gt advanced technologies sapphire wind down plan

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE

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In re: : Chapter 11

GT ADVANCED TECHNOLOGIES INC., et A,: Case No. 14-11916-HJB

Debtors.' : Jointly Administered

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DEBTORS' EMERGENCY MOTION, PURSUANT TO BANKRUPTCY CODE SECTIONS 105(a) AND 363(b), FOR ENTRY OF ORDER (I) AUTHORIZING

DEBTORS TO WIND DOWN OPERATIONS AT SAPPHIRE MANUFACTURING FACILITIES AND (II) APPROVING WIND DOWN EMPLOYEE INCENTIVE PLAN IN

CONNECTION WITH WIND DOWN OF SUCH OPERATIONS

GT Advanced Technologies Inc. ("GT") and its affiliated debtors as debtors in possession

in the above-captioned cases (collectively, "GTAT" or the "Debtors") hereby submit this motion

(the "Motion"), pursuant to sections 105(a) and 363(b) of title 11 of the United States Code (the

"Bankruptcy Code"), for entry of an order, substantially in the form attached hereto as Exhibit A,

(i) authorizing GTAT to wind down its operations at its sapphire manufacturing facilities in

Mesa, Arizona, and Salem, Massachusetts, and (ii) approving a wind down employee incentive

plan in connection with the wind down of such operations. In support of this Motion, GTAT

respectfully represents:

PRELIMINARY STATEMENT

I. As detailed in the Supplemental First Day Declaration (as defined below), the

cash burn at GTAT's sapphire manufacturing operations for the benefit of Apple is not

The Debtors, along with the last four digits of each debtor's tax identification number, as applicable, are: GT Advanced Technologies Inc. (6749), GTAT Corporation (1760), GT Advanced Equipment Holding LLC (8329), GT Equipment Holdings, Inc. (0040), Lindbergh Acquisition Corp. (5073), GT Sapphire Systems Holding LLC (4417), GT Advanced Cz LLC (9815), GT Sapphire Systems Group LLC (5126), and GT Advanced Technologies Limited (1721). The Debtors' corporate headquarters are located at 243 Daniel Webster Highway, Merrimack, NH 03054.

Case: 14-11916-HJB Doc #: 97 Filed: 10/10/14 Desc: Main Document of 13

sustainable. Therefore, after a careful evaluation of all alternatives, and in consultation with its

advisors, GTAT has determined that in order to preserve the value of its estates it must wind

down its sapphire manufacturing operations in Mesa, Arizona, and Salem, Massachusetts, with

reductions in associated supporting personnel at GTAT's Merrimack, New Hampshire, offices.

Concurrently with the filing of this Motion, GTAT has also filed a separate motion seeking to

reject a series of Apple agreements related to these operations that will no longer be required.

Unfortunately, the wind down of the sapphire manufacturing operations also means the loss of

approximately 890 jobs.2 However, only if GTAT winds down these operations will it be able to

stop its mounting losses and re-focus its resources on the operation of its core business of selling

sapphire furnaces and other products.

2. As detailed in this Motion, GTAT has developed a wind down process (the "Wind

Down Process") that will allow for an orderly wind down by December 31, 2014. In addition,

through this Motion, GTAT seeks authority to establish a modest incentive plan (the "Incentive

Plan") to compensate certain employees that GTAT determines, in its sole discretion, should

remain in its employ to implement the Wind Down Process.

3. For the avoidance of doubt, GTAT is not seeking, at this time, Court authorization

to sell any of its equipment at these facilities outside the ordinary course of business.

JURISDICTION, VENUE AND STATUTORY BASIS

4. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). Venue is

proper pursuant to 28 U.S.C. §§ 1408 and 1409.

This number does not include the approximately 550 temporary workers at the Mesa facility who are employed by a temporary staffing agency. This Motion does not cover any of these temporary workers.

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5. The statutory bases for the relief requested herein are sections 105(a) and 363 of

the Bankruptcy Code.

BACKGROUND

6. On October 6, 2014 (the "Petition Date"), GTAT commenced voluntary cases

under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District

of New Hampshire (the "Court"). GTAT continues to operate its businesses and manage its

properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy

Code. No request for the appointment of a trustee or examiner has been made in these chapter

11 cases and no committees have been appointed or designated.

7. GTAT has requested that these chapter 11 cases be consolidated for procedural

purposes only and jointly administered pursuant to Rule 1015(b) of the Federal Rules of

Bankruptcy Procedure (the "Bankruptcy Rules").

8. Information regarding GTAT's business, capital structure, and the circumstances

leading to these chapter 11 cases is set forth in the Declaration of Daniel W. Squiller in Support

of the Chapter 11 Petitions and First-Day Motions [Docket No. 14] (the "Supplemental First

Day Declaration") and the Supplemental Declaration of Daniel W. Squiller in Support of the

Chapter 11 Petitions and First-Day Motions (the "Supplemental First Day Declaration"), which

are incorporated herein by reference.

GTAT's Business

9. GTAT and its non-Debtor affiliates (collectively, the "GTAT Group") are leading

manufacturers and suppliers of advanced materials and equipment for the global consumer

electronics, power electronics, solar, and LED industries. The GTAT Group designs and sells

high-quality sapphire production equipment and materials for a wide variety of domestic and

international markets, including the consumer electronics market. In addition, the GTAT

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Group's historical business is based in the solar industry, where it is a leading provider of key

polysilicon and photovoltaic equipment, services, and technologies. The GTAT Group is also in

the process of developing and commercializing additional equipment and products, including an

ion implantation equipment tool and advanced solar metallization and interconnect technology.

As of the Petition Date, the GTAT Group employed approximately 1,100 full-time employees in

the United States and abroad, approximately 1,000 of whom work for the Debtors. The stock of

GT is publicly traded under the symbol "GTAT".

10. As of June 28, 2014, the GTAT Group's unaudited and consolidated financial

statements reflected assets totaling approximately $1.5 billion and liabilities totaling

approximately $1.3 billion.

RELIEF REQUESTED

11. By this Motion, GTAT requests entry of an order, substantially in the form

attached hereto as Exhibit A, (i) authorizing GTAT to implement the Wind Down Process at the

sapphire manufacturing facilities in Mesa, Arizona, and Salem, Massachusetts, with reductions

in associated supporting personnel at GTAT's Merrimack, New Hampshire, offices and (ii)

approving the Incentive Plan for those employees that GTAT determines, in its sole discretion,

should remain in its employ for the implementation of the Wind Down Process.

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Process of Winding Down Operations at Mesa Facility and Salem Facility

12. For the reasons set forth in the Supplemental First Day Declaration, GTAT must

wind down its sapphire operations at the Mesa facility and the Salem facility as soon as possible.

This drastic step is necessitated by GTAT's liquidity crisis and the ongoing cash burn from its

operations at these locations. Under these circumstances, it is GTAT's business judgment that a

wind down of these operations represents the best possible avenue to preserve GTAT's business

in the long run.

13. However, merely "pulling the plug" is not a viable option given the significant

value of GTAT's equipment at these facilities (most notably, the sapphire growing furnaces) as

well as the significant value of the sapphire boules that are currently being grown in the furnaces

(a process that can take up to 30 days). For these reasons, GTAT has developed the Wind Down

Process, which will allow GTAT to wind down its sapphire manufacturing operations in as

orderly a manner as possible while preserving the value of its assets. Specifically, the Wind

Down Process consists of the following steps.

14. First, a crew of approximately 75 employees will continue to monitor the sapphire

growth currently in progress, remove the sapphire boules from the furnaces (when ready), and

then prepare the boules for sale (which requires cleaning and further processing). These tasks

are critical. Simply shutting down the furnaces would interrupt the sapphire growth process mid-

stream, resulting in the loss of the entire boule (which, if fully grown, has a market value in

excess of $20,000). GTAT expects that this process will be completed within 30 days of this

Court's approval of this Motion and GTAT's motion to reject the Apple agreements. Thus,

GTAT expects that this phase can be completed by mid-November 2014.

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15. Second, once the sapphire boules have been removed from the furnaces, the

furnaces must be decommissioned and put into "hibernation." This process requires cleaning the

furnaces and initiating a quiescent vacuum mode of operation to prevent contamination and

corrosion of critical components. In addition to the furnaces, GTAT's other equipment,

including the equipment to fabricate the sapphire boules, must also be cleaned and sealed.

Absent this decommissioning, this equipment would lose significant value and could, moreover,

become damaged during transport (if any). GTAT anticipates that this second step will require

approximately 15 employees.

16. Third, GTAT must shut down and clean up the Mesa facility, including the

various supply systems for process cooling water, compressed air, helium, coolant, and power to

the furnaces. In addition, all raw material, work in process, finished goods, and other assets must

be inventoried, put in storage, and secured. GTAT anticipates that these tasks will require

approximately 35 employees. GTAT estimates that steps two and three should be completed by

December 31, 2014.

Wind Down Employees

17. Retaining qualified personnel will be critical to successfully implementing the

Wind Down Process. Without the know-how and experience of these employees, the Wind

Down Process would be chaotic and much value would be lost to the detriment of these estates.

Accordingly, GTAT seeks the approval of the Incentive Plan to compensate employees who

GTAT determines, in its sole direction, should remain in the employ with GTAT for the

implementation of the Wind Down Process.

BASIS FOR RELIEF REQUESTED

18. Pursuant to this Motion, GTAT seeks authority to implement the Wind Down

Process at the Mesa Facility and the Salem Facility, with reductions in associated supporting

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personnel at GTAT's Merrimack, New Hampshire, offices, and take all actions necessary or

appropriate in furtherance thereof.

19. Section 363(b) of the Bankruptcy Code provides that a debtor "after notice and a

hearing, may use, sell, or lease, other than in the ordinary course of business, property of the

estate." 11 U.S.C. § 363(b)(1). In general, a debtor may use property of the estate outside the

ordinary course of its business where the use of such property represents an exercise of the

debtor's sound business judgment.3 Further, "a debtor's business decision should be approved

by the court unless it is shown to be so manifestly unreasonable that it could not be based upon

sound business judgment, but only on bad faith, or whim or caprice."4 In addition, section

105(a) of the Bankruptcy Code confers upon the Court broad equitable powers to fashion relief

in accordance with the policies underlying the Bankruptcy Code.

20. For the reasons described in this Motion, GTAT believes in its business judgment

that a sound business purpose exists to wind down its operations at the Mesa Facility and the

Salem Facility, with reductions in associated supporting personnel at GTAT's Merrimack, New

Hampshire, and to implement the Wind Down Process to preserve and maximize the value of its

assets for the benefit of all its stakeholders. Indeed, given the current state of GTAT's

operations, cash resources, and projected cash burn, winding down these operations represents

the best possible avenue to allow GTAT to re-focus its resources on the operation of its core

business of selling sapphire furnaces and other products.

3

See, e.g., In re Martin, 91 F.3d 389, 395 (3d Cir. 1996) (citing Fulton State Bank v. Schipper (In re Schipper), 933 F.2d 513, 515 (7th Cir. 1991)); Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380, 387 (2d Cir. 1997).

4

In re Aerovox, Inc., 269 B.R. 74, 80 (Bankr.D.Mass.2001) (internal quotation marks and citations omitted); see also Comm. Of Asbestos-Related Litigants and/or Creditors v. Johns-Manville Corp. (In re Johns-Manville Corp.). 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986) ("Where the debtor articulates a reasonable basis for its business decisions (as distinct from a decision made arbitrarily or capriciously), courts will aenerally not entertain objections to the debtor's conduct.")

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Request for Approval of Incentive Plan

21. GTAT also requests authority to implement the Incentive Plan. The Incentive

Plan is designed to ensure that GTAT can wind down its operations properly, prudently, and as

efficiently as possible by encouraging individuals to complete specified wind down tasks.

GTAT believes that the Incentive Plan is critical to the Wind Down Process. It would be

significantly more expensive for GTAT to recruit, hire, and train new employees than to provide

a modest incentive to existing employees that will encourage them to continue to work for

GTAT during the Wind Down Process.

22. The proposed Incentive Plan will apply to those employees who GTAT

determines, in its sole discretion, are required to implement the Wind Down Process. The

proposed Incentive Plan includes the following terms and conditions:

• An employee covered by the Incentive Plan (a "Covered Employee") will be notified of the length of time that such Covered Employee will be asked to stay in the employ of GTAT after the commencement of the Wind Down Process to complete his or her assigned tasks (the "Task Length").

• Covered Employees will continue to be paid for actual time worked at their current base salary rate as of the time that the Task Length is communicated to them plus benefits.

• All GTAT employment policies will remain in place with respect to Covered Employees.

• Upon the earlier of the completion of a Covered Employee's task or the expiration of his or her Task Length, each such employee will be paid a bonus (a "Completion Bonus") up to 15 per cent of the aggregate amount of base salary for the assigned Task Length.

• Completion Bonuses will not be pro-rated, except in the case of death or disability. If GTAT releases a Covered Employee for other than cause prior to the end of his or her assigned Task Length, the Completion Bonus will be paid in full. If the Covered Employee voluntarily terminates his or her employment or is discharged for cause prior to the end of the assigned Task Length, no Completion Bonus will be paid.

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• The Completion Bonus will be credited against any WARN Act notice pay' or similar claims.

• Covered Employees must release GTAT from any and all claims arising out of or in connection with their employment with GTAT.

23. To the extent practicable, GTAT will attempt to use the funds it must pay to

employees under the WARN Act as incentive for Covered Employees to remain in the

company's employ without payment of a Completion Bonus.

24. The expected Task Lengths for the Incentive Plan, and the anticipated number of

employees and costs for each category (including payroll taxes, are as follows:

Task Length Estimated Number of Employees Under Incentive

Program

Estimated Aggregate Completion Bonus

Furnace Monitoring through Completion of Growth: 4 weeks

3 $14,100

Furnace and Fabrication Equipment Shutdown: 4 weeks

4 $13,100

Facility Systems Shutdown & Securing Inventory: 6 weeks

6 $36,500

Total 13 $64,700

25. GTAT reserves the right to modify the Incentive Plan as needed, but consistent

with the terms described above, and request that the estates be authorized to pay total

compensation under the Incentive Plan of up to $64,700.

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Under the Workers Adjustment and Retraining Notification Act of 1988, as amended (the "WARN Act"), in the event of a "mass layoff," the employer must, among other things, pay wages to employees subject to layoff. 29 U.S.C. § 2102, et seq.

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26. The compensation to be provided under the Incentive Plan has been developed by

GTAT in its business judgment based upon GTAT's planning efforts. The Incentive Plan is

designed to assure that employees are incentivized to complete the important task of properly

winding down GTAT's operations at the Mesa facility and the Salem facility.

27. By this Motion, GTAT requests, pursuant to section 363(b) of the Bankruptcy

Code, that the estates be authorized to implement the Incentive Plan. As noted above, section

363(b) of the Bankruptcy Code permits a debtor to use property of the estate outside of the

ordinary course of its business where the use of such property represents an exercise of the

debtor's sound business judgment.6 GTAT believes that the implementation of the Incentive

Plan is justified under these circumstances, will accomplish a sound business purpose and will

assist in the effective and efficient wind down of GTAT's sapphire manufacturing operations at

their Mesa Facility and Salem Facility. Based on their evaluation of available alternatives, the

Debtors have determined that the measures proposed in this Motion are necessary to achieve, and

will achieve, their intended purpose of properly winding down such operations.

28. GTAT submits that the Incentive Plan does not conflict with section 503(c)(1) of

the Bankruptcy Code. Section 503(c)(I) only applies to payments that are meant to induce

insiders to remain with the debtor's business. 11 U.S.C. § 503(c)(l). The term "insider" is

defined in section 101(31) of the Bankruptcy Code to include a "(i) director of the debtor; (ii)

officer of the debtor; (iii) person in control of the debtor; (iv) partnership in which the debtor is a

general partner; (v) general partner of the debtor; or (vi) relative of a general partner, director,

6

See, e.g., In re Martin, 91 F.3d at 395.

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officer, or person in control of the debtor."' None of the Covered Employees fall within any of

these categories.

29. As described herein, the Wind Down Process and the Incentive Plan are supported

by sound business justifications and should be approved by the Court. GTAT submits that the

relief requested in the Motion represents the best possible outcome for GTAT under the

circumstances.

THE REQUIREMENTS OF BANKRUPTCY RULE 6003 ARE SATISFIED

30. Bankruptcy Rule 6003 empowers a court to grant relief within the first 21 days

after the Petition Date "to the extent that relief is necessary to avoid immediate and irreparable

harm." The facts described herein demonstrate that the relief requested in this Motion is

necessary to avoid immediate and irreparable harm to GTAT's business operations and the value

of GTAT's estates, and thus Bankruptcy Rule 6003 has been satisfied to permit such payments.

WAIVER OF BANKRUPTCY RULES 6004(a) AND (h)

31. To implement the foregoing successfully, GTAT seeks a waiver of the notice

requirements under Bankruptcy Rule 6004(a) and the 14-day stay of an order authorizing the use,

sale, or lease of property under Bankruptcy Rule 6004(h).

NOTICE

32. Notice of this Motion has been provided by email, facsimile or overnight courier

to: (a) the Office of the United States Trustee for Region 1, 1000 Elm Street, Suite 605

Manchester, NH 03101, Attn: Geraldine L. Karonis; (b) the creditors holding the 20 largest

unsecured claims against the GTAT entities' estates (on a consolidated basis); (c) the indenture

trustee for the GTAT entities' (i) 3.00% Convertible Senior Notes due 2017, and (ii) 3.00%

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11 U.S.0 § 101(31)(B).

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Convertible Senior Notes due 2020, U.S. Bank National Association, 60 Livingston Avenue, St.

Paul, MN 55107, Attn: Hazrat R. Haniff; (d) the Internal Revenue Service, 1000 Elm St., 9th

Floor Manchester, NH 03101, Attn: District and Regional Directors; (e) U.S. Securities and

Exchange Commission, 100 F Street, NE, Washington, DC 20549; (f) Apple Inc., 1 Infinite

Loop, Cupertino, CA 95014, Attn: Jessica L. Fink, Senior Restructuring Counsel; and (g) those

parties who have formally filed requests for notice in these chapter 11 cases pursuant to

Bankruptcy Rule 2002; and (h) the counterparty to agreements listed on Schedule 1 to the

proposed order.

NO PRIOR REQUEST

33. No previous request for the relief sought herein has been made to the Court or any

other court.

WAIVER OF MEMORANDUM OF LAW

34. GTAT requests that the Court waive and dispense with the requirement set forth

in Rule 7102(b)(2) of the Local Bankruptcy Rules for the United States Bankruptcy Court for the

District of New Hampshire ("LBR") that any motion filed shall have an accompanying

memorandum of law. The legal authorities upon which GTAT relies are set forth in the Motion.

Accordingly, GTAT submits that a waiver of the LBR 7102(b)(2) requirement is appropriate

under these circumstances.

[remainder of page intentionally left blank]

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WHEREFORE, GTAT respectfully requests that the Court enter an order, substantially

in the form attached hereto, granting the relief requested herein and granting GTAT such other

and further relief as is just and proper.

Dated: October 10, 2014

Manchester, NH /s/ Daniel W. Sklar Daniel W. Sklar, Esq. NIXON PEABODY LLP 900 Elm Street Manchester, NH 03101-2031 Telephone: (603) 628-4000 Facsimile: (603) 628-4040

- and -

Luc A. Despins, Esq. Andrew V. Tenzer, Esq. James T. Grogan, Esq. PAUL HASTINGS LLP Park Avenue Tower 75 East 55th Street, First Floor New York, New York 10022 Telephone: (212) 318-6000 Facsimile: (212) 319-4090

Proposed Co-Counsel for GTAT and Debtors in Possession


EXHIBIT A

PROPOSED ORDER

Case: 14-11916-HJB Doc #: 97-1 Filed: 10/10/14 Desc: Proposed Order Exhibit A Page 1 of 4

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE

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In re: : Chapter 11

GT ADVANCED TECHNOLOGIES INC., et al.,: Case No. 14-11916-HJB

Debtors.' : Joint Administration Requested

RE: Docket No.

x

ORDER (I) AUTHORIZING DEBTORS TO WIND DOWN OPERATIONS AT SAPPHIRE MANUFACTURING FACILITIES AND (H) APPROVING

WIND DOWN EMPLOYEE INCENTIVE PLAN IN CONNECTION WITH WIND DOWN OF SUCH OPERATIONS

Upon the motion (the "Motion" )2 of GT Advanced Technologies Inc. ("GT") and its

affiliated debtors as debtors in possession (collectively, "GTAT" or the "Debtors") for entry of

an order, pursuant to sections 105(a) and 363(b) of title 11 of the United States Code (the

"Bankruptcy Code"), authorizing (i) authorizing GTAT to wind down its operations at its

sapphire manufacturing facilities in Mesa, Arizona, and Salem, Massachusetts, and (ii)

approving a wind down employee incentive plan in connection with the wind down of such

operations; and upon consideration of the First Day Declaration and the Supplemental First Day

Declaration; and it appearing that the relief requested is in the best interests of GTAT's estates,

its creditors and other parties in interest; and this Court having jurisdiction to consider the

The Debtors, along with the last four digits of each debtor's tax identification number, as applicable, are: GT Advanced Technologies Inc. (6749), GTAT Corporation (1760), GT Advanced Equipment Holding LLC (8329), GT Equipment Holdings, Inc. (0040), Lindbergh Acquisition Corp. (5073), GT Sapphire Systems Holding LLC (4417), GT Advanced Cz LLC (9815), GT Sapphire Systems Group LLC (5126), and GT Advanced Technologies Limited (1721). The Debtors' corporate headquarters are located at 243 Daniel Webster Highway, Merrimack, NH 03054.

2 Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Motion.


Motion and the relief requested therein in accordance with 28 U.S.C. §§ 157 and 1334; and

consideration of the Motion and the relief requested therein being a core proceeding pursuant to

28 U.S.C. § 157(b); and venue being proper in this Court pursuant to 28 U.S.C. §§ 1408 and

1409; and due and proper notice of the Motion being adequate and appropriate under the

particular circumstances; and this Court having determined that the legal and factual bases set

forth in the Motion establish just cause for the relief granted herein; and upon all of the

proceedings had before this Court; and after due deliberation and sufficient cause appearing

therefor, it is hereby ORDERED THAT:

1. The Motion is GRANTED as set forth herein.

2. The Wind Down Process is hereby approved and ratified in all respects.

3. GTAT is authorized, but not directed, to take any and all actions that are

necessary or appropriate in the exercise of its business judgment to implement the Wind Down

Process at the Mesa Facility and the Salem Facility, with reductions in associated supporting

personnel at GTAT's Merrimack, New Hampshire,.

4. The Incentive Plan is hereby approved and ratified in all respects.

5. GTAT is authorized, but not directed, to execute and deliver any and all

instruments and documents and to take any and all actions necessary or appropriate to

implement, effectuate, and fully perform under and in accordance with the terms of the Incentive

Plan, including, without limitation, making payments to certain employees thereunder.

6. The requirement set forth in LBR 7102(b)(2) that any motion filed shall have an

accompanying memorandum of law is waived.

7. The requirements set forth in Bankruptcy Rule 6003(b) have been satisfied or

otherwise deemed waived.

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8. All time periods set forth in this Order shall be calculated in accordance with

Bankruptcy Rule 9006(a).

9. GTAT is authorized and empowered to take all actions necessary to implement

the relief granted in this Order.

10. This Court retains jurisdiction with respect to all matters arising from or related to

the interpretation, implementation, or enforcement of this Order.

Dated: , 2014 Manchester, NH

HONORABLE HENRY J. BOROFF UNITED STATES BANKRUPTCY JUDGE

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