GTAT Blames ‘Burdensome’ Apple Terms in Sapphire Halt

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GT Advanced Technologies Inc. asked for bankruptcy court permission to shut down its synthetic-sapphire operations, citing terms of a contract with Apple Inc. that it called “oppressive” and “burdensome.”

GT Advanced, based in Merrimack, New Hampshire, filed for bankruptcy this week, less than a year after announcing an agreement to supply sapphire to Apple. The substance is used to make screens on mobile devices more durable. The company told the court today that it was going through cash too fast and must halt operations in Mesa, Arizona, and Salem, Massachusetts, by Dec. 31, at a cost of 890 jobs.

“The cash burn at GTAT’s sapphire manufacturing operations for the benefit of Apple is not sustainable,” the company said in court papers. “The relief requested in the wind-down motion is necessitated by GTAT’s liquidity crisis and the substantial daily cash burn of in excess of $1 million with respect to such operations.”

GT Advanced in November announced a multiyear agreement to supply Apple with sapphire. It lined up $578 million in prepayment loans from Apple to pay for equipment to make the material, which wasn’t included in the latest version of the iPhone. The final payment of about $139 million was expected this month.

‘Preserving Jobs’

Kristin Huguet, a spokeswoman for Cupertino, California-based Apple, today referred questions to its previous statement on GT Advanced’s bankruptcy filing:

“We are focused on preserving jobs in Arizona following GT’s surprising decision, and we will continue to work with state and local officials as we consider our next steps.”

GT Advanced dropped 37 percent to about 81 cents at 4:36 p.m. today in New York trading. The shares traded above $11 before the Oct. 6 bankruptcy filing.

“While we continue to explore all options with regards to our Mesa and Salem facilities, we recognize and regret the impact that the actions outlined in our bankruptcy court filings of this morning may have on valued GT employees,” Jeff Nestel-Patt, a GT Advanced spokesman, said in an e-mailed statement.

GT Advanced is also seeking permission to compensate 13 employees with incentive bonuses totaling as much as $64,700 for their help closing down the Mesa and Salem plants.

Sealed Documents

The company yesterday asked to file certain documents under seal to avoid violations of confidentiality agreements that it said could have cost it millions of dollars in damages.

“We are not in a position to comment further on the circumstances surrounding our Chapter 11 filing for the reasons outlined at the bankruptcy court hearing Thursday, and which were widely reported in the press,” Nestel-Patt said.

GT Advanced said confidentiality agreements broadly preclude it from disclosing information concerning its business relationship with Apple “except to the extent required by law,” according to court papers.

“Absent express direction from the court, GTAT cannot take the risk that it may become subject to substantial liquidated damages claims by Apple for breach of its confidentiality obligations,” the company said in court papers.

The company is asking the court to make one of two determinations regarding the filing of documents that may breach confidentiality.

If the court finds that the redacted materials are “subject to the confidentiality obligations and entitled to be shielded from public view” under the bankruptcy code then GT Advanced is seeking authorization to file unredacted versions under seal.

Alternative Finding

If the court determines the information is not subject to the confidentiality obligations, then the company is requesting that the court “direct” it to file unredacted versions. GT Advanced thinks this decision is in the best interest of creditors and stakeholders and ensures a transparent and fair process in the cases.

“While parties may have legitimate interest in protecting their trade secrets because disclosure of the ‘secret sauce’ reduces the value of a business, many times the information for which protection is sought does not require the level of protection requested,” the company said in court papers.

An Oct. 15 hearing has been scheduled in Springfield, Massachusetts, on the wind-down motion.

New Lawsuit

Separately, officers of GT Advanced were sued today by an investor alleging that “materially false and misleading” statements and omissions were made that “artificially inflated the price of GTAT common stock and operated as a fraud or deceit” on shareholders, according to court papers in U.S. District Court in New Hampshire.

Thomas Gutierrez, chief executive officer; Richard Gaynor, former chief financial officer; and Kanwardev Raja Singh Bal, chief financial officer, were named in the suit filed by Marlene Elizabeth Holland, who is seeking class-action status.

“When defendants’ prior misrepresentations and fraudulent conduct were disclosed to the market on October 6, 2014, the price of GTAT securities fell precipitously,” lawyers for Holland said. Shares “declined from $11.05 per share to 80 cents per share, or almost 93 percent on heavy trading volume.”

The bankruptcy case is In re GT Advanced Technologies Inc., 14-11916, U.S. Bankruptcy Court, District of New Hampshire (Manchester). The lawsuit is Holland v. Gutierrez, 14-cv-445, U.S. District Court, District of New Hampshire (Concord).

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