Sept. 23, 2002 – Santa Clara, CA – Nine individuals have filed a $25 million suit in Santa Clara County California Superior Court against SUMCO Oregon Corp., a company formed from Mitsubishi Silicon America (MSA), Mitsubishi Materials Corp. (MMC), Sumitomo Metals Industries (SMI), Sumitomo Mitsubishi Silicon Corp. (SMSC), and SUMCO USA Corp.
The plaintiffs assert that the defendants have denied them benefits owed as a result of the recent merger of the silicon wafer businesses of Mitsubishi and Sumitomo in February.
The merger allegedly resulted in the reorganization of SUMCO Oregon and the termination of most of its US-based executive team, including many of the plaintiffs. The plaintiffs believe these actions are an inexcusable breach of commitment and are the culmination of a long-standing plan and effort to deny their benefits.
The suit filed by nine previous SUMCO Oregon senior executives and led by former SUMCO Oregon Chairman and CEO Chet Brauch, charges the defendants with eight claims, including breach of contract for defaulting on their long-term incentive plan (LTIP). (The LTIP is a deferred compensation vehicle provided to participating executives and was used by the defendant primarily as a recruiting and retention tool to compete with compensation programs for senior executives by American companies. The plan was created in 1999 by a consulting firm that specializes in executive compensation plans at the request of MMC and SUMCO Oregon.)
The plaintiffs asserted that their former employer, SUMCO Oregon, took action designed to defeat the LTIP without the participation of Chet Brauch, MSA chairman, CEO, and head of the compensation committee. Additionally, the plaintiffs claim that the Japanese dominated board of directors presented an amended LTIP at their board of directors meeting just prior to the merger without proper pre-review and agenda notification of US directors and “railroaded” through a vote. Finally, the plaintiffs claim that Mitsubishi and Sumitomo conspired to deny the promised benefits and implemented a reorganization that strips out the value of Sumco Oregon.
The filing resulted from the defendants’ unwillingness to acknowledge change of control for purposes of the LTIP.
A merger in February 2002 between MMC and SMI, coupled with company reorganization and executive management changes, triggered the LTIP’s accelerated vesting and payout for SUMCO Oregon participants. SUMCO USA restructured SUMCO Oregon’s 10-member executive staff by terminating five of seven of its US participants while three Japanese ex-pats were transferred to executive positions within the US, according to the plaintiffs.
Chet Brauch, former chairman and CEO of SUMCO Oregon, stated “We are extremely disappointed that the defendants have not seen fit to honor their contract with us. We all have worked diligently over the past three years to create a leadership position for SUMCO Oregon in the silicon industry. Our incentives were tied to performance and we feel that we have done an outstanding job of creating sales revenue increases for SUMCO Oregon of 67% over the 1998 – 2000 period when the market grew 38%. In our opinion, actions have been taken by SUMCO Oregon in order to deny the plan participants the benefits they were originally promised under the long term incentive plan.”