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INTERNATIONAL BUSINESS MACHINES CORP. v. MARTSON

February 5, 1999

INTERNATIONAL BUSINESS MACHINES CORPORATION, PLAINTIFF,
v.
STEPHEN C. MARTSON, DEFENDANT.



The opinion of the court was delivered by: McMAHON, District Judge.

DECISION AND ORDER

This is a motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. On October 1, 1998, Plaintiff International Business Machines Corporation ("IBM") brought this action for breach of contract against Defendant Stephen Martson ("Martson"), a former employee of IBM. The complaint alleges that Martson violated his stock option agreements by exercising stock options within six months of working for a competitor and by subsequently failing to repay to IBM the profits that he realized from the exercise.

Background

IBM is a manufacturer of personal computers with its principal place of business in New York. The corporation employed Martson for a period of two years, from 1996 to 1998. Martson served as Vice President of Procurement in North Carolina.

IBM maintained a 1994 Long Term Performance Plan ("Plan") in order to keep key senior employees loyal to the company. The "Objective" provision of the Plan described why IBM initiated the Plan:

1. Objective

  "The IBM Long Term Performance Plan is designed to
  attract and retain executives and other selected
  employees whose skills and talents are important to
  the Company's operations, and reward them for making
  major contributions to the success of the Company.
  These objectives are accomplished by making long-term
  incentive awards under the Plan, thereby providing
  participants with a proprietary interest in the
  growth and performance of the Company."

Pursuant to the "Eligibility" provision of the Plan, employees are eligible for an award when, in the judgment of the committee administering the plan or in the judgment of the management of the company, the employee can have a significant effect on the success of the company.

After an employee receives a stock option award and acknowledges acceptance of the terms of a stock option agreement, the award becomes exercisable pursuant to a schedule set forth in the agreement. The stock option award, however, is subject to forfeiture under certain circumstances:

13. Cancellation and Recission of Awards

  (a) "A Participant shall not render services for any
  organization or engage directly or indirectly in any
  business which, in the judgment of the chief
  executive officer of the Company or other senior
  officer designated by the Committee, is or becomes
  competitive with the Company, or which organization
  or business, or the rendering of services to such
  organization or business, is or becomes otherwise
  prejudicial to or in conflict with the interests of
  the Company . . ."
  (d) "[F]ailure to comply with the provisions of
  paragraph (a) of this Section 13 prior to, or during
  the six months after, any exercise, payment or
  delivery pursuant to an Award shall cause such
  exercise, payment or delivery to be rescinded. The
  Company shall notify the Participant in writing of
  any such recission within two years after such
  exercise, payment or delivery. Within ten days after
  receiving such notice from the Company, the
  Participant shall pay to the Company the amount of
  any gain realized or payment received as a result of
  the rescinded exercise, payment or delivery pursuant
  to an award . . ."

Martson received two awards: one on April 15, 1996 and another on March 13, 1997. After receiving the 1996 grant, he signed a Stock Option Agreement, in which he acknowledged reading the terms of the Plan. The agreement further stated:

  "In consideration of this option grant, you agree to
  comply with the requirements of the Plan and this
  Agreement, specifically those portions relating to
  cancellation and rescission of `Awards'"

After receiving the 1997 grant, Martson made an audio recording acknowledging that he had read and agreed to the terms of the 1997 stock option agreement, which contained the same ...


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