Crucial 2015 Annual Report Download - page 18

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The operations of the MMJ Companies are subject to continued oversight by the Japan Court during the pendency of
the corporate reorganization proceedings.
Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the
closing of our acquisition of MMJ, the Japan Proceedings are continuing, and the MMJ Companies remain subject to the
oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee,
and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the Japan Proceedings.
The Japan Proceedings and oversight of the Japan Court are expected to continue until the final creditor payment is made under
the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to
the extent any claims of creditors remain unfixed on the final scheduled installment payment date. Although we may be able to
petition the court to terminate the Japan Proceedings once two-thirds of all payments under the plans of reorganization are
made, there can be no assurance that the Japan Court will grant any such petition.
During the pendency of the Japan Proceedings, the MMJ Companies are obligated to provide periodic financial reports to
the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions
relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or
guaranteeing material indebtedness, settling disputes, or entering into certain material agreements. The consent of the legal
trustee may also be required for matters that would likely have a material impact on the operations or assets of the MMJ
Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be
expected to materially and adversely affect execution of the plans of reorganization of the MMJ Companies. Accordingly,
during the pendency of the Japan Proceedings, our ability to effectively integrate the MMJ Companies as part of our global
operations or to cause the MMJ Companies to take certain actions that we deem advisable for their businesses could be
adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take with
respect to the MMJ Companies.
Our Inotera supply agreements involves numerous risks.
Since January 2013, we have purchased all of Inotera's DRAM output at a price reflecting a discount from market prices
for our comparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to
be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the
2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin
between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period,
and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect
to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any
extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would
decline over the wind-down period. Our Inotera supply agreements involve numerous risks including the following:
• higher costs for supply obtained under the Inotera supply agreements as compared to our wholly-owned facilities;
• difficulties and delays in ramping production at Inotera;
• difficulties in transferring technology to Inotera; and
• difficulties in coming to an agreement with Nanya regarding major corporate decisions, such as capital expenditures or
capital structure.
In 2015 and in 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products
manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions.
For 2015, we purchased $2.37 billion of DRAM products from Inotera and our supply from Inotera accounted for 35% of our
aggregate DRAM gigabit production. If our supply of DRAM from Inotera is impacted, our business, results of operations, or
financial condition could be materially adversely affected.