
| If we are unable to successfully defend against such assertions, we may be exposed to substantial liability for damages, need to obtain licenses from the intellectual property owners, discontinue or change our processes or products, and/or expend significant resources to develop or acquire non-infringing technologies (if at all possible) |
| We cannot be certain that licenses would be available under reasonable terms or that we could successfully develop or acquire non-infringing technologies |
| Moreover, any such efforts would likely be time-consuming and consume significant management and financial resources |
| Thus, any involvement in intellectual property litigation could harm our operating results and financial condition |
| We also have certain indemnification obligations to customers with respect to the infringement of third party intellectual rights by our products |
| No assurance can be provided that future assertions of infringement or misappropriation will not occur, or that claims for indemnification by customers of our products will not be made, or that assertions of infringement or misappropriation (especially if proven to be true) will not harm our business |
| If we cannot adequately protect our technologies and intellectual property rights, our financial results may suffer |
| Our success depends on our ability to obtain and maintain protection of certain proprietary technologies used in our principal products |
| We rely on a combination of patents, trade secret laws and contractual provisions to protect our technologies |
| Our competitors may independently develop technologies that are as good as or better than ours, and absent patent protection, we would be unable to stop their use of such independently developed technologies |
| The process of seeking patent protection can be long and expensive, and we cannot assure you that our current patents are or any new patents that may be issued will be of sufficient scope or strength to provide any meaningful protection or any competitive advantage to us |
| Although none of our patents or other intellectual property rights has been successfully challenged to date, we cannot assure you that any patent owned by us will not be invalidated, circumvented or challenged |
| In addition, we have licensed a portion of our intellectual property rights to European and Japanese entities and entered into two joint ventures and licensing and technology transfer agreements in China |
| The China agreements were subsequently terminated |
| We cannot assure you that these foreign entities have at all times remained within the scope of their contractual obligations with respect to our technology and intellectual property, or that other foreign entities have not infringed or misappropriated our intellectual property |
| Intellectual property law and practice differs in foreign jurisdictions, and it may prove difficult for us to protect our rights in foreign countries |
| If we are unable to protect our technology and intellectual property rights, whether in the US or abroad, we could face increased competition in the market for our products and technologies, or possibly even exclusion from the market |
| This would negatively affect our ability to maintain or expand our business, and thus our revenue |
| If our manufacturing processes become obsolete, our margins and profitability may be harmed |
| Semiconductor design and process methodologies are subject to rapid technological change, requiring large expenditures for research and development in order to improve product performance and increase manufacturing yields |
| Our current process technology is likely to become obsolete at some point in the future |
| If we are unable to develop or obtain access to advanced silicon wafer processing technologies as they become needed, our future operating results may suffer |
| Our business is subject to risks associated with operations in foreign countries |
| In 2005, approximately 37prca of our revenue was from customers located outside of the US In addition, some of our manufacturing operations are not in the US The following are some of the risks inherent in doing business on an international level: • economic and political instability; • foreign currency fluctuations; 14 ______________________________________________________________________ • transportation delays; • trade restrictions; • work stoppages; • disruption of local labor supply and/or transportation services; • inflexible employee contracts in the event of business downturns; • government and license requirements governing the transfer of technology and products abroad; • the burden and cost of complying with import and export regulations; • risks of conflict and terrorism; • diseases such as SARS; and • the laws, including tax laws of, and the policies of the United States toward, countries in which we manufacture our products |
| In addition, we have supply agreements, assembly agreements, and other relationships with foreign companies that are subject to similar risks |
| These risks could negatively affect our results of operation |
| We depend on the availability of raw materials to manufacture our products, and a disruption in supply could harm our operating results |
| We rely on raw materials to manufacture our products, including silicon, various chemicals, gases and compounds |
| In particular, we obtain silicon wafers and ceramic packaging through limited sources of supply, and in the event of a shortage, we may be forced to locate alternative sources and be forced to pay higher prices |
| A severe shortage or an increase in the price of silicon wafers or packaging may harm our gross margins and our ability to deliver our products on a timely basis, if at all |
| Our foundries may experience lower than expected yields, which could adversely affect our business |
| The manufacture of power semiconductors is a highly complex and technically demanding process |
| Production yields and device reliability can be affected by a large number of factors |
| As is typical in the semiconductor industry, our foundries have from time to time experienced lower than anticipated manufacturing yields and device reliability problems, particularly in connection with the introduction of new products and changes in processing steps |
| There can be no assurance that our foundries will not experience lower than expected manufacturing yields or device reliability problems in the future, which could materially and adversely affect our business and operating results |
| Our business may be harmed by acts of terrorism |
| For example, we rely extensively on the use of air transportation to move our inventory to and from our vendors and to ship finished products to our customers |
| If terrorist acts cause air transportation to be grounded or interrupted, our business could be harmed |
| In addition, acts of terrorism could cause existing export regulations to be changed, which could limit the extent to which we are allowed to export our products |
| An accident at our manufacturing facilities could cause serious damage for which we could be responsible |
| Our manufacturing operations involve high voltage equipment, explosive gases and hazardous chemicals |
| An accident at our manufacturing facilities could result in serious personal injury or property damage for which we could be held financially responsible and could interrupt our operations, potentially for an extended period of time |
| Any losses in excess of available insurance, and any long-term effects of disrupted operations, could harm our financial results |
| Our products are complex and could contain defects, which could reduce sales of those products or result in claims against us |
| We develop complex and evolving products |
| Despite testing by us and our customers, defects or other performance problems may be found in existing or new products |
| This could result in loss of revenue, loss of market share or failure to achieve market acceptance |
| These defects may also cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts and harm our relationships with our customers |
| Any defects or other problems with our products could result in financial or other damages to our customers who could seek damages from us for their losses |
| 15 ______________________________________________________________________ We may be subject to product liability claims with respect to our products |
| Our products are incorporated into highly expensive equipment such as aircraft, and into products where a failure may have severe consequences, such as defibrillators |
| Our product liability insurance coverage may be insufficient to pay any such claims |
| Product liability insurance may become too costly for us or may become unavailable to us in the future |
| We may not have sufficient resources to satisfy any product liability claims not covered by insurance which would materially and adversely affect our financial position |
| Even an unsuccessful product liability claim would likely be time-consuming and costly to defend |
| Our manufacturing operations involve hazardous substances, and the costs of complying with applicable environmental laws could harm our financial results |
| Our manufacturing operations are subject to various federal, state, local and foreign environmental laws and regulations relating to the management, disposal and remediation of hazardous substances and the emission and discharge of pollutants into the air, water and soil |
| In the conduct of our manufacturing operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state, local and foreign laws |
| The risk of accidental release of such materials cannot be completely eliminated, and if such an accidental release occurs, we could be held financially responsible for clean-up costs and other consequences of the release |
| In addition, if environmental laws become more stringent over time, or existing laws are more stringently enforced, we could incur greater compliance costs and be subject to increased risks and penalties for violations |
| We could be held liable for significant damages for violating environmental laws and could lose certain licenses or permits, which could harm our financial results |
| Failure to attract and retain key technical and management personnel could harm our operating results |
| Our success depends upon the continued service of our executive officers and other key management and technical personnel, particularly our development engineers, and on our ability to continue to attract, retain and motivate qualified personnel, particularly experienced development engineers, applications engineers and sales managers |
| The loss of the services of one or more of our executive officers, development engineers or other key personnel or our inability to recruit replacements for such personnel or to otherwise attract, retain and motivate qualified personnel could harm our business |
| We do not currently carry life insurance payable to us with respect to any of our employees |
| If we fail to manage our growth effectively, we may lose business and experience reduced profitability or increased losses |
| We have at times experienced rapid revenue growth, and we anticipate future growth if demand increases in the markets for our products |
| To manage this growth successfully, we will need to manage increased production requirements, attract, retain and train new employees, including engineers and management, improve our operational and administrative systems, and manage multiple relationships with customers and suppliers |
| We may be unable to accomplish any of these requirements, and our failure to do so could harm our operating results |
| We may not be able to consummate future acquisitions or integrate acquisitions successfully into our business |
| We have made four acquisitions since we became a public company in August 2000, and we plan to pursue additional acquisitions of related businesses |
| The expense incurred in consummating the future acquisition of related businesses, or our failure to integrate such businesses successfully into our existing businesses, could result in our company incurring unanticipated expenses and losses |
| In addition, we may not be able to identify or finance additional acquisitions or realize any anticipated benefits from acquisitions we do complete |
| In the event of future acquisitions, we could: • use a significant portion of our available cash; • issue equity securities that would dilute current stockholders’ percentage ownership; • incur substantial debt; or • assume contingent liabilities |
| Should we successfully acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations |
| Some of the risks associated with acquisitions include: • difficulties in the assimilation of acquired operations, technologies or products; • unanticipated costs associated with an acquisition or joint venture; • potential asset write-downs; • adverse effects on existing business relationships with customers; and • potential loss of key employees of acquired organizations |
| 16 ______________________________________________________________________ Our ability to successfully manage these risks could be limited by the small size of our management team |
| The occurrence of any of these risks may result in a decrease in the value of our assets and may harm our business and results of operations |
| Our reported financial results may be harmed by changes in US generally accepted accounting principles |
| We prepare our financial statements in conformity with US generally accepted accounting principles, or GAAP These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission and various bodies formed to create and interpret accounting policies |
| A change in these policies or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change |
| For example, while current accounting rules allow us to exclude the expense of stock options from our financial statements, the Financial Accounting Standards Board finalized SFAS Nodtta 123R “Share Based Payment” in December 2004, which will require us to expense stock options |
| We are currently evaluating the p rovisions of FAS 123R and expect that the adoption will have a material impact on the Company’s consolidated results of operations |
| This new accounting policy will be effective in the first quarter of 2006 |
| Recently enacted and proposed changes in securities laws and regulations may increase our costs |
| The Sarbanes-Oxley Act of 2002 that became law in July 2002, as well as rules subsequently implemented by the Securities and Exchange Commission and the Nasdaq Stock Market, have required changes to some of our accounting and corporate governance practices, including a report on our internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002 |
| We expect these rules and regulations to continue to create additional costs and overhead absent the requirement |
| These rules and regulations have made, and we expect will continue to make, it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage |
| These additional expenses have and may continue to reduce our profits or increase our losses |
| These rules and regulations could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our audit committee |
| Investment Risks The price of our common stock may fluctuate widely in the future |
| The trading price of our common stock has been and is expected to be subject to wide fluctuations in response to: • quarter-to-quarter variations in our operating results; • general conditions or cyclicality in the semiconductor industry or the end markets that we serve; • new or revised earnings estimates by us or industry analysts; • comments or recommendations issued by analysts who follow us, our competitors or the semiconductor industry; • aggregate valuations and movement of stocks in the broader semiconductor industry; • announcements of new products, strategic relationships or acquisitions by us or our competitors; • increases or decreases in available wafer, assembly or test capacity; • governmental regulations, trade laws and import duties; • announcements related to future or existing litigation involving us or any of our competitors; • announcements of technological innovations by us or our competitors; • additions or departures of senior management; and • other events or factors, many of which are beyond our control |
| In addition, stock markets have experienced extreme price and trading volume volatility in recent years |
| This volatility has had a substantial effect on the market prices of securities of many technology companies for reasons frequently unrelated to the operating performance of specific companies |
| These broad market fluctuations may adversely affect the market price of our common stock |
| Five members of management, as a group, own a significant interest in our common stock |
| As of December 31, 2005, five members of our senior management (Messrs |
| Sireta, Crecraft, Haugen, Loder and Tsang) beneficially owned approximately 34dtta2prca of our outstanding shares of common stock |
| As a result, these members of management exercise significant influence over all matters requiring stockholder approval |
| The concentrated holdings of management may result in a delay of, or serve as a deterrent to, possible attempts to take us over, which may reduce the market price of our common stock |
| 17 ______________________________________________________________________ Our articles of incorporation and Delaware law contain provisions that may hinder or prevent a change in the control of our company |
| The authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to take us over |
| Also, we are subject to provisions of Delaware law that may have similar effects |
| For example, we are governed by Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15prca or more of our outstanding voting stock |
| These and other provisions in our articles of incorporation or under Delaware law may defer hostile takeovers or delay changes in control or management, which could reduce our stock price |