GTAT Creditors Worry Apple Getting Off Easy In $439M Deal Share us on: By Andrew Scurria Law360, New York (December 05, 2014, 5:49 PM ET) -- Apple Inc.’s $439 million settlement with bankrupt GT Advanced Technologies Inc. came under fire Friday from unsecured GT creditors saying it appears to let Apple off easy for pushing the onetime partners’ disastrous sapphire production venture. An investigation into the fairness of the proposed settlement has raised serious questions about the wisdom of waiving all potential claims against Apple and satisfying its secured debt in full, according to a preliminary objection filed by GT's unsecured creditors' committee. The committee is still hunting for evidence that the deal is overly generous to Apple, which GT has publicly blamed for its abrupt descent into Chapter 11. At least three Apple executives are scheduled for questioning on Monday, and the committee said it would supplement the objection if necessary after those depositions. U.S. Bankruptcy Judge Henry J. Boroff is slated to hear arguments for and against the settlement on Wednesday. “The debtors provide scant detail is support of the settlement, effectively asking the court to exercise conjecture in weighing the benefits of settlement against the pursuit of claims against Apple,” the objection said. “Although discovery to date provides some support for the debtors‘ allegations, the committee is not yet in a position to render a decision on whether the settlement is fair and equitable.” The committee added that even if it agreed with the general settlement parameters proposed by GT, several aspects of the current version would unacceptably eat into creditor recoveries and hinder the debtor’s ability to reorganize as a going concern. The deal is designed to let GT exit its failed sapphire production business, wind down an Arizona facility and sell off close to 2,100 sapphire-making furnaces there, with a cut of the proceeds going to satisfying $439 million in loans that Apple extended. The furnaces were at the heart of an ambitious venture to create sapphire for scratch-resistant screens on Apple smartphones that left the two companies wound up at each other’s throats once the technology proved unviable. The dispute has focused attention on the strict requirements Apple places on its suppliers as it guards the secrecy of a lucrative intercontinental product pipeline. GT's unexpected bankruptcy took Wall Street by surprise and unfolded in a highly secretive fashion due to an airtight confidentiality agreement between the companies.
Key documents, including GT’s initial explanation of the bankruptcy, were kept under seal. The settlement was initially conditioned on keeping those details secret, but Apple and GT kept it intact after Judge Boroff ordered the key document unsealed. In the filing, GT executive Daniel Squiller called out Apple for using a “classic bait-and-switch strategy” to strike an “onerous and massively one-sided deal” and blamed the technology giant for the cost overruns and technical problems that felled the project. Apple initially pitched a deal last year under which it would buy 2,600 sapphire-growing furnaces from GT, which GT would operate on Apple's behalf. After negotiations, however, Apple demanded that it finance GT’s entry into the production business instead, then interfered with the operations and repeatedly changed its technical specifications. Other creditors have been conducting discovery since the deal was announced, to determine if GT could prevail on litigation subordinating Apple’s debt claim or challenging its collateral rights. “Such allegations could result in substantial claims against Apple to offset the $1 billion of costs the debtors incurred, as well as eliminating or subordinating any valid surviving claim by Apple against the estates,” the committee’s objection said. A group of bond investors with $249 million on the line have also chimed in to question the deal, pointing to the "extraordinary allegations" of Apple's anti-competitive conduct that would be released. Acting jointly with the committee, the bondholders demanded this week that Apple make a senior executive available for questioning and produce unredacted versions of an intercompany email chain. Apple, which had initially refused both requests, reversed itself after the creditors went to Judge Boroff, according to court records. The unsecured creditors' committee is represented by Steven E. Grill and Charles R. Powell of Devine Millimet & Branch PA; and James S. Carr and Jason R. Adams of Kelley Drye & Warren LLP. Apple is represented by Gary T. Holtzer, Michael F. Walsh, Bruce S. Meyer, Robert J. Lemons, Lori L. Pines and Mark I. Bernstein of Weil Gotshal & Manges LLP; Christopher R. Mirick of Pillsbury Winthrop Shaw Pittman LLP; and Gregory A. Moffett and John M. Sullivan of Preti Flaherty Beliveau & Pachios Chtd. LLP. GT is represented by Luc A. Despins, James T. Grogan and Andrew V. Tenzer of Paul Hastings LLP; and Holly J. Barcroft and Daniel W. Sklar of Nixon Peabody LLP. The case is In re: GT Advanced Technologies Inc. et al., case number 1:14-bk-11916, in the U.S. Bankruptcy Court for the District of New Hampshire.
