Apple wants to file objections to GT Advanced's bankruptcy plan in secret

Apple (NASDAQ: AAPL) wants to secretly file its objections to a bankruptcy filing made by sapphire manufacturing partner GT Advanced Technologies. However, the state of New Hampshire, where GT Advanced field for bankruptcy protection, is challenging that proposal, arguing that the public deserves to know why GT Advanced fell into bankruptcy last week after reassuring investors just a few months ago of its sound financial position.

On Tuesday Apple filed a motion with the bankruptcy court in an effort to make its arguments under court seal, according to Re/code. Apple said it wants to protect sensitive data, including research and development information and other information related to its business dealings.

"The bases for the objection involve confidential research, development, or commercial information regarding Apple's business processes," Apple said, adding it wants to comply with the terms of confidentiality agreements with GT Advanced.

GT Advanced indicated it faced a $50 million penalty for each instance in which it divulged a secret related to Apple's products. The agreements preclude GT Advanced from disclosing details of its business with Apple "except to the extent required by law," according to court filings made last week.

GT Advanced filed for bankruptcy on Oct. 6 and saw its shares plunge 93 percent to 80 cents on the day of the filing. The company now faces a class-action lawsuit from shareholders, who allege that the firm "misrepresented and/or concealed" its financial health, its ability to meet Apple's requirements and its progress on producing the sapphire. GT has said it will cut 890 jobs and shutter factories in Arizona and Massachusetts.

According to Re/code, the New Hampshire's attorney general's office filed a motion that said while the court should protect a company's trade secrets, protecting all of the information on the relationship between Apple and GT Advanced "goes much too far."

"The public interest in learning what transpired, where the debtors made such confident statements publicly very recently while clearly a catastrophic storm was on the horizon, is very high," the state said.

Additionally, the U.S. Trustee supervising GT Advanced's bankruptcy wants the public to know what happened. "Public scrutiny of a debtor's conduct and transparency in the bankruptcy process is essential to fostering confidence among creditors and parties in interest regarding the fundamental fairness of the bankruptcy system," the U.S. Trustee, the Justice Department's bankruptcy watchdog, wrote in court papers urging a judge to order the disclosure, according to Bloomberg.

GT Advanced wants the court to come down one of two ways on documents that may breach the confidentiality agreements. If the court finds that the redacted documents are "subject to the confidentiality obligations and entitled to be shielded from public view" under the bankruptcy code, GT Advanced wants authorization to file unredacted versions under seal, according to Bloomberg. And if the court finds the documents are not subject to the confidentiality agreements, the company asked that the court order it to file unredacted versions. GT Advanced said this decision is in the best interest of its creditors and stakeholders and will lead to a transparent and fair process in the cases.

Meanwhile, a GT Advanced executive set up a plan to sell his shares in the company after it failed to meet Apple's technical milestones on time, according to the Wall Street Journal. GT Advanced COO Daniel Squiller, who had been put in charge of managing the company's Mesa, Ariz., sapphire plant, sold $1.2 million of stock in May and established a plan under which he sold another $750,000 of shares over the next few months before the company filed for bankruptcy, according to filings cited by the Journal.

Squiller's sales came after early signs of trouble at the sapphire plant. Apple last year bought a 1.4-million-square-foot Arizona facility from a solar-panel producer for $113 million and leased it to GT, which has been one of the leading sapphire manufacturers in the world. Apple had agreed to prepay GT $578 million to update the furnaces in the factory used to make synthetic sapphire, and GT had been operating the Arizona factory to produce sapphire exclusively for Apple.

The $578 million in prepayments were basically loans but were only to be paid after GT reached certain technical and financial milestones. According to the Journal, the third payment, of $103 million, was due in February, but Apple did not make it until April, according to GT's securities filings. The final installment of $139 million was due in April, and in August, GT said it expected the payment by October. However, Apple never made the payment because GT did not meet certain requirements, according to unnamed people familiar with the matter who spoke to the Journal. GT Advanced declined to comment, the report said.

Many analysts had expected Apple to launch its new iPhones with sapphire screens this fall, due in part to Apple's agreement with GT. However, the iPhone 6 and 6 Plus screens use traditional glass.

For more:
- see this Re/code article
- see these two separate Bloomberg articles
- see this WSJ article (sub. req.)

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