Former Execs Sue Wafer Manufacturer for Breach of Contract

09/22/02
By: Margaret Quan, EE Times

MANHASSET, N.Y. — Nine former executives of silicon wafer manufacturer SUMCO Oregon Corp. have filed a $25 million suit in Santa Clara County California Superior Court claiming they were denied compensation owed them as the result of the February 2002 merger of the silicon operations of Mitsubishi Materials Corp. and Sumitomo Metal Industries Ltd., which formed SUMCO.

The suit alleges that the merger resulted in the reorganization of SUMCO Oregon and the termination of most of its U.S.-based executive team. It charges defendants with breach of contract regarding a long-term incentive plan for executives who had worked for Mitsubishi Silicon America, then for SUMCO Oregon.

In a press release, plaintiffs said the actions of the defendants were an "inexcusable breach of commitment" rather than cost-cutting moves necessitated by the semiconductor industry downturn.

Named as defendants in the suit are SUMCO Oregon; Mitsubishi Materials Corp.; Sumitomo Metals Industries; Sumitomo Mitsubishi Silicon Corp.and SUMCO USA Corp.
SUMCO USA president Kaz Nagano declined to comment when contacted by phone, saying he had not yet received the filing. His company and the other defendants have 30 days to respond to the suit.

The plaintiffs claim their employer altered the long-term incentive plan (LTIP) without the participation of Charles Brauch, then chairman and chief executive officer of Mitsubishi Silicon America and the head of its compensation committee.

The plaintiffs also charge that the company's Japanese-dominated board of directors presented an amended LTIP at their board meeting prior to the merger without proper notification of U.S. directors, then "railroaded" through a vote, according to the plaintiffs' press release.

The suit also claims that Mitsubishi and Sumitomo conspired to deny promised benefits and implemented a reorganization plan that reduced the value of SUMCO Oregon "so that [SUMCO Oregon] could never achieve the kind of objectives needed for the LTIP," said Brauch, lead plaintiff in the case.

U.S. corporations use long-term incentive plans to retain top executives; the plans typically feature a payout of either cash or equity when certain financial goals are met. Foreign firms use the plans to attract top American talent. A consulting firm created SUMCO Oregon's LTIP plan in 1999 at the request of Mitsubishi Materials and SUMCO Oregon.

Brauch, 65, became chairman and chief executive officer of Mitsubishi Silicon America in 2000. He said the case involves "principle" because Mitsubishi "came after me" to run the company and he sold his own business in New York and relocated to Oregon to do so.

Compensation expert Dan Moynihan, principal of Compensation Resources Inc. (Upper Saddle River, N.J.), said litigation over LTIPs is not uncommon. Foreign companies often try to change terms of LTIPs that provide cash payouts to executives, he said. In such cases, top executives are often left holding the bag because "it's difficult to determine the jurisdiction of where the crime is committed" when foreign companies are involved, Moynihan said.