Apple, GT Reach Deal on Winding Down Sapphire-Materials Production: Update
5:55p ET October 23, 2014 (Dow Jones) Print
Apple, GT Reach Deal on Winding Down Sapphire-Materials Production: Update
By Peg Brickley And Daisuke Wakabayashi
GT Advanced Technologies Inc. and Apple Inc. announced Thursday they reached an agreement on terms for the wind-down of sapphire-materials production in GT's Mesa, Ariz. and Salem, Mass. locations.
First mentioned in court, the pact is termed a "settlement" by Apple, which didn't use sapphire from GT Advanced for its latest-generation smartphones.
In a statement from an Apple spokeswoman, the company said, "Apple put a lot of effort into an ambitious new sapphire-manufacturing process with GTAT which is not ready for production. We're going to continue evaluating GTAT's progress on larger sapphire boule development, as well as consider other options for the facility. We remain committed to the city and we're going to work with Mesa and Maricopa County to help the GT Advanced employees who will be impacted by this find new jobs."
After filing for Chapter 11 protection Oct. 6 in U.S. Bankruptcy Court in Manchester, N.H., GT Advanced said it would get out of the business of making sapphire materials.
GT Advanced chief executive Tom Gutierrez said in a statement that the company is working "to develop a restructuring plan that will allow us to emerge from Chapter 11 as quickly as possible and with the operating flexibility and resources to position GT for long term success."
According to a news release from GT Advanced, the settlement with Apple releases GT from "exclusivity obligations under its various agreements with Apple." GT will own "production, ancillary and inventory assets located in Mesa" under the pact. Apple, in return, gets "a mechanism for recovering its $439 million prepayment made to GT."
At a time when Apple was considering using GT Advanced's synthetic sapphire material in the screens for its iPhones, the technology giant extended $578 million worth of financing to set GT Advanced up in the business. Some $439 million of the money had been advanced before GT Advanced filed for bankruptcy. Apple used Corning Inc.'s Gorilla Glass for its new iPhone screens.
The settlement also provides that Apple and GT Advanced release all claims against each other. What those claims might be remains to be seen.
GT Advanced Technologies agreed to the settlement weeks into a case where critical court papers remain under seal. Court papers that set out, on the one hand, the reason for GT Advanced's surprise bankruptcy filing, and, on the other hand, Apple's position on the relationship between the two companies, were filed under seal.
That has left creditors and shareholders wondering what, if anything, their claims are worth in a bankruptcy that caught them by surprise. A GT Advanced spokesman Thursday did not respond to questions about whether the Chapter 11 proceeding will leave unsecured creditors and shareholders with any value.
Dow Jones & Co, publisher of The Wall Street Journal, U.S. Trustee William Harrington, a Department of Justice lawyer charged with monitoring the bankruptcy courts, and New Hampshire Attorney General Joseph Foster have challenged the secrecy in the case as illegal.
GT Advanced has said terms of its contract with Apple, a contract it has moved to terminate, could expose it to $50 million in damages for breaching confidentiality provisions. Apple has not filed papers explaining what it seeks to protect by keeping the papers under seal. Instead, GT Advanced and Apple struck a settlement that depends on getting a court order striking from the court record all copies of GT Advanced's explanation of its bankruptcy, and Apple's position on the contract. The court order will also require anyone in possession of the documents to destroy all copies.
The settlement papers haven't yet been filed with the bankruptcy court, which is being asked to approve them. According to the news release, GT Advanced will file those papers Monday with a hearing on the deal slated for Nov. 25.
Write to Peg Brickley at peg.brickley@wsj.com and Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
