Crucial 2012 Annual Report Download - page 14

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We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve
numerous risks including the following:
• integrating the operations, technologies and products of acquired or newly formed entities into our operations;
• increasing capital expenditures to upgrade and maintain facilities;
• increased debt levels;
• the assumption of unknown or underestimated liabilities;
• the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital
expenditures, research and development expenditures and other business activities;
• diverting management's attention from normal daily operations;
• managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
• hiring and retaining key employees;
• requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which
may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
• inability to realize synergies or other expected benefits;
• failure to maintain customer, vendor and other relationships;
• inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures,
and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
• impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological
advancements or worse-than-expected performance of the acquired business.
In recent years, supply of memory products has significantly exceeded customer demand resulting in significant declines in
average selling prices of DRAM, NAND Flash and NOR Flash products. Resulting operating losses have led to the
deterioration in the financial condition of a number of industry participants, including the liquidation of Qimonda AG and the
recent bankruptcy filing by Elpida Memory, Inc. These types of proceedings often lead to confidential court-directed processes
involving the sale of related businesses or assets. We believe the global memory industry is experiencing a period of
consolidation as a result of these market conditions and other factors, and we have engaged, and expect to continue to engage,
in discussions regarding potential acquisitions and similar opportunities arising out of these industry conditions, such as our
pending acquisition of Elpida. To the extent we are successful in completing any such transactions, we could be subject to
some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration
challenges and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, high-technology
companies are inherently risky and may not be successful and may materially adversely affect our business, results of
operations or financial condition.
Our pending acquisitions of Elpida and Rexchip involve numerous risks.
On July 2, 2012, we entered into a sponsor agreement with the trustees of the Elpida Companies that provides for, among
other things, our acquisition of 100% of the equity of Elpida. Under the sponsor agreement, we committed to support plans of
reorganization for the Elpida Companies that would provide for payments to the secured and unsecured creditors of the Elpida
Companies in an aggregate amount of 200 billion yen (or approximately $2.5 billion), less certain expenses of the
reorganization proceedings and certain other items. As a condition of the sponsor agreement, we deposited 1.8 billion yen (or
approximately $23 million) into an escrow account in July 2012 which will be applied to the share acquisition payments at
closing. Of the aggregate amount, we will fund 60 billion yen (or approximately $750 million) through a cash payment to
Elpida at the closing, in exchange for 100% ownership of Elpida's equity. The remaining 140 billion yen (or approximately
$1.75 billion) of payments will be made by the Elpida Companies in six annual installments payable at the end of each calendar
year beginning in 2014, with payments of 20 billion yen (or approximately $250 million) in each of 2014 through 2017, and
payments of 30 billion yen (or approximately $375 million) in each of 2018 and 2019.
On that same date, we entered into a share purchase agreement with Powerchip and certain of its affiliates, under which we
will purchase approximately 714 million shares of the common stock of Rexchip, a manufacturing joint venture formed by
Elpida and Powerchip, for approximately 10 billion New Taiwan dollars (or approximately $334 million). If the transactions
contemplated by these two agreements are completed, we will own 100% of Elpida and, directly or indirectly through Elpida,
approximately 89% of Rexchip.