IC group Zilog's rescue plan took a step forward this week as a clutch of its largest debt holders struck a preliminary agreement to convert most of their interest into shares.
The company said in July that its cash resources would not see it through to the end of the year.
The deal with bondholders covers $280m in senior debt which will now convert into equity and a $30m non-recourse note.
The next likely move by Zilog is a filing for Chapter 11 bankruptcy protection under US accounting regulations. The filing, which depends on the formalising of the bondholder deal, will still allow Zilog to continue trading with customers.
Jim Thorburn, who returned to Zilog as CEO in the Spring, said: "We have made significant progress in returning Zilog to full financial health. We have a cash flow positive business."
Thorburn did not comment as to whether the company still needs to raise capital in addition to restructuring its debt to ensure its future, or whether it is now in a position to trade its way out of its difficulties.
For its Q3 2001, Zilog reported earnings before interest, tax, depreciation and amortisation of $6.6m on sales of $42.7m. Bookings were up 26% sequentially and its book-to-bill ratio stood at 1.1.
The company's problems became apparent when its sales dropped for calendar 2000 to $239.2m from the previous year's $245.1m despite a then buoyant market.
The fall was blamed on a disasterous diversification away from Zilog's core microprocessor and microcontroller lines.