MARTHA STEWART LIVING OMNIMEDIA INC, S-1, 1999-07-29

MARTHA STEWART LIVING OMNIMEDIA INC
S-1, 1999-07-29

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1999

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MARTHA STEWART LIVING OMNIMEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 2721 APPLIED FOR
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

11 WEST 42ND STREET
NEW YORK, NY 10036
(212) 827-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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GREGORY R. BLATT, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
MARTHA STEWART LIVING OMNIMEDIA, INC.
11 WEST 42ND STREET
NEW YORK, NY 10036
(212) 827-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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COPIES TO:

<TABLE>
<S> <C>
ANDREW J. NUSSBAUM, ESQ. JEFFREY SMALL, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ DAVIS POLK & WARDWELL
51 WEST 52ND STREET 450 LEXINGTON AVENUE
NEW YORK, NY 10019 NEW YORK, NY 10017
(212) 403-1000 (212) 450-4000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If the only securities being delivered pursuant to this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE
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<S> <C> <C> <C> <C>
Class A Common Stock, par value
$.01 per share................. shares $100,000,000 $27,800
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</TABLE>

(1) Includes an aggregate of shares which the Underwriters have the
option to purchase from the Registrant and the Selling Stockholder solely to
cover over-allotments.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
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EXPLANATORY NOTE

This Registration Statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of Class A common stock. The second prospectus
relates to a concurrent offering outside the United States and Canada of an
aggregate of shares of Class A common stock. The prospectuses for each
of the offerings will be identical with the exception of the alternate front
cover page for the offering outside the United States and Canada. Such alternate
page appears in this Registration Statement immediately following the cover page
for the offering in the United States and Canada.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS (Subject to Completion)

Issued , 1999

[MSLO LOGO]
CLASS A COMMON STOCK

------------------------

MARTHA STEWART LIVING OMNIMEDIA, INC. IS OFFERING SHARES OF ITS CLASS A COMMON
STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS
FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $ AND $ PER SHARE.

FOLLOWING THIS OFFERING, WE WILL HAVE TWO CLASSES OF AUTHORIZED COMMON STOCK,
CLASS A COMMON STOCK AND CLASS B COMMON STOCK. THE RIGHTS OF THE HOLDERS OF
CLASS A COMMON STOCK AND CLASS B COMMON STOCK ARE IDENTICAL, EXCEPT WITH RESPECT
TO VOTING AND CONVERSION. EACH SHARE OF CLASS A COMMON STOCK IS ENTITLED TO ONE
VOTE PER SHARE. EACH SHARE OF CLASS B COMMON STOCK IS ENTITLED TO TEN VOTES PER
SHARE AND IS CONVERTIBLE INTO ONE SHARE OF CLASS A COMMON STOCK.

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WE EXPECT OUR CLASS A COMMON STOCK TO BE APPROVED FOR LISTING ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL " ."

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INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 13.

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PRICE $ A SHARE

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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS MSLO
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<S> <C> <C> <C>
Per Share..................................... $ $ $
Total......................................... $ $ $
</TABLE>

Martha Stewart Living Omnimedia, Inc. has granted the underwriters the right to
purchase up to an additional shares of our Class A common stock to
cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares of our Class A
common stock to purchasers on , 1999.

Morgan Stanley Dean Witter is acting as sole book-running manager for this
offering, and Morgan Stanley Dean Witter and Merrill Lynch & Co. are acting as
joint lead managers for this offering. Bear, Stearns & Co. Inc. is acting as
co-lead manager for this offering.

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MORGAN STANLEY DEAN WITTER MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.

DONALDSON, LUFKIN & JENRETTE BANC OF AMERICA SECURITIES LLC

, 1999
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PROSPECTUS (Subject to Completion) [International Cover Page]

Issued , 1999

[MSLO LOGO]
CLASS A COMMON STOCK

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WE EXPECT OUR CLASS A COMMON STOCK TO BE APPROVED FOR LISTING ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL " ."

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INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 13.

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PRICE $ A SHARE

------------------------

Martha Stewart Living Omnimedia, Inc. has granted the underwriters the right to
purchase up to an additional shares of our Class A common stock to
cover over-allotments.

Morgan Stanley & Co. Incorporated expects to deliver the shares of our Class A
common stock to purchasers on , 1999.

Morgan Stanley Dean Witter is acting as sole book-running manager for this
offering, and Morgan Stanley Dean Witter and Merrill Lynch International are
acting as joint lead managers for this offering. Bear, Stearns International
Limited is acting as co-lead manager for this offering.

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MORGAN STANLEY DEAN WITTER MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED

DONALDSON, LUFKIN & JENRETTE BANC OF AMERICA INTERNATIONAL LIMITED

, 1999
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[INSIDE COVER GRAPHICS]

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TABLE OF CONTENTS

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PAGE
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Prospectus Summary.................... 4
Recent Developments--Strategic
Investment.......................... 12
Risk Factors.......................... 13
Reorganization Transactions Occurring
Prior to This Offering.............. 21
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Historical and Pro Forma
Consolidated Financial Data......... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
</TABLE>

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PAGE
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Business.............................. 37
Management............................ 56
Certain Relationships and Related
Transactions........................ 66
Principal Stockholders................ 70
Description of Capital Stock.......... 72
Shares Eligible for Future Sale....... 75
Certain U.S. Federal Income Tax
Considerations for Non-U.S.
Holders............................. 76
Underwriters.......................... 78
Legal Matters......................... 82
Experts............................... 82
Additional Information................ 82
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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Our principal executive offices are located at 11 West 42nd Street, New York,
New York 10036, and our telephone number is (212) 827-8000. Our address on the
World Wide Web is marthastewart.com. The contents of our website are not part of
this prospectus.
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In making any investment decision relating to our Class A common stock, you
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell shares of Class A common stock and
seeking offers to buy shares of Class A common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus or other date we include in such
information, regardless of the time of delivery of this prospectus or any sale
of Class A common stock.
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Until , 1999, all dealers that buy, sell or trade shares of Class A
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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We have made some statements in this prospectus, including some under
"Prospectus Summary," "Recent Developments--Strategic Investment," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere, which constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any
results, levels of activity, performance or achievements expressed or implied by
any forward-looking statements. These factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "intends," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of these
terms or other comparable terminology. Although we believe that the expectations
reflected in forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Moreover,
neither we nor any other person assumes responsibility for the accuracy and
completeness of these statements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in our Class A common stock. You should read the entire
prospectus carefully, especially the risks of investing in our Class A common
stock discussed under "Risk Factors."

In this prospectus, the terms "MSLO," "we," "us" and "our" refer to Martha
Stewart Living Omnimedia, Inc. and, unless the context requires otherwise,
Martha Stewart Living Omnimedia LLC. We use the term MSLO LLC to refer to that
specific legal entity, which prior to this offering operated the business we now
operate.

MARTHA STEWART LIVING OMNIMEDIA, INC.

We are a leading creator of original "how to" content and related products
for homemakers and other consumers. We leverage the well-known "Martha Stewart"
brand name across a broad range of media and retail outlets, providing consumers
with the "how to" ideas, products and other resources they need to raise the
quality of living in and around their homes.

In each of our seven core content areas--Home, Cooking and Entertaining,
Gardening, Crafts, Holidays, Keeping and Weddings--our creative experts
continually seek to develop new ideas that support the high quality and unique
look associated with our brand name. Our editors, art directors, designers,
cooks, gardeners and craftspeople have developed an extensive library of "how
to" articles, books, television programs, newspaper columns and radio segments,
as well as products, relating to our seven core content areas. We have two
primary strategic objectives: (1) to provide our original "how to" content and
information to as many consumers as possible; and (2) to turn our consumers into
"doers" by offering them the information and products they need for
do-it-yourself ingenuity the "Martha Stewart way."

We accomplish this first objective through our "omnimedia" platform, which
currently includes:

-- two magazines, Martha Stewart Living(R) and Martha Stewart
Weddings(TM), reaching an estimated 9.9 million readers each month

-- the Emmy Award-winning and number-one-rated "how to" domestic arts
television program in the United States, airing six episodes per week
and available in 91% of the U.S. homes with television sets, plus a
weekly segment on CBS This Morning

-- 27 books, which have sold more than 8.5 million copies, including
Martha Stewart's first book, ]Entertaining, published in 1982, and
Martha Stewart's Hors d'Oeuvres Handbook, published in 1999

-- the askMartha(R) radio program, airing on 270 stations throughout the
United States and reaching an estimated 1.5 million listeners per
weekday

-- a weekly askMartha newspaper column, syndicated in 233 newspapers
that collectively reach an estimated 43 million readers each week

-- marthastewart.com, our website, with over 834,000 registered users,
627,000 unique monthly visitors and over ten million monthly page
views

In the spring of 1999, our omnimedia platform provided us with an estimated
88 million monthly gross adult impressions, not including the readers of the
askMartha newspaper column. This number is based on our magazine readership, the
number of times our television programs and website are viewed and the number of
times people listen to our radio program during the course of a typical month.

To accomplish our second business objective, we have created our
"omnimerchandising" platform, which consists of our branded products. Through
this platform, we seek to offer our consumers quality, convenience and choice
across a broad range of traditional retail channels. As of May 1999, our
omnimerchandising platform consisted of more than 2,800 stockkeeping units
(SKUs) of products, including bed and bath products, interior paints, craft
kits, outdoor furniture and garden tools. Retail sales of Martha Stewart

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branded merchandise by Kmart and our other merchandising partners reached $763
million in 1998, an increase of 96% over 1997. We distribute our products
through:

-- the mass market discount channel, exclusively through Kmart stores in
the United States and Zellers stores in Canada

-- the national department store channel, through Sears stores in the
United States and Canada, and Canadian Tire stores in Canada

-- specialty paint stores and, beginning in September 1999, specialty
craft and fabric stores, across the United States

-- our upscale catalog, Martha by Mail(R), offering 400 products per
catalog, with an expected 1999 distribution of 15 million copies in
11 editions

-- our online Martha by Mail store, which offers over 750 products

Our omnimedia and omnimerchandising platforms support four business
segments: Publishing, Television, Merchandising and Internet/Direct Commerce.
Our Internet/Direct Commerce business provides a unique opportunity for us to
fulfill both of our strategic objectives by leveraging our content and
merchandising capabilities to create a one-stop online destination for consumers
interested in the domestic arts.

Our overall business has grown in recent years by accessing new product
markets and leveraging our strong brand name across our omnimedia and
omnimerchandising platforms. In 1998, our revenue was $180.0 million and our
operating income was $27.4 million, representing a 36% and 65% increase,
respectively, over 1997 revenue and operating income. Our net income was $23.8
million in 1998, as compared to $13.9 million in 1997. In the first quarter of
1999, our revenue was $53.4 million and our operating income was $7.4 million,
representing a 26% and 7% increase, respectively, over the first quarter of
1998. Our net income for the first quarter of 1999 was $6.6 million, as compared
to $6.0 million for the first quarter of 1998.

COMPETITIVE STRENGTHS

We intend to maintain and enhance our position as a leading creator of
high-quality content and products and to continue to capitalize on our
competitive strengths, which include:

-- Established, Highly Recognizable Brand Name. Our principal assets
consist of our well-known Martha Stewart brand name and our related
trademarks. The Martha Stewart brands have significant name
recognition and trust among consumers. Consumers associate our brands
with the unique look and usefulness of our content and with the high
quality of living represented by our content and products.

-- Leading Authority Across Key Categories of Domestic Arts. We believe
that our depth of knowledge and strong brand identity across our
seven core content areas provide us with important advantages over
many of our competitors that produce content in only one or two
specific categories of domestic arts. We reach a broad audience,
ranging from brides to gardeners to cooks. We believe that satisfied
consumers who are initially only interested in one of our core
content areas, whether it be cooking and entertaining, gardening,
crafts or weddings, may be drawn to explore content and products from
our other core categories as part of our overall concept of living.
By stimulating consumer interest in other content areas, we are able
to expand the size of our markets.

-- Extensive Library of High-Quality Content, Products and Designs. We
have amassed a library of proprietary content and products that we
continually enhance through the creation of new "how to" ideas,
information and products. As of December 31, 1998, this extensive
library included over 10,000 editorial pages, 2,100 television and
radio segments, as well as designs for over 2,000 SKUs of original
products.

-- Extensive Research and Development Process. Our creative staff
thoroughly researches, develops and tests each "how to" idea or
product in our test kitchens, design studios or manufacturers'

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laboratories before we release content or product into the market.
This research and development process ensures that we are regarded as
the "source for the source" and that our content continues to consist
of innovative and appealing designs, products and recipes.

-- Highly Experienced Team of Creative and Business Personnel. We have
carefully assembled an experienced team of creative and business
professionals. Our creative staff focuses on developing new content
and products and presenting our content and products to our
consumers. Our business staff focuses on bringing our content and
products profitably to market. Many of our creative and business
executives have been with us since the launch of Martha Stewart
Living magazine in 1991.

-- Organizational Structure that Promotes Creativity and
Efficiency. Our business segments do not operate as separate units.
Instead, we are organized by creative and business skills in a matrix
organization in which our business and creative experts render
services across our omnimedia and omnimerchandising platforms. We
believe this structure provides us with operating efficiencies as
well as brand quality and consistency.

-- Strong Relationships with Key Distribution, Fulfillment and Marketing
Vendors. Our existing alliances with Kmart Corporation, Hudson's Bay
Company, which operates Zellers stores, Eyemark Entertainment, a unit
of CBS, Inc., The Sherwin-Williams Company, P/Kaufmann, Inc. and
affiliates of Time Inc., a subsidiary of Time Warner Inc., among
others, enable us to widely distribute content and products across
the United States and Canada. These relationships permit us to reduce
our inventory risk and to focus on the design and creation of our
content and products, rather than the logistics of distribution,
fulfillment and manufacturing.

STRATEGIES

Our strategies focus on continuing to create new content and products and
leveraging our brands across multiple media and retail channels:

-- Expand Our Merchandising Along Core Content Lines. We seek to create
new branded products throughout our seven core content areas. In the
last two years, we have introduced numerous product lines, largely
focusing on the home category, including bed and bath and paints, in
multiple distribution channels. Our Martha Stewart Everyday Baby
baby(TM) collection and our Martha Stewart Home collection of
decorative fabrics are scheduled to be launched in fall 1999, and we
plan to introduce our Martha Stewart Everyday Housewares(TM)
collection in 2000. Our other content areas offer significant
merchandising opportunities for our brands.

-- Leverage the Cost of Developing High Quality Content over Media and
Merchandising Platforms. We spread the costs of researching,
investing in and producing high quality content across multiple media
and merchandising platforms to achieve economies of scale and
increased returns on invested capital. This strategy enables us to
make substantial investments in producing higher quality content.

-- Capitalize on Revenue Opportunities Created by the Internet. We
believe that we can effectively participate in the growth of the
Internet by creating a user experience that integrates information,
electronic commerce and community, all rooted in our library of
high-quality content and products. Our website has already achieved
significant consumer acceptance and brand awareness, with over
834,000 registered members as of June 1999. We intend to display
content from our seven core content areas on the Internet to drive
revenues and to use our merchandising capabilities to expand our
e-commerce business. An affiliate of Kleiner Perkins Caufield & Byers
has recently made a strategic investment in our business. We believe
Kleiner Perkins' experience in the Internet industry will be
advantageous to us as we implement our growth strategies. See "Recent
Developments -- Strategic Investment" for further information.

-- Cross-Sell and Cross-Promote Our Brands. We leverage our brands by
cross-promoting them and cross-selling and packaging advertising
across our network of media and merchandising channels. In 1999, we
anticipate that the majority of our top 50 advertisers will purchase
advertising space in two

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or more elements of our omnimedia platform. We also use each media
and merchandising platform to refer our listeners, readers, viewers
and consumers to one or more of our other businesses.

-- Evolve Our Brands through Team-based Content and Reduce Dependence on
Our Founder. We are seeking to further extend the trust-based
relationship consumers share with Martha Stewart, the personality, to
our brands. We believe that a reduction in our dependence on Martha
Stewart personally will provide additional brand durability,
increased growth opportunities and a broader recognition of a new
generation of Martha Stewart Living experts.

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THE OFFERING

Unless we specifically state otherwise, the information in this prospectus
does not take into account the possible issuance of up to
additional shares of Class A common stock, which the underwriters have the
option to purchase from us solely to cover over-allotments. If the underwriters
exercise this option in full, there will be shares of Class A
common stock outstanding following this offering.

Class A common stock
offered....................... shares

Common stock to be outstanding
after this offering:

Class A common stock..... shares(1)

Class B common stock..... shares

Total.......... shares(1)

Voting rights:

Class A common stock..... One vote per share

Class B common stock..... Ten votes per share

Other common stock
provisions.................... With the exception of voting rights and
conversion rights, shares of Class A and Class
B common stock are identical. See "Description
of Capital Stock."

Use of proceeds............... We may use approximately $42.0 million of the
net proceeds from this offering to purchase
shares of Class A common stock held by Time
Publishing Ventures, Inc., a subsidiary of Time
Inc., under the terms of an existing agreement.
We plan to use the remainder of the net
proceeds of this offering for general corporate
purposes, including new business development.
See "Use of Proceeds."

Proposed NYSE symbol..........

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(1) Includes shares to be issued to our employees upon completion of
this offering under the MSLO Phantom Performance Unit Plan. Excludes
shares of Class A common stock reserved for issuance under our
stock option plans. At the time of this offering, we expect to issue options
to acquire shares of Class A common stock at an exercise price
equal to the initial public offering price. We refer you to "Management--The
Non-Employee Director Stock and Option Compensation Plan" and "--The 1999
Stock Incentive Plan." Also excludes options to acquire shares
of Class A common stock pursuant to the MSLO LLC Nonqualified Class A LLC
Unit/Stock Option Plan, previously issued and of which options to acquire
shares will be vested as of this offering.

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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

In the table below, we provide you with summary historical and pro forma
financial information of MSLO LLC. We explain in the first bullet point below
how we derived the following pro forma consolidated income statement data for
the year ended December 31, 1996. The following consolidated statement of income
data for the years ended December 31, 1997 and 1998 is derived from the audited
consolidated financial statements of MSLO LLC included elsewhere in this
prospectus. The following consolidated statement of income data for the three
months ended March 31, 1998 and 1999 and the consolidated balance sheet data as
of March 31, 1999 have been derived from the unaudited financial statements of
MSLO LLC which, in the opinion of management, have been prepared on the same
basis as the audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, necessary for fair
presentation. Results for the three month period ended March 31, 1999 are not
necessarily indicative of results that may be expected for the entire year.

In the table below, we also provide you with the following pro forma
information:

-- The pro forma income statement data for the year ended December 31,
1996 has been derived from the financial statements of MSLO LLC
audited by Arthur Andersen LLP, independent public accountants, and
gives effect to the acquisition of Martha Stewart Living from Time
Publishing Ventures as though this acquisition had occurred on
January 1, 1996. The net income reflected for that period is the sum
of the net income of MSLO LLC for that period of $3.6 million and the
net income of Martha Stewart Living for that period of $8.7 million,
reduced by amortization of intangible assets of $2.9 million. Total
revenues for the period include $1.0 million that had been classified
as other income in the Martha Stewart Living statement of operations.
There were no intercompany transactions during that period. We
include elsewhere in this prospectus the financial statements of
Martha Stewart Living, audited by Ernst & Young LLP, independent
auditors.

-- The income statement data for all of the periods presented includes
an adjustment to the income tax provision reflecting the
reorganization of MSLO LLC into a C corporation as though the
reorganization had occurred prior to the start of each period. See
Note 7 of the consolidated financial statements of MSLO LLC for
further information.

-- The income statement data for the three months ended March 31, 1999
includes a one time benefit that will result from the change in the
tax status of MSLO LLC at the time it is reorganized into a C
corporation, as though the reorganization had occurred on March 31,
1999. The benefit actually recognized will be determined on the
effective date of the reorganization.

-- The balance sheet data as of March 31, 1999 is presented on both a
pro forma and pro forma as adjusted basis:

-- The pro forma data gives effect to the reorganization of MSLO LLC
into a C corporation as though the reorganization had occurred on
March 31, 1999. These adjustments include the creation of a net
future tax benefit of $2.9 million as a result of the reorganization
and reflect the effect of recording future tax benefits and deferred
tax liabilities.

-- The pro forma data gives effect to $13.0 million of distributions to
the members of MSLO LLC. This amount is comprised of one or more
distributions of profits which will total no more than $10.0 million
and a $3.0 million distribution for tax payments, based on the
taxable income of MSLO LLC as of March 31, 1999. The amount of the
actual tax distribution will change based upon the actual results of
operations of MSLO LLC from March 31, 1999 through the date of the
reorganization.

-- The pro forma data gives effect to the sale of 5% of MSLO LLC and a
warrant to Kleiner Perkins, in exchange for $25.0 million, and the
retirement of $15.0 million of indebtedness.

-- The pro forma as adjusted data gives effect to each of the pro forma
adjustments noted above and also gives effect to the issuance of the
shares of Class A common stock offered in this prospectus
and our receipt and use of the estimated net proceeds from the sale
of those shares.

9
<PAGE> 13

As used in this prospectus, "EBITDA" means income before provision for
interest expense, income taxes and depreciation and amortization. EBITDA is not
intended to represent cash flows from operations and should not be considered as
an alternative to net income, as an indicator of our operating performance or to
cash flows as a measure of liquidity. We believe that EBITDA is widely used by
analysts, investors and other interested parties in the publishing and media
industries; however, EBITDA as presented in this prospectus may not be
comparable to similarly titled measures reported by other companies.

The following financial data should be read in conjunction with, and is
qualified by reference to, "Selected Historical and Pro Forma Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements of MSLO LLC
and the combined financial statements of Martha Stewart Living and, in each
case, the related notes thereto, included elsewhere in this prospectus.

10
<PAGE> 14

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- -----------------
PRO FORMA
1996 1997 1998 1998 1999
----------- -------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues
Publishing............................. $74,146 $108,694 $127,020 $32,509 $35,536
Television............................. 8,420 12,396 23,351 5,387 6,609
Merchandising.......................... -- 6,919 15,004 3,056 5,679
Internet/Direct Commerce............... 3,292 4,812 14,673 1,348 5,555
------- -------- -------- ------- -------
Total revenues.................... 85,858 132,821 180,048 42,300 53,379
------- -------- -------- ------- -------
Operating costs and expenses
Production, distribution and
editorial........................... 40,610 59,148 82,930 18,052 26,312
Selling and promotion.................. 24,484 31,973 34,540 8,774 9,856
General and administrative............. 7,812 21,182 29,659 7,396 8,449
Depreciation and amortization.......... 3,371 3,927 5,534 1,126 1,342
------- -------- -------- ------- -------
Total operating costs and
expenses....................... 76,277 116,230 152,663 35,348 45,959
------- -------- -------- ------- -------
Income from operations................... 9,581 16,591 27,385 6,952 7,420
------- -------- -------- ------- -------
Interest expense, net.................... 165 2,195 2,243 607 457
Income tax provision..................... -- 467 1,336 328 344
------- -------- -------- ------- -------
Net income............................... 9,416 13,929 23,806 6,017 6,619
------- -------- -------- ------- -------
Pro forma (unaudited)
Benefit from change in tax status...... -- -- -- -- 2,865
Adjustment to income tax provision..... (5,149) (7,038) (10,817) (2,916) (3,171)
------- -------- -------- ------- -------
Pro forma net income..................... $ 4,267 $ 6,891 $ 12,989 $ 3,101 $ 6,313
======= ======== ======== ======= =======
Pro forma basic and diluted net income
per share.............................. $ $
Pro forma weighted average common shares
outstanding............................
OTHER DATA:
EBITDA................................... $12,952 $ 20,518 $ 32,919 $ 8,078 $ 8,762
Capital expenditures..................... 1,714 11,027 2,730 1,572 517
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ 17,363 $ 14,363 $
Total assets....................................... 123,467 123,332
Long-term debt (including current maturities)...... 15,000 --
Members'/Stockholders' equity...................... 43,434 58,299
</TABLE>

11
<PAGE> 15

RECENT DEVELOPMENTS -- STRATEGIC INVESTMENT

On July 27, 1999, we completed a strategic transaction in which an
affiliate of Kleiner Perkins Caufield & Byers purchased an equity interest in
MSLO LLC. In this transaction, a Kleiner Perkins fund acquired a 5% interest in
MSLO LLC, as well as a warrant that we describe below, in exchange for $25.0
million in cash paid to MSLO LLC. Also, as part of this transaction, Mr. L. John
Doerr, a general partner of Kleiner Perkins, became a member of our Board of
Directors. In the reorganization of MSLO LLC, Kleiner Perkins' interest in MSLO
LLC will be converted into shares of MSLO Class A common stock. We refer you to
"Reorganization Transactions Occurring Prior to This Offering" for a description
of the reorganization. The purchase agreement and warrant are filed as exhibits
to the registration statement in which this prospectus is included, and we refer
you to those agreements for a full description of our transaction with Kleiner
Perkins.

We have agreed with Kleiner Perkins to investigate opportunities to
maximize the value to our stockholders of our Internet business and our company
as a whole, including potential strategic transactions relating to our Internet
business. Kleiner Perkins will also assist us in recruiting additional personnel
for our Internet business and in developing compensation structures consistent
with our overall incentive plans and objectives. Any decisions on these matters
will be made by our Board of Directors.

If we complete a strategic transaction relating to our Internet business,
Kleiner Perkins may participate in the transaction by exercising the warrant for
$21.0 million. Upon exercise, Kleiner Perkins would receive 15% of any publicly
traded class of stock that we may issue intended to reflect the performance of
our Internet business, or 15% of the net consideration we receive in connection
with a sale of that business. The warrant percentage and exercise price are
subject to adjustment in the event that we sell a portion of the Internet
business or contribute an additional business or asset to that business. The
warrant expires ten days after the earlier of the time it becomes exercisable,
the time Kleiner Perkins sells more than 50% of its original holding of our
common stock, or July 27, 2002.

Kleiner Perkins has agreed not to sell shares of our common stock for a
period of one year following this offering. This restriction has certain
exceptions, including certain distributions of our stock by Kleiner Perkins to
its limited partners after the first six months. In addition, in the event that
Kleiner Perkins exercises its warrant in exchange for an MSLO security, it has
agreed not to sell or transfer such securities for one year (subject to the same
exceptions described above for our common stock) or, for six months following
exercise of the warrant, to transfer any additional shares of our common stock
if such transfer would bring Kleiner Perkins' ownership of our common stock to
less than 50% of its original position. Kleiner Perkins is also receiving
registration rights with respect to its shares of our Class A common stock. We
refer you to "Certain Relationships and Related Transactions--Registration
Rights."

We believe that the investment in our company by Kleiner Perkins, and the
participation of John Doerr on our Board of Directors, will provide significant
strategic benefits to us as we expand our Internet-related businesses. There can
be no assurance, however, that we will succeed in this, or any other, aspect of
our strategy.

12
<PAGE> 16

RISK FACTORS

You should carefully consider the following risks and the other information
contained in this prospectus before investing in Class A common stock. The
trading price of Class A common stock could decline due to any of these risks,
and you could lose all or part of your investment. You also should refer to the
other information included in this prospectus, including the financial
statements and related notes. In addition, the risks described below are not the
only ones facing us. We have only described the risks we consider to be
material. However, there may be additional risks that we view as not material or
of which we are not presently aware.

If any of the events described below were to occur, our business,
prospects, financial condition, results of operations or cash flow could be
materially adversely affected. When we say below that something could or will
have a material adverse effect on us, we mean that it could or will have one or
more of these effects.

THE LOSS OF THE SERVICES OF MARTHA STEWART OR OTHER KEY EMPLOYEES WOULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS

We are highly dependent upon our founder, Chairman and Chief Executive
Officer, Martha Stewart. Martha Stewart's talents, efforts, personality and
leadership have been, and continue to be, critical to our success. The
diminution or loss of the services of Martha Stewart, and any negative market or
industry perception arising from that diminution or loss, would have a material
adverse effect on our business. While our other key executives have substantial
experience and have made significant contributions to our business, Martha
Stewart remains the personification of our brands as well as our senior
executive and primary creative force.

Effective as of the completion of this offering, we will enter into a
five-year employment agreement with Martha Stewart. This agreement is important
to the future of our business, and if we were to lose our rights under this
agreement for any reason, including as a result of Martha Stewart's voluntary
resignation or retirement, our business would be materially adversely affected.
See "Management--Employment Agreement with Martha Stewart" for a description of
this agreement.

Our continued success also is dependent upon retention of other of our key
management executives, as well as upon a number of key members of our creative
staff, who have been instrumental in our success thus far, and upon our ability
to attract and retain other highly capable and creative individuals. The loss of
some of our senior executives or key members of our creative staff, or an
inability to attract or retain other key individuals, could materially adversely
affect us. Growth in our business is dependent, to a large degree, on our
ability to retain and attract such employees. We seek to compensate and
incentivize our key executives, as well as other employees, through competitive
salaries, stock ownership and bonus plans, but we can make no assurance that
these programs will allow us to retain key employees or hire new employees.

OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS, AND IF THE VALUE OF OUR BRANDS
WERE TO DIMINISH, OUR BUSINESS WOULD BE ADVERSELY AFFECTED

Our success depends on our brands and their value. Our business would be
adversely affected if:

Martha Stewart's public image or reputation were to be tarnished

Martha Stewart, as well as her name, her image and the trademarks and other
intellectual property rights relating to these, are integral to our marketing
efforts and form the core of our brand name. Our continued success and the value
of our brand name therefore depends, to a large degree, on the reputation of
Martha Stewart.

Our licensees were to diminish the quality of our brands

We have entered into license agreements with a number of partners,
including Kmart Corporation, Hudson's Bay Company, which operates Zellers
stores, and The Sherwin-Williams Company. While we require that our licensees
maintain the quality of our brands through specific contractual provisions, we

13
<PAGE> 17

cannot be certain that our licensees, or their manufacturers and distributors,
will honor their contractual obligations or that they will not take other
actions that will diminish the value of our brand name.

We were unable to adequately protect our brand name

We are also susceptible to others imitating our products and infringing our
intellectual property rights. We may not be able to successfully protect our
intellectual property rights, upon which we are materially dependent. In
addition, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States. Imitation
of our products or infringement of our intellectual property rights could
diminish the value of our brands or otherwise adversely affect our revenues.

THE LOSS OF OUR RIGHTS TO USE MARTHA STEWART'S NAME, LIKENESS, IMAGE AND VOICE
WOULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS

Effective as of the completion of this offering, we will receive an
exclusive, perpetual, royalty-free license from Martha Stewart with respect to
her name, likeness, image and voice for use in our businesses. If we were to
terminate Martha Stewart's employment without cause, or if she were to do so for
good reason, the license would cease to be exclusive and we would lose certain
other rights. Any loss of our rights to use this intellectual property would
adversely affect our business. See "Business--Intellectual Property" for a more
detailed description of this license agreement, and "Management--Employment
Agreement with Martha Stewart" for a description of the employment agreement
with Martha Stewart.

TERMINATION OR IMPAIRMENT OF OUR RELATIONSHIPS WITH A SMALL NUMBER OF KEY
LICENSING AND STRATEGIC PARTNERS COULD ADVERSELY AFFECT OUR REVENUES AND RESULTS
OF OPERATIONS

We have developed relationships with a small number of key strategic
partners in many areas of our business, including magazine printing and
distribution, book publishing, fulfillment, website hosting and licensing of our
brands for merchandising. For example, through our licensing agreements with
Kmart and Hudson's Bay Company, Martha Stewart Everyday Home(TM) and Martha
Stewart Everyday Garden(TM) products are manufactured, advertised and sold at
Kmart and Zellers stores. We derive significant income from our licensing
arrangements and our Kmart agreements represent a substantial majority of that
income. We would also be materially adversely affected if we were to lose our
rights under any of our other key contracts or if the counterparty to any of
these contracts were to breach its obligations to us. Our license agreements do
not prohibit our partners from entering into license agreements with our
competitors for the same or similar products offered under other brands. If we
were to fail to manage our existing licensing relationships, this failure could
have a material adverse affect on our financial condition and results of
operations.

We rely heavily on a limited number of contracts under which third parties
provide us with services vital to our business. These agreements include:

-- our agreements under which we receive distribution and fulfillment
services for our Publishing and Internet/Direct Commerce businesses

-- our agreements with printers under which our magazines and catalogs
are printed

-- our agreements with various technology vendors that provide tier-one
hosting, software and site development services for our website

If our relationship with any of these or certain other third parties were to be
interrupted, or the services provided by any of these third parties were to be
delayed or deteriorate for any reason, our business could be materially
adversely affected.

In addition, while we have significant control over licensed products and
advertising, we do not have operational and financial control over our strategic
partners and vendors, including Kmart, Zellers and the third parties that
provide us with support services, and have limited influence with respect to the
manner in which they conduct their businesses. If any of these strategic
partners were to experience a significant

14
<PAGE> 18

downturn in their businesses or were otherwise unable to honor their obligations
to us, our business could be disrupted and be materially adversely affected.

SINCE OUR BUSINESS IS CURRENTLY HEAVILY DEPENDENT ON PUBLISHING, WE ARE
VULNERABLE TO INDUSTRY DOWNTURNS AND COST INCREASES

In 1998, publishing revenues, including revenues from magazine circulation,
magazine advertising, book sales, the askMartha newspaper column and the
askMartha radio program, accounted for 71% of our revenues and 75% of our
operating income before corporate expenses. Because our business strategy and
brand name require that our magazines and books be of a high visual quality, we
may be more adversely affected by increased publishing industry costs than some
of our competitors. The publishing industry generally, and the magazine sector
in particular, are subject to various economic factors that could cause a
downturn in industry revenues and profits and a decline in our business. For
example, increases in the cost of paper, printing expenses and mailing costs
could reduce income from Martha Stewart Living, Martha Stewart Weddings and our
special interest publications and books. A decline in magazine popularity
generally could also adversely affect our business and financial condition.

OUR TELEVISION PRODUCTION BUSINESS IS SUBJECT TO A NUMBER OF UNCERTAINTIES,
WHICH COULD ADVERSELY AFFECT OUR BUSINESS

Our television production business generates a significant portion of our
revenues, approximately 13% in 1998, and is subject to a number of
uncertainties. Our business and financial condition could be adversely affected
by:

Failure of our television programming to maintain a sufficient audience

Television production is a speculative business because revenues and income
derived from television depend primarily upon the continued acceptance of that
programming by the public, which is difficult to predict. Public acceptance of
particular programming is dependent upon, among other things, the quality of
that programming, the strength of stations on which that programming is
broadcast, promotion of that programming, the quality and acceptance of
competing television programming and other sources of entertainment and
information. The Martha Stewart Living television program has recently
experienced a decline in ratings, from a 2.5 household rating for the 1997-98
season as of May 30, 1998 to a 1.9 household rating for the 1998-99 season as of
May 30, 1999, according to AC Nielsen Corporation. If this ratings decline
continues, it will adversely impact the advertising revenues we derive from
television and may result in the television program being broadcast on fewer
stations. A continued ratings decline could make it economically inefficient to
continue production of the program in the daily one-hour format or otherwise.

Adverse trends in the television production business generally

Television revenues and income may also be affected by a number of other
factors, most of which are not within our control. These factors include a
general decline in broadcast television viewers, pricing pressure in the
television advertising industry, strength of the stations on which our
programming is broadcast, general economic conditions, increases in production
costs, availability of other forms of entertainment and leisure time activities
and other factors. All of these factors may quickly change, and these changes
cannot be predicted with certainty. While we currently benefit from our ability
to sell advertising on our television programs, if these changes occur, we can
make no assurance that we will continue to be able to sell this advertising or
that our advertising rates can be maintained. Our future licensing fees may also
be adversely affected by these changes. Accordingly, if any of these changes
were to occur, the revenues and income we generate from television programming
could decline.

Increases in resources required by television programming and our dependence
on Martha Stewart

The production and marketing of television programming require substantial
resources and expenditures, and in recent years increases in production and
marketing costs have generally outpaced increases in licensing

15
<PAGE> 19

fees and revenues generated by advertising sales. If these trends continue, the
income we generate from television production could be adversely affected.

In addition, Martha Stewart is an essential element of our television
business. The recent expansion of the Martha Stewart Living television program
to one-hour per day, from one-half-hour per day, has required a larger time
commitment from Martha Stewart, which has reduced the amount of time she has to
devote to other aspects of our business.

FAILURE TO DEVELOP NEW OR EXPAND EXISTING RETAIL MERCHANDISING PROGRAMS WILL
IMPAIR OUR ABILITY TO GROW

Our growth depends to a significant degree upon our ability to develop new
or expand existing retail merchandising programs, including our Martha Stewart
Everyday Garden and Martha Stewart Everyday Housewares lines. We have limited
experience in merchandising in these areas. We cannot guarantee when these
programs will be introduced and fully implemented, or if they will be successful
when they are in place. If these and other programs are not successful, our
business, financial condition and prospects could be materially adversely
affected.

OUR REVENUES COULD DECLINE DUE TO GENERAL ECONOMIC TRENDS AND DECLINES IN
CONSUMER SPENDING

The industry segments in which we operate are cyclical and our revenues are
largely generated by discretionary consumer spending. Business spending on
advertising and consumer spending on our products tend to decline during
recessionary periods and may also decline in other times. Accordingly, our
revenues could decline during any general economic downturn.

FAILURE TO DEVELOP OUR INTERNET/DIRECT COMMERCE BUSINESS WILL IMPAIR OUR ABILITY
TO GROW

Our growth depends to a significant degree upon the development of our
Internet/Direct Commerce business. We have limited experience in electronic
commerce and to date we have not derived substantial revenue from our electronic
commerce business. In order for our Internet/Direct Commerce business to
succeed, we must, among other things:

-- make significant investments in our Internet business, in both
technology and personnel

-- significantly increase our online traffic and sales volume

-- attract and retain a loyal base of frequent visitors to our website

-- expand the products and services we offer over our website

-- respond to competitive developments and maintain a distinct brand
identity

-- form and maintain relationships with strategic partners

-- provide quality customer service

-- continue to develop and upgrade our technologies

We cannot assure that we will be successful in achieving these and other
necessary objectives. If we are not successful in achieving these objectives,
our business, financial condition and prospects would be materially adversely
affected.

Our electronic commerce business will require us to keep up with the rapid
technological change that is inherent in electronic commerce. The emerging
nature of electronic commerce will require us to quickly adapt as electronic
commerce evolves. The markets for our Internet services are relatively new and
rapidly evolving, and are characterized by a number of entrants that have
introduced or plan to introduce competing services over the Internet. As a
result, demand for and market acceptance of new services are subject to a high
level of uncertainty, risk and competition. These pressures may force us to
incur significant expenditures to remain competitive in the Internet
marketplace, and, if we fail to appropriately address these pressures, our
business, financial condition and prospects would be materially adversely
affected.

16
<PAGE> 20

SYSTEM FAILURES COULD HARM OUR BUSINESS

If our website systems cannot be expanded to satisfy increased demand or
fail to perform, we could experience:

-- unanticipated disruptions in service

-- slower response times

-- decreased customer service and customer satisfaction

-- delays in the introduction of new products and services

any of which could impair our reputation, damage our brands and materially and
adversely affect our prospects.

Our ability to facilitate transactions successfully and provide high
quality customer service also depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our systems and
operations also are vulnerable to damage or interruption from human error,
natural disasters, power loss, telecommunication failures, break-ins, sabotage,
computer viruses, intentional acts of vandalism and similar events. Any system
failure that causes an interruption in service or decreases the responsiveness
of our website service could impair our reputation, damage our brand name and
materially adversely affect our prospects.

OUR GROWTH IS DEPENDENT UPON THE CONTINUED ACCEPTANCE AND GROWTH OF THE INTERNET
AND ELECTRONIC COMMERCE

Commerce over the Internet is a new and emerging market with many
competitors. Because we are relying on electronic commerce as an important part
of our growth strategy, our growth is dependent upon the widespread acceptance
and use of the Internet and other online services as an effective medium for
commerce. If acceptance and growth of Internet use do not occur, our business
could be materially adversely affected. Rapid growth in the use of and interest
in the Internet and other online services is a recent phenomenon and may not
continue. A sufficiently broad base of consumers may not adopt, or continue to
use, the Internet as a medium of commerce. Demand for and market acceptance of
recently introduced products and services over the Internet are subject to a
high level of uncertainty, and there are few proven products and services.

In addition, commerce over the Internet is subject to a number of potential
adverse developments, including infrastructure failures, failures to maintain
transaction security and privacy, and increased government regulation and
taxation, any or all of which could adversely affect our Internet commerce
strategy and overall business.

WE COMPETE IN HIGHLY COMPETITIVE MARKETS AND ARE VULNERABLE TO LARGER AND MORE
EXPERIENCED COMPETITORS

The markets in which we compete are extremely competitive. Many of our
competitors in these markets have significantly greater resources, broader
market presence and greater experience than we have. These advantages allow them
to spend considerably more on marketing and may allow them to use their greater
resources more effectively than we can. Accordingly, these competitors may be
better able to take advantage of market opportunities and withstand market
downturns than we can.

There are few barriers to entry into our lines of business. Existing as
well as new companies may launch competitive "how to" and lifestyle magazines,
television programs, books and merchandising programs. Some of these competitors
may be well financed and may gain popularity in the marketplace at our expense.
This could in turn result in a decline in our circulation, advertising revenues
and product sales.

The existing MSLO LLC operating agreement expressly permits Time Publishing
Ventures and Kleiner Perkins, each of whom is a stockholder of MSLO, and their
respective affiliates, to compete with our business. Accordingly, Time Inc. and
Kleiner Perkins, and their respective affiliates, may compete with us. See
"Certain Relationships and Related Transactions--Transactions with Time
Publishing Ventures and Its Affiliates--Agreements Relating to the 1997
Acquisition."

17
<PAGE> 21

IF WE ARE UNABLE TO PREDICT, RESPOND TO AND INFLUENCE TRENDS, OUR REVENUES WILL
BE ADVERSELY AFFECTED

Our continued success is dependent on our ability to provide creative,
useful and attractive ideas, information, concepts and products, which strongly
appeal to a large number of consumers. We must also be able to quickly and
effectively respond to changes in the public's tastes. The strength of our brand
name depends in part on our ability to influence the public's tastes. We cannot
be sure that our new ideas and content will have the appeal and garner the
acceptance that they have in the past or that we will be able to quickly respond
to changes in public taste. In addition, we can not be sure that our existing
ideas and content will continue to appeal to the public.

SINCE OUR STOCK HAS NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING, THE PRICE OF
OUR STOCK MAY BE SUBJECT TO WIDE FLUCTUATIONS

Prior to this offering, you could not buy or sell our Class A common stock
publicly. Although we and the underwriters determined the initial public
offering price after extensive negotiation and based on numerous factors, the
market price of our Class A common stock after the offering may vary from the
initial public offering price. The market price of our Class A common stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as the following, some of which are beyond our control:

-- quarterly variations in our operating results

-- operating results that vary from the expectations of securities
analysts and investors

-- changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors

-- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments

-- changes in the status of our intellectual property and other
proprietary rights

-- announcements by third parties of significant claims or proceedings
against us

-- future sales of our Class A common stock

-- stock market price and volume fluctuations

WE HAVE A SHORT OPERATING HISTORY WITH RESPECT TO OUR CURRENT BUSINESSES; WE
HAVE NEVER OPERATED AS A PUBLIC COMPANY, AND THE OBLIGATIONS INCIDENT TO BEING A
PUBLIC COMPANY WILL REQUIRE ADDITIONAL EXPENDITURES

Prior to 1997, substantially all of our current businesses were conducted
as part of Time Publishing Ventures and its affiliates, and the remainder of our
current businesses were operated separately by Martha Stewart. After our
acquisition of Martha Stewart Living from Time Publishing Ventures, we engaged
in our current businesses as an integrated independent entity for the first
time. Since then we have made significant investments, including personnel
additions and organizational changes. Accordingly, with respect to most of our
current businesses, we have only a limited operating history for potential
investors to consider.

Prior to this offering, we have never been a public company, and we expect
that the obligations of being a public company, including substantial public
reporting and investor relations obligations, will require significant
additional expenditures, place additional demands on our management and may
require the hiring of additional personnel. As part of this process, we are
implementing financial reporting systems and other controls which we have not
previously used. We may need to implement additional systems in order to
adequately function as a public company. Such expenditures could adversely
affect our financial condition and results of operations.

WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH

Our rapid growth in recent years has placed significant demands on our
management and other resources. We expect that our growth will require
significant additional investment in personnel, systems and related

18
<PAGE> 22

capital expenditures, and we may not be able to recruit adequate personnel,
implement new systems or invest in capital expenditures in a timely and
effective manner. If we fail to effectively manage and continue this growth, our
profitability could decline.

MARTHA STEWART WILL CONTROL OUR COMPANY

Following this offering, Martha Stewart will control all of our outstanding
shares of Class B common stock, representing approximately % of our voting
power. As a result, Martha Stewart will have the ability to control the outcome
of all matters requiring stockholder approval, including the election and
removal of our entire Board of Directors, any merger, consolidation or sale of
all or substantially all of our assets, and the ability to control our
management and affairs. The Class B common stock has ten votes per share, while
Class A common stock, which is the stock we are offering in this prospectus, has
one vote per share. Because of this dual-class structure, Martha Stewart will
continue to be able to control all matters submitted to our stockholders even if
she comes to own significantly less than 50% of the equity of our company. This
concentrated control could discourage others from initiating any potential
merger, takeover or other change of control transaction that may otherwise be
beneficial to our businesses. As a result, the market price of Class A common
stock could be adversely affected.

IF OUR SYSTEMS OR THOSE OF OUR VENDORS OR PARTNERS ARE NOT YEAR 2000 COMPLIANT,
YEAR 2000 RISKS MAY HARM OUR BUSINESS

The risks posed by the inability of certain computer systems, possibly
including ours and those of our third-party vendors and strategic partners, to
recognize the change of the date to the year 2000 could adversely affect our
business in a number of significant ways. We rely on information technology
supplied by third parties, and our strategic partners are also dependent upon
their own internally developed information technology and third-party systems.
Year 2000 problems affecting either our systems or those of our strategic
partners, manufacturers and distributors could materially adversely affect our
business. Additionally, the Internet could face serious disruptions arising from
the year 2000 problem.

We are evaluating our information technology and are consulting with our
third-party vendors and strategic partners to ascertain year 2000 status.
However, we cannot guarantee that our systems will be year 2000 compliant in a
timely manner, that the systems of our strategic partners will be year 2000
compliant in a timely manner or that there will not be significant problems
among information technology systems. We also cannot guarantee that consumers
will be able to visit marthastewart.com without serious disruptions arising from
the year 2000 problem. Given the potentially pervasive nature of the year 2000
problem, we cannot guarantee that disruption in other industries and market
segments will not adversely affect our business.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of our common stock. Purchasers of
Class A common stock in this offering will experience immediate and substantial
dilution. The dilution will be $ per share in net tangible book value of
Class A common stock from the initial public offering price, and $ per share
if the underwriters exercise their option to purchase additional shares. If
outstanding options to purchase shares of Class A common stock are exercised,
there would be further dilution. See "Dilution" and "Management."

SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE

Sales of a substantial number of shares of our common stock after this
offering could adversely affect the market price of our Class A common stock by
introducing a large number of sellers to the market. Given the potential
volatility in the price of our shares, these sales could cause the market price
of Class A common stock to decline.

After this offering, we will have outstanding shares of Class A
common stock and shares of Class B common stock, and we will have
reserved an additional shares of Class A common stock for issuance
pursuant to outstanding stock options. All of the shares of Class A common stock
to be sold

19
<PAGE> 23

in this offering will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by one of our
"affiliates" (as that term is defined in Rule 144 under the Securities Act of
1933, as amended). The remaining shares of outstanding common stock, including
both Class A and Class B, representing approximately % of the outstanding
common stock upon completion of this offering, will be "restricted securities"
under the Securities Act of 1933. These restricted securities will be subject to
restrictions on the timing, manner and volume of sales of restricted shares.
However, under the terms of a stockholders agreement to be entered into
immediately prior to completion of this offering, each of Martha Stewart, Time
Publishing Ventures and Kleiner Perkins, each of whom is a stockholder, will
have rights to require us to register their shares. See "Certain Relationships
and Related Transactions--Registration Rights" for more information on these
registration rights. If Time Publishing Ventures accepts our offer to purchase
its shares of common stock, which we will deliver at the time of this offering,
upon completion of that transaction, those shares of common stock will no longer
be outstanding for sale in the public markets.

Our directors, executive officers, key employees and all of our current
stockholders have agreed, subject to limited exceptions, that, for a period of
180 days following this offering, they will not, without the prior written
consent of Morgan Stanley, directly or indirectly, offer to sell, sell or
otherwise dispose of any shares of common stock.

We cannot predict if future sales of our common stock or the availability
of our common stock for sale will adversely affect the market price for Class A
common stock or our ability to raise capital by offering equity securities.

20
<PAGE> 24

REORGANIZATION TRANSACTIONS OCCURRING PRIOR TO THIS OFFERING

From February 1997 until , 1999, we operated as a limited
liability company. In connection with this offering and immediately before we
complete this offering, MSLO LLC will be reorganized into a C corporation
through a merger with MSLO in which the equity interests in MSLO LLC will be
converted into shares of common stock. We will issue an aggregate of
shares of Class A common stock and shares of Class
B common stock in this reorganization. In addition, in connection with this
reorganization:

-- we will reserve an aggregate of shares of Class A
common stock for issuance upon exercise of options previously issued
under the MSLO LLC Non-Qualified Class A LLC Unit/Stock Option Plan

-- at the time of this offering we will issue up to an additional
shares of Class A common stock under the MSLO LLC
Phantom Performance Unit Plan

The options to acquire Class A common stock under the MSLO LLC
Non-Qualified Class A LLC Unit/ Stock Option Plan generally vest in increments
over a five-year period, generally 10% at December 31, 1998, with additional
increments of 10%, 20%, 20% and 40% vesting on each of the four subsequent
anniversaries. There will be no further grants under this plan following this
offering.

Prior to this offering, we will make one or more distributions of profits,
totaling approximately $10.0 million, to the members of MSLO LLC, other than
Kleiner Perkins. Additionally, at the time of the reorganization we will make a
distribution to all members of MSLO LLC to cover their respective tax
liabilities resulting from the income of MSLO LLC, which distribution as of
March 31, 1999 is estimated to total $3.0 million. However, the actual amount of
this distribution is dependent on results of operations of MSLO LLC through the
time of the reorganization, which we cannot predict with certainty.

Upon completion of this offering, we will exercise our right under an
existing agreement to offer to purchase the shares of Class A common stock to be
owned by Time Publishing Ventures for an aggregate of approximately $42.0
million, or $ per share. Certain rights which Time Publishing Ventures has
with respect to MSLO continue until we either complete that purchase or Time
Publishing Ventures declines our offer to purchase. Time Publishing Ventures
must decide no later than the 120th day following the date we notify Time
Publishing Ventures of our offer to purchase. See "Certain Relationships and
Related Transactions--LLC Operating Agreement" for more information.

21
<PAGE> 25

USE OF PROCEEDS

We estimate the net proceeds to us from the sale of the
shares of Class A common stock offered in this prospectus to be approximately
$ million, after deducting estimated offering expenses of $ .
We plan to use approximately $42.0 million of the net proceeds from this
offering to finance the potential purchase of the shares of Class A common stock
held by Time Publishing Ventures under the terms of an existing agreement, see
"Certain Relationships and Related Transactions--LLC Operating Agreement." We
intend to use the remainder of the net proceeds, over time, for general
corporate purposes, including new business development. We also could use a
portion of the net proceeds to acquire or invest in businesses, technologies,
products or services, although no specific acquisitions are planned and no
portion of the net proceeds has been allocated for any acquisition. In the event
that Time Publishing Ventures declines to accept our offer to purchase its
shares of Class A common stock, the entire net proceeds will be used as
otherwise described in this paragraph.

As of the date of this prospectus, except for the potential purchase of the
shares held by Time Publishing Ventures, we cannot specify with certainty the
particular uses for the net proceeds we will receive upon completion of this
offering. Accordingly, our management will have broad discretion in the
application of the remainder of the net proceeds. Pending these uses, we intend
to invest the remainder of the net proceeds in short-term, interest-bearing,
investment-grade securities.

DIVIDEND POLICY

We anticipate that we will retain all of our earnings in the foreseeable
future to finance the continued growth and expansion of our businesses, and we
have no current intention to pay cash dividends. Our future dividend policy will
depend on our earnings, capital requirements, requirements of the financing
agreements to which we may be a party, financial condition and other factors
considered relevant by our Board of Directors.

22
<PAGE> 26

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 1999 on
an actual, pro forma and pro forma as adjusted basis:

- The actual column reflects our capitalization as of March 31, 1999.

- The pro forma column reflects our capitalization as set forth in the
actual column, with adjustments to reflect (1) the reorganization of MSLO
LLC into a C corporation, including a $2.9 million net future tax benefit
resulting from the reorganization; (2) distributions to members of MSLO
LLC, totaling $13.0 million, including $3.0 million representing tax
distribution payments based upon taxable income for the three months
ended March 31, 1999; the actual amount of this tax distribution will
change based on the actual results of operations of MSLO LLC from March
31, 1999 through the date of the reorganization; (3) the sale of 5% of
MSLO LLC and a warrant to Kleiner Perkins in exchange for $25.0 million
and (4) the retirement of $15.0 million of indebtedness primarily with a
portion of the proceeds from the Kleiner Perkins transaction, as if each
had occurred on March 31, 1999.

- The pro forma as adjusted column reflects our capitalization as set forth
in the pro forma column, with adjustments to reflect the issuance of the
shares of Class A common stock offered in this prospectus and
our receipt of the estimated net proceeds from the sale of these shares,
as if this offering had been completed on March 31, 1999.

This table should be read together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of MSLO LLC and related notes included elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt (including current maturities).......... $15,000 $ -- $ --
Members' equity........................................ 43,434 -- --
Stockholders' equity:
Class A common stock ($0.01 par value) no shares
authorized actual and pro forma; 350,000,000
shares authorized as adjusted; no shares issued
and outstanding actual and pro forma;
shares issued and outstanding pro forma as
adjusted.......................................... --
Class B common stock ($0.01 par value) no shares
authorized actual and pro forma; 150,000,000
shares authorized as adjusted; no shares issued
and outstanding actual and pro forma;
shares issued and outstanding pro forma as
adjusted.......................................... --
Preferred stock ($0.01 par value) no shares
authorized actual and pro forma; 150,000,000
shares authorized as adjusted; no shares issued
and outstanding actual, pro forma and pro forma as
adjusted;......................................... -- -- --
Paid-in capital........................................ 58,299
Retained earnings......................................
------- ------- -------
Total stockholders' equity............................. -- 58,299
------- -------
Total capitalization................................... $58,434 $58,299 $
======= ======= =======
</TABLE>

- - - ------------

23
<PAGE> 27

DILUTION

Our net tangible book value (deficit) as of March 31, 1999 was
approximately $(8.936) million or $ per share based on an aggregate of
shares of common stock outstanding. Net tangible book value per share
is determined by dividing the number of outstanding shares of common stock into
our net tangible book value, which is the total tangible assets less total
liabilities. After giving effect to (1) the sale of 5% of MSLO LLC and the
issuance of a warrant in exchange for $25.0 million and (2) the sale of the
shares of Class A common stock offered in this prospectus, before
deducting estimated offering expenses and the underwriting discounts and
commissions based on an assumed initial public offering price of $ per share,
our net tangible book value as of March 31, 1999 would have been $
million, or $
per share. This represents an immediate dilution of $ per share to new
investors purchasing shares of Class A common stock at the initial offering
price. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value (deficit) per share as of March
31, 1999............................................... $
Increase in net tangible book value per share attributable
to Kleiner
Perkins................................................
Increase in net tangible book value per share attributable
to new investors.......................................
----
Pro forma net tangible book value per share after the
reorganization and this offering..........................
----
Dilution per share to new investors......................... $
====
</TABLE>

The following table summarizes, as of March 31, 1999 on the pro forma basis
described above, the number of shares of capital stock purchased from us, the
total consideration paid to us and the average price per share paid by existing
stockholders, Kleiner Perkins and by investors purchasing shares of Class A
common stock in this offering at $ , before deducting the underwriting
discounts and commissions and estimated offering expenses:

<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
------------------ ------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... % $ % $
Kleiner Perkins................
New investors..................
------- ------- ------- -------
Total..................... % $ %
======= ======= ======= =======
</TABLE>

The above discussion and tables exclude (1) shares of common
stock issuable on exercise of options outstanding as of March 31, 1999, with a
weighted average exercise price of approximately $ per share, and (2)
additional shares of common stock reserved for issuance under our
equity-based compensation plans. The discussion and tables include up to
shares of common stock to be issued upon completion of this offering
pursuant to the MSLO LLC Phantom Performance Unit Plan.

24
<PAGE> 28

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

In the table below, we provide you with selected historical and pro forma
consolidated financial data of MSLO LLC. The following selected consolidated
statement of income data for the years ended December 31, 1994 and 1995 and the
consolidated balance sheet data as of December 31, 1994, 1995 and 1996 are
derived from the financial statements of MSLO LLC that have been audited by
Arthur Andersen LLP, independent public accountants, which are not included in
this prospectus. We explain in the first bullet point below how we derived the
following pro forma consolidated financial data as of and for the year ended
December 31, 1996. The acquisition of Martha Stewart Living in 1997 was
accounted for as a purchase and accordingly results of operations for prior
periods do not include those businesses. The following selected consolidated
statement of income data for the years ended December 31, 1996, 1997 and 1998
and the consolidated balance sheet data as of December 31, 1997 and 1998 are
derived from the consolidated financial statements of MSLO LLC that have been
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this prospectus. The following consolidated statement of income
data for the three months ended March 31, 1998 and 1999 and the consolidated
balance sheet data as of March 31, 1999 have been derived from the unaudited
financial statements of MSLO LLC which, in the opinion of management, have been
prepared on the same basis as the audited financial statements and reflect all
adjustments, consisting of normal recurring adjustments, necessary for fair
presentation. Results for the three month period ended March 31, 1999 are not
necessarily indicative of results that may be expected for the entire year.

In the table below, we also provide you with the following pro forma
information:

-- The 1996 pro forma statement of income data, other data and balance
sheet data have been derived from the financial statements of MSLO
LLC and give effect to the acquisition of Martha Stewart Living from
Time Publishing Ventures as though this acquisition had occurred on
January 1, 1996. The net income reflected for that period is the sum
of the net income of MSLO LLC for that period of $3.6 million and the
net income of Martha Stewart Living for that period of $8.7 million,
reduced by amortization of intangible assets of $2.9 million. Total
revenues for the period include $1.0 million that had been classified
as other income in the Martha Stewart Living statement of operations.
There were no intercompany transactions during that period. We
include elsewhere in this prospectus the financial statements of
Martha Stewart Living, audited by Ernst & Young LLP, independent
auditors.

The financial data set forth below should be read in conjunction with, and
are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the consolidated financial
statements of MSLO LLC and the combined financial statements of Martha Stewart
Living and, in each case, the related notes thereto, included elsewhere in this
prospectus.

25
<PAGE> 29

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- ---------------------
PRO FORMA
1994 1995 1996 1996 1997 1998 1998 1999
------ ------ ------ ---------------- -------- -------- ------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues
Publishing................ $3,161 $3,647 $3,899 $74,146 $108,694 $127,020 $32,509 $ 35,536
Television................ -- -- -- 8,420 12,396 23,351 5,387 6,609
Merchandising............. -- -- -- -- 6,919 15,004 3,056 5,679
Internet/Direct
Commerce................ -- -- -- 3,292 4,812 14,673 1,348 5,555
------ ------ ------ ------- -------- -------- ------- --------
Total revenues........ 3,161 3,647 3,899 85,858 132,821 180,048 42,300 53,379
------ ------ ------ ------- -------- -------- ------- --------

Operating costs and expenses
Production, distribution
and editorial........... -- -- -- 40,610 59,148 82,930 18,052 26,312
Selling and promotion..... -- -- -- 24,484 31,973 34,540 8,774 9,856
General and
administrative.......... 725 131 99 7,812 21,182 29,659 7,396 8,449
Depreciation and
amortization............ -- -- -- 3,371 3,927 5,534 1,126 1,342
------ ------ ------ ------- -------- -------- ------- --------
Total operating costs
and expenses....... 725 131 99 76,277 116,230 152,663 35,348 45,959
------ ------ ------ ------- -------- -------- ------- --------
Income from operations...... 2,436 3,516 3,800 9,581 16,591 27,385 6,952 7,420
------ ------ ------ ------- -------- -------- ------- --------
Interest expense, net..... -- 153 165 165 2,195 2,243 607 457
Income tax provision...... 71 45 -- -- 467 1,336 328 344
------ ------ ------ ------- -------- -------- ------- --------
Net income.................. 2,365 3,318 3,635 9,416 13,929 23,806 6,017 6,619
------ ------ ------ ------- -------- -------- ------- --------
Pro forma (unaudited)
Benefit from change in tax
status.................. -- -- -- -- -- -- -- 2,865
Adjustment to income tax
provision............... (976) (1,401) (1,563) (5,149) (7,038) (10,817) (2,916) (3,171)
------ ------ ------ ------- -------- -------- ------- --------
Pro forma net income........ $1,389 $1,917 $2,072 $ 4,267 $ 6,891 $ 12,989 $ 3,101 $ 6,313
====== ====== ====== ======= ======== ======== ======= ========
Pro forma basic and diluted
net income per share...... $ $
Pro forma weighted average
common shares
outstanding...............

OTHER DATA:
EBITDA...................... $2,436 $3,516 $3,800 $12,952 $ 20,518 $ 32,919 $ 8,078 $ 8,762
Capital expenditures........ -- -- -- 1,714 11,027 2,730 1,572 517

BALANCE SHEET DATA:
(AT PERIOD END)
Cash........................ $ 46 $ 7 $ 85 $ 85 $ 9,971 $ 24,578 $ 17,363
Total assets................ 1,145 2,786 4,074 88,496 105,706 125,732 123,467
Total long-term debt........ -- -- -- 30,000 30,000 27,650 15,000
Members'/Stockholders'
Equity (deficit).......... 88 (436) 589 (15,827) 13,235 36,815 43,434
</TABLE>

26
<PAGE> 30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion details the material factors that have affected
our financial condition and results of operations in 1996, 1997, 1998 and the
first quarters of 1998 and 1999. This discussion should be read in conjunction
with "Selected Historical and Pro Forma Consolidated Financial Data," the
consolidated financial statements of MSLO LLC and the combined financial
statements of Martha Stewart Living and, in each case, the related notes
thereto, included elsewhere in this prospectus. In addition to historical and
pro forma financial information, the following discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
future results could differ significantly from those anticipated in or implied
by these forward-looking statements for the reasons detailed in "Risk Factors"
and elsewhere in this prospectus.

OVERVIEW

We are a leading creator of original "how to" content and related products
for homemakers and other consumers. Our products bear the well-known "Martha
Stewart" brand name, which we leverage across a broad range of media and retail
distribution outlets. We primarily focus on the domestic arts, providing
consumers with the "how to" ideas, information, products and other resources
they need to raise the quality of living in and around their homes. The content
and products we create span seven core areas: Home, Cooking and Entertaining,
Gardening, Crafts, Holidays, Keeping and Weddings.

The original businesses of MSLO began operations in 1982 with Martha
Stewart's publication of the book Entertaining. Through 1996, MSLO derived
revenue from royalty income on the sale of books and lecture and appearance
fees. In 1997, the character of our business changed significantly with the
acquisition from Time Publishing Ventures of the assets and liabilities relating
to Martha Stewart Living magazine, Martha Stewart Weddings magazine, the Martha
Stewart Living television program, Martha Stewart Living books, and the Martha
by Mail mail order business, including certain trademarks and copyrights, for
approximately $53.3 million, including acquisition costs. The consideration we
paid to Time Publishing Ventures in this transaction consisted of an
interest-bearing promissory note in the principal amount of $30.0 million and
approximately 6.3% of our equity through the creation of a special class of our
equity. In addition, pursuant to the operating agreement of MSLO LLC, Time
Publishing Ventures received the right to a special distribution from us for an
aggregate $18 million in cash, an amount which we paid in February 1997.

Our businesses have expanded to comprise four operating segments:
Publishing (magazines, books, newspaper columns and radio programs), Television
(daily and weekend nationally syndicated and cable programming and periodic
network specials), Merchandising (the design and licensing of products for sale
in traditional retail stores) and Internet/Direct Commerce (online and offline
catalog and other Internet-related businesses). Much of our growth has occurred
since 1997, reflecting the 1997 acquisition of Martha Stewart Living from Time
Publishing Ventures, the introduction of new products and services as well as
the expansion of our historical businesses. Over the last three years, our
revenues have grown from $85.9 million in 1996, on a pro forma basis, to $180.0
million in 1998, and our income from operations has grown from $9.6 million, on
a pro forma basis, to $27.4 million during that same period. This growth has
resulted primarily from continued growth in our Publishing segment, the switch
from a weekly television program to a daily program in September 1997 as
reflected in our Television segment, and the creation of our Merchandising
segment in February 1997 and its subsequent growth. Additionally, the revenues
we derive from the Internet/Direct Commerce segment have increased as a
percentage of total revenues during both 1997 and 1998 as compared to prior
periods.

Our revenues are derived primarily from advertising sales, circulation and
book royalties in our Publishing segment, advertising sales and royalties in our
Television segment, licensing fees and royalties in our Merchandising segment
and product sales and advertising in our Internet/Direct Commerce segment.

Our expenses consist primarily of the costs directly associated with
creating, producing and distributing our products and services, such as the cost
of producing our television programs, researching, developing and creating
stories for our Publishing and Television segments and product cost and research
and development

27
<PAGE> 31

expenses relating to our Merchandising and Internet/Direct Commerce segments. In
addition, the recent expansion of our business and operations has resulted in
increased corporate overhead and selling and promotion expenses, including
material increases in the second half of 1998 and the first quarter of 1999,
resulting in slower earnings growth than for prior periods. We expect these
expenses to continue to increase through the remainder of 1999.

In connection with our growth strategies, we expect that we will make
significant investments in technology and new product development, as well as
additional investments in infrastructure and facilities related costs. Because
our strategy is to closely control our brands and the quality of products and
services associated with our brands, the introduction of new products, such as a
new category of merchandise, requires substantial investment by us, although a
significant portion of this expense is reimbursed by our licensing partners.
There can be no assurance that, notwithstanding these investments, our growth
strategies will be successful.

From February 1997 until immediately prior to completion of this offering,
we have operated as a limited liability company. Accordingly, our earnings were
included in the taxable income of the members of MSLO LLC for federal and
certain state income tax purposes, and we have generally not been subject to
income tax on such earnings, other than certain state and local franchise and
similar taxes. In connection with this offering, pursuant to the merger of MSLO
LLC with and into MSLO, MSLO will become subject to such taxes as it is
reorganized from a limited liability company to a C corporation. As a result of
the reorganization into a C corporation, we will record future tax benefits and
deferred tax liabilities and a corresponding tax benefit in our statement of
income. Assuming this reorganization into a C corporation had occurred at March
31, 1999, the net future tax benefit would have been approximately $3.0 million.
In connection with this offering, MSLO LLC will make one or more distributions
to its members of approximately $13.0 million, which includes one or more
distributions of profits totaling no more than $10.0 million to the members
other than Kleiner Perkins and approximately $3.0 million in respect of tax
liabilities of all members for the three months ended March 31, 1999, which
amount will be increased to reflect earnings since that date through the date of
the reorganization.

Assuming the merger had occurred on January 1, 1998, our pro forma
effective tax rate for 1998 would have been 48%. This pro forma effective tax
rate is higher than the federal statutory tax rate of 35% due to state and local
taxes, as well as the effect of the amortization of non-deductible goodwill. The
effect of taxes on our results of operations is not discussed below because the
historic taxation of our operations does not provide a meaningful comparison
with respect to periods following the merger and this offering.

28
<PAGE> 32

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH
31, 1998

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH MARCH
31, 1998 % OF REVENUES 31, 1999 % OF REVENUES
------------ ------------- ------------ -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Publishing................ $32,509 76.9% $35,536 66.6%
Television................ 5,387 12.7% 6,609 12.4%
Merchandising............. 3,056 7.2% 5,679 10.6%
Internet/Direct
Commerce............... 1,348 3.2% 5,555 10.4%
------- ----- ------- -----
Total revenues....... 42,300 100.0% 53,379 100.0%
------- ----- ------- -----
Operating costs and expenses
Production, distribution
and editorial.......... 18,052 42.7% 26,312 49.3%
Selling and promotion..... 8,774 20.7% 9,856 18.5%
General and
administrative......... 7,396 17.5% 8,449 15.8%
Depreciation and
amortization........... 1,126 2.7% 1,342 2.5%
------- ----- ------- -----
Total operating costs
and expenses...... 35,348 83.6% 45,959 86.1%
------- ----- ------- -----
Income from operations...... 6,952 16.4% 7,420 13.9%
------- ----- ------- -----
Other expenses
Interest expense, net..... 607 1.4% 457 0.9%
Income tax provision...... 328 0.8% 344 0.6%
------- ----- ------- -----
Net income.................. $ 6,017 14.2% $ 6,619 12.4%
======= ===== ======= =====
</TABLE>

Revenues. Total revenues increased $11.1 million, or 26%, to $53.4 million
for the three months ended March 31, 1999 from $42.3 million for the three
months ended March 31, 1998. Publishing revenues increased $3.0 million, or 9%,
to $35.5 million for the three months ended March 31, 1999 from $32.5 million
for the three months ended March 31, 1998. This increase primarily reflects
higher advertising revenues due to more advertising pages sold and increased per
page advertising rates. Television revenues increased $1.2 million, or 23%, to
$6.6 million for the three months ended March 31, 1999 from $5.4 million for the
three months ended March 31, 1998, due primarily to the addition of a second
half hour to our syndicated daily program in a majority of markets in which it
is aired, partially offset by reduced advertising revenues resulting from lower
ratings for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998. Merchandising revenues increased $2.6 million, or
86%, to $5.7 million, for the three months ended March 31, 1999 from $3.1
million for the three months ended March 31, 1998, due primarily to the addition
of our Martha Stewart Everyday line of garden products, sold in Kmart stores
beginning in January 1999, and the sale of merchandise by Zellers department
stores in Canada beginning in June 1998. Sales of our Martha Stewart Everyday
bed and bath products also increased due to offering the full product line
during the three months ended March 31, 1999, as compared to offering
approximately 50% of the assortment during the three months ended March 31,
1998. Internet/Direct Commerce revenues increased $4.3 million, or 312%, to $5.6
million for the three months ended March 31, 1999 from $1.3 million for the
three months ended March 31, 1998, due primarily to higher catalog merchandise
sales resulting in part from additional catalog mailings in December 1998 and
February 1999 and the fact that no corresponding mailings were made in the last
quarter of 1997 or first quarter of 1998.

29
<PAGE> 33

Production, distribution and editorial. Production, distribution and
editorial expenses increased $8.2 million, or 46%, to $26.3 million for the
three months ended March 31, 1999 from $18.1 million for the three months ended
March 31, 1998. Publishing segment costs increased $2.4 million, as a result of
the increased number of pages printed per issue resulting from an increase in
advertising and editorial pages, an increased print order, as well as higher
printing costs. Television costs increased $0.9 million primarily as a result of
higher production and distribution costs incurred for the additional half-hour
of programming in 1999. In our Merchandising segment, certain costs are
reimbursed by our licensing partners, and are therefore not reflected in our
results of operations. Internet/Direct Commerce costs increased $4.9 million due
to higher volume of catalog circulation and a higher cost of goods sold related
to increased revenues.

Selling and promotion. Selling and promotion expenses increased $1.1
million, or 12%, to $9.9 million for the three months ended March 31, 1999 from
$8.8 million for the three months ended March 31, 1998. This increase primarily
reflects increased Publishing segment costs resulting from increased
subscription acquisition spending and advertising sales costs to support higher
advertising revenues.

General and administrative. General and administrative expenses,
consisting primarily of costs relating to the executive office, finance,
professional services, information technology, office services (including rent)
and human resources, increased $1.0 million, or 14%, to $8.4 million for the
three months ended March 31, 1999 from $7.4 million for the three months ended
March 31, 1998. The increase is attributable to higher consulting costs,
primarily related to certain human resource and information technology-related
projects. Additionally, we have incurred higher costs with respect to finance
and occupancy as a result of continued infrastructure development and higher
company-wide employment levels over the prior period.

Depreciation and amortization. Depreciation and amortization increased
$0.2 million, or 19%, to $1.3 million for the three months ended March 31, 1999
from $1.1 million for the three months ended March 31, 1998 as a result of
higher levels of property, plant and equipment.

Interest expense, net. Interest expense, net, decreased $0.1 million, or
25%, to $0.5 million for the three months ended March 31, 1999 from $0.6 million
for the three months ended March 31, 1998, as a result of lower outstanding
long-term debt, as well as lower interest rates.

Net income increased $0.6 million, or 10%, to $6.6 million for the three
months ended March 31, 1999 from $6.0 million for the three months ended March
31, 1998, primarily as a result of the above mentioned factors.

30
<PAGE> 34

COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
% OF % OF
1997 REVENUES 1998 REVENUES
-------- ----------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues
Publishing.................................. $108,694 81.8% $127,020 70.5%
Television.................................. 12,396 9.3% 23,351 13.0%
Merchandising............................... 6,919 5.2% 15,004 8.3%
Internet/Direct Commerce.................... 4,812 3.6% 14,673 8.1%
-------- ----- -------- -----
Total revenues......................... 132,821 100.0% 180,048 100.0%
-------- ----- -------- -----
Operating costs and expenses
Production, distribution and editorial...... 59,148 44.5% 82,930 46.1%
Selling and promotion....................... 31,973 24.1% 34,540 19.2%
General and administrative.................. 21,182 15.9% 29,659 16.5%
Depreciation and amortization............... 3,927 3.0% 5,534 3.1%
-------- ----- -------- -----
Total operating costs and expenses..... 116,230 87.5% 152,663 84.8%
-------- ----- -------- -----
Income from operations........................ 16,591 12.5% 27,385 15.2%
-------- ----- -------- -----
Other expenses
Interest expense, net....................... 2,195 1.7% 2,243 1.2%
Income tax provision........................ 467 0.4% 1,336 0.7%
-------- ----- -------- -----
Net income.................................... $ 13,929 10.5% $ 23,806 13.2%
======== ===== ======== =====
</TABLE>

Revenues. Total revenues increased $47.2 million, or 36%, to $180.0
million, for the year ended December 31, 1998 from $132.8 million for the year
ended December 31, 1997. Publishing segment revenues increased $18.3 million, or
17%, to $127.0 million for the year ended December 31, 1998 from $108.7 million
for the year ended December 31, 1997. This increase primarily reflects higher
advertising revenues due to more advertising pages sold and increased per page
advertising rates, as well as additional revenues received from a special issue
published in the fourth quarter of 1998. Circulation revenues increased as a
result of generally higher newsstand revenues and revenues recognized on the
special issue. Television revenues increased $11.0 million, or 88%, to $23.4
million for the year ended December 31, 1998 from $12.4 million for the year
ended December 31, 1997 due primarily to producing and airing a full year of the
daily syndicated show in both the United States and Canada, as opposed to a
partial year in 1997, and revenues earned from licensing a second half hour of
"best of" shows during the fourth quarter of 1998. These increases were
partially offset by the elimination of revenues derived from an agreement, under
which reruns of Martha Stewart Living programming were aired on the Lifetime
cable network. In light of Martha Stewart Living programming moving to a daily
format, we elected not to attempt to renew this agreement, which expired during
the third quarter of 1997. Merchandising revenues increased $8.1 million, or
117%, to $15.0 million for the year ended December 31, 1998 from $6.9 million
for the year ended December 31, 1997. This increase resulted from a greater
assortment of Martha Stewart Everyday bed and bath products in 1998, the
introduction of these products at Zellers in Canada in June 1998 and the
distribution of our Martha Stewart Everyday Colors line of paints through Sears
in the United States and Canada in the first half of 1998. Internet/Direct
Commerce revenues increased $9.9 million, or 205%, to $14.7 million for the year
ended December 31, 1998 from $4.8 million for the year ended December 31, 1997.
The increase is primarily due to an increase in catalog merchandise sales
resulting from an increase in both the number of products offered through the
catalog and the number of catalogs mailed, in addition to increased sales on our
website. Internet advertising revenues also increased, primarily due to our
website's first full year of operation in 1998, compared with only four months
in 1997.

Production, distribution and editorial. Production, distribution and
editorial expenses increased $23.8 million, or 40%, to $82.9 million in the year
ended December 31, 1998 from $59.1 million in the year ended

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<PAGE> 35

December 31, 1997. Publishing segment costs increased $7.3 million, as a result
of an increased number of pages printed per issue resulting from the increase in
advertising and editorial pages per issue, costs associated with the special
issue, an increased print order and higher printing costs. Television costs
increased $4.1 million due to higher production and distribution costs
associated with producing and airing a full year of the daily syndicated show.
Internet/Direct Commerce costs increased $12.4 million, based on higher volume
of catalog circulation and a higher cost of goods sold due to increased product
sales.

Selling and promotion. Selling and promotion expenses increased $2.5
million, or 8%, to $34.5 million for the year ended December 31, 1998 from $32.0
million for the year ended December 31, 1997. This increase reflects increased
Publishing segment costs resulting from increased subscription acquisition
spending and advertising sales costs to support higher advertising revenues,
increased Television segment expenses associated with the expanded programming
schedule and increased Internet/Direct Commerce segment costs associated with
higher revenue volume.

General and administrative. General and administrative expenses increased
$8.5 million, or 40%, to $29.7 million for the year ended December 31, 1998 from
$21.2 million for the year ended December 31, 1997. The increase is attributable
to higher executive compensation, higher information technology and consulting
costs, the creation of an integrated marketing department, higher costs
associated with increased revenues and the buildup of corporate infrastructure
in the business and higher staffing levels throughout the Company.

Depreciation and amortization. Depreciation and amortization increased
$1.6 million, or 41%, to $5.5 million for the year ended December 31, 1998 from
$3.9 million for the year ended December 31, 1997, as a result of higher levels
of property, plant and equipment in service.

Interest expense, net. Interest expense, net, remained unchanged at $2.2
million.

Net income increased $9.9 million, or 71%, to $23.8 million for the year
ended December 31, 1998 from $13.9 million for the year ended December 31, 1997,
primarily as a result of the above mentioned factors.

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO PRO FORMA YEAR ENDED DECEMBER
31, 1996

Financial information for 1996 is presented on a pro forma basis to reflect
the acquisition by MSLO LLC of Martha Stewart Living from Time Publishing
Ventures in 1997, as if such transaction were completed as of January 1, 1996.
Actual financial information for 1996 is not presented in this section as it is
not material and does not provide a meaningful comparison with subsequent
periods. We present the actual financial information for 1996 in the
consolidated financial statements of MSLO LLC included elsewhere in this
prospectus.

32
<PAGE> 36

<TABLE>
<CAPTION>
PRO FORMA % % OF
1996 OF REVENUES 1997 REVENUES
----------- ----------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues
Publishing............................ $74,146 86.4% $108,694 81.8%
Television............................ 8,420 9.8% 12,396 9.3%
Merchandising......................... -- -- 6,919 5.2%
Internet/Direct Commerce.............. 3,292 3.8% 4,812 3.6%
------- ----- -------- -----
Total revenues................... 85,858 100.0% 132,821 100.0%
------- ----- -------- -----
Operating costs and expenses
Production, distribution and
editorial.......................... 40,610 47.3% 59,148 44.5%
Selling and promotion................. 24,484 28.5% 31,973 24.1%
General and administrative............ 7,812 9.1% 21,182 15.9%
Depreciation and amortization......... 3,371 3.9% 3,927 3.0%
------- ----- -------- -----
Total operating costs and
expenses...................... 76,277 88.8% 116,230 87.5%
------- ----- -------- -----
Income from operations.................. 9,581 11.2% 16,591 12.5%
------- ----- -------- -----
Other expenses
Interest expense, net................. 165 0.2% 2,195 1.7%
Income tax provision.................. -- -- 467 0.4%
------- ----- -------- -----
Net income............................ $ 9,416 11.0% $ 13,929 10.5%
======= ===== ======== =====
</TABLE>

Revenues. Total revenues increased $47.0 million, or 55%, to $132.8
million for the year ended December 31, 1997 from $85.9 million for the year
ended December 31, 1996 on a pro forma basis. Publishing segment revenues
increased $34.6 million, or 47%, to $108.7 million for the year ended December
31, 1997 from $74.1 million for the year ended December 31, 1996 on a pro forma
basis. This increase primarily reflects higher advertising revenues due to more
advertising pages sold and increased per page advertising rates, as well as
higher circulation revenues resulting from both higher subscription revenues and
newsstand revenues due to increased copies sold. Television revenues increased
$4.0 million, or 47%, to $12.4 million for the year ended December 31, 1997 from
$8.4 million for the year ended December 31, 1996 on a pro forma basis. This
increase was primarily due to production and airing of a daily syndicated
half-hour show in both the United States and Canada beginning in September 1997,
while prior to that date the show was aired only weekly. Merchandising revenues
in 1997 represent revenues received from our Martha Stewart Everyday bed and
bath products, which were introduced at Kmart in March 1997. Internet/Direct
Commerce revenues increased $1.5 million, or 46%, to $4.8 million for the year
ended December 31, 1997 from $3.3 million for the year ended December 31, 1996
on a pro forma basis. The increase is primarily due to an increase in product
sales resulting from the promotion of catalog products in Martha Stewart Living
magazine.

Production, distribution and editorial. Production, distribution and
editorial expenses increased $18.5 million, or 46%, to $59.1 million for the
year ended December 31, 1997 from $40.6 million for the year ended December 31,
1996 on a pro forma basis. Publishing segment costs increased $15.0 million,
primarily as a result of an increased number of pages printed per issue due to
the increase in advertising and editorial pages and an increased print order.
Television costs increased $2.8 million due to the increase in programming
resulting from the change from a weekly to a daily show beginning in September
1997. Internet/Direct Commerce costs increased $0.7 million due to higher sales
of catalog merchandise.

Selling and promotion. Selling and promotion expenses increased $7.5
million, or 31%, to $32 million for the year ended December 31, 1997 from $24.5
million for the year ended December 31, 1996 on a pro forma basis. This increase
reflects higher Publishing segment costs resulting from increased subscription
acquisition spending and advertising sales costs to support higher advertising
revenues.

33
<PAGE> 37

General and administrative. General and administrative expenses increased
$13.4 million, or 172%, to $21.2 million for the year ended December 31, 1997
from $7.8 million for the year ended December 31, 1996 on a pro forma basis. The
increase is attributable to overall costs associated with the staffing and the
development of a corporate infrastructure as a result of the acquisition of
Martha Stewart Living from Time Publishing Ventures, including higher executive
compensation, information technology, finance, consulting and human resource
costs.

Depreciation and amortization. Depreciation and amortization increased
$0.6 million, or 16%, to $3.9 million for the year ended December 31, 1997 from
$3.4 million for the year ended December 31, 1996 on a pro forma basis, as a
result of higher levels of property, plant and equipment placed in service.

Interest expense, net. Interest expense increased $2.0 million to $2.2
million for the year ended December 31, 1997 from $0.2 million for the year
ended December 31, 1996 on a pro forma basis, as a result of the long-term debt
incurred in connection with the acquisition from Time Publishing Ventures.

Net income increased $4.5 million, or 48%, to $13.9 million for the year
ended December 31, 1997 from $9.4 million for the year ended December 31, 1996
on a pro forma basis, primarily as a result of the above mentioned factors.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $17.4 million at March 31, 1999, compared to
$11.7 million at March 31, 1998. Cash and cash equivalents decreased $7.2
million during the three months ended March 31, 1999, and increased $1.7 million
during the three months ended March 31, 1998, as stated below.

Cash flows from operating activities were $6.0 million during the three
months ended March 31, 1999, compared with $3.3 million for the three months
ended March 31, 1998. The increase in cash flows from operating activities in
1999 was a result of increased net income, increased accounts payable and
accrued liabilities and the reduction in deferred royalty income, offset by
higher inventory and accounts receivable levels.

Cash flows used in investing activities were $0.5 million and $1.6 million
during the three months ended March 31, 1999 and 1998, respectively,
representing capital expenditures to acquire property and equipment.

Cash flows used in financing activities during the three months ended March
31, 1999 were $12.7 million. In March 1999, we prepaid our outstanding long-term
debt to Time Publishing Ventures, totaling $27.7 million plus accrued interest,
with the proceeds of a $15.0 million term loan from Bank of America, N.A.,
formerly known as NationsBank, N.A., and existing cash of $12.7 million plus
accrued interest. The Bank of America term loan bears interest at 2% above the
three-month London Interbank Offered Rate and principal of $0.8 million is
payable quarterly from June 1999 through March 2004. The outstanding amount of
the loan was repaid in July 1999 with the net proceeds of the Kleiner Perkins
equity purchase. We have a line of credit with Bank of America in the amount of
$10.0 million at the prime rate per annum, which is available to us for seasonal
working capital requirements and general corporate purposes. As of March 31,
1999, we had no outstanding borrowings under this facility. The line of credit
is secured by accounts receivable, inventory, intangible assets and certain
contracts and contains customary financial and other covenants relating to our
financial condition and business.

Capital expenditures, primarily for information technology, television
studio and other equipment, office furniture and leasehold improvements, were
$11.0 million, $2.7 million, $1.6 million and $0.5 million for the years ended
December 31, 1997 and 1998 and for the three months ended March 31, 1998 and
1999, respectively. In 1998, we sold certain property and equipment for $2.4
million and leased back that property and equipment under operating leases. In
July 1999, MSLO refinanced existing operating leases for computer and television
studio equipment, pursuant to which the new lease will be recorded as a capital
lease. Accordingly, in July 1999, MSLO recorded property, plant and equipment of
$4.7 million with a corresponding liability for capital lease obligations.

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<PAGE> 38

While we extend credit to our customers, no one customer accounts for more
than 10% of our outstanding accounts receivable balance at March 31, 1999. We
have credit policies and procedures which we use to manage our credit risk.

We believe that the net proceeds from this offering, together with any cash
generated from operations, the net proceeds to MSLO from the Kleiner Perkins
equity purchase in July 1999 and any funds available under existing credit
facilities, will be sufficient to meet our liquidity requirements for the
foreseeable future. Thereafter, we may require additional funds to support our
working capital requirements or for other purposes and may seek to raise such
funds through public or private equity financings or from other sources. There
can be no assurance that additional financing will be available at all or that,
if available, such financing will be obtainable on terms favorable to us or that
any additional financing will not be dilutive.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Several of our businesses can experience fluctuations in quarterly
performance. For example, Martha Stewart Living magazine is published ten times
annually; three issues in each of the first and second quarters and two issues
in each of the third and fourth quarters. Martha Stewart Weddings is published
four times annually; one issue in each of the second and third quarters and two
issues in the fourth quarter. In addition, the number of advertising pages per
issue tend to be higher in issues published in the fourth quarter. Revenue and
income from operations for the Television segment tend to be higher in the
fourth quarter due to generally higher ratings and, on occasion, the broadcast
of a holiday prime time television special. Internet/Direct Commerce revenues
also tend to be higher in the fourth quarter due to increased consumer spending
during that period. Revenues from the Merchandising segment can vary
significantly from quarter to quarter due to new product launches.

YEAR 2000

Beginning in 1998, and continuing in 1999, we have conducted a review of
our computer systems and software to identify any potential malfunctions due to
misidentification of the year 2000. We have also made inquiries of our important
third-party vendors, service providers, customers and partners, to determine
whether our business relationships with these parties could be adversely
affected by year 2000 issues. We are using both internal and external resources
to identify, test and correct our systems and software for year 2000 readiness.

As of June 1, 1999, we have completed the research and validation of all
infrastructure, hardware and software, including platform, wide-area network and
local-area network components. We are currently testing all systems identified
during the research and validation phase and plan to complete the testing
process by September 1999. Contingency plans will be developed for all systems
found to be non-compliant as of September 1999.

We are currently contacting all significant third-party vendors and service
providers to determine their year 2000 compliance status. This phase is expected
to be completed as of September, 1999. We have also made inquiries of our
important customers and partners as to whether their state of year 2000
compliance could have an adverse effect on our relationship with these parties.
As of July 15, 1999, we have not been informed that any of these parties expects
material disruption in their business relationship with us due to year 2000
compliance. However, this process is ongoing, and we cannot independently verify
the state of readiness of these vendors, service providers, partners and
customers.

We anticipate that by October 1999, all of our internal non-compliant
systems will have been remedied or contingency plans will have been put into
place so that we will not experience any significant disruption or down-time
resulting from year 2000 compliance issues. Excluding internal costs which are
not tracked separately and are therefore not readily determinable, we expect the
costs of these year 2000 remedial actions to be less than $.3 million, including
the costs to us of external service provider compliance.

We do not believe, based upon our investigations to date, that the year
2000 issue will have a material effect on our operations or those of our
material service providers or our business relationship with our important
partners and customers. However, if we or any of our significant service
providers, partners or

35
<PAGE> 39

customers do experience a year 2000 compliance problem, this could have a
material adverse effect on our profitability and liquidity. In some cases, these
services, partners and customers cannot be easily replaced, and we may suffer a
disruption in our business while we seek to identify a new service provider,
customer or partner. In addition, any material disruption in the use or
accessibility of the Internet due to year 2000 issues could result in a serious
decline in our Internet-related businesses, including advertising revenues, as
well as delay implementation of this portion of our growth strategy. These
contingencies could have a material adverse effect on our financial condition
and results of operations, and we are not aware of any adequate replacement
service for the Internet.

36
<PAGE> 40

BUSINESS

OVERVIEW

We are a leading creator of original "how to" content and related products
for homemakers and other consumers. Our products bear the well-known "Martha
Stewart" brand name, which we leverage across a broad range of media and retail
outlets. We primarily focus on the domestic arts, providing consumers with the
"how to" ideas, information, products and other resources they need to raise the
quality of living in and around their homes. The content and products we create
span seven core areas: Home, Cooking and Entertaining, Gardening, Crafts,
Holidays, Keeping and Weddings.

In each of our core content areas, we have assembled a team of in-house
creative experts. Many of the leaders of these teams have been with us since the
launch of Martha Stewart Living magazine in 1991. Each member of our creative
staff of more than 160 editors, writers, stylists, art directors and designers
is continually challenged to develop new ideas that support and strengthen the
high quality and unique look associated with our brands. As a result of these
efforts, we have amassed an extensive library of proprietary content, which
serves as a comprehensive resource for the development of new content and
branded products.

We have two primary strategic objectives: (1) to provide our original "how
to" content and information to as many consumers as possible; and (2) to turn
our consumers into "doers" by offering them the information and products that
they need for do-it-yourself ingenuity the "Martha Stewart way." We accomplish
our first objective through our "omnimedia" platform, and our second objective
through our "omnimerchandising" platform. Our Internet/Direct Commerce business
provides a unique opportunity to fulfill both of our objectives by leveraging
our content and merchandising capabilities to create a one-stop online
destination for consumers interested in the domestic arts.

Omnimedia Platform

Our omnimedia platform currently consists of:

-- two magazines, Martha Stewart Living, published ten times a year, and
Martha Stewart Weddings, published quarterly, together reaching an
estimated 9.9 million readers per month

-- the Emmy Award-winning and number-one-rated "how to" domestic arts
television program in the United States, airing six episodes per week
on affiliates of all four major national networks and available in
91% of U.S. homes with television sets, plus a weekly segment on CBS
This Morning

-- 27 books, which have sold more than 8.5 million copies, including
Martha Stewart's first book, Entertaining, published in 1982, and
Martha Stewart's Hors d'Oeuvres Handbook, published in 1999

-- the askMartha radio program, airing five days per week on 270
stations throughout the United States and reaching an estimated 1.5
million listeners per weekday

-- a weekly askMartha newspaper column, syndicated in 233 newspapers in
the United States and Canada, that collectively reach an estimated 43
million readers each week

-- beginning in September 1999, From Martha's Kitchen, a daily program
on the Food Network

-- marthastewart.com, our website, with over 834,000 registered users,
627,000 unique monthly visitors and over ten million monthly page
views

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<PAGE> 41

Omnimerchandising Platform

To accomplish our second objective, we have created our omnimerchandising
platform consisting of our branded products. We believe this platform offers our
consumers quality, convenience and choice across a wide range of retail and
direct-to-consumer channels. As of May 1999, our omnimerchandising platform
included more than 2,800 SKUs, which we currently distribute through the
following:

-- the mass market discount channel, exclusively through Kmart Stores in
the United States and Zellers Stores in Canada

-- the national department store channel, through Sears stores in the
United States and Canada, and Canadian Tire Stores in Canada

-- the specialty retail channel, such as Janovic Plaza, and, beginning
in September 1999, Calico Corners and Jo-Ann Fabrics and Crafts,
across the United States

-- our upscale catalog, Martha by Mail, offering 400 products per
catalog, with an expected 1999 distribution of 15 million copies in
11 editions

-- our online Martha by Mail store, which offers over 750 products

Retail sales of Martha Stewart branded merchandise by Kmart and our other
merchandising partners reached $763 million in 1998, an increase of 96% over
1997. We believe that the high quality and usefulness of our content and
products, coupled with our expansive reach, have allowed us to influence the way
consumers think about the home as well as the shopping patterns of consumers
across the United States.

Our Internet/Direct Commerce business provides a vehicle through which our
omnimedia and omnimerchandising platforms converge. We plan to accelerate the
expansion of marthastewart.com by introducing seven linked channels, each
focused on one of our core content areas and related products. We believe that
the other elements of our omnimedia and omnimerchandising platforms provide our
Internet/Direct Commerce business with the content and products necessary to
develop a comprehensive, interactive and attractive online destination for our
consumers.

HISTORY

The Martha Stewart name first gained prominence in 1982 with the
publication of Martha Stewart's first book, Entertaining, which is now in its
30th printing. Martha Stewart Living magazine was then launched by Martha
Stewart and Time Publishing Ventures in 1991. We purchased the magazine and
related businesses from Time Publishing Ventures and consolidated it with other
businesses previously owned by Martha Stewart in February 1997. The following is
a timeline of significant events in the development of our brands and our
omnimedia and omnimerchandising platforms:

<TABLE>
<CAPTION>
YEAR EVENT
- - - ---- -----
<S> <C>
1991..... Martha Stewart Living magazine launched as a quarterly
publication
1993..... Martha Stewart Living television program launched as a
weekly half-hour syndicated show
1994..... Martha Stewart Weddings magazine launched as an annual
publication
</TABLE>

38
<PAGE> 42

<TABLE>
<CAPTION>
YEAR EVENT
- - - ---- -----
<S> <C>
1995..... Martha by Mail catalog tested as an insert in Martha Stewart
Living magazine
askMartha syndicated newspaper column published in the
United States and Canada
Martha Stewart Living magazine expanded to ten issues per
year
1997..... MSLO LLC acquires magazine and related businesses from Time
Publishing
Ventures in February
Branded bed and bath and paint collections launched at
Kmart
Martha Stewart Living television program expanded to six
days per week
Weekly television segment on CBS This Morning debuted
Martha Stewart Weddings expanded to semi-annual
publication
askMartha radio program launched
marthastewart.com launched in September
1998..... Martha Stewart Living weekday television program expanded to
one hour
Branded bed and bath products launched at Zellers in
Canada
Branded kitchen textiles, window treatments and bath
accessories launched at
Kmart and Zellers
First special interest publication, Clotheskeeping,
published
Branded paints launched at Sears in the United States and
Canada
1999..... Branded garden products launched at Kmart and Zellers
Martha Stewart Weddings published as a quarterly
publication
From Martha's Kitchen television program to air daily on
the Food Network cable
channel in September
Branded decorative fabrics to launch in September
Branded baby bedding to launch in October at Kmart
</TABLE>

COMPETITIVE STRENGTHS

We intend to maintain and enhance our position as a leading creator of
high-quality content and products and to continue to capitalize on our
competitive strengths, which include:

ESTABLISHED, HIGHLY RECOGNIZABLE BRAND NAME

Our principal assets consist of our well-known Martha Stewart brand name
and our related trademarks (e.g., Martha Stewart Living, Martha Stewart
Weddings, Martha Stewart Everyday, Martha Stewart Home, askMartha, Martha by
Mail and marthastewart.com). The Martha Stewart brands have significant name
recognition and trust among consumers. We believe that consumers associate the
brands with the unique look and usefulness of our content and with the high
quality of living represented by our products and content. The ability to
leverage our single, well-known brand identity across our seven core content
areas is a principal strength of our business. Upon completion of this offering,
we will have an exclusive, perpetual royalty-free license to use Martha
Stewart's name, image, likeness, voice and signature, and we are the registered
owner of the related marks under which our content and products are marketed. In
all of our merchandise licensing arrangements, we retain significant control
over product design, quality and advertising in order to preserve the consistent
look and feel of our brands.

LEADING AUTHORITY ACROSS KEY CATEGORIES OF DOMESTIC ARTS

We have developed expertise in each of our seven core categories of
domestic arts:

-- Home--decorating, restoring, renovating and collecting items for use
and display in the home

-- Cooking and Entertaining--cooking, recipes, indoor and outdoor
entertaining

-- Gardening--gardening, planting, landscape design and maintenance

-- Crafts--craft projects and similar family activities

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<PAGE> 43

-- Holidays--celebrating special occasions through food, gifts,
decorating and entertaining ideas

-- Keeping--household maintenance, organization and planning, such as
homekeeping, petkeeping, recordkeeping and clotheskeeping

-- Weddings--all aspects of planning and celebrating a wedding

We believe that our depth of knowledge and strong brand identity across these
core content areas provide us with important advantages over many of our
competitors that produce content in only one or two of these categories. We are
able to reach a broad audience of consumers, ranging from brides to gardeners to
cooks. In addition, satisfied consumers who are initially only interested in one
of our core content areas, whether it be cooking and entertaining, gardening,
crafts or weddings, may be drawn to explore content and products from other core
categories as part of our overall concept of living. By stimulating consumer
interest in other content areas, we are able to expand the size of our markets.

EXTENSIVE LIBRARY OF HIGH-QUALITY CONTENT, PRODUCTS AND DESIGNS

We have amassed an extensive library of proprietary content products, which
consists of our presentations of "how to" ideas and information used by
homemakers and other consumers to raise the quality of living in and around
their homes. As of December 31, 1998, this library included over 10,000
editorial pages, 2,100 television and radio segments, as well as the designs for
more than 2,000 SKUs of original products. We also have the right to use over
160,000 photographs that have appeared in, or been photographed for, one of our
magazines or books. Additionally, the evergreen nature of our content allows us
to repurpose it for later use at a low incremental cost. The following chart
indicates the approximate mix by media business of our content library,
excluding products, as of December 31, 1998:

<TABLE>
<CAPTION>
MARTHA MARTHA
STEWART STEWART MARTHA STEWART ASKMARTHA ASKMARTHA
LIVING WEDDINGS Living Newspaper Radio
Magazine Magazine Television(1) Books Column Program
----------- -------------- ------------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
HOME.................. 24.8% -- 8.4% 11.0% 20.5% 21.6%
COOKING AND
ENTERTAINING........ 36.6% 15.7% 51.2% 38.7% 23.5% 38.5%
GARDENING............. 13.7% -- 19.6% 13.6% 15.2% 16.1%
CRAFTS................ 2.9% -- 8.9% 4.8% 11.7% 4.1%
HOLIDAYS.............. 6.7% -- 3.4% 14.8% 5.3% 3.6%
KEEPING............... 15.1% -- 6.9% -- 19.3% 15.8%
WEDDINGS.............. .2% 84.3% 1.6% 17.1% 4.5% .3%
TOTALS............ 5,908 1,329 1,786 2,814 264 366
(pages) (pages) (segments) (pages) (topics) (segments)
</TABLE>

- - - ------------
(1) Includes prime time specials.

EXTENSIVE RESEARCH AND DEVELOPMENT PROCESS

Our creative staff thoroughly researches, develops and tests each "how to"
idea or product in our test kitchens, design studios or manufacturers'
laboratories before we release any content or product into the market. This
research and development process ensures that we are regarded as the "source for
the source," and that our content continues to consist of innovative and
appealing designs, products and recipes. In 1998, we created over 1,000 original
recipes in our own research facilities, and we published over 275 pages of, and
broadcast over 50 television and 25 radio segments devoted to, original craft
projects.

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<PAGE> 44

HIGHLY EXPERIENCED TEAM OF CREATIVE AND BUSINESS PERSONNEL

We have carefully assembled an experienced team of creative and business
professionals. Our creative staff consists of more than 160 in-house editors,
gardeners, craftspeople, cooks, designers and art, style and editorial
directors, while our experienced business and administrative staff consists of
over 190 individuals. Our creative staff focuses on developing new content and
products to be distributed across our omnimedia and omnimerchandising platforms
and presenting our new and existing content and products to our customers. Our
business staff focuses on bringing our content and products profitably to
market. Many of our creative and business executives have been with us since the
launch of Martha Stewart Living magazine in 1991.

ORGANIZATIONAL STRUCTURE THAT PROMOTES CREATIVITY AND EFFICIENCY

We have no stand-alone business groups in our company. We are organized by
creative and business skills in a matrix organization where our business and
creative experts render services across our omnimedia and omnimerchandising
platforms. For example, our garden editor produces ideas that she and her
creative team turn into long-form "how to" stories for the magazines, in-depth
treatments for books, short-form questions and answers for the newspaper column,
single idea "tips" for radio, video segments for television and product ideas
for merchandising. Our business staff provides services, including advertising
sales, print production and marketing, that are shared by all of our business
segments. For example, the advertising sales group sells advertising for all of
our media businesses, including the Internet. We believe this structure provides
us with operating efficiencies and ensures brand quality and consistency.

STRONG RELATIONSHIPS WITH KEY DISTRIBUTION, FULFILLMENT AND MARKETING VENDORS

Our existing alliances with Kmart, Hudson's Bay Company, which operates
Zellers, Eyemark Entertainment, Sherwin-Williams, P/Kaufmann and affiliates of
Time Publishing Ventures, among others, enable the wide distribution of our
content and products across the United States and Canada. These relationships
permit us to focus on the design and creation of our content and products rather
than the logistics of distribution, fulfillment and manufacturing. These
relationships also reduce our exposure to inventory risk. Virtually all aspects
of the design, quality, advertising and promotion of our licensed products are
subject to our prior approval and ongoing direction. The result is a consistent
identity for the Martha Stewart brand name across all of our categories.

STRATEGIES

Our strategies focus on continuing to create new content and products and
leveraging our brands across multiple media and merchandising outlets. The key
elements of our strategy include:

EXPAND OUR MERCHANDISING ALONG CORE CONTENT LINES

We seek to create new branded products throughout our seven core content
areas. In the last two years, we have introduced numerous product lines, largely
focusing on the home category, in multiple distribution channels. We intend to
launch our Martha Stewart Everyday Baby baby collection and our Martha Stewart
Home collection of decorative fabrics in fall 1999, and our Martha Stewart
Everyday Housewares collection in 2000. Our other content areas provide
significant merchandising opportunities, including our Martha Stewart Everyday
Garden collection which will be expanded in 2000 to include our live plants
program.

LEVERAGE THE COST OF DEVELOPING HIGH QUALITY CONTENT OVER MEDIA AND
MERCHANDISING PLATFORMS

We spread the costs of researching, investing in and producing high quality
content across multiple media and merchandising platforms to achieve economies
of scale and increased returns on invested capital. This strategy of leveraging
the initial costs of developing content also enables us to make substantial
investments in producing higher quality content. By leveraging our content
across multiple media platforms, we can generate additional profit on this
content as it is reused. For example, beginning in September 1999, existing
food-related segments from the Martha Stewart Living television series will be
adapted to air as a twice-daily half-hour series, From Martha's Kitchen, on the
Food Network.

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<PAGE> 45

CAPITALIZE ON REVENUE OPPORTUNITIES CREATED BY THE INTERNET

We believe that we can effectively participate in the growth of the
Internet by creating a highly personalized user experience that integrates
information, electronic commerce and community, all rooted in our library of
proprietary content. Our website has already achieved significant consumer
acceptance and brand awareness. As of June 1999, marthastewart.com had over
834,000 registered members. We intend to build seven linked channels into our
website, each focusing on a core content area, to drive revenues and to use the
Internet's electronic commerce capabilities as a medium for expanding our online
store business. We believe that by combining the convenience of the Internet
with our vast library of content and products and our authority in our core
content areas, we will create new opportunities to generate revenue and expand
our customer audience. An affiliate of Kleiner Perkins has recently made a
strategic investment in our business. We believe Kleiner Perkins' experience in
the Internet industry will be advantageous to us as we implement our growth
strategies. See "Recent Developments -- Strategic Investment" for further
information.

CROSS-SELL AND CROSS-PROMOTE OUR BRANDS

We cross-sell products to our various customer lists and cross-package
advertising among and across our network of media channels. In 1999, we
anticipate that most of our top 50 advertisers will purchase advertising space
in two or more elements of our omnimedia platform. We also use each media and
merchandising platform to cross-promote one or more of our other businesses. For
example,

-- Martha Stewart Living includes a "Where to find Martha" section and
an Omnimedia Guide that promotes upcoming Martha Stewart Living
television programs, the askMartha radio program and the askMartha
newspaper column, as well as a schedule of online question and answer
forums

-- the television program often uses our products during "how to"
segments, indirectly promotes book launches through "theme weeks"
(e.g., Hors d'Oeuvres Week following the release of the book Hors
d'Oeuvres), provides subscription "800 numbers" for the magazines and
provides daily tag lines for our website

-- the newspaper column cross-promotes the television programs, the
website, the radio program, Martha by Mail and new book releases

We see significant growth opportunities for further cross-promotion of our
businesses through our Internet/Direct Commerce business, an effective display
medium for our content, an up-to-the-minute source of information on our
activities (such as the television program schedule) and a promoter of our
products, as well as a further outlet for advertisers seeking association with
our brands.

EVOLVE OUR BRANDS THROUGH TEAM-BASED CONTENT AND REDUCE DEPENDENCE ON OUR
FOUNDER

We are seeking to further extend the trust-based relationship consumers
share with Martha Stewart, the personality, to our brands. We believe that a
reduction in our dependence on Martha Stewart personally and a better balance of
personality and brand will provide additional brand durability, increased growth
opportunities and a broader recognition of a new generation of Martha Stewart
Living experts. We are increasingly focused on team-based content development.
Our accomplished team of creative personnel is gaining prominence as
MSLO-affiliated experts in their respective fields. Our creative professionals
appear on segments of the television program with Martha Stewart, lecture around
the country, co-author books with Martha Stewart and write regular columns in
the magazines. We have also significantly reduced our reliance on personal
images of Martha Stewart. For example, Martha Stewart's picture appeared on the
cover of nine of the first ten issues of Martha Stewart Living, as compared to
one out of ten covers published in 1998.

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<PAGE> 46

OMNIMEDIA AND OMNIMERCHANDISING PLATFORMS

Our omnimedia and omnimerchandising platforms support four principal
business segments:

-- Publishing

-- Television

-- Merchandising

-- Internet/Direct Commerce

These business segments accounted for the following revenues and operating
income for 1998, and the three-month period ended March 31, 1999:

<TABLE>
<CAPTION>
REVENUES OPERATING INCOME
--------------------------------------- ---------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
% OF MARCH 31, % OF % OF MARCH 31, % OF
1998 TOTAL 1999 TOTAL 1998 TOTAL 1999 TOTAL
-------- ----- ------------ ----- -------- ----- ------------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Publishing.................. $127,020 70.5% $35,536 66.6% $ 42,669 75.0% $11,475 70.6%
Television.................. 23,351 13.0 6,609 12.4 3,924 6.9 410 2.5
Merchandising............... 15,004 8.3 5,679 10.6 15,305 26.9 5,919 36.4
Internet/Direct Commerce.... $ 14,673 8.2 $ 5,555 10.4 $ (4,998) (8.8) $(1,546) (9.5)
-------- ----- ------- ----- -------- ----- ------- -----
Total.............. $180,048 100.0% $53,379 100.0% $ 56,900 100.0% $16,258 100.0%
======== ===== ======= ===== ===== =====
Corporate Charges........... (29,515) (8,838)
-------- -------
Operating Income............ $ 27,385 $ 7,420
======== =======
</TABLE>

PUBLISHING

Our publishing activities currently form the principal component of our
omnimedia platform and consist of:

-- two magazines, Martha Stewart Living and Martha Stewart Weddings, as
well as special interest publications

-- books

-- the askMartha radio program and newspaper column

Magazines

We regularly publish two magazines, Martha Stewart Living and Martha
Stewart Weddings. Martha Stewart Living appeals primarily to the
college-educated woman between the ages of 25 and 54 who owns her principal
residence, and Martha Stewart Weddings appeals to a younger but similarly
well-educated demographic. Key advertising and circulation data for Martha
Stewart Living, Martha Stewart Weddings and special interest publications are as
follows:

<TABLE>
<CAPTION>
SPECIAL INTEREST
MARTHA STEWART LIVING MARTHA STEWART WEDDINGS PUBLICATIONS
---------------------------------- ----------------------------------- ------------------------
FREQUENCY AD FREQUENCY AD FREQUENCY
PER YEAR RATE BASE PAGES(1) PER YEAR DISTRIBUTION PAGES(1) PER YEAR DISTRIBUTION
--------- ----------- -------- --------- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997................. 10 1.9 million 1,069 2 650,000 417 -- --
1998................. 10 2.1 million 1,253 2 650,000 513 1 750,000
</TABLE>

- - - ------------
(1) Ad pages are as reported to Publisher's Information Bureau, or, if
unreported, as calculated by the publisher using a similar methodology.

43
<PAGE> 47

Martha Stewart Living. Martha Stewart Living, our flagship magazine, is
the foundation of our publishing business. Launched in 1991 as a quarterly
publication with a circulation of 250,000, we now publish the magazine ten times
per year and, since the February 1998 issue, guarantee to advertisers a minimum
circulation of 2.1 million. Martha Stewart Living seeks to offer its readers
reference-quality and original "how to" information for the homemaker and other
consumers in a unique upscale editorial and aesthetic environment. The
independently recognized quality of the content in Martha Stewart Living
establishes the tone for all of our brands. The magazine has won numerous
awards, including:

-- Ad Week's annual "Top Ten List" of magazines in 1995, 1996, 1997 and
1998

-- Advertising Age's "Magazine of the Year" for 1995

-- three National Magazine Awards from the American Society of Magazine
Editors: for photography, in 1994 and 1999; and for design, in 1995

-- numerous honors from the Society of Publication Designers every year
since 1991, including three Gold Awards, 11 Silver Awards and 87
Merit Awards

While providing quality editorial content requires significant investment,
these costs are supported by premium subscription rates and cover prices for the
magazine and premium advertising rates from advertisers that seek association
with our brands and the ability to target our audience. The Martha Stewart
Living subscriber lists, as well as our catalog and other mailing lists, are
important MSLO assets, permitting us to target our desired audience with various
cross-selling and promotional activities, such as upcoming book releases, new
product announcements and promotional appearances by Martha Stewart and our
other creative and editorial professionals. The editorial content and appearance
are enhanced by high-quality printing, paper and graphics. Many readers save and
collect the magazine for use as a future reference tool.

Martha Stewart Weddings. We launched Martha Stewart Weddings in 1994 as an
annual publication and extended it to a semi-annual publication in 1997. In
1999, Martha Stewart Weddings became a quarterly publication, and as of the June
1999 issue had a newsstand distribution of approximately 650,000. Martha Stewart
Weddings targets the upscale bride. Martha Stewart Weddings has the same
fundamental goal as Martha Stewart Living--to provide its readers with editorial
content of the greatest informational and aesthetic quality. Additionally,
Martha Stewart Weddings serves as an important vehicle for introducing young
women to our brands.

As with Martha Stewart Living, the editorial and artistic content developed
for Martha Stewart Weddings will be used by our other business groups. We
believe that the Martha Stewart Weddings component will become an increasingly
important element of our content library.

Special Interest Publications. We published our first special interest
publication, Clotheskeeping, in 1998, which had a distribution of approximately
750,000. We generally expect to publish one special interest publication per
year. The purpose of these issues is to provide in-depth advice and ideas around
a particular topic contained in our core content areas, allowing us to draw upon
our brand name to further promote our expertise in our core content areas.
Additionally, in the future we intend to use this format to explore additional
content areas. Clotheskeeping had a single advertising sponsor, The Gap, which
provided a guaranteed minimum level of revenue regardless of circulation. We
expect to have both single and multiple sponsors for our future special interest
publications.

Production. MSLO's current magazine printing contract expires with the
December 1999 issue of Martha Stewart Living. This contract will be replaced
with a new contract that we expect to result in lower per-unit printing costs in
fiscal 2000 and beyond. Our books and magazines are manufactured by outside
printers.

Magazine Distribution and Fulfillment. Newsstand distribution of the
magazines is conducted by an affiliate of Time Publishing Ventures pursuant to a
long-term agreement that expires with the December 2004 issue, but which we have
the right to cancel effective after the December 2001 issue. Our subscription
fulfillment services are provided by another affiliate of Time Publishing
Ventures under a long-term agreement that expires in 2002, and is renewable for
an additional three-year period at our option.

44
<PAGE> 48

Books

In 1982, Clarkson N. Potter, Inc., a division of Random House (Bertelsmann
AG), published Entertaining, Martha Stewart's first book. Entertaining is
currently in its 30th printing. Since 1982, Martha Stewart and MSLO have
released a total of 26 additional titles and have sold in the aggregate more
than 8.5 million books as of December 1998. Over one million of these were sold
in 1998. We own all copyrights with respect to these books.

We create two different types of books: Best of Martha Stewart Living
books and Martha Stewart-authored books. We create two Best of Martha Stewart
Living books and one Christmas with Martha Stewart Living book each year. These
books rely both on our extensive library in the seven core content areas and on
original material. To the extent we rely on our content library, development
costs are dramatically reduced. We sell the hard-cover form of each of these
titles through direct marketing methods to consumers, including Martha Stewart
Living readers and regular craft and cookbook buyers, and we sell paperback
editions at retail book stores. We also have a continuity card program, Good
Things, which is a continuity program of periodic card mailings of individual
crafts and homekeeping ideas that our subscribers compile in loose-leaf binders.
The publication of these books and the continuity cards is done by Oxmoor House,
Inc., an affiliate of Time Publishing Ventures, which also handles their
distribution through direct marketing and certain retail channels. The Best of
Martha Stewart Living books also are distributed through certain retail channels
by Clarkson N. Potter under various agreements.

Under two overlapping long-term agreements with Clarkson N. Potter, we have
created one completely original book approximately every other year and are
obligated to write one more such book. We released Martha Stewart's Healthy
Quick Cook in 1997 and Martha Stewart's Hors d'Oeuvres Handbook in 1999. The
original content also can serve as a foundation for material in the magazines,
the television programs and the various other media, enabling us to spread the
cost of the editorial content across these various media. These books are
generally distributed through retail distribution channels.

The following is a list of all of our books by core content area:

<TABLE>
<CAPTION>
FIRST PUBLISHED
---------------
<S> <C>
COOKING AND ENTERTAINING
Entertaining...................................... 1982
Martha Stewart's Quick Cook....................... 1983
Martha Stewart's Hors d'Oeuvres................... 1984
Martha Stewart's Pies and Tarts................... 1985
Martha Stewart's Quick Cook Menus................. 1988
Martha Stewart's Menus for Entertaining........... 1994
Special Occasions*................................ 1995
The Martha Stewart Cookbook....................... 1995
What To Have For Dinner*.......................... 1996
Martha Stewart's Healthy Quick Cook............... 1997
Great Parties*.................................... 1997
Desserts*......................................... 1998
Martha Stewart's Hors d'Oeuvres Handbook.......... 1999

HOME
Martha Stewart's New Old House.................... 1992
How To Decorate*.................................. 1996
Decorating Details*............................... 1998

GARDENING
Martha Stewart's Gardening........................ 1991
Arranging Flowers*................................ 1999
</TABLE>

45
<PAGE> 49

<TABLE>
<CAPTION>
FIRST PUBLISHED
---------------
<S> <C>
CRAFTS
Great American Wreaths*........................... 1996
Good Things*...................................... 1997

HOLIDAYS
Martha Stewart's Christmas........................ 1989
Holidays*......................................... 1994
Handmade Christmas*............................... 1995
Christmas With Martha Stewart Living Vol. 1*...... 1997
Christmas With Martha Stewart Living Vol. 2*...... 1998

WEDDINGS
Weddings.......................................... 1987
The Wedding Planner............................... 1988
</TABLE>

- - - ------------
* Martha Stewart Living book

The askMartha Radio Program and Newspaper Column

Radio Program. In partnership with Westwood One Radio, Inc., we launched
the askMartha program of radio vignettes in September 1997. Each 90-second-long
vignette, which is currently narrated by Martha Stewart, is accompanied by a
60-second commercial or two 30-second commercials that are jointly sold by MSLO
and Westwood One. These vignettes air five days a week, primarily between the
hours of 6 a.m. and 12 p.m., and follow a format similar to the newspaper
column, providing an answer to a specific question. Currently, the askMartha
program airs on 270 radio stations across the United States. These stations
cover approximately 93% of the total U.S. market, including 29 of the top 30,
and 93 out of the top 100 U.S. markets.

The mix of stations on which the askMartha program appears generally is
intended to reach as many consumers in our target demographic as possible. In
view of the variety of radio stations airing these slots, however, we believe we
reach a much broader demographic with the askMartha program than with many of
our other omnimedia outlets. Our radio distribution agreement also provides for
focused two-hour "call-in" programs relating to selected holidays, through which
we intend to introduce other creative experts.

Newspaper Column. Our newspaper presence began in 1995 with askMartha, a
weekly syndicated newspaper column that answers specific questions relating to
our core content areas. The askMartha column is syndicated through The New York
Times Syndication Sales Corporation. Originally appearing in 57 U.S. newspapers,
the column now appears weekly in 233 U.S. and Canadian newspapers. The column
generally appears as a one-quarter to one-half page layout that includes at
least one high-quality photograph and provides a complementary forum to the
longer magazine pieces and television segments.

While the revenues generated by the askMartha column are small, it is an
important part of our omnimedia platform. The newspapers carrying the askMartha
column reach 43 million readers each week, and the column generally includes a
reference to marthastewart.com or to our products or other publications.

We plan to launch a companion column, askMartha Weddings, in the summer of
1999, which will appear in the wedding announcement section of newspapers. In
the future, we may introduce similar columns relating to some or all of our
other core content areas.

Future Growth

Our plans for the Publishing segment include growing our magazine business
by producing additional special interest publications. We are also beginning to
produce small-size "how to" companion books for sale alongside our merchandising
products. Other opportunities include "askMartha" newspaper columns devoted to a
particular core content area, starting with askMartha Weddings in the summer of
1999. In addition, we

46
<PAGE> 50

are exploring possible international editions of our magazines, foreign editions
of our books and expanding radio coverage to include the Canadian market.

TELEVISION

Our television business segment seeks to reach the widest possible audience
by covering a variety of time slots and formats as follows:

-- early morning -- a weekly segment on CBS This Morning

-- daytime prime -- Martha Stewart Living weekday, a one-hour syndicated
program airing Monday through Friday

-- evening prime -- From Martha's Kitchen, a daily program on the Food
Network commencing in September 1999 and periodic prime-time network
specials

-- late night -- From Martha's Kitchen, on the Food Network commencing
in September 1999

-- weekend -- Martha Stewart Living weekend, a half-hour syndicated
program airing on Saturday or Sunday and the upcoming daily program
on the Food Network

Martha Stewart Living weekdays and weekend

The Martha Stewart Living program is the cornerstone of our television
business segment and generally seeks to demonstrate our "how to" ideas and to
motivate viewers to pursue those ideas in their own lives. The program is a
syndicated daytime program hosted by Martha Stewart consisting of several
segments, each of which ties into one of our seven core content areas.
Originally launched as a half-hour weekend program in 1993, the program was
expanded to also include a daily half-hour program in 1997 and, in a majority of
markets, a one-hour weekday program in 1999. Eyemark syndicates the program
domestically under a distribution agreement that expires after the 2002-03
broadcast season. Your Channel Television Inc. distributes the program in Canada
over its Life Network cable network.

During the 1998-99 broadcast season, the program could be seen by 91% of
all U.S. television households. As of May 1999, the weekday program was viewed
by an average of approximately 1.9 million U.S. households every weekday. The
weekend program generally consists of excerpts from the weekday program, and, as
of May 1999, was viewed by an average of approximately 1.6 million U.S.
households per week. The combination of the weekday and weekend programs allows
us to reach a broad audience that we believe is particularly suited to our "how
to" programming.

Under the terms of our agreement with Eyemark, we develop, produce and
retain all copyrights in the programs. We produce Martha Stewart Living largely
at our state-of-the-art studio facility in Westport, Connecticut, and segments
are filmed both in the studio and at various other locations. We staff our
studio facility with approximately 70 full-time dedicated television personnel,
as well as with freelance production staff and personnel from our core content
areas who rotate from our New York headquarters.

Our television programs act as both a source from which other business
units may draw content and an outlet for content developed in other business
units. Additionally, the segmented nature of the programs allows us to repackage
segments around a particular core content area and use that repackaged material
in our secondary distribution channels such as cable and international. The
first of these repackaged programs, a food-focused show, will be launched on the
Food Network in September 1999.

Under our distribution agreement with Eyemark, we are compensated partially
in cash and partially in airtime. We then sell that airtime to advertisers,
subject to a distribution fee payable to Eyemark. The airtime we receive from
the Eyemark agreement provides us with a substantial degree of control over our
advertising base and allows us to include television advertising in multimedia
sales packages offered to advertisers. As of June 1999, we sold our television
airtime to approximately 60 advertisers, with no one industry accounting for
more than 20% of our television advertising revenue. Our Life Network agreement
in Canada compensates us with a straight license fee.

47
<PAGE> 51

CBS This Morning

Martha Stewart is a regular lifestyle correspondent for, and generally
appears each Tuesday at 8:30 a.m. on, CBS This Morning. This appearance is seen
by approximately 2.4 million viewers each week. In exchange for this appearance,
we receive airtime in the form of one 30-second spot adjacent to the segment.
Our advertising sales team sells this advertising time using the same methods we
employ with respect to our other programming.

Food Network Cable Channel

Commencing in September 1999, the Food Network cable channel will air a
half-hour Martha Stewart branded program twice a day, seven days a week,
entitled From Martha's Kitchen. This program will consist primarily of
food-related segments repackaged from previous Martha Stewart Living programs.
In exchange for the programming, we will receive airtime during the early
showing and late night showing, as well as royalty revenue from advertising
aired during the late night showing. In addition we have an agreement with the
Food Network to develop a series of original programming, primarily featuring
experts other than Martha Stewart, which is intended to begin airing in early
2000.

Prime Time Specials

Periodically, we produce prime time specials that focus on a particular
holiday. Prior episodes of Martha Stewart Christmas were watched by over 8.5
million U.S. households in each of 1995 and 1996. We are currently working on a
Christmas special that we intend to air in December 1999.

Future Growth

We intend to grow our Television segment by developing new programming
relating to our core content areas that feature experts other than Martha
Stewart. Additionally, we will continue to repackage our existing library to
create new programming primarily relating to individual core content areas.
Finally, we are pursuing the licensing of our programs in new international
markets.

MERCHANDISING

Our merchandising group translates our core content expertise into branded
products that are distributed to a wide audience through a broad range of
traditional retail channels, from mass market discount to specialty stores. Our
retailing strategy is to provide a high-value product relative to its price
through the full range of retail distribution channels. We seek to provide a
broad product assortment, designed from a single viewpoint, which offers
consumers a comprehensive and coordinated system for decorating, gardening,
cooking and other activities related to our core content areas. Our retail
merchandising business began to grow substantially following the February 1997
acquisition of Martha Stewart Living from Time Publishing Ventures, and we
believe expansion of our current product lines, as well as development of
products relating to other aspects of our seven core content areas, will provide
us with significant growth potential.

Our retail product distribution strategy initially targeted the mass market
discount channel. Through Kmart, we have achieved substantial sales volume and
demonstrated that our products have wide appeal. In 1998, total sales for Martha
Stewart-branded retail merchandise were $763 million, providing substantial
royalty revenues for MSLO. From this base, we have expanded distribution
channels above the mass market discount channel, including national department
stores, such as Sears, and specialty stores, such as Janovic Plaza and, with the
September 1999 launch of our Martha Stewart Home collection, Calico Corners and
Jo-Ann Fabrics and Crafts. The following summarizes our merchandising
relationships as of May 1999:

48
<PAGE> 52

<TABLE>
<CAPTION>
DISTRIBUTION CHANNEL PRODUCT LINE(S) LAUNCH DATE STRATEGIC PARTNER RETAILER
- - - -------------------- --------------- ----------- ----------------- --------
<S> <C> <C> <C> <C>
Mass Market Martha Stewart Everyday March 1997/ Kmart/Zellers Kmart/Zellers
Discount........... Home June 1998
Martha Stewart Everyday May 1997 Sherwin-Williams Kmart
Colors
Martha Stewart Everyday January 1999 Kmart/Zellers Kmart/Zellers
Garden
Martha Stewart Everyday Fall 1999 Kmart Kmart
Baby baby (anticipated)
Martha Stewart Everyday Fall 2000 Kmart Kmart
Housewares (anticipated)
National Department Martha Stewart Everyday March 1998/ Sherwin-Williams Sears/Canadian Tire
Stores............. Colors May 1999
Specialty Stores..... Martha Stewart Home Fall 1999 P/Kaufmann Specialty fabric
Collection (anticipated) stores
Araucana Colors and March 1995 Fine Paints of Specialty paint
Colors of the Garden Europe, Inc. dealers
fine paint collection
</TABLE>

A key component of our retail merchandising strategy is to closely control
all aesthetic aspects of a product and its sale, including product design,
packaging, store display and print and television advertisements. We license the
right to use our trademarks only in connection with the sale of products
designed and approved by our team of creative professionals. To preserve a
consistent brand image that resonates with the materials displayed across our
omnimedia platform, the same editorial professionals who develop our "how to"
stories write or review all text associated with the sale of a product,
including label descriptions, text on packaging, store displays and advertising
text. Our artistic professionals similarly participate in all visual aspects of
the customer's experience with the product, including product design,
advertising and point-of-sale displays.

We rely on our merchandising partners for manufacturing and distribution.
Our agreements with our merchandising partners include a set of conditions that
generally allow us to retain control over the content of the licensed products
as well as the rights to the product design in other distribution channels. In
addition to royalty payments, these agreements generally require our partners to
fund our product development, design and advertising.

Mass Market Discount and National Department Store Channels

Mass market discount and national department stores offer us access to the
widest possible audience, permitting us to offer the basic products and tools
that consumers need to implement our ideas in their own homes. Products offered
in these channels--currently in the Martha Stewart Everyday collections--provide
coordinated essentials that offer easy and affordable results.

Martha Stewart Everyday Collections. The Martha Stewart Everyday
collections currently include Martha Stewart Everyday Home, Martha Stewart
Everyday Garden and Martha Stewart Everyday Colors. These products are sold at
over 2,100 Kmart stores and 800 Sears stores in the United States and over 300
Zellers stores, 100 Sears stores and 300 Canadian Tire Stores in Canada. In
1998, sales of the Martha Stewart Everyday collections comprised the substantial
majority of our product-related royalties.

Each Martha Stewart Everyday collection, other than the Martha Stewart
Everyday Colors collection that is under contract with Sherwin-Williams, is
governed by agreements with Kmart and Zellers. Each of these agreements provides
that we control all aspects of design (or, for seeds and live plants,
selection), packaging, signage and associated collateral materials. We retain
all rights in the products other than the distribution rights licensed to Kmart
and Zellers, which are exclusive in the United States and Canada at the mass
market discount channel of retail distribution. We are assured sufficient
in-store presence and volume to establish and protect our brands through
guaranteed minimum royalties and through dedicated "store-within-a-store"
selling formats. Martha Stewart Everyday Home products occupy approximately 61%
of the linear feet in a typical Kmart home fashion department. Additionally,
Kmart funds a majority of the design and

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development costs for the relevant products. These agreements have varying
expiration dates ranging from February 2000 to October 2004, with three-year
renewals at Kmart's, and, provided Kmart renews the Bed and Bath agreement,
Zellers' option.

Martha Stewart Everyday Home. The Martha Stewart Everyday Home collection
is a line of sheets, towels, bath accessories, window treatments and kitchen
textiles designed by us and manufactured by a variety of vendors, including
Springs Industries, Inc., Westpoint Stevens Inc., and Pillowtex Corporation. The
collection currently consists of approximately 1,900 SKUs and 27 product lines.

Martha Stewart Everyday Garden, Martha Stewart Everyday Housewares and
Other New Products. Earlier this year, we introduced our Martha Stewart Everyday
Garden program with a line of outdoor furniture and preview assortment of
gardening tools. In 2000, we are scheduled to launch the full gardening product
line, which will include a wide variety of garden tools, fertilizers, planting
pots, bulbs, seeds and live plants. Through the live plants program, we will
bring to the mass market discount channel plants that have previously only been
available in limited quantities and at higher prices at specialty garden
centers.

Commencing in Fall 1999, we are scheduled to launch the Martha Stewart
Everyday Baby baby collection of infant bedding products at Kmart. In September
2000, we are scheduled to launch the Martha Stewart Everyday Housewares
collection at Kmart, which will consist of dinnerware, flatware, beverage ware,
cookware, bakeware, mirrors, picture frames, lamps and certain organizational
products relating to our core content area of keeping, all designed to reflect
the Martha Stewart aesthetic.

Martha Stewart Everyday Colors. Martha Stewart Everyday Colors is a line
of interior latex paints introduced in 1997. The colors are developed by MSLO
and the paints are manufactured and distributed by Sherwin-Williams. As of June
1999, the Martha Stewart Everyday Colors line, consisting of 256 colors and 69
SKUs, was sold in the United States through Kmart at mass market discount and,
in the national department store channel, Sears, and in Canada through Sears and
Canadian Tire. Our agreement with Sherwin-Williams expires in December 2000.

Specialty Store Channel

The higher priced products in the Martha Stewart Home collection and our
fine paints collection, offered through the specialty store channel, are
generally aimed at "do-it-yourself" customers who want to apply our ideas and
suggestions in more individualized ways.

Martha Stewart Home Collection. The Martha Stewart Home collection
consists of decorative fabrics that we design and license to P/Kaufmann for
manufacture and distribution to retailers. Under our agreement with P/Kaufmann,
which runs through December 2000, we receive guaranteed minimum royalties and
reimbursement of certain design costs. Beginning in fall 1999, the Martha
Stewart Home collection will be sold in specialty stores, including in over
1,100 Calico Corners and Jo-Ann Fabrics and Crafts stores. As in our agreements
with Kmart, we retain creative control over, and intellectual property rights
in, the products included in the Martha Stewart Home collection.

Fine Paints Collection. The Araucana Colors and Colors of the Garden fine
paint collections are our oldest licensed merchandise lines, dating back to
1995. These collections include 51 colors of interior oil and acrylic paint sold
through specialty paint dealers, such as Janovic Plaza. As of December 1998,
these paint products were sold by 67 independent paint dealers. In fall 1999, we
anticipate entering into a new agreement that will introduce a collection of 36
new colors. We expect this new agreement to provide for all three paint
collections to be sold under the brand "Martha's Fine Paints."

Future Growth

We intend to grow our merchandising business by core content area and
distribution channel. Accordingly, within each of our seven core content areas
we intend to offer different products at different distribution channels. For
example, we are exploring the development of a product line in our Cooking and
Entertaining category to be offered in national supermarket chains, as well as
food products that would be offered at higher-end gourmet specialty stores.

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INTERNET/DIRECT COMMERCE

Our Internet/Direct Commerce business leverages our content and
merchandising capabilities to create a one-stop, user-friendly experience for
consumers interested in the domestic arts. Our Internet/Direct Commerce business
is still in its introductory phase but has achieved significant online
acceptance and viewership, with over 834,000 registered users as of June 1999.
We plan to accelerate the expansion of our Internet/Direct Commerce business by
introducing seven linked channels, each devoted to one of our core content
areas. We believe this effort will transform marthastewart.com into a leading
interactive destination by providing content, commerce and community for
consumers interested in the domestic arts.

We believe we bring several competitive advantages to the web, including:

- the strength and identity of our brand name

- our extensive library of proprietary content

- our diverse and growing assortment of branded products

- our core audience of active online members

- our omnimedia platform through which we promote marthastewart.com

We launched marthastewart.com in September 1997 to complement our existing
omnimedia and omnimerchandising platforms by providing an interactive content
and commerce experience for our viewers, readers and consumers. As of June 1999,
marthastewart.com had 627,000 unique monthly visitors, who on average viewed
nine pages for 14 minutes (according to Media Metrix). As of April 1999, our
website had more than ten million monthly page views (according to ABC
Interactive). Our website currently includes:

- Martha Stewart Living television program guide and related content

- recent transcripts of the askMartha radio program

- a virtual kitchen tour of our state-of-the-art television studio
facilities in Westport, Connecticut

- weekly moderated askMartha chat forums with Martha Stewart and/or our
in-house and guest experts, which generated over 30,000 unique questions
over approximately 35 sessions

- the online Martha by Mail store

Martha by Mail products currently comprise the e-commerce portion of our
website. The Martha by Mail catalog was originally created to provide our
consumers the materials necessary to pursue the "how to" projects presented in
our various media. From those beginnings, it has evolved into our upscale,
direct-to-consumer merchandising business that also includes finished products
such as patio furniture, laundry appliances, bedding and other home furnishings.
Unlike our merchandising business, which exclusively consists of products we
design, we include in Martha by Mail selected products consistent with our brand
image and "how to" philosophy that typically are not offered through any
national retail stores.

Martha by Mail was first launched as a Martha Stewart Living magazine
insert. When marthastewart.com debuted, we began selling our products over the
website and subsequently began stand-alone mailings of our catalog. In 1999, we
expect to distribute 11 editions and 15 million copies of our Martha by Mail
catalogs. Our catalog mailing list includes customers identified through our
omnimedia platform, such as current and past subscribers, gift subscription
recipients, continuity card program subscribers and our website registrants, as
well as third-party customer lists. While each catalog edition includes
approximately 400 product offerings, our online Martha by Mail offerings
comprise the entire collection of more than 750 products. In an effort to evolve
Martha by Mail from offline direct commerce to e-commerce, we have recently
begun providing discounts and incentives to our consumers who purchase products
over the Internet. In recent periods we have experienced significant growth in
our catalog business as well as more rapid growth in online Martha by Mail
sales. As our website expands, we expect that online Martha by Mail revenues
will exceed offline revenues, allowing us to reduce costs associated with
printing and mailing the catalog.

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Future Growth

We plan to further expand and upgrade marthastewart.com by focusing on the
following key elements to provide a full-service and personalized domestic arts
website:

- Content: in each of our content areas, we intend to include an
"askMartha" service, an interactive "ask and answer" service that will
respond to viewer inquiries with relevant audio, video or text and
graphics from our content library

- Commerce: we intend to expand our online store, which currently features
our Martha by Mail products, to include other "best of its kind" products
(either developed or sourced by us) in all areas of domestic living

- Community: we intend for each of our web channels to include fully
moderated and integrated bulletin boards, chat rooms and live online
discussions with our experts. We believe these community-related features
will produce valuable data about our consumers' preferences, providing us
with instant feedback about our content presented on the website and in
our other omnimedia platforms.

To help us accelerate the expansion of marthastewart.com, we recently sold
an equity interest in MSLO LLC to an affiliate of Kleiner Perkins. John Doerr, a
general partner of Kleiner Perkins, has become a member of our Board of
Directors. See "Recent Developments -- Strategic Investment." We believe that
our established brand name, large content library, consumer loyalty and other
competitive strengths combined with Kleiner Perkins' experience in the
development of Internet-related companies provide us with a distinct advantage
in growing our Internet/Direct Commerce business.

BUSINESS SERVICE GROUPS

We are organized so that the services essential to our business segments
can be rendered by the same individuals and leveraged across our omnimedia and
omnimerchandising platforms. Advertising sales, consumer marketing and research,
and print production services act as internal agencies, providing services on a
project by project basis for all of our business endeavors.

ADVERTISING SALES

Advertising sales and advertising marketing services for all of MSLO's
media platforms and business segments are controlled by one central advertising
sales and advertising sales marketing services staff. As of June 1999, the
advertising sales and marketing group consisted of 33 staff employees and two
outside advertising sales representative firms, all of whom sell across all our
media platforms. The goal of the advertising sales group is to create an
omnimedia advertising platform that:

-- develops advertising packages integrating one or more of our
media outlets

-- provides a diversified advertising base so that we are not
dependent on any one advertising category of business

-- delivers quality service to all our core content areas and
business segments

Our advertisers represent a wide range of industries. Therefore, our
advertising revenue base is not dependent upon specific industries and/or
specific advertisers, providing maximum flexibility in achieving revenue goals
and minimizing risk. Top MSLO advertising industries include retail, consumer
goods, toiletries and cosmetics, food, automotive and apparel. Our major
advertisers include Ace Hardware Corporation, Cosmair, Inc., Daimler-Chrysler,
The Estee Lauder Companies, Inc., Hewlett-Packard Co., Kraft Foods, Inc., Polo
Ralph Lauren Corporation, Revlon Consumer Products Corporation and S.C. Johnson
& Son, Inc.

Historically, print-based advertising sales revenues have accounted for the
majority of our advertising sales revenues. In 1998, our net advertising
revenues were $91.7 million, of which 77% was from magazine advertisers, 21% was
from television advertisers and 2% was from other advertisers. In 1999, we
expect

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approximately 20% of our total advertisers and most of our top 50 advertisers to
purchase advertising through two or more components of our omnimedia platform.
For example, we created advertising programs for:

-- Ford, which generates revenues for three MSLO business segments:
the program consists of advertising pages in Martha Stewart
Living, commercials during our Martha Stewart Living television
weekday program, including "Good Things" and "Cookie of the
Week" television segment sponsorships, and sponsorship segments
on the askMartha radio program.

-- The Gap, which also includes various media: exclusive
sponsorship of a special interest publication, special event
marketing that ties to the special interest publication, and
magazine, Internet and television advertising.

PRINT PRODUCTION SERVICES

Our print production services team is responsible for the manufacturing,
distribution and quality control of all our printed material, including Martha
Stewart Living and Martha Stewart Weddings magazines, the Best of Martha Stewart
Living books, and the Martha by Mail catalogs and product inserts. For the
Merchandising segment, our print production experts work closely with outside
service providers, including strategic partners, to produce product packaging
and in-store signage, billboards, kiosks and other related print advertising and
materials. This team assures that the print reproduction quality of our content
remains consistent across our omnimedia and omnimerchandising platforms and
conforms to the overall quality that our consumers expect from our branded
products. As of June 1999, our print production group consisted of 12 employees.

CONSUMER MARKETING AND RESEARCH

Our consumer marketing group is responsible for magazine circulation,
direct commerce, and direct marketing, research and customer service for all of
our businesses. The group also manages fulfillment, inventory control and
sourcing for MSLO's direct to consumer businesses. The primary function of the
department is to execute marketing campaigns to promote MSLO products to our
customer base and outside lists. The group controls our customer database, uses
various MSLO media platforms to cross promote products to our customers, and
uses research and testing through direct marketing to help us develop new
products and businesses. The group tracks our relationship with consumers to
ensure that we are delivering the content, product and value our customers seek.
These personnel also analyze industry research and employ third-party research
companies to monitor customer reactions through surveys, focus groups and mall
intercept testing. As of June 1999, our consumer marketing department comprised
30 employees.

INTELLECTUAL PROPERTY

The principal trademarks we use to distinguish our brands are Martha
Stewart Living, Martha Stewart Everyday, Martha Stewart Home, Martha Stewart
Weddings, askMartha and Martha by Mail. These trademarks are the subject of
registrations and pending applications throughout the world filed by MSLO for
use with a variety of products and other content, and we continue to expand our
worldwide usage and registration of related trademarks. We file copyrights
regarding our proprietary designs and editorial content on a regular basis. We
regard our rights in and to our trademarks and materials as valuable assets in
the marketing of our products and vigorously seek to protect them against
infringement or denigration by third parties.

Upon completion of this offering, we will enter into an intellectual
property license and preservation agreement with Martha Stewart that will
replace an existing non-perpetual license agreement entered into in February
1997. Under the terms of this new license agreement, Martha Stewart grants us an
exclusive, worldwide, perpetual royalty-free license to use her name, likeness,
image, voice and signature for our products and services. We are currently the
owner of the primary trademarks employed in our business and, under the new
license agreement, generally have the right to develop and register in our name
trademarks that incorporate "Martha Stewart" (such as Martha Stewart Living) and
to use exclusively these marks in our business. If Martha Stewart were to cease
being Chairman or Chief Executive Officer and no longer control

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our company, we will continue to have those rights, including the right to use
those marks for any new business as long as such new business is substantially
consistent with the image, look and goodwill of the licensed marks at the time
that Martha Stewart ceased to be such an officer or to control us.

The term of the license is perpetual, subject to certain exceptions. In the
event that we terminate Martha Stewart's employment without cause or she
terminates her employment for good reason, each as defined in her employment
agreement with MSLO, the license will cease to be exclusive and we would be
limited in our ability to create new marks incorporating her name, likeness,
image, publicity and signature. In these circumstances, Martha Stewart would
receive the right to use her name in other businesses that could directly
compete with us, including our magazine, television and merchandising
businesses. In addition, if Martha Stewart's employment terminates under these
circumstances, Martha Stewart would receive in perpetuity a royalty of 3% of the
revenues derived from any of our products or services bearing any of the
licensed marks.

The new intellectual property license agreement contains various customary
provisions regarding our obligations to preserve the quality of the licensed
marks and to protect these marks from infringement by third parties.

COMPETITION

PUBLISHING

Publishing is a highly competitive business. Our magazines, books and
related publishing products compete with other mass media and many other types
of leisure-time activities. Overall competitive factors in this segment include
price, editorial content and editorial and aesthetic quality. Competition for
advertising dollars in magazine operations is primarily based on advertising
rates, editorial and aesthetic quality, the desirability of the magazine's
demographic, reader response to advertisers' products and services and
effectiveness of the advertising sales team. Martha Stewart Living competes for
advertising dollars in the women's service magazine category, including Ladies'
Home Journal, McCall's and Redbook. Martha Stewart Living competes for readers
and advertising with decorating, cooking and lifestyle magazines, such as
Architectural Digest, Metropolitan Home, Bon Appetit, Food & Wine, Gourmet,
Country Living, Better Homes & Gardens, Southern Living and others. Martha
Stewart Weddings competes for readers and advertising dollars primarily in the
wedding service magazine category, which includes Bride's Magazine, Modern
Bride, Bridal Guide and Elegant Bride.

TELEVISION

Television production is also highly competitive. Our television programs
compete directly for viewers and advertising dollars with other "how to"
television programs, as well as with general daytime programming on other
channels. Overall competitive factors in this segment include programming
content, quality and distribution and demographics of the programming. Similar
to publishing, competition for advertising dollars is primarily based on
advertising rates, the demographics of the audience, viewer response to
advertisers' products and services and effectiveness of the advertising sales
team.

MERCHANDISING AND INTERNET/DIRECT COMMERCE

Our retail merchandising and Internet/Direct Commerce businesses compete in
the consumer products and specialty retail businesses as well as the electronic
commerce industry, all of which are highly competitive. The leading competitors
of our merchandising business include Target stores, Wal-Mart Stores, Inc., The
Home Depot, Inc. and other mass market discount stores. Competitors of our
Internet and catalog businesses include Pottery Barn, and other catalogs owned
by Williams Sonoma, Inc., Plow & Hearth, Chef's Catalog, Eddie Bauer Home,
Garnet Hill Company, Crate and Barrel, garden.com, homearts.com, women.com,
weddings.com and theknot.com. We compete on the basis of our content, the
quality, uniqueness, price and assortment of our merchandise, brand name,
service to customers and proprietary customer lists.

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PROPERTIES

Certain information concerning our principal facilities, all of which are
leased, is set forth below:

<TABLE>
<CAPTION>
APPROXIMATE AREA
LOCATION USE IN SQUARE FEET
- - - -------- --- ----------------
<S> <C> <C>
11 West 42nd Street............... Principal executive and
New York, New York administrative offices; design
facilities; and sales offices 71,688
19 Newtown Turnpike............... Executive and administrative
Westport, Connecticut offices for television, including
the television studio facilities;
design facilities; and sales
offices for television 30,523
36-38 West 25th Street............ Photography studio used for
New York, New York photography shoots for all of
MSLO's businesses and for prop
storage 17,000
</TABLE>

The leases for these offices and facilities expire between October 1999 and
April 2010, and certain leases are subject to renewal by MSLO. We anticipate
that we will be able to extend these leases on terms satisfactory to us or, if
necessary, locate substitute facilities on acceptable terms.

We also lease the right to use various properties owned by Martha Stewart
for our editorial, creative and product development processes. These "living
laboratories" allow us to experiment with new designs and new products, such as
garden layouts, and help generate ideas for new content available to all of our
media outlets. For a description of the related property rental agreement, we
refer you to "Certain Relationships and Related Transactions--Certain Agreements
with Martha Stewart--Location Rental Agreement."

We believe that our existing facilities are well maintained and in good
operating condition.

EMPLOYEES

As of June 1999, we had approximately 350 employees, all of whom are
located in the United States. Of our seven executive vice presidents, five have
been with us since the launch of Martha Stewart Living magazine in 1991. None of
our employees are represented by unions or guilds, other than Martha Stewart,
who is a member of the American Federation of Television and Radio Artists and
the Screen Actors Guild. We consider our relations with our employees to be
satisfactory and have not experienced any job actions or labor shortages since
our inception.

LEGAL PROCEEDINGS

We are, from time to time, involved in various legal proceedings in the
ordinary course of our business. We believe that the resolution of the currently
pending legal proceedings, either individually or taken as a whole, will not
have a material adverse effect on our business, financial condition or results
of operations. In addition, Martha Stewart from time to time is the subject of
legal actions relating to or that could otherwise affect our business, which
actions MSLO intends, when appropriate, to vigorously defend in cooperation with
Martha Stewart.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The persons who will be our directors and executive officers immediately
following this offering, as well as their ages and positions, are listed below:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- - - ---- --- -----------
<S> <C> <C>
Martha Stewart............ 57 Chairman of the Board of Directors and Chief Executive
Officer
Sharon Patrick............ 56 President and Chief Operating Officer and Director
Charlotte L. Beers........ 64 Director
L. John Doerr............. 48 Director
Dora Braschi Cardinale.... 43 Executive Vice President, Print Production
Stephen Drucker........... 46 Executive Vice President, Editorial Core and Editor-in-
Chief
Peter Mark................ 32 Executive Vice President, Corporate Infrastructure
Development and Television Operations
Suzanne Sobel............. 42 Executive Vice President, Advertising Sales and
Marketing, Publisher
Lauren Stanich............ 37 Executive Vice President, Consumer Marketing
Gael Towey................ 47 Executive Vice President, Art and Style Creative Director
Shelley Lewis Waln........ 46 Executive Vice President, Integrated Marketing
Gregory R. Blatt.......... 31 Senior Vice President, General Counsel
James Follo............... 40 Senior Vice President, Finance and Controller
</TABLE>

Martha Stewart is the founder of our company and the author of 14 books on
the domestic arts, including Entertaining and Martha Stewart's Gardening. Ms.
Stewart has served as Chairman of the Board of Directors and Chief Executive
Officer of MSLO LLC since its creation in 1996. Ms. Stewart is the creator and
was Editor-in-Chief and Editorial Director of Martha Stewart Living from 1990
until 1997. Ms. Stewart is a member of the board of directors of Revlon, Inc.,
on the advisory board of drugstore.com, inc. and on the board of trustees of
Norwalk Hospital, Norwalk, Connecticut.

Sharon Patrick has served as President, Chief Operating Officer and a
director of MSLO LLC since 1997. Prior to that, Ms. Patrick served as a
strategic consultant to Martha Stewart Living from 1994 until 1997. From 1993
until 1997, Ms. Patrick served as President of The Sharon Patrick Company, a
strategic consulting company and Sharon Patrick and Associates, a new media
venture firm. From 1990 until 1993, Ms. Patrick was President and Chief
Operating Officer of Rainbow Programming Holdings, the programming company of
Cablevision Systems Development. Prior to that, Ms. Patrick was a Principal and
Partner in charge of Media and Entertainment at McKinsey and Company.

Charlotte L. Beers has served as a director of MSLO LLC since March 1998.
Ms. Beers has served as Chairman of the Board of Directors of J. Walter Thompson
Worldwide, an advertising agency, since March 1999. Prior to that, she was
Chairman Emeritus of Ogilvy & Mather Worldwide, Inc. from April 1997 to March
1999. She was Chairman of Ogilvy & Mather from April 1992 to April 1997 and
Chief Executive Officer from April 1992 to September 1996. She is also a
director of Gulfstream Aerospace Corporation, J. Crew Group, Inc. and Women
First Healthcare, Inc.

L. John Doerr has served as a director of MSLO LLC since July 1999. Mr.
Doerr has been a general partner of Kleiner Perkins Caufield & Byers, a private
venture capital firm, since September 1980. In 1974, he jointed Intel
Corporation and held various engineering, marketing and management assignments.
Mr. Doerr is also a director of Amazon.com, At Home Corporation, drugstore.com,
inc., Healtheon Corporation, Intuit, Inc., Platinum Software, Inc., and
SunMicrosystems, as well as several private companies.

Dora Braschi Cardinale has served as Executive Vice President, Print
Production since May 1999 and prior to that as Senior Vice President, Print
Production from 1997 until 1999. Prior to that, Ms. Cardinale

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served as Production Director of Martha Stewart Living from 1992 until 1997. Ms.
Cardinale has an additional 15 years of experience in the publishing industry,
including positions with Art & Antiques, Geo, Viva and Omni magazines.

Stephen Drucker has served as Editor-in-Chief of MSLO since 1997, as
Executive Vice President, Editorial Core since January 1999 and prior to that,
as Senior Vice President, Editorial from 1997 to 1999. Mr. Drucker served as the
Editor of Martha Stewart Living from 1996 to 1997. Mr. Drucker served as a
Contributing Editor from 1995 to 1996 to Travel & Leisure and Architectural
Digest, and as the Executive Editor of Travel & Leisure from 1994 to 1995. Mr.
Drucker has an additional 16 years of experience in the publishing industry with
The New York Times and The Conde Nast Publications, Inc.

Peter Mark has served as Executive Vice President, Corporate Infrastructure
Development and Television Operations since April 1999 and prior to that as
Senior Vice President, Television Operations from 1997 to 1999. Prior to that,
Mr. Mark served as Television Development Director from 1994 to 1997, as
Business Development Director from 1993 to 1994 and as Business Manager from
1991 to 1994, for Martha Stewart Living. Mr. Mark has an additional four years
of experience in the publishing and entertainment industries, including with
Time Warner.

Suzanne Sobel has served as Executive Vice President, Advertising Sales and
Publisher of MSLO since January 1999. Prior to that, Ms. Sobel served as Senior
Vice President, Advertising Sales & Marketing and Publisher during 1998 and as
Publisher of MSLO from 1997 until 1998. Ms. Sobel served as Associate Publisher
of Martha Stewart Living from 1996 to 1997, as Advertising Director from 1995 to
1996, as New York Advertising Sales Manager from 1993 to 1995 and as Advertising
Sales Manager from 1991 to 1993. Ms. Sobel has an additional 14 years of
experience in advertising sales, including with Town & Country magazine, Bob
Bernbach & Associates and Ogilvy & Mather.

Lauren Stanich has served as Executive Vice President, Consumer Marketing
of MSLO since January 1999. Prior to that, Ms. Stanich was Senior Vice
President, Consumer Marketing of MSLO from 1997 until 1999. Ms. Stanich worked
as Consumer Marketing Director and Book Publisher from 1995 to 1997, and as
Consumer Marketing Director from 1991 to 1995, for Martha Stewart Living. Ms.
Stanich has an additional seven years of experience in marketing and publishing
with Time.

Gael Towey has served as Executive Vice President, Art and Style Creative
Director of MSLO since February 1997. Prior to that, Ms. Towey worked for Martha
Stewart Living as the Design Director from 1996 to 1997, and as Art Director
from 1990 to 1996. Ms. Towey also has an additional 15 years of experience in
the publishing industry, including with House & Garden magazine, Clarkson N.
Potter and Viking Press, Inc.

Shelley Lewis Waln has served as Executive Vice President, Integrated
Marketing of MSLO since April 1998. Prior to that, Ms. Waln was Executive Vice
President, Advertising Sales & Marketing of MSLO from 1997 until 1998. From 1995
to 1997, Ms. Waln was Publisher of Martha Stewart Living, and from 1994 to 1995
was its Director, Sales & Marketing. Ms. Waln has an additional 16 years of
experience in marketing and publishing, including with Time Warner Entertainment
Marketing, Life magazine, People magazine, Ziff-Davis Publishing, Inc. and
Adweek magazine.

Gregory R. Blatt has served as Senior Vice President, General Counsel of
MSLO since May 1999. Prior to that, Mr. Blatt was an associate with Grubman
Indursky & Schindler, P.C., the New York entertainment and media law firm, from
1997 to May 1999 and an associate at Wachtell, Lipton, Rosen & Katz, the New
York law firm, from 1995 to 1997.

James Follo has served as Senior Vice President, Finance and Controller of
MSLO since March 1999 and, prior to that, as Vice President, Finance and
Controller from July 1998. Prior to that, Mr. Follo held various financial
positions at General Media International, Inc., a magazine publisher, from 1994
to July 1998, most recently as Vice President, Chief Financial Officer and
Treasurer.

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KEY CREATIVE PERSONNEL

In addition to Martha Stewart, Stephen Drucker and Gael Towey, our other
key creative personnel include:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- - - ---- --- -----------
<S> <C> <C>
Eric A. Pike............................. 37 Senior Vice President, Design Director
Margaret Roach........................... 45 Senior Vice President, Garden Editor
Susan J. Spungen......................... 39 Senior Vice President, Food Editor
Stephen A. Earle......................... 38 Vice President, Style Director
Frederick Karch.......................... 42 Vice President, Style Director
Darcy S. Miller.......................... 30 Vice President, Weddings Editor
Hannah Carpenter Milman.................. 40 Vice President, Crafts Editor
</TABLE>

Eric A. Pike has served as Senior Vice President, Design Director of MSLO
since January 1999. Prior to that, Mr. Pike served as Vice President, Design
Director of MSLO from 1998 to 1999. Mr. Pike was Art Director from 1995 to 1998,
Deputy Art Director from 1994 to 1995 and Associate Art Director from 1992 to
1994, of Martha Stewart Living. Mr. Pike has an additional ten years of
experience in art direction and design.

Margaret Roach has served as Senior Vice President, Garden Editor of MSLO
since January 1, 1999. Prior to that, Ms. Roach served as Vice President,
Gardening from 1998 until 1999. From 1995 to 1998, Ms. Roach was Garden Editor
of Martha Stewart Living, and a contributing editor for Martha Stewart Living
from 1993 to 1994. Ms. Roach was Fashion and Garden Editor of New York Newsday
from 1985 to 1995, and also has an additional 12 years of experience in the
publishing business, including with The New York Times. Ms. Roach won the 1998
Best Written Book Of The Year award from the Garden Writers of America for A Way
to Garden.

Susan J. Spungen has served as Senior Vice President, Food Editor of MSLO
since March 1999. Prior to that, Ms. Spungen served as Vice President, Food
Editor of MSLO from 1997 until 1999. From 1991 to 1997, Ms. Spungen was Food
Editor of Martha Stewart Living. Ms. Spungen has an additional 15 years of
experience in the food and restaurant industries.

Stephen A. Earle has served as Vice President, Style Director of MSLO since
1997. Prior to that, Mr. Earle was Style Director of Martha Stewart Living from
1995 until 1997. From 1992 to 1995, Mr. Earle was a freelance stylist and
contributor to Martha Stewart Living. From 1989 to 1992, Mr. Earle was Creative
Director for Polo Ralph Lauren. Mr. Earle has an additional ten years of
experience in art and style direction, including positions with Polo Ralph
Lauren.

Frederick Karch has served as Vice President, Style Director of MSLO since
January 1999. Prior to that, Mr. Karch was Style Director of MSLO from 1997
until 1999. From 1992 to 1997, Mr. Karch was a Stylist for Martha Stewart
Living, and also worked during that time as an independent stylist for clients,
such as the Pottery Barn Catalogs, Bergdorf Goodman, Macy's and Bloomingdale's.
Mr. Karch has an additional ten years of experience in art and style direction.

Darcy S. Miller has served as Vice President, Weddings Editor of MSLO since
January 1, 1998. During 1997, Ms. Miller was Weddings Editor of MSLO. Prior to
that, Ms. Miller was Weddings Editor from July 1996 to 1997, Associate Editor,
from 1994 to 1996, Assistant Editor in 1994 and an Editorial Assistant from 1992
to 1994, for Martha Stewart Living.

Hannah Carpenter Milman has served as Vice President, Crafts Editor of MSLO
since February 1999. Prior to that, Ms. Milman was Style Editor for MSLO from
1997 until 1998, and for Martha Stewart Living from 1996 to 1998. Ms. Milman was
also Senior Editor from 1992 to 1996 and a Contributing Editor from 1991 to 1992
for Martha Stewart Living.

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BOARD OF DIRECTORS

When this offering is completed, we expect to have a Board of Directors
comprised of six individuals. Our Board of Directors is currently comprised of
four individuals. Our Board of Directors intends to appoint two additional
directors who are neither officers nor employees of MSLO or our affiliates.

Directors who are our employees will receive no compensation for their
service as members of our Board of Directors or its committees. Directors who
are not our employees will receive compensation and stock options under plans we
describe below. We reimburse all directors for expenses incurred in connection
with attendance at meetings. See "Management--Compensation of Outside Directors"
and "--The Non-Employee Director Stock and Option Compensation Plan."

COMMITTEES OF THE BOARD OF DIRECTORS

Upon completion of this offering, our Board of Directors will establish an
Audit Committee and a Compensation Committee. The functions of the Audit
Committee will be to:

-- recommend annually to our Board of Directors the appointment of our
independent auditors

-- discuss and review in advance the scope and the fees of our annual
audit and review the results thereof with our independent auditors

-- review and approve non-audit services of our independent auditors

-- review compliance with our existing major accounting and financial
reporting policies

-- review the adequacy of major accounting and financial reporting
policies

-- review our management's procedures and policies relating to the
adequacy of our internal accounting controls and compliance with
applicable laws relating to accounting practices

We anticipate the Audit Committee will consist solely of directors who are not
otherwise our employees.

The functions of the Compensation Committee will be to review and approve
annual salaries, bonuses, and grants of stock options under our 1999 Stock
Incentive Plan for all executive officers and key members of our creative teams
and management staff, and to review and approve the terms and conditions of all
employee benefit plans or changes to these plans. We anticipate the Compensation
Committee will consist of directors who are not otherwise our employees.

In addition, our Board of Directors will form an Executive Committee, which
would have the authority to exercise the powers of our Board of Directors (other
than those reserved to the Audit Committee and the Compensation Committee or to
our full Board of Directors) between meetings of our full Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As noted above, our Board of Directors does not currently have a
Compensation Committee, but our Board of Directors anticipates establishing one
as described above. Prior to this offering, our principals and senior management
were directly involved in setting compensation for our executives.

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EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid to our Chief
Executive Officer and our other four most highly compensated executive officers
for the fiscal year ended December 31, 1998:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
1998 1998
NAME AND SALARY BONUS OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION ($) ($) COMPENSATION ($) COMPENSATION ($)
- - - ----------------------------------------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Martha Stewart........................... $2,975,000 $1,995,717 -- --
Chairman and Chief Executive Officer(1)
Sharon Patrick........................... 493,755 518,443 -- --
President and Chief Operating Officer
Gael Towey............................... 300,000 275,000 -- --
Executive Vice President--Art and Style
Creative Director
Stephen Drucker.......................... 265,000 198,750 -- --
Executive Vice President--Editorial
Core and Editor-in-Chief
Suzanne Sobel............................ 239,000 225,855 -- --
Executive Vice President--Advertising
Sales and Marketing, Publisher
</TABLE>

- - - ------------
(1) See also "Certain Relationships and Related Transactions -- Certain
Agreements with Martha Stewart -- Pre-Offering Agreements" for additional
amounts paid by us to Martha Stewart in 1998.

OPTION EXERCISES AND HOLDINGS

The following table provides information regarding exercises and holdings
of stock options by our Chief Executive Officer and our other four most highly
compensated executive officers for the fiscal year ended December 31, 1998:

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
SHARES OF NUMBER OF SECURITIES VALUE(1) OF UNEXERCISED
CLASS A UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
COMMON STOCK OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($)
ACQUIRED ON VALUE ------------------------------ ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - - --------------------- ------------ ------------ -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martha Stewart....... -- -- -- -- --
Sharon Patrick....... -- -- -- 34,563 --
Gael Towey........... -- -- -- 97,709 --
Stephen Drucker...... -- -- -- 8,333 --
Suzanne Sobel........ -- -- -- 16,667 --
</TABLE>

- - - ------------
(1) Based on the midpoint of the offering range, $ per share.

(2) Upon completion of this offering, 10% of the unexercisable options will
become exercisable, except for Gail Towey's options with respect to which
50% will become exercisable. These numbers will be adjusted to reflect the
exchange ratio in the reorganization pursuant to which MSLO LLC will be
converted into a C corporation. This ratio has not yet been determined.

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The following summary descriptions of our compensation plans are qualified
in their entirety by reference to those plans, copies of which we have filed as
exhibits to the registration statement of which this prospectus is a part.

EMPLOYMENT AGREEMENT WITH MARTHA STEWART

Prior to completion of the offering, we will enter into an employment
agreement with Martha Stewart. The employment agreement will replace Martha
Stewart's existing employment agreement with MSLO. The employment agreement
provides for Martha Stewart's employment as our Chairman of the Board and Chief
Executive Officer, and is for a term of five years, commencing upon completion
of the offering. Under the employment agreement, Martha Stewart's annual base
salary is $900,000, and she will receive annual bonus payments based upon our
performance, with a minimum annual bonus of $300,000. Our Compensation Committee
will determine the performance goals, which will include targets based on our
operating income as well as other performance measures.

During the employment period, Martha Stewart will receive employee benefits
no less favorable than those provided to the other executive officers of the
Company and will continue to receive perquisites and fringe benefits consistent
with past practice.

The employment agreement provides that if Martha Stewart resigns with "Good
Reason" or if we terminate her employment other than for "Cause" or disability,
then she will be entitled to receive an immediate lump sum cash payment equal to
the sum of: (1) accrued, but unpaid, base salary and vacation through the date
of termination, (2) three times her annual base salary and (3) the higher of
$5,000,000 or three times the highest annual bonus paid for any fiscal year
during the employment period. She will also receive continued welfare benefits
and perquisites for three years. If Martha Stewart's employment is terminated
due to disability, or in the event of death, Martha Stewart (or her estate) will
receive continued payments of the base salary for the remainder of the scheduled
term of the employment agreement. If Martha Stewart's employment is terminated
for any other reason, she will be entitled to receive her accrued, but unpaid,
base salary and vacation through the date of termination.

Under the employment agreement, "Good Reason" generally means the
occurrence of any of the following events without Martha Stewart's written
consent: (1) an assignment of duties or responsibilities, or a change in title
or authority, inconsistent with her position as Chairman and Chief Executive
Officer, (2) any failure by the Company to comply with the employment
agreement's compensation provisions, (3) a requirement for Martha Stewart to
relocate, (4) the failure of a successor entity to assume the employment
agreement or (5) any other material breach of the employment agreement. "Cause,"
for purposes of the employment agreement, means (x) Martha Stewart's willful and
continued failure to perform her duties after written notice from the Board of
Directors specifying the actions to be performed, unless such failure is due to
her good faith belief that to take such action would be materially harmful to
the Company, or (y) Martha Stewart's conviction of a felony or gross misconduct,
which in either case results in material and demonstrable damage to our business
or reputation.

Pursuant to the employment agreement, Martha Stewart cannot compete with us
(or solicit our employees) during her term of employment. In addition, if Martha
Stewart terminates employment without Good Reason during the employment period
or is terminated by us for Cause, the noncompetition and nonsolicitation
restrictions continue for 12 months after the termination of employment.

COMPENSATION OF OUTSIDE DIRECTORS

Each of our non-employee directors will receive a single annual retainer
fee of $20,000 for serving on our Board of Directors. These directors each will
also receive a meeting fee of $1,000 for each in-person meeting of our Board of
Directors that they attend and a fee of $500 for each telephonic meeting of our
Board of Directors in which they participate and each meeting of any Board
committee. The chairman of a Board committee will receive an additional annual
retainer of $5,000. Directors who also are our employees or those of any of our
subsidiaries will not receive additional compensation for their service as a
director. Twenty-five percent of directors' fees will be paid in shares of Class
A common stock, and the remaining 75% of such fees

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may be paid either in shares of Class A common stock or in cash, at the election
of the non-employee director, pursuant to the Non-Employee Director Stock and
Option Plan described below. All directors will receive reimbursement of
expenses incurred in connection with participation in Board of Directors
meetings.

THE NON-EMPLOYEE DIRECTOR STOCK AND OPTION COMPENSATION PLAN

Before this offering, we will adopt and approve the Non-Employee Director
Stock and Option Compensation Plan, which will be effective immediately before
the pricing of this offering. The purpose of this plan is to promote a greater
identity of interests between our non-employee directors and our stockholders
and to attract and retain individuals to serve as directors.

GENERAL

The plan will be administered by our Board of Directors or a committee of
our Board of Directors designated for this purpose.

Our non-employee directors will be eligible to participate in the plan as
of the date of the pricing of this offering. A total of shares of
Class A common stock will be reserved for issuance and available for grants
under the plan.

Our Board of Directors or its designated committee may adjust the awards
under the plan if there is any change in corporate capitalization, such as a
stock split, or a corporate transaction, such as a merger, consolidation,
separation, including a spin-off, or other distribution of our stock or
property, any reorganization or any partial or complete liquidation.

COMMON STOCK

Each non-employee director will receive 25% of his or her annual retainer
and meeting fees in shares of Class A common stock. In addition, non-employee
directors may make an annual irrevocable election to receive shares of Class A
common stock in lieu of all, or a portion, of such director's remaining fees, in
25% increments. The number of shares of Class A common stock granted to a
director will be equal to the appropriate percentage of fees payable to the
director in each calendar quarter, divided by the fair market value of a share
of Class A common stock on the last business day of the calendar quarter. We
will round the number of shares granted to the director down to the nearest
whole share of Class A common stock and pay cash for the value of any fractional
share. Each director may defer the receipt of his or her cash payments into an
interest-bearing cash account and/or his or her elected or mandatory shares of
Class A common stock into a share account which will be credited with additional
shares having a value equal to the dividends that would be paid on the shares
credited to the share account, if they were outstanding. When the director
leaves our Board of Directors or, if earlier, upon a change of control, the
amount of cash in his or her cash account, plus a number of shares of Class A
common stock equal to the number of shares in his or her share account will be
delivered to the director (with cash being paid in lieu of any fractional
shares).

OPTIONS

On the day of the pricing of this offering, each director will be granted
options for 5,000 shares of Class A common stock with an exercise price per
share equal to the initial public offering price. After each annual meeting of
stockholders, each continuing director will be granted options for 2,000 shares
of Class A common stock. Each new director will be granted options for 5,000
shares of Class A common stock upon being elected or appointed to our Board of
Directors. The exercise price for all options will be 100% of the fair market
value of a share of Class A common stock on the date of the grant of such
option, except that options granted before or upon consummation of this offering
will be granted at the initial public offering price. Each option will become
vested and exercisable on the first anniversary of the date of grant of such
option, if the director remains a member of our Board of Directors at that time.
Each vested option will terminate one year after the director's service on our
Board of Directors ceases for any reason, other than for cause. If a director is
removed for cause, all vested and unvested options will be forfeited. However,
the options will expire no later than the tenth anniversary of the date of
grant. Any unvested options will terminate and be canceled as of the date a

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director's service on our Board of Directors ceases for any reason. All options
become fully vested and exercisable upon a change in control.

TRANSFERABILITY

Grants and awards under the plan are nontransferable other than by will or
the laws of descent and distribution, or at the discretion of our Board of
Directors or the designated committee, pursuant to a written beneficiary
designation and, in the case of an option, pursuant to a gift to the director's
immediate family. This gift may be made directly to an immediate family member,
or by means of a trust or partnership or limited liability company. During the
director's lifetime, a director's option may be exercised only by the director,
any such permitted transferee or a guardian, legal representative or
beneficiary.

AMENDMENTS

Our Board of Directors may at any time terminate or amend the plan, except
that no termination or amendment may impair the rights of directors relating to
outstanding options or awards. To the extent required by law or stock exchange
rule, no amendment will be made without the approval of our stockholders.

MSLO PHANTOM PERFORMANCE UNIT PLAN

We established a phantom performance unit plan in November 1997, under
which, under certain circumstances, participants would receive shares of common
stock upon an initial public offering. Awards were made under the plan as of
January 1, 1998 and January 1, 1999. No awards will be granted under the plan
following the offering. All employees who had been employed by MSLO for at least
one year at the time of an award received awards.

Our Board of Directors has determined to pay out these awards at certain
levels effective upon completion of this offering. These payments will be made
in shares of Class A common stock. The number of shares of Class A common stock
a participant will receive under the plan will be equal to the number of phantom
units held by the participant, multiplied by the value of a unit upon
consummation of the offering as determined by our Board of Directors, and
divided by the offering price. Approximately 85 MSLO employees participate in
the 1998 grants, and each participant's interest will be deemed to have a $5,000
value as of the offering. Approximately 157 employees participate in the 1999
grants, and each participant's interest will be deemed to have a $6,000 value as
of the offering. Up to an aggregate shares of Class A common
stock will be delivered to participants upon completion of this offering.

EMPLOYEE INCENTIVE COMPENSATION PLANS

Our philosophy is to compensate employees based on individual, departmental
and our overall company performance. Two main principles guiding this philosophy
are to pay competitive compensation and to provide long-term employee stock
ownership. We consider equity ownership by employees to be critical to our long-
term success. Following completion of this offering, when calculating total
compensation, we will consider both cash compensation and awards of restricted
stock or options that vest over time based on the achievement of specified
performance goals.

We anticipate that following the completion of this offering, the
Compensation Committee of our Board of Directors will review all plans, policies
and arrangements affecting our employees and will consider what changes are
appropriate, if any, for recommendation to our full Board of Directors.

MSLO LLC NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION PLAN

MSLO LLC adopted the Nonqualified Class A LLC Unit/Stock Option Plan in
November 1997, under which options for 539,564 MSLO LLC units were outstanding
as of December 31, 1998, based on an assumed 10 million outstanding LLC Units.
Pursuant to the merger, outstanding options for approximately 509,841 LLC units
(based upon option holdings as of December 31, 1998) will be converted into
options for shares of Class A common stock. Options granted under the plan
generally vested 10% on December 31, 1998,

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and will vest 10%, 20%, 20% and 40% on December 31 of each of the next four
years if the optionee continues to be employed by, or perform services for,
MSLO. Each option has a scheduled ten-year term, subject to earlier termination
upon termination of employment. Options granted under the plan are not
assignable or transferable by the optionee, other than by will or the laws of
descent and distribution. Upon a change in control of MSLO, each outstanding
option will become immediately and fully exercisable, and will either remain
exercisable under the terms of the plan or be terminated upon no less than 30
days' written notice. This offering is not a change of control under the plan.
No additional options will be granted under this plan.

Martha Stewart has agreed with us that she will return, on a net treasury
basis, to us shares of Class B common stock owned by the Martha Stewart Family
Limited Partnership, or another entity controlled by her, upon each exercise of
options under this plan. Under the net treasury method, we will calculate the
number of shares of Class A common stock issued upon an option exercise, and
subtract from that number the number of shares of our Class A common stock we
could purchase (at the then-current market price) with the option proceeds.
Martha Stewart has agreed to return to us a number of shares of Class B common
stock equal to the result of this calculation. We may or may not use the option
proceeds to repurchase shares of our Class A common stock in the market. If we
do so, the net effect will be no change in the number of shares of Class A
common stock outstanding before and after an exercise of an option under this
plan.

THE 1999 STOCK INCENTIVE PLAN

Before this offering, we intend to adopt and approve our 1999 Stock
Incentive Plan, which will be effective immediately before the pricing of this
offering. This plan is designed to promote our success and enhance our value by
linking the interests of certain of our officers, employees and consultants to
those of our stockholders and by providing participants with an incentive for
outstanding performance. This plan is further intended to provide flexibility in
its ability to motivate, attract and retain employees upon whose judgment,
interest and special efforts our business is largely dependent. Our officers,
employees and consultants, including employees who are members of our Board of
Directors, and officers, employees and consultants of our subsidiaries and
affiliates are eligible to participate in this plan. Non-employee directors are
not eligible to participate in the 1999 plan. This plan is intended to remain in
effect until 2009. The description below summarizes the material terms of this
plan.

GENERAL

The 1999 plan will be administered by the Compensation Committee of our
Board of Directors, or another committee designated by our Board of Directors,
and provides for the grant of stock options, both non-qualified and incentive
stock options and other types of equity-based awards.

The 1999 plan provides that the maximum number of shares of Class A common
stock available for grant under the 1999 plan is .

The term of options granted under the 1999 plan may not exceed 10 years.
Unless otherwise determined by our Compensation Committee, options will vest
ratably on each of the first four anniversaries after the grant date and will
have an exercise price equal to the fair market value of the Class A common
stock on the date of grant.

A participant exercising an option may pay the exercise price in cash or,
if approved by our Compensation Committee, with previously acquired shares of
Class A common stock or in a combination of cash and stock. Our Compensation
Committee, in its discretion, may allow the cashless exercise of options.

Options are nontransferable other than by will or the laws of descent and
distribution or, at the discretion of our Compensation Committee, pursuant to a
written beneficiary designation and, in the case of a nonqualified option,
pursuant to a gift to members of the holder's immediate family. The gift may be
made directly or indirectly or by means of a trust or partnership or limited
liability company and, during the participant's lifetime, may be exercised only
by the participant, any such permitted transferee or a guardian, legal
representative or beneficiary.

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At the time of this offering, we expect to grant options to purchase
shares of Class A common stock under the 1999 plan at an exercise
price equal to the initial public offering price.

OTHER AWARDS

A stock appreciation right (or SAR) permits a participant to receive cash
or shares of Class A common stock, or a combination thereof, as determined by
our Board of Directors or our Compensation Committee. The amount of cash or the
value of the shares is equal to the excess of the fair market value of a share
of Class A common stock on the date of exercise over the SAR exercise price,
multiplied by the number of shares with respect to which the SAR is exercised.
Restricted stock may be granted subject to performance or service-based goals
upon which restrictions will lapse. Performance units or restricted units may be
granted subject to performance goals and/or service-based restrictions, and will
be payable in cash or shares of Class A common stock or a combination as
determined by our Board of Directors or our Compensation Committee. Dividend and
interest equivalents with respect to awards and other awards based on the value
of Class A common stock may also be granted.

CHANGE IN CONTROL

In the event of a change in control, any option or SAR that is not then
exercisable and vested will become fully exercisable and vested, restrictions on
restricted stock will lapse and performance units will be deemed earned. Change
in control generally means (1) the acquisition of an amount of common stock
greater than the amount held by Martha Stewart and representing at least 30% of
the outstanding common stock or voting securities; (2) a change in the majority
of the members of the Board of Directors, unless approved by the incumbent
directors; (3) the consummation of certain mergers involving MSLO; or (4)
approval by our stockholders of a liquidation, dissolution or sale of
substantially all of our assets.

AMENDMENTS

Our Board of Directors may at any time amend or terminate the 1999 plan and
may amend the terms of any outstanding option or other award, except that no
termination or amendment may impair the rights of the participants as they
relate to outstanding options or awards. However, no such amendment to the 1999
plan will be made without the approval of our stockholders to the extent such
approval is required by law or stock exchange rule.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

As permitted by applicable Delaware law, we have included in our
certificate of incorporation a provision to eliminate the personal liability of
our directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, our
by-laws provide that we are required to indemnify our officers and directors
under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we are required to advance
expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. At present, we are
not aware of any pending or threatened litigation or proceeding involving a
director, officer, employee or agent of ours in which indemnification would be
required or permitted. We believe that these indemnification provisions are
necessary to attract and retain qualified persons as directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be granted to directors, officers or persons controlling us pursuant
to the foregoing provisions, we have been informed that in the opinion of the
SEC this indemnification is against public policy as expressed in the Securities
Act of 1933 and is therefore unenforceable.

The employment agreement and the license agreement to be entered into with
Martha Stewart provide that we will indemnify Martha Stewart against all charges
and expenses that Martha Stewart may incur or be compelled to pay for or by
reason of actions of MSLO or our officers, employees or agents in connection
with certain matters relating to our business and Martha Stewart's performance
of her obligations under the employment agreement, including matters relating to
our predecessor businesses and sole proprietorships previously owned by Martha
Stewart.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following summary descriptions of agreements to which we are a party
are qualified in their entirety by reference to the agreement to which each
summary description relates, each of which we have filed as an exhibit to the
registration statement of which this prospectus is a part.

TRANSACTIONS WITH TIME PUBLISHING VENTURES AND ITS AFFILIATES

AGREEMENTS RELATING TO THE 1997 ACQUISITION

In 1991, Time Publishing Ventures (a subsidiary of Time Warner, Inc.), in
cooperation with Martha Stewart, launched the magazine Martha Stewart Living.
Subsequently, Time Publishing Ventures became involved in other Martha
Stewart-related businesses, including television, books and mail-order
merchandising. In February 1997, Time Publishing Ventures agreed to contribute
all of its assets that primarily related to its Martha Stewart-related
businesses to MSLO LLC, which was a recently formed entity controlled by Martha
Stewart. MSLO LLC had already been capitalized with various businesses Martha
Stewart conducted personally or through entities controlled by her. Under the
terms of the February 1997 agreement, MSLO LLC also assumed all liabilities from
Time Publishing Ventures relating to the conduct of Time Publishing Ventures'
Martha Stewart-related businesses.

In exchange for its contributions, Time Publishing Ventures received an
interest-bearing four-year promissory note in the principal amount of $30.0
million and a 6.27% equity interest in MSLO LLC. In addition, pursuant to the
operating agreement of MSLO LLC, which we describe below, Time Publishing
Ventures received the right to a special distribution from us of an aggregate
$18 million in cash, which amount we paid in February 1997. The LLC operating
agreement also expressly permits Time Publishing Ventures and its affiliates to
compete with MSLO LLC and eliminates any obligation that Time Publishing
Ventures offer corporate opportunities to MSLO LLC.

Incident to its equity interest, Time Publishing Ventures received certain
rights with respect to our ongoing management, and the right to require us to
purchase its equity interests on the seventh anniversary of the transaction, or
in certain circumstances at an earlier date. In March 1999, we prepaid in full
the Time Publishing Ventures note. See "--LLC Operating Agreement" for
additional information on Time Publishing Ventures' rights.

ONGOING SERVICE AGREEMENTS

In 1997, Time Publishing Ventures and certain affiliates also entered into
agreements with us to provide us with various services. These agreements
included:

-- newsstand distribution services for our magazines and to perform
certain marketing and merchandising services for our magazine

-- fulfillment services for the magazine

-- fulfillment services for Martha by Mail

-- an Oxmoor House agreement for publication of Martha Stewart Living
books

Each of these agreements is currently in effect and will continue in effect
after the offering. We believe the terms of these agreements are at least as
favorable to us as the terms that could have been obtained from another party.

Under our newsstand distribution agreement, an affiliate of Time Publishing
Ventures provides newsstand distribution services with respect to our magazines.
We compensate our counterparty on the basis of net sales. This agreement expires
in December 2004, but we have the right to terminate effective December 2001 on
one year's notice.

The fulfillment agreements with another affiliate of Time Publishing
Ventures provide for inventory management, "back-office processing" and
processing of mail and phone orders for our magazines and our

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Internet/Direct Commerce businesses. The fulfillment agreement for our magazines
expires in December 2002, but will be renewed automatically for an additional
three-year term unless terminated by either party upon one year's notice. The
fulfillment agreement with respect to our catalog and Internet businesses
continues until either party provides one year's notice of termination to the
other.

Under our agreement with Oxmoor House, also an affiliate of Time Publishing
Ventures, we granted Oxmoor House an exclusive license to use the mark Martha
Stewart Living in connection with books and continuity card and binder programs
for two Best of Martha Stewart Living books per year and one Christmas with
Martha Stewart Living book each year. Oxmoor House also has the right to publish
other materials bearing the mark Martha Stewart Living as mutually agreed by us
and Oxmoor House. We receive production grants on a per page basis for each of
these publications, an annual payment to cover staff costs and also receive
royalties. This agreement terminates in December 2001, and Oxmoor House has the
right to renew the agreement for an additional three year term.

Since February 1997, Don Logan, President and Chief Executive Officer of
Time, has been a member of the Board of Directors of MSLO LLC. Mr. Logan will
not be a director of MSLO.

LLC OPERATING AGREEMENT

In connection with our acquisition of Time Publishing Ventures' Martha
Stewart-related businesses in February 1997, the members in MSLO LLC, our
predecessor company, consisting of Martha Stewart, Time Publishing Ventures,
Sharon Patrick and Grubman, Indursky & Schindler, P.C. entered into an agreement
governing the operation of MSLO LLC and the rights of its members. Among the
various rights that this agreement afforded MSLO LLC was the right to make an
offer to purchase the membership interests held by Time Publishing Ventures for
a price of $37.0 million plus 5% interest, compounding semi-annually, from
February 3, 1997 (the target price). The target price will be reduced by any
pre-offering distributions to Time Publishing Ventures, other than for taxes and
similar matters. Upon Time Publishing Ventures' rejection of this offer to
purchase or the completion of a sale to us of Time Publishing Ventures'
interests, most of Time Publishing Ventures' specific rights under this
agreement terminate.

The members also agreed that MSLO LLC could be converted into a corporation
in the event it desired to effect an initial public offering of its equity
securities if the expected gross proceeds of the offering exceeded $25 million.

At the time of this offering, we will make an irrevocable offer to purchase
Time Publishing Ventures' membership interests at the target price. Time
Publishing Ventures has not indicated whether it will accept or reject our offer
to purchase. Time Publishing Ventures has until 120 days following the date of
our offer, or it will be deemed to have rejected the offer to purchase. If Time
Publishing Ventures rejects our offer, its registration rights will continue.

If Time Publishing Ventures accepts our offer to purchase its shares of
common stock, Time Publishing Ventures will also have the right to receive a
payment from us if (1) we sell any of our equity or all or substantially all of
our assets within one year of the completion of our purchase of Time Publishing
Ventures' shares, and (2) the per share price received by us for our equity or
assets is higher than that paid to Time Publishing Ventures. Time Publishing
Ventures also has the right to receive a payment from Martha Stewart if she
completes any private sales of her equity or sells over 15% of her equity in the
public trading market, in each case, at a higher price per share during the same
period. These payments would be in an amount equal to the excess of (1) the per
share price received by MSLO or Martha Stewart over (2) 100% of the per share
price paid to Time Publishing Ventures, which percentage increases ratably to
140% over the one year term of Time Publishing Ventures' right. The total amount
of Time Publishing Ventures' adjustment cannot be greater than the product of
(x) the total number of shares sold in the subsequent transaction and (y) the
difference between the per share amount we or Martha Stewart received in the
subsequent transaction and the per share amount Time Publishing Ventures
received from us.

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<PAGE> 71

TAX INDEMNIFICATION

Under the merger agreement providing for the conversion of MSLO LLC into a
corporation for purposes of effecting this initial public offering, MSLO will
make distributions in an aggregate amount of $3.0 million (as of March 31, 1999)
in respect of taxes paid by the members relating to the profits of MSLO LLC. We
also agree to indemnify the members of MSLO LLC for any taxes relating to
periods during which MSLO was a limited liability company. The members of MSLO
LLC are The Martha Stewart Family Limited Partnership, an entity controlled by
Martha Stewart, Sharon Patrick, MSLO's President, Time Publishing Ventures, KPCB
Holdings, Inc. and Grubman Indursky & Schindler, P.C., which provides certain
legal services to MSLO. See "Reorganization Transactions Occurring Prior to This
Offering."

REGISTRATION RIGHTS

Under the registration rights provided for in the LLC operating agreement,
Time Publishing Ventures, which will own an aggregate of shares
of Class A common stock at the time of this offering, Kleiner Perkins, which
will own an aggregate of shares of Class A Common Stock and
Martha Stewart, who owns an aggregate of shares of Class B common
stock, have the right to require us to register shares of Class A common stock
owned by them, subject to certain customary terms and minimum amounts. Neither
Time Publishing Ventures, KPCB Holdings, Inc. nor Martha Stewart may require us
to register any shares within 180 days of the date of this prospectus.

Registration of these shares of common stock will result in such shares
becoming freely tradable without restriction under the Securities Act of 1933.
All registration expenses, other than any underwriting discounts, incurred in
connection with the above registrations will be borne by MSLO.

Notwithstanding any rejection by Time Publishing Ventures of our offer to
purchase, Time Publishing Ventures' registration rights will continue as long as
it continues to hold any of our common stock that it received in the merger of
MSLO LLC into a corporation.

CERTAIN AGREEMENTS WITH MARTHA STEWART

LOCATION RENTAL AGREEMENT

In addition to the employment and license agreements we will enter into
with Martha Stewart, we will also enter into a location rental agreement with
Martha Stewart relating to our use of various properties owned by Martha
Stewart. The agreement has a five-year term, provides for annual payments of
$2.0 million to Martha Stewart and permits us to use the properties currently
owned by Martha Stewart for any purpose relating to our businesses. We make
extensive use of these properties for television filming, photography, research
and development of context and products and various other commercial purposes.
This location rental agreement will replace an agreement we have with Martha
Stewart, except that the rental fee will be increased. The increased fee
reflects the access to additional properties, as well as our significantly
increased usage of these properties since the acquisition from Time Publishing
Ventures in February 1997. We believe this rate is significantly lower than what
we would have to pay to use similar properties owned by a third party. In the
event that Martha Stewart's employment is terminated without cause, or she
terminates employment for good reason, we will be obligated to pay the remaining
amount due under the location rental agreement and we will lose our access to
these properties.

PRE-OFFERING AGREEMENTS

Upon completion of this offering, the current employment, services and
non-competition agreements and separate license and non-competition agreements
we have entered into with Martha Stewart will be terminated, and the new
employment agreement, royalty-free license agreement and location rental
agreement will become effective. See "Business--Intellectual Property" for more
information on the license agreement. The prior employment and services
agreements provided for the payment to Martha Stewart of certain compensation,
benefits and expense reimbursement. Under a 1997 location fee agreement, we paid
Martha Stewart an aggregate of $1.5 million for the use of properties owned by
her in connection with operating our

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<PAGE> 72

business. Martha Stewart did not receive any compensation with respect to, or
payments for, the license and non-competition agreements.

In addition, as a member of MSLO LLC, Martha Stewart is entitled to certain
registration rights, which we describe above. We will assume these obligations
effective as of the completion of this offering.

OTHER RELATIONSHIPS

We periodically use the services of Emery Cuti Brinckerhoff & Abady, a law
firm of which Martha Stewart's son-in-law is a partner. In 1998, MSLO paid an
aggregate of approximately $92,000 in fees and expenses in respect of such
services.

Ms. Margaret Christiansen, Martha Stewart's sister-in-law, is a Senior Vice
President, Business Manager of MSLO.

Mr. Randy Plimpton, Martha Stewart's brother-in-law, is the MSLO property
manager, responsible for property management and support services.

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<PAGE> 73

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of Class A and Class B common stock, including the percent
of the total voting power, as of 1999, and as adjusted to reflect
completion of this offering, by

-- each of our five most highly compensated officers

-- each director

-- each holder of more than 5% of either class of common stock

-- all current directors and executive officers as a group

Except as indicated in the footnotes to this table, the individuals named
in this table have sole voting and investment power with respect to all shares
of Class A common stock and Class B common stock shown as beneficially owned by
them, subject to community property laws where applicable.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BEFORE OFFERING BENEFICIAL OWNERSHIP
---------------------------- ---------------------------
CLASS A CLASS B % TOTAL CLASS A CLASS B % TOTAL
COMMON COMMON VOTING COMMON COMMON VOTING
STOCK STOCK POWER STOCK STOCK POWER
------------- ------------ ------- ------------ ------------ -------
NAME SHARES % SHARES % SHARES % SHARES %
- - - ---- ------ ---- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Martha Stewart(1)....... -- -- 100% 97.6% -- -- 100%
Time Inc.(2)............ 36.4% -- -- * --
1271 Avenue of the
Americas
New York, New York
10020
Kleiner Perkins Caufield
& Byers(3)............ 29.0 -- -- * -- --
2750 Sand Hill Road
Menlo Park, California
94025
L. John Doerr(3)........ 29.0 -- -- * --
Charlotte Beers(4)...... * -- -- * * -- --
Sharon Patrick(5)....... 32.9 -- -- * -- --
Gael Towey(6)........... * -- -- * * -- --
Stephen Drucker(7)...... * -- -- * * --
Suzanne Sobel(8)........ * -- -- * * --
All directors and
executive officers as
a group (13
persons)(9)........... 98.3% 100% 100% 100%
</TABLE>

- - - ------------
* The percentage of shares or voting power beneficially owned does not exceed
1% of the class.

(1) Consists of shares held by The Martha Stewart Family Limited
Partnership.

(2) Consists of shares held by Time Publishing Ventures, Inc., a wholly
owned subsidiary of Time Inc.

(3) Consists of shares held by KPCB Holdings, Inc., a California corporation
affiliated with KPCB IX Associates, LLC. L. John Doerr, a general partner of
KPCB IX Associates, LLC, is a director of MSLO. Mr. Doerr disclaims
beneficial ownership of shares held by KPCB Holdings, Inc. except to the
extent of his pecuniary interest in those shares through KPCB IX Associates,
LLC.

(4) Does not include unvested options to acquire shares of Class A common
stock.

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<PAGE> 74

(5) Includes vested options to acquire shares of Class A common stock. Does
not include unvested options to acquire shares of Class A common stock.

(6) Includes vested options to acquire shares of Class A common stock. Does
not include unvested options to acquire shares of Class A common stock.

(7) Includes vested options to acquire shares of Class A common stock. Does
not include unvested options to acquire shares of Class A common stock.

(8) Includes vested options to acquire shares of Class A common stock. Does
not include unvested options to acquire shares of Class A common stock.

(9) Includes vested options to acquire shares of Class A common stock. Does
not include unvested options to acquire shares of Class A common stock.

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<PAGE> 75

DESCRIPTION OF CAPITAL STOCK

The following summary description of provisions in our certificate of
incorporation and by-laws is qualified in its entirety by reference to our
certificate of incorporation and by-laws, which we have filed as exhibits to the
registration statement of which this prospectus is a part.

Our authorized capital stock consists of 350,000,000 shares of Class A
common stock, par value $0.01 per share, 150,000,000 shares of Class B common
stock, par value $0.01 per share, and 150,000,000 shares of preferred stock, par
value $0.01 per share. As of , 1999, we had shares of Class
A common stock, shares of Class B common stock and no shares of
preferred stock outstanding. After this offering, there will be shares
of Class A common stock outstanding.

COMMON STOCK

Subject to the rights of the holders of any preferred stock that may be
outstanding, holders of Class A common stock are entitled to receive, share for
share with holders of Class B common stock, dividends as may be declared by our
Board of Directors out of funds legally available to pay dividends, and, in the
event of liquidation, to share pro rata with the holders of Class A common stock
in any distribution of our assets after payment or providing for the payment of
liabilities and the liquidation preference of any outstanding preferred stock.
Except as required by Delaware law, Class A common stock and Class B common
stock will vote together as a single class on all matters presented to a vote of
stockholders, including the election of directors. Each holder of Class A common
stock is entitled to one vote for each share held of record on the applicable
record date for all of these matters. Holders of Class A common stock have no
cumulative voting rights or preemptive rights to purchase or subscribe for any
stock or other securities, and there are no conversion rights or redemption or
sinking fund provisions with respect to Class A common stock. All outstanding
shares of Class A common stock are, and the shares of Class A common stock
offered hereby will be when issued, fully paid and nonassessable. Additionally,
our certificate of incorporation requires that we reserve and keep available out
of authorized but unissued Class A common stock, solely for effecting conversion
of Class B common stock, sufficient shares to effect conversion of all
outstanding shares of Class B common stock.

Class B common stock is identical in all respects to Class A common stock,
except with respect to voting and conversion rights. Class A common stock and
Class B common stock will vote together as a single class on all matters
presented to a vote of stockholders, including the election of directors. Each
holder of Class B common stock is entitled to ten votes for each share held of
record on the applicable record date for all of these matters. Martha Stewart
will be the only initial holder of shares of Class B common stock.

Each share of Class B common stock will be automatically converted into one
share of Class A common stock upon transfer of any share of Class B common
stock, whether or not for value, by any initial registered holder of that share,
except transfers by that holder to:

-- a nominee of that holder (without any change in beneficial ownership,
within the meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended); or

-- another person who, at the time of the transfer, beneficially owns
shares of Class B common stock or a nominee of that person.

Further, any transfer by any initial holder without consideration to any of the
following will not result in conversion:

-- any controlled affiliate of that initial holder who remains a
controlled affiliate

-- any active or retired partner of that initial holder

-- the estate of that initial holder or a trust established for the
benefit of the descendants or any relatives or spouse of that initial
holder

-- a parent corporation or wholly owned subsidiary of that initial
holder or to a wholly owned subsidiary of that parent unless and
until the transferee ceases to be a parent or wholly owned subsidiary
of the initial holder or a wholly owned subsidiary of any parent

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<PAGE> 76

-- the spouse of any initial holder

Lastly, any bona fide pledge by an initial holder to a financial
institution in connection with a borrowing will not result in any conversion. If
any transfer does not give rise to automatic conversion under these provisions,
then any subsequent transfer by the holder (other than any transfer by such
holder to a nominee of such holder (without any change in beneficial ownership,
as such term is defined under Section 13(d) of the Securities Exchange Act of
1934, as amended)) or the pledgor, as the case may be, will be subject to
automatic conversion upon these terms and conditions. In addition, each share of
Class B common stock may be converted at any time into one share of Class A
common stock at the option of the holder. The one-to-one conversion ratio will
be equitably preserved in the event of any stock dividend, stock split or
combination or merger, consolidation or other reorganization of MSLO with
another corporation.

PREFERRED STOCK

Our certificate of incorporation authorizes 150,000,000 shares of preferred
stock. Our Board of Directors has the authority to issue shares of preferred
stock in one or more class or series and to fix, by resolution, the powers,
designations, preferences, rights and qualifications, limitations and
restrictions thereof, if any, including the number of shares in each series
(which our Board of Directors may increase or decrease as permitted by Delaware
law), liquidation preferences, dividend rates, conversion rights and redemption
provisions of the shares constituting any class or series, without any further
vote or action by the stockholders. Any shares of preferred stock so issued
would have priority over the common stock with respect to dividend or
liquidation rights or both. As of the time of this offering, we will have no
shares of preferred stock outstanding.

ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS

Our certificate of incorporation and by-laws contain several provisions
that could delay or make more difficult the acquisition of MSLO by means of a
hostile tender offer, open market purchases, a proxy contest or otherwise. We
also refer you to "Risk Factors--Martha Stewart will control our company."

STOCKHOLDERS MEETINGS

Subject to the rights of holders of preferred stock, of whom there are
currently none, only our Chairman of the Board of Directors or a majority of our
Board of Directors may call a special meeting of stockholders.

REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATION AND PROPOSALS

Our by-laws establish advance notice procedures with regard to stockholder
proposals and the nomination, other than by or at the direction of our Board of
Directors or a committee thereof, of candidates for election as directors.

EFFECT OF DELAWARE ANTI-TAKEOVER STATUTE

We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. Section 203 prevents certain Delaware
corporations, including those with securities listed on the New York Stock
Exchange, from engaging under certain circumstances in a business combination
with any interested stockholder for three years following the date that the
stockholder became an interested stockholder. For purposes of Section 203, a
"business combination" includes, among other things, a merger or consolidation
involving MSLO and the interested stockholder and a sale of more than 10% of our
assets. In general, the anti-takeover law defines an "interested stockholder" as
any entity or person beneficially owning 15% or more of our outstanding voting
stock and any entity or person affiliated with or controlling or controlled by
that entity or person. A Delaware corporation may "opt out" of Section 203 with
an express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or by-laws resulting from
amendments approved by holders of at least a majority of a corporation's
outstanding voting shares. We have not "opted out" of the provisions of Section
203.

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<PAGE> 77

ACTION BY WRITTEN CONSENT

Under the Delaware General Corporation Law, unless the certificate of
incorporation expressly prohibits action by the written consent of stockholders,
any action required or permitted to be taken by our stockholders at a duly
called annual or special meeting of stockholders may be taken by a consent in
writing executed by stockholders possessing the requisite votes for the action
to be taken. Our certificate of incorporation does not expressly prohibit action
by the written consent of stockholders. As a result, Martha Stewart, as holder
of % of our total voting power after this offering, will be able to take
any action to be taken by stockholders without the necessity of holding a
stockholder meeting. We intend, however, to hold annual meetings of
stockholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent for Class A common stock is .

LISTING

We expect our Class A common stock to trade on the New York Stock Exchange
under the symbol " ."

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<PAGE> 78

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for either our
Class A common stock or Class B common stock. Future sales of substantial
amounts of our Class A common stock in the public market could adversely affect
prevailing market prices. Upon the closing of this offering, we will have
shares of Class A common stock outstanding, of which the
shares offered hereby will be freely tradable, unless purchased
by our affiliates (as defined in Rule 144 under the Securities Act of 1933). All
other shares, including all shares of Class B common stock
outstanding, will be "restricted shares" for purposes of the Securities Act of
1933 and subject to the volume and other limitations set forth in Rule 144.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner, except an affiliate from
whom these shares were purchased) is entitled to sell in "brokers' transactions"
or to market makers, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of

-- 1% of the then outstanding shares of Class A common stock
( shares immediately after this offering, without
giving effect to the over-allotment option) or

-- the average weekly trading volume of our common stock during the four
calendar weeks preceding the required filing of a Form 144 with
respect to this sale.

Sales under Rule 144 are generally subject to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner other than an affiliate from
whom these shares were purchased), is entitled to sell these shares without
having to comply with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.

Immediately after the offering, Martha Stewart and entities controlled by
her will own shares of Class B common stock, Time Publishing
Ventures will own shares of Class A common stock, and KPCB
Holdings, Inc. will own shares of Class A common stock. We have
granted to these entities the right to demand registration under the Securities
Act of 1933 at our expense of all or a portion of the shares of Class A common
stock they own prior to the offering (or into which Martha Stewart's shares of
Class B common stock are convertible). See "Certain Relationships and Related
Transactions--Registration Rights" for a fuller description of these
registration rights.

All of our existing stockholders have entered into lock-up agreements with
the Representatives of the underwriters wherein they have agreed not to sell any
of their shares within 180 days after the date of this prospectus without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters. These agreements have certain exceptions, including the call by
MSLO of Time Publishing Venture's shares. For more information, see
"Underwriters."

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<PAGE> 79

CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a general discussion of certain U.S. federal income and
estate tax considerations with respect to the ownership and disposition of Class
A common stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder"
is any holder other than (1) a citizen or resident of the United States; (2) a
corporation created or organized in the United States or under the laws of the
United States or of any state; (3) an estate, the income of which is includible
in gross income for U.S. federal income tax purposes regardless of its source;
or (4) a trust if (a) a court within the United States is able to exercise
primary supervision over the administration of the trust and (b) one or more
U.S. persons have the authority to control all substantial decisions of the
trust. This discussion is based on current provisions of the Internal Revenue
Code, Treasury Regulations promulgated thereunder, judicial opinions, published
positions of the Internal Revenue Service, and all other applicable authorities,
all of which are subject to change (possibly with retroactive effect). This
discussion does not address all aspects of income and estate taxation or any
aspects of state, local, or non-U.S. taxes, nor does it consider any specific
facts or circumstances that may apply to a particular Non-U.S. Holder that may
be subject to special treatment under the U.S. federal income tax laws (such as
insurance companies, tax-exempt organizations, financial institutions, brokers,
dealers in securities, and certain U.S. expatriates). Accordingly, prospective
investors are urged to consult their tax advisors regarding the U.S. federal,
state, local and non-U.S. income and other tax considerations of acquiring,
holding and disposing of shares of common stock. Holders of Class B common stock
are urged to consult such holders' own tax advisors.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to U.S.
withholding tax at a 30% rate of the gross amount (or a lower rate prescribed by
an applicable income tax treaty) unless the dividends are effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States. Dividends effectively connected with such a U.S. trade or business
generally will not be subject to U.S. withholding tax if the Non-U.S. Holder
files certain forms, including Internal Revenue Service Form 4224 (or any
successor form), with the payor of the dividend, and generally will be subject
to U.S. federal income tax on a net income basis, in the same manner as if the
Non-U.S. Holder were a resident of the United States. A Non-U.S. Holder that is
a corporation may be subject to an additional branch profits tax at a rate of
30% (or such lower rate as may be specified by an applicable income tax treaty)
on the repatriation from the United States of its "effectively connected
earnings and profits," subject to certain adjustments. To determine the
applicability of a tax treaty providing for a lower rate of withholding under
the currently effective Treasury Regulations (the "Current Regulations") and
published Internal Revenue Service positions, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country absent
knowledge to the contrary. Under Treasury Regulations issued on October 6, 1997
(the "Final Regulations"), and generally effective for payments made after
December 31, 2000, however, a Non-U.S. Holder (including, in certain cases of
Non-U.S. Holders that are entities, the owner or owners of such entities) will
be required to satisfy certain certification requirements in order to claim a
reduced rate of withholding pursuant to an applicable income tax treaty.

GAIN OR SALE OR OTHER DISPOSITION OF COMMON STOCK

In general, a Non-U.S. Holder will not be subject to U.S. federal income
tax on any gain realized upon the sale or other disposition of the holder's
shares of Class A common stock unless (1) the gain is effectively connected with
a trade or business carried on by the Non-U.S. Holder within the United States
(in which case the branch profits tax discussed above may also apply if the
Non-U.S. Holder is a corporation); (2) the Non-U.S. Holder is an individual who
holds shares of Class A common stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of disposition and
certain other tests are met; (3) the Non-U.S. Holder is subject to tax pursuant
to the provisions of the Internal Revenue Code regarding the taxation of U.S.
expatriates; or (4) MSLO is or has been a U.S. real property holding corporation
(a "USRPHC") for U.S. federal income tax purposes (which MSLO does not believe
that it has been, currently

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<PAGE> 80

is, or will become) at any time within the shorter of the five-year period
preceding such disposition and such Non-U.S. Holder's holding period. If MSLO
were or were to become a USRPHC at any time during this period, gains realized
upon a disposition of Class A common stock by a Non-U.S. Holder that did not
directly or indirectly own more than 5% of the Class A common stock during this
period generally would not be subject to U.S. federal income tax, provided that
Class A common stock is "regularly traded on an established securities market
(within the meaning of Section 897(c)(3) of the Code)."

ESTATE TAX

Class A common stock owned or treated as owned by an individual who is not
a citizen or resident (as defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provided otherwise, and therefore may be subject to U.S. federal estate
tax.

BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS

MSLO must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S Holder resides or is established.

Under the Current Regulations, U.S backup withholding tax (which generally
is imposed at the rate of 31% on certain payments to persons that fail to
furnish the information required under the U.S. information reporting
requirements) and information reporting requirements (other than those discussed
in the previous paragraph) generally will not apply to dividends paid on Class A
common stock to a Non-U.S. Holder at an address outside the United States.
Backup withholding and information reporting generally will apply, however, to
dividends paid on shares of Class A common stock to a Non-U.S. Holder at an
address in the United States if the holder fails to establish an exemption or to
provide certain other information to the payor.

Under the Current Regulations, the payment of proceeds from the disposition
of Class A common stock to or through a U.S. office of a broker will be subject
to information reporting and backup withholding, unless the beneficial owner,
under penalties of perjury, certifies, among other things, its status as a
Non-U.S. Holder or otherwise establishes an exemption. The payment of proceeds
from the disposition of Class A common stock to or through a Non-U.S. office of
a broker generally will not be subject to backup withholding and information
reporting, except as noted below. In the case of proceeds from a disposition of
Class A common stock paid to or though a non-U.S. office of a broker that is (1)
a U.S. person; (2) a "controlled foreign corporation" for U.S. federal income
tax purposes; or (3) a foreign person 50% or more of whose gross income from
certain periods is effectively connected with a U.S. trade or business,
information reporting (but not backup withholding) will apply unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder and
certain other conditions are satisfied, or the beneficial owner otherwise
establishes an exemption (and the broker has no actual knowledge to the
contrary).

Under the Final Regulations, generally effective for payments made after
December 31, 2000, the payment of dividends or the payment of proceeds from the
disposition of our Class A common stock to a Non-U.S. Holder may be subject to
information reporting and backup withholding unless the recipient satisfies the
certification requirements of the Final Regulations or otherwise establishes an
exemption.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder can be refunded or
credited against the Non-U.S. Holder's U.S. federal income tax liability, if
any, provided that the required information is furnished to the Internal Revenue
Service in a timely manner.

The foregoing discussion of certain U.S. federal income tax considerations
is for general information only and is not tax advice. Accordingly, each
prospective Non-U.S. Holder of Class A common stock should consult that holder's
own tax adviser with respect to the federal, state, local and foreign tax
consequences of the acquisition, ownership and disposition of common stock.

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<PAGE> 81

UNDERWRITERS

Under the terms and subject to the conditions contained in the underwriting
agreement, dated the date of this prospectus, the U.S. underwriters named below,
for which Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Banc of America Securities LLC are acting as U.S.
representatives, and the international underwriters named below for whom Morgan
Stanley & Co. International Limited, Merrill Lynch International, Bear, Stearns
International Limited, Donaldson, Lufkin & Jenrette International and Banc of
America International Limited are acting as international representatives, have
severally agreed to purchase, and we have agreed to sell to them, the respective
number of shares of Class A common stock set forth opposite the names of these
underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- - - ---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
Bear, Stearns & Co. Inc...................................
Donaldson, Lufkin & Jenrette Securities Corporation.......
Banc of America Securities LLC............................
-------
Subtotal.............................................
-------
International Underwriters:
Morgan Stanley & Co. International Limited................
Merrill Lynch International...............................
Bear, Stearns International Limited.......................
Donaldson, Lufkin & Jenrette International................
Banc of America International Limited.....................
-------
Subtotal.............................................
-------
Total.............................................
=======
</TABLE>

The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the underwriters and the representatives, respectively. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of Class A common stock offered hereby are
subject to the approval of certain legal matters by their counsel and to other
conditions. The underwriters are obligated to take and pay for all of the shares
of Class A common stock offered hereby, except those shares covered by the U.S.
underwriters' over-allotment option described below, if any shares are taken.

In the agreement between the U.S. and international underwriters, each U.S.
underwriter has represented and agreed that, with certain exceptions:

-- it is not purchasing any shares for the account of anyone other than
a U.S. or Canadian person

-- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the
shares outside the United States or Canada or to anyone other than a
U.S. or Canadian person

78
<PAGE> 82

In the agreement between the U.S. and international underwriters, each
international underwriter has represented and agreed that, with certain
exceptions:

-- it is not purchasing any shares for the account of any U.S. or
Canadian person

-- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the
shares in the United States or Canada or to any U.S. or Canadian
person

For any underwriter that is both a U.S. underwriter and an international
underwriter, these representations and agreements made by it in its capacity as
a U.S. underwriter apply only to it in its capacity as a U.S. underwriter and
made by it in its capacity as an international underwriter apply only to it in
its capacity as an international underwriter. The limitations described above do
not apply to stabilization transactions or to other transactions specified in
the agreement between U.S. and international underwriters. As used in this
prospectus, U.S. or Canadian person means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof, other than a branch located outside the United
States and Canada or any U.S. or Canadian person. U.S. or Canadian person
includes any U.S. or Canadian branch of a person that is otherwise not a U.S. or
Canadian person. All shares of common stock to be purchased by the underwriters
under the underwriting agreement are referred to as shares.

In the agreement between the U.S. and international underwriters, sales of
shares may be made between the U.S. underwriters and international underwriters.
The price of any shares so sold will be the public offering price set forth on
the cover page of this prospectus, in U.S. dollars, less an amount not greater
than $ a share.

In the agreement between the U.S. and international underwriters, each U.S.
underwriter has represented that it has not offered or sold, and has agreed not
to offer or sell, any shares in any province or territory of Canada or to, or
for the benefit of, any resident of any province or territory of Canada in
contravention of the securities laws of Canada. Each U.S. underwriter has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which the offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing the shares, the
dealer agrees that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which the offer or sale is made. Each dealer
will deliver to any other dealer to whom it sells any of the shares a notice
containing substantially the same Canadian selling restrictions.

In the agreement between the U.S. and international underwriters, each
international underwriter has represented and agreed that:

-- it has not offered or sold and, prior to the date six months after
the closing date for the sale of the shares to the international
underwriters, will not offer or sell, any shares to persons in the
United Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments for
the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in
the United Kingdom within the meaning of the public offers of
Securities Regulations 1995

-- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986

-- it has and will distribute any document relating to the shares in the
United Kingdom only to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such
document may otherwise lawfully be distributed

In the agreement between the U.S. and international underwriters, each
international underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell in Japan or to or for the account of
any resident of Japan, any of the shares. This limitation does not apply to
Japanese international underwriters or dealers and offers or sales pursuant to
any exemption form the registration requirements of the

79
<PAGE> 83

Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law. Each international underwriter has further agreed to
send to any dealer who purchases form it any of the shares a notice stating
that, by purchasing the shares, the dealer agrees that any offer or sale of the
shares in Japan will be made only to Japanese international underwriters or
dealers or under an exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law. Each dealer will send to any other dealer to whom it
sells any of the shares a notice containing substantially the same Japanese
selling restrictions.

The underwriters initially propose to offer a portion of the shares of
Class A common stock directly to the public at the public offering price set
forth on the cover page of this prospectus and a portion to certain dealers at a
price that represents a concession not in excess of $ per share under the
public offering price. Any underwriter may allow, and these dealers may reallow,
a concession not in excess of $ per share to other underwriters or to
certain other dealers. After the initial offering of the shares of Class A
common stock, the offering price and other selling terms may from time to time
be varied by the representatives.

We have granted to the U.S. underwriters an option, exercisable for 30 days
from the date of this prospectus to purchase up to an aggregate of
additional shares at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
U.S. underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares
offered pursuant to this prospectus. To the extent this option is exercised,
each U.S. underwriter will become obligated, subject to specified conditions, to
purchase about the same percentage of additional shares as the number set forth
next to the U.S. underwriter's name in the preceding table bears to the total
number of shares set forth next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public for this offering would be $ , the total
underwriters' discounts and commissions would be $ .

The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of Class A
common stock offered by them.

At our request, the underwriters have reserved up to shares
of Class A common stock offered hereby for sale at the initial public offering
price to certain of our employees and to certain other persons. The number of
shares available for sale to the general public will be reduced to the extent
that these persons purchase these reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares of our Class A common stock offered hereby.

We expect the Class A common stock to be approved for listing on the New
York Stock Exchange under the symbol " ." The underwriters intend to sell
shares to a minimum of beneficial owners in lots of
or more so as to meet the distribution requirements of this
listing.

Each of MSLO and our directors, executive officers and current stockholders
has agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, it will not, during the period
ending 180 days after the date of this prospectus:

-- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock

-- enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of
common stock, whether any of these transactions described above is to
be settled by delivery of common stock or any other securities, in
cash or otherwise or

80
<PAGE> 84

-- file a registration statement (in the case of MSLO) other than a
registration statement on Form S-8 covering shares of common stock
subject to outstanding options or options to be issued under our
stock option plans

The restrictions described in the preceding list do not apply to certain
circumstances, including:

-- the sale of the shares of Class A common stock to the underwriters

-- the issuance by us of restricted stock awards under our existing
employee benefit plans or of shares of common stock upon the exercise
of an option or a warrant or the conversion of a security outstanding
on the date of this prospectus

-- the completion of MSLO's call of Time Publishing Ventures' equity
interest pursuant to the LLC operating agreement

-- the exchange of shares of Class B common stock for shares of Class A
common stock pursuant to our certificate of incorporation

-- the grant of options to officers, directors, employees or
consultants, provided that these options are not generally
exercisable prior to the end of the lock-up period or

-- the sale or other transfer of any shares of common stock by certain
of the foregoing persons to any associate (as this term is defined in
Rule 12b-2 under the Securities Exchange Act of 1934) if this person
agrees to be bound by the foregoing provisions

In addition, our stockholders have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters,
neither they nor any of their affiliates will, during the period ending 180 days
after the date of this prospectus, make any demand for, or exercise any right
with respect to, the registration of any shares of common stock or any security
convertible into or exercisable or exchangeable for common stock.

In order to facilitate our offering of Class A common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A common stock. Specifically, the underwriters may
over-allot in connection with the offering, creating a short position in Class A
common stock for their own account. In addition, to cover over-allotments or to
stabilize the price of the Class A common stock, the underwriters may bid for,
and purchase, shares of Class A common stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing Class A common stock in the offering, if the
syndicate repurchases previously distributed Class A common stock in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of Class A common stock above independent market levels. The underwriters are
not required to engage in these activities, and may end any of these activities
at any time.

Certain of the underwriters engage in transactions with, and perform
services for, our company in the ordinary course of business and have engaged
and may in the future engage in commercial banking and investment banking
transactions with us, for which they receive customary compensation. In
addition, Bank of America, the parent of Banc of America Securities LLC, one of
the underwriters, is a lender under our credit facility.

We have agreed with the underwriters to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.

PRICING OF THIS OFFERING

Prior to this offering, there has been no public market for the Class A
common stock. We will determine the initial public offering price by
negotiations between the U.S. representatives and us. Among the numerous factors
we and the U.S. representatives will consider in determining the initial public
offering price are our future prospects and our industry in general, our sales,
earnings and certain other financial and operating

81
<PAGE> 85

information in recent periods, and the price-earnings ratios, price-sales
ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to ours.

LEGAL MATTERS

Certain legal matters will be passed upon for us by Wachtell, Lipton, Rosen
& Katz, New York, New York and for the underwriters by Davis Polk & Wardwell,
New York, New York. Each of these firms has in the past represented and
continues to represent certain of the underwriters and MSLO on a regular basis
and in a variety of matters other than this offering.

EXPERTS

The audited financial statements and schedule of Martha Stewart Living
Omnimedia LLC included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

Ernst & Young LLP, independent auditors, have audited the combined
financial statements of Martha Stewart Living (a wholly owned operation of Time
Inc.) at December 31, 1996 and for the year then ended, as set forth in their
report. We have included the combined financial statements of Martha Stewart
Living in this prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given their authority as experts in
accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the Class
A common stock offered in this prospectus. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to that registration statement. For further information with respect
to us and the Class A common stock, we refer you to this registration statement
and its exhibits and schedules. Statements contained in this prospectus as to
the contents of any contract or other document are not necessarily complete and,
in each instance, reference is made to the copy of that contract or document
filed as an exhibit to the registration statement, each of these statements
being qualified in all respects by that reference. The registration statement,
including exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the SEC's Regional Offices located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of these materials
may be obtained from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC also maintains
a world wide web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants such as us
which file electronically with the SEC. The registration statement, including
all exhibits thereto and amendments thereof, is available on that website.

Upon completion of this offering, we will be subject to the informational
requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file reports, proxy and information statements with the SEC. You
may inspect and copy these reports, proxy and information statements and other
information at the addresses set forth above.

We intend to furnish to our stockholders our annual reports containing
consolidated financial statements audited by our independent auditors and
quarterly reports containing unaudited consolidated financial statements for
each of the first three quarters of each fiscal year.

82
<PAGE> 86

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MARTHA STEWART LIVING OMNIMEDIA LLC
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998 and March 31, 1999 (unaudited).................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999 (unaudited)....... F-4
Consolidated Statements of Members' Equity for the years
ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999 (unaudited)....... F-6
Notes to Consolidated Financial Statements................ F-7
MARTHA STEWART LIVING
Report of Independent Public Auditors....................... F-15
Combined Balance Sheet as of December 31, 1996............ F-16
Combined Statement of Operations and Accumulated Deficit
for the year ended December 31, 1996................... F-17
Combined Statement of Cash Flows for the year ended
December 31, 1996...................................... F-18
Notes to Combined Financial Statements.................... F-19
</TABLE>

F-1
<PAGE> 87

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of
Martha Stewart Living Omnimedia LLC:

We have audited the accompanying consolidated balance sheets of Martha
Stewart Living Omnimedia LLC (a Delaware limited liability company) and
subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of operations, members' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martha Stewart Living
Omnimedia LLC and subsidiary as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

New York, New York
February 15, 1999

F-2
<PAGE> 88

MARTHA STEWART LIVING OMNIMEDIA LLC

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998 AND MARCH 31, 1999 (UNAUDITED)
(000'S OMITTED)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 9,971 $ 24,578 $ 17,363
Accounts receivable, net................................ 17,947 25,260 29,738
Inventories............................................. 3,427 6,522 8,088
Deferred television production costs.................... 3,805 3,038 2,216
Other current assets.................................... 606 275 1,003
-------- -------- --------
Total current assets............................ 35,756 59,673 58,408
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, net........................ 13,852 11,468 11,380
-------- -------- --------
INTANGIBLE ASSETS, net.................................... 55,183 53,108 52,370
-------- -------- --------
OTHER NONCURRENT ASSETS................................... 915 1,123 1,309
-------- -------- --------
Total assets.................................... $105,706 $125,372 $123,467
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................ $ 16,650 $ 21,242 $ 24,471
Accrued payroll and related costs....................... 2,056 4,056 3,773
Accrued interest payable................................ 2,581 1,581 --
Current maturities of long term debt.................... -- -- 3,000
Current portion of deferred subscription income......... 23,444 26,756 28,138
-------- -------- --------
Total current liabilities....................... 44,731 53,635 59,382
-------- -------- --------
DEFERRED ROYALTY INCOME................................... 13,203 1,782 2,878
-------- -------- --------
DEFERRED SUBSCRIPTION INCOME.............................. 4,137 4,722 4,965
-------- -------- --------
LONG TERM DEBT, less current maturities................... 30,000 27,650 12,000
-------- -------- --------
OTHER NONCURRENT LIABILITIES.............................. 400 768 808
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY........................................... 13,235 36,815 43,434
-------- -------- --------
Total liabilities and members' equity........... $105,706 $125,372 $123,467
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 89

MARTHA STEWART LIVING OMNIMEDIA LLC

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
(000'S OMITTED)

<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1996 1997 1998 1998 1999
------ -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Publishing............................ $3,899 $108,694 $127,020 $32,509 $35,536
Television............................ -- 12,396 23,351 5,387 6,609
Merchandising......................... -- 6,919 15,004 3,056 5,679
Internet/Direct Commerce.............. -- 4,812 14,673 1,348 5,555
------ -------- -------- ------- -------
Total revenues................ 3,899 132,821 180,048 42,300 53,379
------ -------- -------- ------- -------
Operating costs and expenses
Production, distribution and
editorial.......................... -- 59,148 82,930 18,052 26,312
Selling and promotion................. -- 31,973 34,540 8,774 9,856
General and administrative............ 99 21,182 29,659 7,396 8,449
Depreciation and amortization......... -- 3,927 5,534 1,126 1,342
------ -------- -------- ------- -------
Total operating costs and
expenses.................... 99 116,230 152,663 35,348 45,959
------ -------- -------- ------- -------
Income from operations.................. 3,800 16,591 27,385 6,952 7,420
------ -------- -------- ------- -------
Other expenses
Interest expense, net................. 165 2,195 2,243 607 457
Income tax provision.................. -- 467 1,336 328 344
------ -------- -------- ------- -------
Total other expenses.......... 165 2,662 3,579 935 801
------ -------- -------- ------- -------
Net income.............................. $3,635 $ 13,929 $ 23,806 $ 6,017 $ 6,619
====== ======== ======== ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 90

MARTHA STEWART LIVING OMNIMEDIA LLC

CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(000'S OMITTED)

<TABLE>
<S> <C>
BALANCE, January 1, 1996.................................... $ (436)
Net income................................................ 3,635
Capital distributions, net................................ (2,610)
--------
BALANCE, December 31, 1996.................................. 589
Net income................................................ 13,929
Issuance of equity interest............................... 20,508
Capital distributions..................................... (21,791)
--------
BALANCE, December 31, 1997.................................. 13,235
Net income................................................ 23,806
Capital distributions..................................... (226)
--------
BALANCE, December 31, 1998.................................. 36,815
Net income................................................ 6,619
--------
BALANCE, March 31, 1999 (unaudited)......................... $ 43,434
========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 91

MARTHA STEWART LIVING OMNIMEDIA LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
(000'S OMITTED)

<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income............................. $3,635 $13,929 $23,806 $ 6,017 $ 6,619
------ ------- ------- ------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization....... -- 3,927 5,534 1,455 1,342
Changes in operating assets and
liabilities, net of assets
acquired--
Accounts receivable, net.......... (1,192) 341 (7,314) (2,725) (4,478)
Inventories....................... -- (1,077) (3,561) (196) (2,216)
Other current assets.............. -- 4,983 333 679 (728)
Deferred television production
costs.......................... -- -- 767 1,082 822
Other noncurrent assets........... (18) (838) (209) (129) (184)
Accounts payable and accrued
liabilities.................... 164 12,075 4,942 (3,683) 2,014
Deferred royalty income........... 99 12,454 (11,420) (2,808) 1,096
Deferred subscription income...... -- (1,621) 4,278 3,600 1,625
Other noncurrent liabilities...... -- 400 368 -- 40
------ ------- ------- ------- --------
(947) 30,644 (6,282) (2,725) (667)
------ ------- ------- ------- --------
Net cash provided by operating
activities................... 2,688 44,573 17,524 3,292 5,952
------ ------- ------- ------- --------
Cash flows from investing activities
Purchase of business--
Working capital, other than cash....... -- (19,645) -- -- --
Property, plant and equipment,
net............................... -- (3,847) -- -- --
Cost in excess of tangible assets of
acquired company.................. -- (58,087) -- -- --
Note payable to Seller.............. -- 30,000 -- -- --
Issuance of equity interest......... -- 20,508 -- -- --
Other noncurrent liabilities........ -- 29,202 -- -- --
Capital expenditures................... -- (11,027) (2,730) (1,572) (517)
Proceeds from sale leaseback
transaction......................... -- -- 2,389 -- --
------ ------- ------- ------- --------
Net cash used in investing
activities................... -- (12,896) (341) (1,572) (517)
------ ------- ------- ------- --------
Cash flows from financing activities
Principal repayment of long term
debt................................ -- -- (2,350) -- (27,650)
Long term debt borrowings.............. -- -- -- -- 15,000
Distributions to members............... (2,610) (21,791) (226) -- --
------ ------- ------- ------- --------
Net cash used in financing
activities................... (2,610) (21,791) (2,576) -- (12,650)
------ ------- ------- ------- --------
Net increase (decrease) in
cash......................... 78 9,886 14,607 1,720 (7,215)
Cash and cash equivalents, beginning of
period................................. 7 85 9,971 9,971 24,578
------ ------- ------- ------- --------
Cash and cash equivalents, end of
period................................. $ 85 $ 9,971 $24,578 $11,691 $ 17,363
====== ======= ======= ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 92

MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE DATA)

1. THE COMPANY

Martha Stewart Living Omnimedia LLC (the "Company") is a leading creator of
original "how to" content and related products for homemakers and other
consumers. The Company's business segments are Publishing, Television,
Merchandising and Internet/Direct Commerce. Magazine operations accounted for
98% of the revenues of the Publishing segment, which also includes book
publishing, newspaper syndication and radio advertising revenue. The Television
segment includes a television program that airs in syndication in the United
States and on cable in Canada as well as weekly segments on the CBS This Morning
program. The Merchandising segment consists of royalty revenues generated by the
sale of Martha Stewart branded products. The Internet/Direct Commerce segment
comprises the sale of Martha by Mail products through the Company's website and
print catalog as well as advertising revenues derived from advertisements on the
website.

The Company was formed in 1996, through the combination of various
interests controlled by Martha Stewart. This transaction has been accounted for
as a combination of companies under common control and accordingly, the
financial statements for prior periods have been retroactively restated.

In 1997, the Company entered into an agreement with Time Publishing
Ventures, Inc. ("Time Publishing Ventures") and purchased Martha Stewart Living
magazine as well as the rights to any Martha Stewart publications (and any
publishing, marketing, or distributing functions that may result), television
programs related to Martha Stewart and Martha by Mail and related liabilities
for approximately $53,276, including related acquisition costs (the "MSL
acquisition"). Time Publishing Ventures received an equity interest in MSLO and
was owed a promissory note for $30,000. This transaction, which was consummated
on February 3, 1997, has been accounted for as a purchase as of January 1, 1997,
the effective date on which the assets and liabilities were transferred.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company's
wholly-owned subsidiary. All significant intercompany transactions have been
eliminated.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and in bank, as well as all
short term securities held for the primary purpose of general liquidity. Such
securities mature within three months from the date of acquisition.

REVENUE RECOGNITION

Advertising revenues are recorded upon release of magazines for sale to
consumers and are stated net of agency commissions and cash and sales discounts.
Allowances for estimated bad debts are provided based upon historical
experience.

A proportionate share of magazine subscription revenue is recognized as
magazines are delivered to subscribers.

Newsstand revenues are recognized based on the on-sale dates of magazines
and are recorded based upon estimates of sales. Estimated returns are recorded
based upon historical experience.

Television advertising revenues are recognized when the related commercial
is aired and is recorded net of estimated reserves for television audience under
delivery.

F-7
<PAGE> 93
MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

Royalties and television appearance fees are recorded as earned in
accordance with specific terms of each agreement.

TELEVISION PRODUCTION COSTS

Television production costs are capitalized and amortized based on revenue
earned as a percentage of total revenue sold for the applicable television
product. If a total net loss is projected for a particular product, television
production costs are written down to net realizable value.

INTANGIBLE ASSETS

Intangible assets, representing the excess of purchase price over net
assets acquired, include the value assigned to subscriber lists, trade names and
goodwill, and are being amortized over twenty years. Management reassesses
quarterly the appropriateness of both the carrying value and remaining life of
intangible assets, principally based on forecasts of future undiscounted cash
flows.

INVENTORIES

Inventories consisting of paper and catalog products are stated at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.

ADVERTISING COSTS

Advertising costs, consisting primarily of direct-response advertising, are
expensed in the year incurred.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over the lease term
or, if shorter, the estimated useful lives of the related assets. The useful
lives are as follows:

<TABLE>
<S> <C>
Studios and studio equipment................... 3-10 years
Furniture, fixtures and equipment.............. 3-5 years
Leasehold improvements......................... Life of lease
</TABLE>

DEFERRED SUBSCRIPTION INCOME

Deferred subscription income results from advance payments for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Management
does not expect such differences to have a material effect on the Company's
consolidated financial statements.

INTERIM FINANCIAL STATEMENTS

The interim consolidated financial statements of the Company are unaudited
but in the opinion of management reflect all adjustments consisting of normal
recurring accruals, necessary for a fair presentation of the results for the
interim period.

F-8
<PAGE> 94
MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

3. ACCOUNTS RECEIVABLE

The components of accounts receivable are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Advertising.............................................. $15,975 $23,123
Newsstand................................................ 715 1,698
Licensing................................................ 157 2,585
Other.................................................... 3,657 3,859
------- -------
20,504 31,265
Less: reserve for credits and uncollectible accounts..... 2,557 6,005
------- -------
$17,947 $25,260
======= =======
</TABLE>

4. INVENTORIES

The components of inventories are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ ------
<S> <C> <C>
Paper.................................................... $3,061 $4,621
Catalog products......................................... 366 1,901
------ ------
$3,427 $6,522
====== ======
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Studios and equipment.................................... $ 6,383 $ 6,971
Furniture, fixtures and equipment........................ 5,276 4,691
Leasehold improvements................................... 3,212 3,362
------- -------
14,871 15,024
Less: accumulated depreciation and amortization.......... 1,019 3,556
------- -------
$13,852 $11,468
======= =======
</TABLE>

Depreciation expense was $0, $1,019, and $2,537 for the years ended
December 31, 1996, 1997 and 1998, respectively.

6. EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS

Martha Stewart Inc., a wholly-owned subsidiary, sponsored a defined benefit
pension plan which was frozen in 1995. As of December 31, 1997 and 1998, the
accumulated benefit obligation was $723 and $781, respectively, and the fair
value of the plan assets was $1,369 and $1,887, respectively. The actuarial
valuation

F-9
<PAGE> 95
MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

utilized a 7.5% discount rate for 1997 and 1998. A prepaid pension asset of $54
and $179 is included in other noncurrent assets as of December 31, 1997 and
1998, respectively.

The Company established a 401(k) retirement plan effective July 1, 1997,
available to substantially all employees who have completed one year of service.
An employee can contribute any percentage of compensation to the plan, up to a
maximum of 15% or the maximum allowable contribution by the IRS ($9.5 and $10 in
1997 and 1998, respectively), whichever is less. In 1997, the Company matched
100% of the first 6% of compensation contributed, and, subsequent to 1997, the
Company matched 50% of the first 6% of compensation contributed. Employees vest
in employer matching contributions over a period of four years of service. The
employer matching contributions totaled approximately $207 and $259 for the
years ended December 31, 1997 and 1998, respectively.

The Company does not sponsor any postretirement and/or postemployment
benefits.

EQUITY COMPENSATION PLANS

Effective November 12, 1997, the Company established two equity-based
compensation plans, the Martha Stewart Living Omnimedia LLC Nonqualified Class A
LLC Unit/Stock Option Plan (the "1997 Option Plan") and the Phantom Performance
Unit Plan (the "Phantom Plan"). The Company accounts for these plans pursuant to
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," under which no compensation cost has been recognized for options
to acquire LLC units granted to employees. The 1997 Option Plan provides for the
grant of options to acquire LLC units (or following an initial public offering
("IPO"), shares of common stock) to officers, directors and key employees of,
and consultants to, the Company. Pursuant to the 1997 Option Plan, the Company
granted options to purchase 539,564 units (approximately 5% of the LLC's equity)
(477,811 to employees and 61,753 to outside consultants), with an exercise price
of $2.35 per unit. At December 31, 1997 and 1998, none of the options were
exercisable. At December 31, 1998, 509,841 options were outstanding.

For options granted to outside consultants, the Company, as prescribed by
APB Opinion No. 25, has recognized expense of $37 for the year ended December
31, 1997. No expense is required to be recognized in any subsequent year.

Had compensation cost for the options granted to employees been determined
consistent with Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation," the effect on the Company's net
income would have been immaterial in 1997 and 1998 ($6 and $53, respectively).

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants in 1997: risk-free interest rate of 5.78%, expected lives of 5 years,
expected dividend rate of zero, discount rate of 15% and expected volatility of
zero. The weighted average fair value of options granted in 1997 was $0.58 per
option.

The Phantom Plan provides for the grant of performance units to all
employees of the Company with at least one year of service, other than officers.
On January 1, 1998, the Company granted 10,000 performance units to certain
officers and employees who qualified under the terms of the Phantom Plan. These
performance units vest at the earlier of the completion of an IPO or December
31, 2002. The value of a plan participant's units will be determined based on
achieving predetermined growth targets in Earnings Before Interest, Taxes and
Amortization (EBITA) at the earlier of the IPO or December 31, 2002. If an IPO
occurs, the number of shares of Company stock a participant receives is
determined by the number of units received upon award, multiplied by the value
of each unit at the date of the IPO, divided by the fair market value of a share
of the Company's common stock on the date of the IPO. Alternatively, if an IPO
does not occur within the five-year term of this plan, units will be settled in
cash as of December 31, 2002. The Company has recognized compensation expense of
$125 for the year ended December 31, 1998 in connection with the Phantom Plan.
F-10
<PAGE> 96
MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

7. INCOME TAXES

Except with respect to the income of Martha Stewart, Inc., no provision has
been made in the accompanying consolidated financial statements for federal
income taxes since, pursuant to provisions of the Internal Revenue Code, the
results of operations are reportable by the members on their individual tax
returns. However, the Company is subject to certain foreign, state and city
income taxes.

The provision for income taxes consists of the following for the years
ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Current state and foreign income taxes...................... $ 75 $1,069
Deferred federal income taxes............................... (65) --
Deferred state income taxes................................. 457 267
---- ------
$467 $1,336
==== ======
</TABLE>

8. RELATED PARTY TRANSACTIONS

During 1997, the Company entered into a services agreement with Time Inc.
("Time"), an affiliate of Time Publishing Ventures, whereby Time provides
certain administrative, purchasing, editing and sales services to the Company,
including the purchase of paper. The cost of these services amounted to
approximately $16,340 and $26,595 in 1997 and 1998, respectively, including
$15,265 and $26,010 of paper purchases.

The Company also entered into an agreement with Time Customer Services,
Inc. ("TCS"), an affiliate of Time Publishing Ventures, whereby TCS provides
fulfillment services for Martha by Mail products and the Company's magazine. The
fees for these services amounted to approximately $9,960 and $11,264 in 1997 and
1998, respectively.

The Company also entered into an agreement with Time Distribution Services
Inc. ("TDS"), an affiliate of Time Publishing Ventures, whereby TDS provides
newsstand distribution services for the Company's magazine. The fees for these
services amounted to approximately $1,262 and $1,384 in 1997 and 1998,
respectively.

The aggregate amounts due to Time, TDS and TCS, included in accounts
payable and accrued liabilities, were $4,340 and $5,431 as of December 31, 1997
and 1998, respectively.

Oxmoor House Inc. ("Oxmoor House"), a subsidiary of Southern Progress
Corporation, which is a wholly owned subsidiary of Time Publishing Ventures,
currently publishes all of the Martha Stewart Living series of books. Prior to
February 3, 1997, Martha Stewart received royalty payments directly from Oxmoor
House based on a percentage of cash receipts. As of February 3, 1997, the
Company entered into a contract directly with Oxmoor House whereby the Company
and Oxmoor House split net profits, as defined in the contract. Income
recognized under these agreements was approximately $958, $2,567 and $1,995, in
1996, 1997 and 1998, respectively.

9. NOTE PAYABLE AND LINE OF CREDIT

The Company had a note payable (since repaid -- see Note 13) aggregating
$27,650 to Time Publishing Ventures at December 31, 1998. The note was due on
February 3, 2001 and bore interest at the current prime rate (7.75% at December
31, 1998, 8.5% at December 31, 1997) plus 1%. Interest was payable semiannually
on the last business day of each June and December beginning June 1998. Interest
for the period from February 3, 1997 through February 2, 1998, however, accrued
unpaid and compounded on a semiannual basis

F-11
<PAGE> 97
MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

until August 3, 1998 when one half of the accrued amount was payable and
February 3, 1999 when the remaining balance was due in full. The note was
secured by certain of the Company's insurance policies, and all accounts
receivable, equipment and inventory. As of December 31, 1997 and 1998, accrued
interest on this note was approximately $2,581 and $1,581, respectively. The
terms of the note required maintenance of certain nonfinancial covenants.

The Company has an agreement with Bank of America, N.A., formerly known as
NationsBank, N.A., for a line of credit in the amount of $10,000 with an
interest rate equal to the prime rate per annum. The agreement also requires the
Company to pay a commitment fee equal to one-half of 1% per annum of the unused
available borrowings. This agreement also contains certain financial and
nonfinancial covenants, including the maintenance of a minimum debt service
coverage ratio and a quick ratio, and a limitation on capital expenditures and
investments. The Company was in compliance with all such covenants as of
December 31, 1998. As of December 31, 1997 and 1998, the Company did not have
any amounts outstanding under this agreement.

10. COMMITMENTS AND CONTINGENCIES

The Company leases office facilities and equipment for terms extending
through 2010 under operating lease agreements. Total rent expense charged to
operations for all such leases was approximately $0, $3,000 and $4,100 for the
years ended December 31, 1996, 1997 and 1998, respectively.

Future minimum lease payments under these noncancellable operating leases
at December 31, 1998 are as follows:

<TABLE>
<S> <C>
1999............................................. $ 4,252
2000............................................. 3,453
2001............................................. 2,973
2002............................................. 2,479
2003............................................. 1,778
Thereafter....................................... 10,411
-------
$25,346
=======
</TABLE>

Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The consolidated financial statements reflect rent expense on a
straight-line basis over the terms of the leases. An obligation, of $400 and
$743, representing accrued pro rata future payments, is included in the
accompanying consolidated balance sheets as of December 31, 1997 and 1998,
respectively.

The Company has an outstanding letter of credit for $473 as security for
certain leases.

In 1998, the Company entered into an agreement for the sale and leaseback
of certain television studio equipment. The book value of the equipment
aggregating $2,389 has been removed from the consolidated balance sheet. No gain
or loss was realized on the sale transaction, as the assets were sold at net
book value. Rentals on this equipment will be $513 annually.

In the ordinary course of business, the Company is involved in various
legal proceedings. The Company believes that the ultimate resolution of these
claims to the extent not covered by insurance will not, individually or in the
aggregate, have a material adverse effect on the Company.

F-12
<PAGE> 98
MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

11. OTHER INFORMATION

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and long term debt. The
carrying amount of these accounts approximates fair value.

Accumulated amortization of intangible assets was $2,904 and $5,901 at
December 31, 1997 and 1998, respectively. Amortization expense was $0, $2,904
and $2,997 for the years ended December 31, 1996, 1997 and 1998, respectively.

Advertising expense for the years ended December 31, 1996, 1997 and 1998
was $0, $10,440 and $11,654, respectively.

Interest paid was $0, $0, $3,962, $0 and $2,197 for the years ended
December 31, 1996, 1997 and 1998, and the three months ended March 31, 1998 and
1999, respectively.

Income taxes paid were $0, $458, $502, $148 and $354 for the years ended
December 31, 1996, 1997 and 1998, and the three months ended March 31, 1998 and
1999, respectively.

12. INDUSTRY SEGMENTS

Segment information for the years ended December 31, 1998, 1997 and 1996
was as follows:

<TABLE>
<CAPTION>
INTERNET/DIRECT CORPORATE
PUBLISHING TELEVISION MERCHANDISING COMMERCE CHARGES CONSOLIDATED
---------- ---------- ------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998
Revenues................... $127,020 $23,351 $15,004 $14,673 $180,048
Income (loss) from
operations............... 42,669 3,924 15,305 (4,998) (29,515) 27,385
Depreciation and
amortization............. -- 1,234 -- -- 4,300 5,534
Total assets............... 43,903 16,021 2,309 8,223 54,916 125,372
Capital expenditures....... -- 2,313 -- -- 417 2,730

1997
Revenues................... 108,694 12,396 6,919 4,812 -- 132,821
Income (loss) from
operations............... 33,090 320 6,619 (1,223) (22,215) 16,591
Depreciation and
amortization............. -- 430 -- -- 3,497 3,927
Total assets............... 35,290 8,413 1,175 3,849 56,979 105,706
Capital expenditures....... -- 8,530 -- -- 2,497 11,027

1996
Revenues................... 3,899 -- -- -- -- 3,899
Income from operations..... 3,800 -- -- -- -- 3,800
Total assets............... 4,074 -- -- -- -- 4,074
</TABLE>

13. SUBSEQUENT EVENTS (UNAUDITED)

In March 1999, the Company entered into an agreement with Bank of America,
N.A., formerly known as NationsBank, N.A., for a loan in the amount of $15,000.
The loan bears interest at 2% above the London Interbank Offered Rate (LIBOR)
and principal of $750 plus interest is payable quarterly through March 2004. The
agreement contains certain financial and nonfinancial covenants, including the
maintenance of minimum debt service ratio, a quick ratio, and a limitation on
capital expenditures and investments. The

F-13
<PAGE> 99
MARTHA STEWART LIVING OMNIMEDIA LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)

covenants in the existing line of credit agreement were amended to conform to
the terms of the loan agreement. The proceeds from the loan were used, along
with existing cash balances, to pay in full, the note payable to Time Publishing
Ventures aggregating $27,650 plus accrued interest.

On July 27, 1999, Kleiner Perkins, a venture capital firm, acquired 5% of
the Company and was issued a warrant to acquire 15% of any publicly traded class
of stock issued by the Company that is intended to reflect the performance of
the Company's Internet business (as defined in the warrant) in exchange for
$25,000 in cash. The warrant may also become exercisable in the case of a
business combination relating to the Company's Internet business. The warrant,
which has an exercise price of $21,000, expires July 27, 2002, and may expire
earlier in certain circumstances. $14,250 of the proceeds from this transaction
were used to repay the loan from Bank of America, N.A. noted above.

F-14
<PAGE> 100

REPORT OF INDEPENDENT AUDITORS

The Board of Directors of Time Inc.

We have audited the accompanying combined balance sheet of Martha Stewart
Living (a wholly owned operation of Time Inc.) as of December 31, 1996 and the
related combined statements of operations and accumulated deficit and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Martha Stewart
Living as of December 31, 1996 and the combined results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

New York, New York
August 1, 1997

F-15
<PAGE> 101

MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

COMBINED BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net.................................. $ 13,532
Paper inventory........................................... 2,350
Television production costs, net.......................... 4,335
Prepaid commission expense................................ 2,999
Other current assets...................................... 1,348
--------
Total current assets.............................. 24,564
Fixed assets, net........................................... 3,847
Noncurrent television production costs, net................. 522
Other assets................................................ 306
--------
Total assets...................................... $ 29,239
========
LIABILITIES AND ACCUMULATED DEFICIT
Current liabilities:
Accounts payable and accrued expenses..................... $ 4,339
Payable to Parent, net.................................... 6,013
Accrued compensation and benefits......................... 1,206
--------
Total current liabilities......................... 11,558
Unearned subscription revenues, net......................... 29,972
Due to affiliated party, net................................ 78
Other liabilities........................................... 1,143
--------
Total liabilities................................. 42,751
Accumulated deficit......................................... (13,512)
--------
Total liabilities and accumulated deficit......... $ 29,239
========
</TABLE>

See accompanying notes to combined financial statements.
F-16
<PAGE> 102

MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
Net revenues:
Circulation............................................... $ 34,130
Advertising............................................... 33,858
Television................................................ 8,420
Royalties................................................. 1,308
Direct mail............................................... 3,292
--------
81,008
--------
Costs and expenses:
Production and distribution............................... 20,696
Editorial................................................. 7,638
Circulation............................................... 18,403
Advertising............................................... 6,081
Television................................................ 8,035
Direct mail............................................... 4,241
General and administrative................................ 8,180
--------
73,274
--------
Operating income............................................ 7,734
Other income, net........................................... 951
--------
Net income.................................................. 8,685
Accumulated deficit at beginning of year.................... (22,197)
--------
Accumulated deficit at end of year.......................... $(13,512)
========
</TABLE>

See accompanying notes to combined financial statements.
F-17
<PAGE> 103

MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 8,685
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 467
Changes in operating assets and liabilities:
Increase in accounts receivable, net................... (4,344)
Increase in paper inventory............................ (1,161)
Increase in television production costs, net........... (778)
Increase in prepaid commission expense................. (2,869)
Decrease in due from affiliated party, net............. 1,063
Increase in other assets............................... (562)
Decrease in accounts payable and accrued expenses...... (2,195)
Increase in accrued compensation and benefits.......... 431
Increase in unearned subscription revenues, net........ 11,733
Increase in due to affiliated party, net............... 78
Increase in other liabilities.......................... 372
-------
Net cash provided by operating activities................... 10,920

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets.................................... (1,714)
Disposal of fixed assets.................................... 85
-------
Net cash used in investing activities....................... (1,629)

CASH FLOWS FROM FINANCING ACTIVITIES
Payable to Parent, net...................................... (9,291)
-------
Net cash used in financing activities....................... (9,291)
-------
Net change in cash.......................................... --
Cash at beginning of year................................... --
-------
Cash at end of year......................................... $ --
=======
</TABLE>

See accompanying notes to combined financial statements.
F-18
<PAGE> 104

MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

A. BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The combined financial statements of Martha Stewart Living (the "Combined
Operations") include the operations of Martha Stewart Living ("MSL"), various
television production entities as they relate to MSL and Martha by Mail, Inc.
MSL was formed in 1991 and is a division of Time Publishing Ventures, Inc.
("Time Publishing Ventures"). Martha by Mail, Inc., a wholly-owned subsidiary of
Time Publishing Ventures, was formed in 1995. Time Publishing Ventures is a
wholly-owned subsidiary of Time Inc. Ventures ("TIV"), which is a wholly-owned
subsidiary of Time Inc. (the "Parent"). The Parent is a wholly owned subsidiary
of Time Warner, Inc. ("Time Warner"). All significant intercompany balances and
transactions have been eliminated in combination.

The Combined Operations publish two magazines which are sold through
newsstands and subscriptions. They also publish books and produce a weekly
television show and network specials. Martha by Mail, Inc. sells Martha Stewart
products through telemarketing and advertisements in MSL's magazine; its
revenues and expenses are reflected in the combined financial statements as
"Direct mail." The Combined Operations' revenue is generated primarily in the
United States and Canada.

The accompanying combined financial statements have been prepared as if the
Combined Operations had operated as an independent, stand-alone entity for all
periods presented. Such combined financial statements have been prepared using
the historical basis of accounting and include all of the assets, liabilities,
revenues and expenses of the Combined Operations previously included in the
Parent's consolidated financial statements, excluding any interest charges
relating to the use of the Parent's capital. In addition, the financial
statements reflect the cost of paper inventory used by the Combined Operations,
which is included in the Parent's consolidated paper inventory balance.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Magazine revenue is recognized on the issue date of the magazine and
television revenue is recognized as aired.

TELEVISION PRODUCTION COSTS

Television production costs are capitalized and expensed as the television
season's revenue is realized. Each season represents the broadcast year from
mid-September through mid-September. If a total net profit is anticipated, this
profit is recognized ratably over the period of total expected revenue. However,
if a total net loss is projected for a particular season, television production
costs are written down to net realizable value. A portion of the television
production costs incurred is not amortized over the season, but remains in the
prepaid balance and is amortized as future revenues are received in accordance
with FASB Statement No. 53, "Financial Reporting by Producers and Distributors
of Motion Picture Films." Future revenues are a result of sales of the series to
cable TV and foreign television stations.

PAPER INVENTORY

Paper inventory is recorded using the FIFO method and is recorded at lower
of cost or market.

F-19
<PAGE> 105
MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

FIXED ASSETS

Fixed assets are recorded at cost, net of accumulated depreciation and
amortization. Depreciation is computed on the straight-line method based on the
estimated useful lives of the assets, ranging from 3 to 14 years.

UNEARNED SUBSCRIPTION REVENUES

Sales of subscriptions are deferred over the life of the subscription,
generally 12 months, and are included in revenues based upon the issue date of
the magazine. The receivables relating to these subscriptions are netted against
this liability and amounted to $4,326 as of December 31, 1996. Costs incurred in
connection with the procurement of subscriptions are expensed as incurred.

ADVERTISING COSTS

Advertising costs are expensed as incurred.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, in particular with regard to sales returns, that affect the amounts
reported in the combined financial statements and accompanying notes. Actual
results could differ from those estimates.

INCOME TAXES

Income taxes have been calculated on a separate-company basis consistent
with the liability method prescribed by FASB Statement No. 109, "Accounting for
Income Taxes" ("FAS 109"). Under the liability method, deferred income taxes
reflect tax carryforwards and the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial statement
and income tax purposes, as determined under enacted tax laws and rates.

On an historical basis, the operating results of the Combined Operations
have been included in the consolidated U.S. federal, state and local income tax
returns of Time Warner or subsidiaries of Time Warner. Prior to 1996, all net
operating tax losses generated by the Combined Operations were utilized by Time
Warner or subsidiaries of Time Warner. On a stand-alone basis, the carryforward
of such losses would have fully offset the taxable income of the Combined
Operations generated in 1996. During 1996, no income tax benefit for net
operating loss tax carryforwards and deferred tax assets was recorded in the
accompanying financial statements since the Combined Operations would not have
been able to recognize deferred tax assets for these items on a separate-company
basis under FAS 109.

F-20
<PAGE> 106
MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

C. ACCOUNTS RECEIVABLE

The components of accounts receivable as of December 31, 1996 are as
follows:

<TABLE>
<S> <C>
Advertising........................................... $ 6,623
Newsstand............................................. 4,184
Television............................................ 3,785
Other................................................. 1,785
-------
16,377
Less allowance for doubtful accounts and returns...... (2,845)
-------
$13,532
=======
</TABLE>

D. FIXED ASSETS

The components of fixed assets as of December 31, 1996 are as follows:

<TABLE>
<S> <C>
Furniture, fixtures and equipment...................... $1,997
Leasehold improvements................................. 2,359
Construction in progress............................... 285
------
4,641
Less accumulated depreciation and amortization......... (794)
------
$3,847
======
</TABLE>

E. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The components of accounts payable and accrued expenses as of December 31,
1996 are as follows:

<TABLE>
<S> <C>
Advertising............................................ $ 337
Production............................................. 1,202
Television............................................. 2,052
Circulation............................................ 748
------
$4,339
======
</TABLE>

F. RELATED PARTY TRANSACTIONS

The amount payable to Parent represents a net amount due to various
entities of the Parent for services provided or expenses paid by the Parent on
behalf of the Combined Operations offset by the net cash generated by the
Combined Operations transferred to the Parent. The average balance due to Parent
was approximately $9,000 during 1996.

Time Warner and several of its subsidiaries provide substantial services to
the Combined Operations, including treasury, tax, financial audit, financial
reporting, legal, payroll, paper purchasing, printing, fulfillment, newsstand
distribution, accounts payable, receivable and credit functions. Time Warner and
its subsidiaries have historically charged the Combined Operations for these
services at amounts which approximate cost. In addition, certain employees of
the Parent work exclusively for the Combined Operations. As a result, the
payroll and related benefits for these employees are rebilled through the
Payable to Parent account.

F-21
<PAGE> 107
MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Management believes that the basis used for allocating these services is
reasonable. However, the terms of these transactions may differ from those that
would result from transactions among unrelated parties.

The Combined Operations have a long-term contract with Martha Stewart to
provide editorial services for the magazine through December 31, 2000, and a
letter agreement to host a television series, unless terminated earlier pursuant
to terms in the contract. Martha Stewart received a signing bonus in 1991 upon
execution of this contract. The Combined Operations pay Martha Stewart a yearly
salary to provide the editorial services, and a fee for each television program
produced, in addition to other expenses outlined in the contract. Martha Stewart
also has profit participation rights and a bonus plan.

G. BOOK ROYALTY AGREEMENT

Oxmoor House, a subsidiary of Southern Progress Corporation, which is a
wholly-owned subsidiary of Time Publishing Ventures, currently publishes all of
the MSL series of books. Previously, the Combined Operations did not record any
of the revenues or expenses for those books sold by Oxmoor House relating to
Martha Stewart. However, Martha Stewart received royalty payments directly from
Oxmoor House based on 5% of cash receipts. In conjunction with the sale of the
Combined Operations as described in Note I, the Combined Operations has entered
into a contract directly with Oxmoor House whereby the Combined Operations and
Oxmoor House will split net profits, as defined in the contact, and the Combined
Operations will then be responsible for remitting royalties to Martha Stewart.
These financial statements reflect net royalty revenues as if this arrangement
had been in place beginning January 1, 1994, which include royalties earned by
Martha Stewart in the amount of $951 in 1996.

H. LEASES

Time Publishing Ventures leases office facilities on behalf of the Combined
Operations for periods up to 15 years under operating lease agreements. These
leases are subject to price escalations for certain costs. Total rent expense
for all such leases was $1,225 for the year ended December 31, 1996. The rent
expense is charged to the Combined Operations through the Payable to Parent
account. Under the sale agreement as described in Note I, these leases have been
assigned to the Combined Operations.

Future minimum lease payments under these noncancellable operating leases
at December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997..................................................... $ 1,291
1998..................................................... 1,334
1999..................................................... 1,366
2000..................................................... 1,406
2001..................................................... 1,262
Thereafter............................................... 9,214
-------
$15,873
=======
</TABLE>

I. SUBSEQUENT EVENTS

On February 3, 1997, Martha Stewart Living Omnimedia LLC ("MSLO"),
controlled by Martha Stewart, purchased from Time Publishing Ventures
substantially all of the assets and assumed substantially all of the liabilities
of the Combined Operations. As part of this transaction, Martha Stewart entered
into new agreements with MSLO which superseded the principal agreements that
were in place with Time Publishing Ventures.

F-22
<PAGE> 108

[MSLO LOGO]
<PAGE> 109

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered, all of which will be paid by the Registrant:

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee........................................ $ 27,800
NASD filing fee............................................. 10,500
New York Stock Exchange listing fee......................... *
Printing expenses........................................... 150,000
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. 2,500
Transfer agent and registrar fees and expenses.............. 25,000
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>

- - - ------------
* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware
provides as follows:

A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect to any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of

II-1
<PAGE> 110

all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

As permitted by the DGCL, the Registrant has included in the MSLO
certificate of incorporation a provision to eliminate the personal liability of
its directors for monetary damages for breach of their fiduciary duties as
directors, subject to certain exceptions. In addition, the MSLO certificate of
incorporation and by-laws provide that the Registrant is required to indemnify
its officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and the
Registrant is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified.

The Underwriting Agreement is expected to provide that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement to be filed as Exhibit 1.1 hereto.

The Registrant maintains directors and officers liability insurance for the
benefit of its directors and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following is a summary of the transactions by the Registrant during the
past three years involving sales of the Registrant's securities that were not
registered under the Securities Act of 1933:

Immediately prior to the offering contemplated hereby, the Registrant will
issue an aggregate of shares of the Registrant's Class A common
stock, par value $.01 per share, and shares of the Registrant's
Class B common stock, par value $.01 per share, in exchange for all of the
outstanding membership interests of Martha Stewart Living Omnimedia LLC, a
Delaware limited liability company ("MSLO LLC"), pursuant to a merger of MSLO
LLC with and into the Registrant. There were no underwriters, brokers or finders
employed in connection with these transactions. The sales of the above
securities were deemed to be exempt from registration under the Securities Act
of 1933 in reliance on Section 4(2) of the Securities Act of 1933, as
transactions by an issuer not involving a public offering. The merger agreement
is filed as an exhibit to this Registration Statement.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

II-2
<PAGE> 111

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- - - ------- -------------
<C> <C> <S>
5.1 -- Form of Opinion of Wachtell, Lipton, Rosen & Katz.*
10.1 -- Form of Stockholders' Agreement.*
10.2 -- 1999 Stock Incentive Plan.*
10.3 -- 1999 Non-Employee Director Stock and Option Compensation
Plan.*
10.4 -- Martha Stewart Living Omnimedia LLC Phantom Performance Unit
Plan.
10.5 -- Martha Stewart Living Omnimedia LLC Nonqualified Class A LLC
Unit/Stock Option Plan.
10.6 -- Employment Agreement, by and between Registrant and Martha
Stewart.*
10.7 -- Intellectual Property License and Preservation Agreement, by
and between Registrant and Martha Stewart.*
10.8 -- Location Rental Agreement, by and between Registrant and
Martha Stewart.*
10.9 -- Lease, dated as of September 24, 1992, between Tishman
Speyer Silverstein Partnership and Time Publishing Ventures,
Inc., as amended by First Amendment of Lease dated as of
September 24, 1994 between 11 West 42 Limited Partnership
and Time Publishing Ventures, Inc.*
10.10 -- Lease, dated as of March 31, 1998, between 11 West 42
Limited Partnership and Martha Stewart Living Omnimedia
LLC.*
10.11 -- Occupancy Agreement, dated September 28, 1998, between
MediaAmerica, Inc. and Martha Stewart Living Omnimedia LLC.*
10.12 -- Lease, dated as of March 6, 1996, as amended, between
Newtown Group Properties Limited Partnership and Time
Publishing Ventures, Inc.*
10.13 -- Lease, dated as of August 1, 1996, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
10.14 -- Lease, dated as of August 14, 1997, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
11.1 -- Computation of Per Share Earnings.*
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
24.1 -- Powers of Attorney.
27.1 -- Financial Data Schedule.
</TABLE>

- - - ------------
* To be provided by amendment.

(B) FINANCIAL STATEMENT SCHEDULES

INDEX TO SCHEDULES

MARTHA STEWART LIVING OMNIMEDIA LLC
FINANCIAL STATEMENT SCHEDULE
FOR THE THREE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ S-1
Report of Independent Public Accountants.................... S-2
</TABLE>

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

II-3
<PAGE> 112

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.

(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

(3) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.

(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.

II-4
<PAGE> 113

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 29th day of July 1999.

MARTHA STEWART LIVING OMNIMEDIA, INC.

By: /s/ MARTHA STEWART
---------------------------------------
Name: Martha Stewart
Title: Chairman of the Board and Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

* Chairman of the Board and Chief Executive Officer
- - - --------------------------------------------------- (Principal Executive Officer)
Martha Stewart

* President, Chief Operating Officer and Director
- - - ---------------------------------------------------
Sharon Patrick

* Senior Vice President, Finance and Controller
- - - --------------------------------------------------- (Principal Financial and Accounting Officer)
James Follo

* Director
- - - ---------------------------------------------------
Charlotte Beers

* Director
- - - ---------------------------------------------------
L. John Doerr

*By: /s/ GREGORY R. BLATT
---------------------------------------------
Gregory R. Blatt
(Attorney-in-Fact)

July 29, 1999
</TABLE>

II-5
<PAGE> 114

MARTHA STEWART LIVING OMNIMEDIA LLC

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(000'S OMITTED)

<TABLE>
<CAPTION>
ADDITIONS
BALANCE, CHARGED TO BALANCE,
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
----------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Years ended December 31-
1998............................................. $1,123 $ 293 $ 214 $1,202
1997............................................. 500(a) 787 164 1,123
1996............................................. -- -- -- --
Reserve for audience under delivery:
Years ended December 31-
1998............................................. $1,434 $5,724 $2,355 $4,803
1997............................................. 605(a) 1,525 696 1,434
1996............................................. -- -- -- --
</TABLE>

- - - ---------------
(a) balance at acquisition.

S-1
<PAGE> 115

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of
Martha Stewart Living Omnimedia LLC:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Martha Stewart Living Omnimedia LLC and
subsidiary included in this registration statement and have issued our report
thereon dated February 15, 1999. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in the index above is the responsibility of the company's management and
is presented for purposes of complying with the Securities and Exchange
Commission rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

New York, New York
February 15, 1999

S-2
<PAGE> 116

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- - - ------- -------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.*
2.1 -- Agreement and Plan of Merger.*
2.2 -- LLC Membership Interest Purchase Agreement, dated as of July
27, 1999, by and among Martha Stewart Living Omnimedia LLC,
KPCB Holdings, Inc., as nominee, and KPCB IX Associates,
LLC.*
3.1 -- Registrant's Certificate of Incorporation.
3.2 -- Registrant's By-Laws.
4.1 -- Form of Specimen Certificate for Registrant's Common Stock.*
4.2 -- Loan Agreement (line of credit) between NationsBank, N.A.
and Martha Stewart Living Omnimedia LLC, dated as of
February 3, 1997.
4.3 -- Amendment No. 1, dated as of June 30, 1998, to the Loan
Agreement, dated as of February 3, 1997, between Martha
Stewart Living Omnimedia LLC and NationsBank, N.A.
4.4 -- Amendment No. 2, dated as of March 30, 1999, to the Loan
Agreement, dated as of February 3, 1997, between Martha
Stewart Living Omnimedia LLC and NationsBank, N.A.
4.5 -- Warrant for a Percentage of the Internet Business of Martha
Stewart Living Omnimedia LLC, dated July 27, 1999, issued to
KPCB Holdings, Inc.*
5.1 -- Form of Opinion of Wachtell, Lipton, Rosen & Katz.*
10.1 -- Form of Stockholders' Agreement.*
10.2 -- 1999 Stock Incentive Plan.*
10.3 -- 1999 Non-Employee Director Stock and Option Compensation
Plan.*
10.4 -- Martha Stewart Living Omnimedia LLC Phantom Performance Unit
Plan.
10.5 -- Martha Stewart Living Omnimedia LLC Nonqualified Class A LLC
Unit/Stock Option Plan.
10.6 -- Employment Agreement, by and between Registrant and Martha
Stewart.*
10.7 -- Intellectual Property License and Preservation Agreement, by
and between Registrant and Martha Stewart.*
10.8 -- Location Rental Agreement, by and between Registrant and
Martha Stewart.*
10.9 -- Lease, dated as of September 24, 1992, between Tishman
Speyer Silverstein Partnership and Time Publishing Ventures,
Inc., as amended by First Amendment of Lease dated as of
September 24, 1994 between 11 West 42 Limited Partnership
and Time Publishing Ventures, Inc.*
10.10 -- Lease, dated as of March 31, 1998, between 11 West 42
Limited Partnership and Martha Stewart Living Omnimedia
LLC.*
10.11 -- Occupancy Agreement, dated September 28, 1998, between
MediaAmerica, Inc. and Martha Stewart Living Omnimedia LLC.*
10.12 -- Lease, dated as of March 6, 1996, as amended, between
Newtown Group Properties Limited Partnership and Time
Publishing Ventures, Inc.*
10.13 -- Lease, dated as of August 1, 1996, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
10.14 -- Lease, dated as of August 14, 1997, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
11.1 -- Computation of Per Share Earnings.*
23.1 -- Consent of Arthur Andersen LLP.
</TABLE>
<PAGE> 117

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- - - ------- -------------
<C> <C> <S>
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
24.1 -- Powers of Attorney.
27.1 -- Financial Data Schedule.
</TABLE>

- - - ------------
* To be provided by amendment.

<PAGE> 1
EXHIBIT 3.1

CERTIFICATE OF INCORPORATION

MARTHA STEWART LIVING OMNIMEDIA, INC.

I, the undersigned, for the purpose of incorporating and
organizing a corporation under the General Corporation Law of the State of
Delaware, do hereby execute this Certificate of Incorporation and do hereby
certify as follows:

ARTICLE I

The name of the Corporation is Martha Stewart Living Omnimedia, Inc.
(the "Corporation")

ARTICLE II

The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.

ARTICLE IV

The Corporation shall have the authority to issue 350,000,000
shares of $.01 par value Class A Common Stock (the "Class A Common Stock"),
150,000,000 shares of $.01 par value Class B Common Stock (the "Class B Common
Stock," and together with the Class A Common Stock, the "Common Stock"), and
150,000,000 shares of $.01 par value Preferred Stock (the "Preferred Stock").
The number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the voting
power of the stock of the corporation entitled to vote, irrespective of Del.
Code Ann. tit. 8, Section 242(b)(2).

A statement of the designations of each class and the powers,
preferences and rights, and qualifications, limitations or restrictions thereof
is as follows:

A. Class A Common Stock

(1) Dividends. The holders of the Class A Common Stock shall
be entitled to receive, share for share with the holders of shares of Class B
Common Stock, such dividends if, as and when declared from time to time by the
Board of Directors. In the event that such dividend is paid in the form of
shares of Common Stock, holders of Class A Common Stock
<PAGE> 2
shall receive Class A Common Stock and holders of Class B Common Stock shall
receive Class B Common Stock.

(2) Liquidation. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of the
Corporation, the holders of the Class A Common Stock shall be entitled to
receive, share for share with the holders of shares of Class B Common Stock, all
the assets of the Corporation of whatever kind available for distribution to
stockholders, after the rights of the holders of the Preferred Stock have been
satisfied.

(3) Voting. Each holder of Class A Common Stock shall be
entitled to one vote for each share of Class A Common Stock held as of the
applicable date on any matter that is submitted to a vote or for the consent of
the stockholders of the Corporation. Except as otherwise provided herein or by
the General Corporation Law of the State of Delaware, the holders of Class A
Common Stock and the holders of Class B Common Stock shall at all times vote on
all matters (including the election of directors) together as one class.

B. Class B Common Stock

(1) Dividends. The holders of the Class B Common Stock shall
be entitled to receive, share for share with the holders of shares of Class A
Common Stock, such dividends if, as and when declared from time to time by the
Board of Directors. In the event that such dividend is paid in the form of
shares of Common Stock, holders of Class A Common Stock shall receive Class A
Common Stock and holders of Class B Common Stock shall receive Class B Common
Stock.

(2) Liquidation. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of the
Corporation, the holders of the Class B Common Stock shall be entitled to
receive, share for share with the holders of shares of Class A Common Stock, all
the assets of the Corporation of whatever kind available for distribution to
stockholders, after the rights of the holders of the Preferred Stock have been
satisfied.

(3) Voting. Each holder of Class B Common Stock shall be
entitled to ten votes for each share of Class B Common Stock held as of the
applicable date on any matter that is submitted to a vote or for the consent of
the stockholders of the Corporation. Except as otherwise provided herein or by
the General Corporation Law of the State of Delaware, the holders of Class A
Common Stock and the holders of Class B Common Stock shall at all times vote on
all matters (including the election of directors) together as one class.

(4) Conversion.

(a) Each share of Class B Common Stock shall be
convertible into one fully paid and nonassessable share of Class A Common Stock
at the option of the holder thereof at any time.

(b) Each share of Class B Common Stock shall
automatically be converted into one fully paid and nonassessable share of Class
A Common Stock upon any sale, pledge, conveyance, hypothecation, assignment or
other transfer (a "Transfer") of such share,

-2-
<PAGE> 3
whether or not for value, by the initial registered holder (the "Initial
Holder") thereof, other than any such Transfer by such holder to (i) a nominee
of such holder (without any change in beneficial ownership, as such term is
defined under Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) or (ii) another person that, at the time of such Transfer,
beneficially owns shares of Class B Common Stock or a nominee thereof; provided
that, notwithstanding the foregoing, (A) any Transfer by the Initial Holder
without consideration to (1) any controlled affiliate of such Initial Holder
which remains such, (2) a partner, active or retired, of such Initial Holder,
(3) the estate of any such Initial Holder or a trust established for the benefit
of the descendants or any relatives or spouse of such Initial Holder, (4) a
parent corporation or wholly-owned subsidiary of such Initial Holder or to a
wholly-owned subsidiary of such parent unless and until such transferee ceases
to be a parent or wholly-owned subsidiary of the Initial Holder or a
wholly-owned subsidiary of such parent, or (5) the spouse of such Initial
Holder, in each case, shall not result in such conversion or (B) any bona fide
pledge by the Initial Holder to any financial institution in connection with a
borrowing shall not result in such conversion; and provided, further, that in
the event any Transfer shall not give rise to automatic conversion hereunder,
then any subsequent Transfer by the holder (other than any such Transfer by such
holder to a nominee of such holder (without any change in beneficial ownership))
or the pledgor, as the case may be, shall be subject to automatic conversion
upon the terms and conditions set forth herein. For purposes of this provision,
the Initial Holder of shares of Class B Common Stock owned of record by The
Martha Stewart Family Limited Partnership or similar entity controlled by Martha
Stewart shall be deemed to be such entity as well as Martha Stewart.

(c) The one-to-one conversion ratio for the
conversion of the Class B Common Stock into Class A Common Stock in accordance
with Section 4(a) and 4(b) of this Article IV shall in all events be equitably
adjusted in the event of any recapitalization of the Corporation by means of a
stock dividend on, or a stock split or combination of, outstanding Class A
Common Stock or Class B Common Stock, or in the event of any merger,
consolidation or other reorganization of the Corporation with another
corporation.

(d) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Class A Common
Stock, solely for the purpose of effecting the conversion of the shares of Class
B Common Stock, such number of its shares of Class A Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
Class B Common Stock.

(e) If any shares of Class B Common Stock shall be
converted pursuant to this Section 4, the shares so converted shall be retired
and returned to the authorized but unissued shares of Class B Common Stock.

C. Other Matters Affecting Shareholders of Class A Common Stock and
Class B Common Stock

In no event shall any stock dividends or stock splits or
combinations of stock be declared or made on Class A Common Stock or Class B
Common Stock unless the shares of Class A Common Stock and Class B Common Stock
at the time outstanding are treated equally and identically, except that such
dividends or stock splits or combinations shall be made in

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respect of shares of Class A Common Stock and Class B Common Stock in the form
of shares of Class A Common Stock or Class B Common Stock, respectively.

D. Preferred Stock

The Board of Directors shall, by resolution, fix the powers,
designations, preferences, rights and qualifications, limitations and
restrictions of any class or series of the Preferred Stock which shall not have
been fixed by the Certificate of Incorporation.

ARTICLE V

The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation, but the
stockholders may make additional By-Laws and may alter or repeal any By-Law
whether adopted by them or otherwise.

ARTICLE VI

Elections of directors need not be by written ballot except
and to the extent provided in the By-Laws of the Corporation.

ARTICLE VII

The Corporation is to have perpetual existence.

ARTICLE VIII

Each person who is or was or had agreed to become a director
or officer of the Corporation, or each such person who is or was serving or who
had agreed to serve at the request of the Board of Directors or an officer of
the Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the Corporation, in accordance
with the By-Laws of the Corporation, to the full extent permitted from time to
time by the General Corporation Law of the State of Delaware as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) or any other applicable laws as presently or hereinafter in
effect. Without limiting the generality or the effect of the foregoing, the
Corporation may enter into one or more agreements with any person that provide
for indemnification greater or different than that provided in this Article
VIII. Any amendment or repeal of this Article VIII shall not adversely affect
any right or protection existing hereunder immediately prior to such amendment
or repeal.

ARTICLE IX

A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders,

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<PAGE> 5
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
the director derived an improper personal benefit. Any amendment or repeal of
this Article IX shall not adversely affect any right or protection of a director
of the Corporation existing immediately prior to such amendment or repeal. The
liability of a director shall be further eliminated or limited to the full
extent permitted by Delaware law, as it may hereafter be amended.

ARTICLE X

Meetings of stockholders may be held within or without the
State of Delaware, as determined by the Board of Directors. The books of the
Corporation may be kept (subject to any provision contained in the Delaware
General Corporation Law) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
By-Laws of the Corporation.

ARTICLE XI

The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by the Delaware General Corporation Law, and
all rights conferred upon stockholders herein are granted subject to this
reservation except that under no circumstances may such amendment be adopted
except as prescribed by Article IV, above, and provided further that the rights
of the Class B Common Stock may not be amended, altered, changed or repealed
without the approval of the holders of the requisite number of said shares of
Class B Common Stock.

ARTICLE XII

The number of directors of the Corporation shall be such
number as shall be determined from time to time by resolution of the Board of
Directors. A director may be removed, at any time, either with or without cause,
by the affirmative vote of holders of a majority of the voting power of shares
of stock then entitled to vote with respect to the election of such director.

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<PAGE> 6
The name and address of the incorporator is Gregory R. Blatt,
Senior Vice President and General Counsel, Martha Stewart Living Omnimedia LLC,
20 West 43rd Street, New York, New York 10036.

IN WITNESS WHEREOF, I, the undersigned, being the incorporator
hereinbefore named, do hereby further certify that the facts hereinabove stated
are truly set forth and, accordingly, I have hereunto set my hand this 26th day
of July, 1999.

/s/ Gregory R. Blatt
---------------------
Gregory R. Blatt
Incorporator

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<PAGE> 1

EXHIBIT 3.2

BY-LAWS

MARTHA STEWART LIVING OMNIMEDIA, INC.

Incorporated under the Laws of the State of Delaware

(As in effect as of July 26, 1999)

======================================================

ARTICLE I

OFFICES AND RECORDS

SECTION 1.1. Delaware Office. The principal office of the
Corporation in the State of Delaware shall be located in the City of Wilmington,
County of New Castle, and the name and address of its registered agent is The
Corporation Trust Company, The Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware.

SECTION 1.2. Other Offices. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.

SECTION 1.3. Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places as
may from time to time be designated by the Board of Directors.

ARTICLE II

STOCKHOLDERS

SECTION 2.1. Annual Meeting. The annual meeting of the stockholders
of the Corporation shall be held on such date and at such place and time as may
be fixed by resolution of the Board of Directors.

SECTION 2.2. Special Meeting. Subject to the rights, if any, of the
holders of any series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation ("Preferred Stock") with respect
to such series of Preferred Stock, special meetings of the stockholders may be
called only by the Chairman of the Board or by the Board of Directors or a
majority of the total number of directors which the Corporation would have if
there were no vacancies (the "Whole Board").
<PAGE> 2
SECTION 2.3. Place of Meeting. The Board of Directors or the
Chairman of the Board, as the case may be, may designate the place of meeting
for any annual meeting or for any special meeting of the stockholders called by
the Board of Directors or the Chairman of the Board. If no designation is so
made, the place of meeting shall be the principal office of the Corporation.

SECTION 2.4. Notice of Meeting. Written or printed notice, stating
the place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be delivered by the Corporation not less than 10 days
nor more than 60 days before the date of the meeting, either personally or by
mail, to each stockholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail with postage thereon prepaid, addressed to the stockholder at his address
as it appears on the stock transfer books of the Corporation. Such further
notice shall be given as may be required by law. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Meetings may be
held without notice if all stockholders entitled to vote are present, or if
notice is waived by those not present in accordance with Section 6.4 of these
By-Laws. Any previously scheduled meeting of the stockholders may be postponed,
and (unless the Certificate of Incorporation otherwise provides) any special
meeting of the stockholders may be cancelled, by resolution of the Board of
Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.

SECTION 2.5. Quorum and Adjournment. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on separately by a class or
series of stock voting as a class, the holders of a majority of the shares of
such class or series shall constitute a quorum of such class or series for the
transaction of such business. The Chairman of the meeting or a majority of the
shares so represented may adjourn the meeting from time to time, whether or not
there is such a quorum. No notice of the time and place of adjourned meetings
need be given except as required by law. The stockholders present at a duly
called meeting at which a quorum is present may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.

SECTION 2.6. Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing (or in such manner prescribed by the
General Corporation Law of the State of Delaware) by the stockholder, or by his
duly authorized attorney in fact.

SECTION 2.7. Notice of Stockholder Business and Nominations.

(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in

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<PAGE> 3
this By-Law, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this By-Law.

(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.

(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.

(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to

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the Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) provided that the Board
of Directors has determined that directors shall be elected at such meeting, by
any stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this By-Law, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this
By-Law. In the event the Corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the Board of Directors, any
such stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (A)(2) of this By-Law
shall be delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.

(C) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this By-Law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.

(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.

(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.

SECTION 2.8. Procedure for Election of Directors; Required
Vote. Election of directors at all meetings of the stockholders at which
directors are to be elected shall be by ballot, and subject to the rights of the
holders of any series of Preferred Stock to elect directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, or these
By-Laws, in all matters

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<PAGE> 5
other than the election of directors, the affirmative vote of the holders of a
majority of the voting power represented by the shares present in person or
represented by proxy at the meeting and entitled to vote on the matter shall be
the act of the stockholders.

SECTION 2.9. Inspectors of Elections; Opening and Closing the Polls.
The Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging such inspector's duties, shall take and sign an
oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of such inspector's ability. The inspectors shall have the
duties prescribed by law.

The Chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.

SECTION 2.10. Record Date for Action by Written Consent. In order
that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board of Directors
shall promptly, but in all events within 10 days after the date on which such a
request is received, adopt a resolution fixing the record date. If no record
date has been fixed by the Board of Directors within 10 days of the date on
which such a request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by applicable law, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business or to any officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by applicable law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the date on
which the Board of Directors adopts the resolution taking such prior action.

SECTION 2.11. Inspectors of Written Consent. In the event of the
delivery, in the manner provided by Section 2.10, to the Corporation of the
requisite written consent or consents to take corporate action and/or any
related revocation or revocations, the Corporation

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shall engage nationally recognized independent inspectors of elections for the
purpose of promptly performing a ministerial review of the validity of the
consents and revocations. For the purpose of permitting the inspectors to
perform such review, no action by written consent without a meeting shall be
effective until such date as the independent inspectors certify to the
Corporation that the consents delivered to the Corporation in accordance with
Section 2.10 represent at least the minimum number of votes that would be
necessary to take the corporate action. Nothing contained in this paragraph
shall in any way be construed to suggest or imply that the Board of Directors or
any stockholder shall not be entitled to contest the validity of any consent or
revocation thereof, whether before or after such certification by the
independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).

SECTION 2.12. Effectiveness of Written Consent. Every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate action
referred to therein unless, within 60 days of the earliest dated written consent
received in accordance with Section 2.10, a written consent or consents signed
by a sufficient number of holders to take such action are delivered to the
Corporation in the manner prescribed in Section 2.10.

ARTICLE III

BOARD OF DIRECTORS

SECTION 3.1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. In
addition to the powers and authorities by these By-Laws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-Laws required to be exercised or done by the
stockholders.

SECTION 3.2. Number and Tenure. Subject to the rights of the holders
of any series of Preferred Stock to elect directors under specified
circumstances, the business and affairs of the Corporation shall be managed by
the Board of Directors, the number thereof to be determined from time to time by
resolution of the Board of Directors. Each director shall serve for a term of
one year from the date of his election and until his successor is elected.
Directors need not be stockholders.

SECTION 3.3. Chairman of the Board. The Chairman of the Board shall
be chosen from among the Directors. The Chairman of the Board shall preside at
all meetings of the stockholders and of the Board of Directors. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board
shall not be an officer of the Corporation. The Chairman of the Board shall
perform all duties incidental to his office which may be required by law and all
such other duties as are properly required of him by the Board of Directors.

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SECTION 3.4. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately after,
and at the same place as, the Annual Meeting of Stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without other notice than such resolution.

SECTION 3.5. Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board or a
majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.

SECTION 3.6. Notice. Notice of any special meeting of directors
shall be given to each director at the director's business or residence in
writing by hand delivery, first-class or overnight mail or courier service,
telegram or facsimile transmission, or orally by telephone. If mailed by
first-class mail, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid,
at least five days before such meeting. If by telegram, overnight mail or
courier service, such notice shall be deemed adequately delivered when the
telegram is delivered to the telegraph company or the notice is delivered to the
overnight mail or courier service company at least 24 hours before such meeting.
If by facsimile transmission, such notice shall be deemed adequately delivered
when the notice is transmitted at least 12 hours before such meeting. If by
telephone or by hand delivery, the notice shall be given at least 12 hours prior
to the time set for the meeting. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice of such meeting, except for amendments to these By-Laws,
as provided under Section 8.1. A meeting may be held at any time without notice
if all the directors are present or if those not present waive notice of the
meeting in accordance with Section 6.4 of these By-Laws.

SECTION 3.7. Action by Consent of Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.

SECTION 3.8. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.

SECTION 3.9. Quorum. Subject to Section 3.9, a whole number of
directors equal to at least a majority of the Whole Board shall constitute a
quorum for the transaction of business, but if at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of the directors
present may adjourn the meeting from time to time without further notice. The
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. The directors present at a
duly organized

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meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.

SECTION 3.10. Vacancies. Subject to applicable law and the rights of
the holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.

SECTION 3.11. Executive and Other Committees. The Board of Directors
may, by resolution adopted by a majority of the Whole Board, designate an
Executive Committee to exercise, subject to and to the full extent of applicable
provisions of law, all the powers of the Board in the management of the business
and affairs of the Corporation when the Board is not in session and may, by
resolution similarly adopted, designate one or more other committees. The
Executive Committee may not, however (i) approve or adopt, or recommend to the
stockholders of the Corporation, any action or matter expressly required by the
General Corporation Law of the State of Delaware to be submitted to stockholders
for approval, or (ii) adopt, amend or repeal any By-Law of the Corporation. The
Executive Committee and each such other committee shall consist of two or more
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, other than the
Executive Committee (the powers of which are expressly provided for herein), may
to the extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in the designating resolution. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board when required.

A majority of any committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide. Notice
of such meetings shall be given to each member of the committee in the manner
provided for in Section 3.6 of these By-Laws. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.

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SECTION 3.12. Removal. Subject to the rights of the holders of any
series of Preferred Stock with respect to such series of Preferred Stock, any
director, or the entire Board of Directors, may be removed from office at any
time, either with or without cause, by the affirmative vote of holders of a
majority of the voting power of shares of Voting Stock

SECTION 3.13. Records. The Board of Directors shall cause to be kept
a record containing the minutes of the proceedings of the meetings of the Board
and of the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Corporation.

ARTICLE IV

OFFICERS

SECTION 4.1. Elected Officers. The elected officers of the
Corporation shall be a Chief Executive Officer, a President, a Secretary, a
Treasurer, and such other officers (including, without limitation, a Chief
Financial Officer) as the Board of Directors from time to time may deem proper.
All officers elected by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have such powers and
duties as from time to time may be conferred by the Board of Directors or by any
committee thereof. The Board or any committee thereof may from time to time
elect, or the Chief Executive Officer may appoint, such other officers
(including one or more Assistant Vice Presidents, Assistant Secretaries,
Assistant Treasurers, and Assistant Controllers) and such agents, as may be
necessary or desirable for the conduct of the business of the Corporation. Such
other officers and agents shall have such duties and shall hold their offices
for such terms as shall be provided in these By-Laws or as may be prescribed by
the Board or such committee or by the Chief Executive Officer, as the case may
be.

SECTION 4.2. Election and Term of Office. The elected officers of
the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer shall
hold office until his successor shall have been duly elected and shall have been
qualified or until his death or until he shall resign, but any officer may be
removed from office at any time by the affirmative vote of a majority of the
Whole Board or, except in the case of an officer or agent elected by the Board,
by the Chief Executive Officer. Such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.

SECTION 4.3. Chief Executive Officer. The Chief Executive Officer
shall be responsible for the general management of the affairs of the
Corporation and shall perform all duties incidental to this office which may be
required by law and all such other duties as are properly required of this
officer by the Board of Directors. The Chief Executive Officer shall make
reports to the Board of Directors and the stockholders, and shall see that all
orders and resolutions of the Board of Directors and of any committee thereof
are carried into effect. The Chief Executive Officer may also serve as
President, if so elected by the Board.

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<PAGE> 10
SECTION 4.4. President. The President shall act in a general
executive capacity and shall assist the Chief Executive Officer in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall, in the absence of
or because of the inability to act of the Chief Executive Officer, perform all
duties of the Chief Executive Officer.

SECTION 4.5. Vice-Presidents. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him by the Board of
Directors or the Chief Executive Officer.

SECTION 4.6. Chief Financial Officer. The Chief Financial Officer
(if any) shall be a Vice President and act in an executive financial capacity.
He shall assist the Chief Executive Officer and the President in the general
supervision of the Corporation's financial policies and affairs.

SECTION 4.7. Treasurer. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Corporation to be deposited in such banks
as may be authorized by the Board of Directors, or in such banks as may be
designated as depositaries in the manner provided by resolution of the Board of
Directors. He shall have such further powers and duties and shall be subject to
such directions as may be granted or imposed upon him from time to time by the
Board of Directors or the Chief Executive Officer.

SECTION 4.8. Secretary. The Secretary shall keep or cause to be kept
in one or more books provided for that purpose, the minutes of all meetings of
the Board, the committees of the Board and the stockholders; he shall see that
all notices are duly given in accordance with the provisions of these By-Laws
and as required by law; he shall be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal; and he
shall see that the books, reports, statements, certificates and other documents
and records required by law to be kept and filed are properly kept and filed;
and in general, he shall perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the Chief Executive Officer.

SECTION 4.9. Removal. Any officer elected, or agent appointed, by
the Board of Directors may be removed by the affirmative vote of a majority of
the Whole Board whenever, in their judgment, the best interests of the
Corporation would be served thereby. Any officer or agent appointed by the Chief
Executive Officer may be removed by such officer whenever, in judgment of such
officer, the best interests of the Corporation would be served thereby. No
elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of his
successor, his death, his resignation or his removal, whichever event shall
first occur, except as otherwise provided in an employment contract or under an
employee deferred compensation plan.

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<PAGE> 11
SECTION 4.10. Vacancies. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by the
Chief Executive Officer because of death, resignation, or removal may be filled
by the Chief Executive Officer.

ARTICLE V

STOCK CERTIFICATES AND TRANSFERS

SECTION 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by his attorney, upon surrender for cancellation of certificates for at least
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require.

The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.

SECTION 5.2. Lost, Stolen or Destroyed Certificates. No certificate
for shares of stock in the Corporation shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on production
of such evidence of such loss, destruction or theft and on delivery to the
Corporation of a bond of indemnity in such amount, upon such terms and secured
by such surety, as the Board of Directors or any financial officer may in its or
his discretion require.

ARTICLE VI

MISCELLANEOUS PROVISIONS

SECTION 6.1. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January and end on the 31st day of December of each
year.

SECTION 6.2. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.

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<PAGE> 12
SECTION 6.3. Seal. The corporate seal shall have enscribed thereon
the words "Corporate Seal", the year of incorporation and around the margin
thereof the words "Martha Stewart Living Omnimedia, Inc. - Delaware."

SECTION 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware or these By-Laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board of
Directors or committee thereof need be specified in any waiver of notice of such
meeting.

SECTION 6.5. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.

SECTION 6.6. Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by giving written notice of such
resignation to the Chief Executive Officer, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chief Executive Officer, the President,
or the Secretary, or at such later time as is specified therein. No formal
action shall be required of the Board of Directors or the stockholders to make
any such resignation effective.

SECTION 6.7. Indemnification and Insurance. (A) Each person who was
or is made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that such
person or a person of whom such person is the legal representative is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans maintained or sponsored by the
Corporation, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of such person's heirs, executors and administrators; provided,
however, that except as provided in paragraph (C) of this By-Law, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by

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<PAGE> 13
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this By-Law shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition, such advances to be paid by the Corporation within 20 days after
the receipt by the Corporation of a statement or statements from the claimant
requesting such advance or advances from time to time; provided, however, that
if the General Corporation Law of the State of Delaware requires, the payment of
such expenses incurred by a director or officer in such person's capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this By-Law or otherwise.

(B) To obtain indemnification under this By-Law, a claimant shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (i) by the Board of Directors by a
majority vote of a quorum consisting of Disinterested Directors (as hereinafter
defined), or (ii) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to the claimant,
or (iii) if a quorum of Disinterested Directors so directs, by the stockholders
of the Corporation. If it is so determined that the claimant is entitled to
indemnification, payment to the claimant shall be made within 10 days after such
determination.

(C) If a claim under paragraph (A) of this By-Law is not paid in
full by the Corporation within 30 days after a written claim pursuant to
paragraph (B) of this By-Law has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because such claimant has met the applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, nor
an actual determination by the Corporation (including its Board of Directors,
Independent Counsel or stockholders) that the

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<PAGE> 14
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.

(D) If a determination shall have been made pursuant to paragraph
(B) of this By-Law that the claimant is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to paragraph (C) of this By-Law.

(E) The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to paragraph (C) of this By-Law that the
procedures and presumptions of this By-Law are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this By-Law.

(F) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this By-Law shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this By-Law shall in any
way diminish or adversely affect the rights of any director, officer, employee
or agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.

(G) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware. To the extent that
the Corporation maintains any policy or policies providing such insurance, each
such director or officer, and each such agent or employee to which rights to
indemnification have been granted as provided in paragraph (H) of this By-Law,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.

(H) The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any employee or agent of the Corporation to
the fullest extent of the provisions of this By-Law with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.

(I) If any provision or provisions of this By-Law shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any paragraph of this By-Law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this By-Law (including, without limitation, each such portion of
any paragraph of this By-Law

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<PAGE> 15
containing any such provision held to be invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.

(J) For purposes of this By-Law:

(1) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the matter in respect of which
indemnification is sought by the claimant.

(2) "Independent Counsel" means a law firm, a member of a law
firm, or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable standards
of professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to determine
the claimant's rights under this By-Law.

(K) Any notice, request or other communication required or permitted
to be given to the Corporation under this By-Law shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.

ARTICLE VII

CONTRACTS, PROXIES, ETC.

SECTION 7.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chief Executive
Officer, the President or any Vice President may execute bonds, contracts,
deeds, leases and other instruments to be made or executed for or on behalf of
the Corporation. Subject to any restrictions imposed by the Board of Directors
or the Chief Executive Officer, the President or any Vice President of the
Corporation may delegate contractual powers to others under his jurisdiction, it
being understood, however, that any such delegation of power shall not relieve
such officer of responsibility with respect to the exercise of such delegated
power.

SECTION 7.2. Proxies. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chief Executive Officer, the President or
any Vice President may from time to time appoint an attorney or attorneys or
agent or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
the holder of stock or other securities in any other corporation, any of whose
stock or other securities may be held by the Corporation, at meetings of the
holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or

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<PAGE> 16
cause to be executed in the name and on behalf of the Corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.

ARTICLE VIII

AMENDMENTS

SECTION 8.1. Amendments. Except as expressly provided otherwise by
the Delaware General Corporation Law, the Certificate of Incorporation of the
Corporation, or other provisions of these By-Laws, these By-Laws may be altered,
amended or repealed and new By-Laws adopted at any regular or special meeting of
the Board of Directors by an affirmative vote of a majority of the Whole Board.

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<PAGE> 1
EXHIBIT 4.2

LOAN AGREEMENT

BETWEEN

NATIONSBANK, N.A.

AND

MARTHA STEWART LIVING OMNIMEDIA LLC

February 3, 1997
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
I. DEFINITIONS AND REFERENCE TERMS.................................... 1

II. LOANS.............................................................. 10
A. Loan......................................................... 10
B. Note......................................................... 10
C. Interest Rate and Repayment.................................. 11
D. Use of Proceeds.............................................. 11
E. Clean-Up Period.............................................. 11
F. Reduction of Commitment...................................... 11
G. Extension of Maturity Date................................... 11
H. Prepayments.................................................. 11
(1) Mandatory Prepayments.................................. 11
(2) Optional Prepayment.................................... 12
I. Commitment Fee............................................... 12
J. Payment...................................................... 12
K. Computations of Interest; Business Day....................... 12
L. Increased Costs, Etc......................................... 13
M. Letters of Credit............................................ 13

III. CONDITIONS TO LOANS................................................ 14
A. Conditions to All Loans...................................... 14
B. Conditions to Initial Loan................................... 15

IV. REPRESENTATIONS AND WARRANTIES..................................... 18
A. Good Standing................................................ 18
B. Authorization................................................ 18
C. No Conflicts................................................. 18
D. Approvals.................................................... 19
E. Binding Agreement............................................ 19
F. Litigation................................................... 19
G. Compliance with Laws......................................... 19
H. Taxes........................................................ 19
I. Accuracy of Information...................................... 19
J. Use of Proceeds.............................................. 19
K. Ownership of Properties...................................... 20
L. ERISA........................................................ 20
M. Environmental................................................ 20
N. Purchase Documents........................................... 20
O. Solvency..................................................... 21
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C>
P. Investment Company Act; Public Utility Holding
Company Act................................................ 21

V. AFFIRMATIVE COVENANTS.............................................. 21
A. Financial Statements and Other Information................... 21
B. Insurance.................................................... 23
C. Existence and Compliance..................................... 24
D. Taxes........................................................ 24
E. Use of Proceeds.............................................. 24
F. Maintenance.................................................. 24
G. Environmental................................................ 24
H. ERISA........................................................ 25
I. Obligations under Loan Documents............................. 25
J. Other Obligations............................................ 25
K. Maintaining Records; Access to Properties and
Inspections; Right to Audit................................ 25
L. Maintenance of Accounts...................................... 26
M. Assignment of Life and Disability Insurance;
Copyright and Trademark Filings............................ 26
N. Further Assurances........................................... 26

VI. NEGATIVE COVENANTS................................................. 26
A. Liens........................................................ 26
B. Debt......................................................... 27
C. Investments.................................................. 27
D. Capital Expenditures......................................... 27
E. Dividends, Distributions and Payments........................ 28
F. Consolidations, Mergers and Sales of Assets.................. 28
G. Sale and Lease-Back Transactions............................. 28
H. Sales of Receivables......................................... 28
I. Quick Ratio.................................................. 28
J. Debt Service Coverage Ratio.................................. 28
K. Character of Business........................................ 29
L. Subsidiaries................................................. 29
M. Accounting Change............................................ 29
N. Transactions with Affiliates................................. 29
O. ERISA........................................................ 29
P. Prepayment or Modification of Indebtedness;
Modification of Agreements................................. 30
Q. Negative Pledges, Etc........................................ 30

VII. REMEDIES UPON DEFAULT.............................................. 31

VIII. NOTICES............................................................ 31

IX. COSTS, EXPENSES AND ATTORNEYS' FEES................................ 32
</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C>
X. MISCELLANEOUS...................................................... 33
A. Cumulative Rights and No Waiver.............................. 33
B. Applicable Law............................................... 33
C. Amendment.................................................... 33
D. Right to Setoff.............................................. 34
E. Documents.................................................... 34
F. Partial Invalidity........................................... 34
G. Survivability................................................ 34
H. Headings..................................................... 34
I. Counterparts................................................. 34

XI. ARBITRATION........................................................ 34
A. SPECIAL RULES................................................ 35
B. RESERVATION OF RIGHTS........................................ 35

XII. NO ORAL AGREEMENT.................................................. 36
</TABLE>

Exhibits

Exhibit A - Borrower Security Agreement
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Guaranty
Exhibit D - Kmart Consent
Exhibit E - Lifetime Consent
Exhibit F - Note
Exhibit G - Partnership Guaranty
Exhibit H - Partnership Security Agreement
Exhibit I - Sherwin-Williams Consent
Exhibit J - Stewart Security Agreement
Exhibit K - Subordination Agreement

iii
<PAGE> 5
NATIONSBANK, N.A.
LOAN AGREEMENT

This Loan Agreement (the "Agreement"), dated as of February 3, 1997, by
and between NationsBank, N.A., a national banking association (the "Bank"), and
the Borrower described below.

In consideration of the Loans described below and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, the Bank
and the Borrower agree as follows:

I. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined
herein, the following terms shall have the meaning set forth with respect
thereto:

A. "AFFILIATE" of any Person means any other Person which, directly
or indirectly, controls or is controlled by or is under common control with such
Person and, without limiting the generality of the foregoing, includes (i) any
Person which beneficially owns or holds 10% or more of any class of voting
securities of such Person or 10% or more of the equity interest in such Person,
(ii) any Person of which such Person beneficially owns or holds 10% or more of
any class of voting securities or in which such Person beneficially owns or
holds 10% or more of the equity interest in such Person and (iii) any director,
officer, member or partner of such Person.

B. "AVAILABILITY" means, at any time, an amount equal to (i) the
lesser of (A) the Commitment and (B) the Borrowing Base, minus (ii) the sum of
(A) the aggregate principal amount of all Loans outstanding at such time and (B)
an amount equal to all reserves which the Bank establishes in accordance with
the provisions of this Agreement.

C. "BANKRUPTCY CODE" means Title 11 of the United States Code, as
amended.

D. "BORROWER SECURITY AGREEMENT" means the Security Agreement dated
as of the Closing Date between the Borrower and the Bank in the form of Exhibit
A hereto, as the same may be amended, modified or supplemented from time to
time.

E. "BORROWER" means Martha Stewart Living Omnimedia LLC, a Delaware
limited liability company.

F. "BORROWER'S ADDRESS" means 20 West 43rd Street, 25th Floor, New
York, New York 10036.
<PAGE> 6
G. "BORROWING BASE" means, at any date of determination, an amount
equal to the product of (i) seventy-five percent (75%) and (ii) the sum of (A)
Eligible Receivables on such date plus (B) the product of (i) fifty percent
(50%) and (ii) the Eligible Subscription Receivables on such date. The amount of
Eligible Receivables and Eligible Subscription Receivables shall be determined
by the Bank by reference to the Borrowing Base Certificate then most recently
delivered to it; provided that the information contained in any such Borrowing
Base Certificate shall not be conclusive in calculating the amount of Eligible
Receivables and Eligible Subscription Receivables on any date and the resulting
Borrowing Base and, after consultation with the Borrower, the Bank shall be
entitled to adjust the amount of Eligible Receivables on such date and the
resulting Borrowing Base by establishing reserves and otherwise adjusting the
amounts and other information contained therein to the extent that the Bank
believes in its reasonable credit judgment that such adjustments are necessary
or appropriate to cause the Borrowing Base (as so adjusted) to reflect the
standards set forth in the definition of the term "Eligible Receivables" in
light of any factor which the Bank reasonably believes could adversely affect
the value of the Eligible Receivables or the enforceability or the priority of
the Bank's Liens therein, materially increase the likelihood of a bankruptcy,
insolvency or other similar proceeding involving Borrower or cause a Default or
an Event of Default.

H. "BORROWING BASE CERTIFICATE" means a certificate, substantially
in the form of Exhibit B hereto.

I. "BUSINESS DAY" means any day, other than a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.

J. "CAPITAL EXPENDITURES" means for any period, the aggregate of all
amounts which, in accordance with GAAP, would be added as a debit to the fixed
asset account of such person, including, without limitation, all amounts paid or
payable with respect to Capital Lease Obligations and interest which is required
to be capitalized in accordance with GAAP.

K. "CAPITAL LEASE OBLIGATION" means any obligation to pay rent or
other amounts under any leasing or similar arrangement which, in accordance with
GAAP, is classified as a capital lease.

L. "CLOSING DATE" means the date on which the initial Loan is made
hereunder after all of the conditions precedent set forth in Section III.B. have
been satisfied or, at the sole discretion of the Bank, waived.

M. "CODE" means the Internal Revenue Code of 1986, as amended, and
the regulations promulgated and the rulings issued thereunder, as in effect from
time to time.

N. "COLLATERAL" means all property and interests therein (real and
personal, tangible and intangible) in which a Lien is now or hereafter granted
to the Bank by any Loan Party as security for the Obligations, including the
property in which a Lien is purported to be

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<PAGE> 7
granted to the Bank pursuant to the Borrower Security Agreement, the Partnership
Security Agreement and the Stewart Security Agreement.

O. "COMMITMENT" means the commitment of the Bank to make Loans
pursuant to Section II.A. in an aggregate principal amount at any time
outstanding not to exceed $10,000,000, as such commitment may be reduced or
terminated in accordance with the provisions of this Agreement.

P. "COMMITMENT FEE" has the meaning assigned to such term in Section
II.I.

Q. "CONTEMPLATED TRANSACTIONS" means the transactions contemplated
by this Agreement and the other Loan Documents.

R. "CURRENT ASSETS" means, at any time, with respect to the Borrower
and the Subsidiaries, (i) the aggregate amount of all assets which would, in
accordance with GAAP, properly be defined as current assets at such time minus
(ii) the aggregate amount of all assets which would, in accordance with GAAP,
properly be defined as inventory.

S. "CURRENT LIABILITIES" means, at any time, with respect to the
Borrower and the Subsidiaries, (i) the aggregate amount of all liabilities which
would, in accordance with GAAP, properly be defined as current liabilities, but
in any event shall include all liabilities except those having a maturity date
at such time which is more than one year from the date as of which such
computation is being made minus (ii) the aggregate amount of all liabilities
which would, in accordance with GAAP, properly be defined as deferred income.

T. "CUSTOMER" means and includes the account debtor or obligor with
respect to any Receivable.

U. "DEBT SERVICE COVERAGE RATIO" means the aggregate of net income
after taxes plus depreciation, amortization and other non-cash expenses, divided
by the aggregate of the current portion of principal and interest on long-term
debt and Capital Lease Obligations.

V. "DEFAULT" means any condition, act or event which, with notice or
lapse of time or both, would constitute an Event of Default.

W. "ELIGIBLE RECEIVABLES" means, at any date, the sum of (A) the
Lifetime Receivables on such date and (B) the amount equal to the aggregate
amount of those Receivables which then conform to the following criteria: (i)
such Receivable is created by the Borrower in the ordinary course of its
business arising from the sale for cash of advertising time or space to a
Customer that is a Person resident in, or whose principal executive office is
located in, the United States, (ii) such Receivable has not remained unpaid
later than ninety (90) days past the original invoice date, (iii) such
Receivable is not due from a Customer whose obligations to the Borrower on
Receivables which were due more than 90 days past the original invoice date
exceeds 50% of such Customer's total obligations for Receivables, (iv) such
Receivable is not evidenced by chattel paper or an instrument or security of any
kind, (v) (a) the Bank holds a perfected, first priority security interest in
such Receivable and (b) such Receivable is not subject to any other Lien
whatsoever (other than a Lien in favor of Time Publishing that is subordinate to
the Lien of

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<PAGE> 8
the Bank therein in accordance with the terms of the Subordination Agreement),
(vi) such Receivable is denominated in United States dollars, (vii) the Customer
or account party with respect to such Receivable is not the subject of any
bankruptcy or insolvency proceeding of any kind and, to the knowledge of the
Borrower, is Solvent or is not unable to pay its obligations in respect of such
Receivable, (viii) such Receivable is net of (a) any returns, discounts, claims,
credits or allowances and (b) any obligations owing under "make-good" contracts
or arrangements, (ix) the Customer or account party with respect to such
Receivable is not an Affiliate of any Loan Party or any Governmental Authority,
(x) such Receivable is not subject to any setoff, net-out contract, offset,
deduction, dispute, credit, counterclaim or other defense arising out of the
transactions represented by the Receivable or independently thereof, (xi) such
Receivable is one upon which the Borrower's right to receive payment is absolute
and is not contingent upon the fulfillment of any condition whatsoever and the
Borrower is able to bring suit or otherwise enforce its remedies against the
Customer or account party through judicial process and (xii) such Receivable is
neither an Eligible Subscription Receivable nor arises from a subscription to
any magazine or other publication.

X. "ELIGIBLE SUBSCRIPTION RECEIVABLES" mean all Receivables of the
Borrower that would otherwise constitute Eligible Receivables but that arise
from a subscription to a magazine or other publication, but shall not include
any such Receivable (or portion thereof) to the extent that the portion of the
Borrowing Base attributable to such Receivables exceeds twenty-five percent
(25%) of the total Borrowing Base on such date.

Y. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder, as in
effect from time to time.

Z. "ERISA AFFILIATE" of any Person means any other Person that for
purposes of Title IV of ERISA is a member of such Person's controlled group, or
under common control with such Person, within the meaning of Section 414 of the
Code.

AA. "EVENT OF DEFAULT" has the meaning assigned to such term in the
Note.

BB. "FISCAL YEAR" means the fiscal year of the Borrower for
accounting purposes, which ends on December 31 of each year.

CC. "GOVERNMENTAL AUTHORITY" means any nation or government, any
federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.

DD. "GUARANTOR" means Martha Stewart, an individual.

EE. "GUARANTY" means the Continuing and Unconditional Guaranty dated
as of the Closing Date executed by the Guarantor for the benefit of the Bank, in
the form of Exhibit C hereto, as the same may be amended, modified or
supplemented from time to time.

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<PAGE> 9
FF. "HAZARDOUS MATERIALS" include all materials defined as hazardous
materials or substances, or which form the basis of liability, under any local,
state or federal environmental laws, rules or regulations, including, without
limitation, petroleum, petroleum products, oil, polychlorinated biphenyls,
radioactive substances and asbestos.

GG. "INDEBTEDNESS" means, with respect to any Person, (i) all
indebtedness or other obligations of such Person for borrowed money or for the
deferred purchase price of property or services, (ii) all obligations of such
Person under direct or indirect guaranties in respect of, and contingent or
other obligations of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness or other obligations
of any other Person for borrowed money or for the deferred purchase price of
property or services, (iii) all indebtedness or other obligations of any other
Person for borrowed money or for the deferred purchase price of property or
services secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any lien, security
interest or other charge or encumbrance upon or in property owned by such
Person, (iv) all obligations of such Person to make reimbursement or payment in
respect of letters of credit and bankers' acceptances, and (v) the net
liabilities of such Person under all interest rate swap, interest rate collar,
interest rate cap, interest rate floor, forward rate agreements, commodity swaps
or other agreements or arrangements designed to protect against fluctuations in
interest rates or currency, commodity or equity values, each calculated in good
faith in the reasonable discretion of the Bank.

HH. "INDEMNIFIED PARTY" has the meaning assigned to such term in
Section IX.B.

II. "INSURANCE ASSIGNMENTS" means (i) the collateral assignment to
the Bank by the Borrower of a keyman life insurance policy issued by an
insurance company satisfactory to the Bank insuring the life of the Guarantor in
a minimum policy amount of $10,000,000 pursuant to an assignment agreement
acceptable in form and substance to the Bank and delivered to the Bank pursuant
to Section V.M. and (ii) the collateral assignment to the Bank by the Borrower
of a disability policy issued by an insurance company satisfactory to the Bank
insuring the Guarantor in a minimum policy amount of $10,000,000 pursuant to an
assignment agreement acceptable in form and substance to the Bank and delivered
to the Bank pursuant to Section V.M.

JJ. "INVESTMENT" in any Person means (i) the acquisition (whether
for cash, property, services, assumption of Indebtedness, securities or
otherwise) of shares of capital stock, bonds, notes, debentures, partnership,
joint venture or other ownership interests or other securities of such Person,
(ii) any deposit with, or advance, loan or other extension of credit to, such
Person (other than deposits made in connection with the purchase of equipment or
other assets in the ordinary course of business) or (iii) any other investment
in such Person, including, without limitation, any guaranty incurred for the
benefit of such Person.

KK. "KMART CONSENT" means the Consent and Agreement, dated as of the
date hereof, among Kmart Corporation, the Borrower and the Bank, substantially
in the form of Exhibit D hereto, as the same may be amended, modified or
supplemented from time to time.

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<PAGE> 10
LL. "LETTERS OF CREDIT" has the meaning specified in Section II.M.

MM. "LIEN" means, with respect to any asset, (i) any mortgage, lien,
pledge, encumbrance, charge or security interest in or on such asset, (ii) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset, (iii) in the
case of securities, any purchase option, call or similar right of a third party
with respect to such securities or (iv) any other right of or arrangement with
any creditor to be entitled to receive any such mortgage, lien, pledge,
encumbrance, charge, or security interest on or to have such creditor's claim
satisfied out of such assets, or the proceeds therefrom, prior to the general
creditors of the owner thereof.

NN. "LIFETIME CONSENT" means the Consent and Agreement, dated as of
the date hereof, among Lifetime Entertainment Services, the Borrower and the
Bank, substantially in the form of Exhibit E hereto, as the same may be amended,
modified or supplemented from time to time.

OO. "LIFETIME RECEIVABLE" means a Receivable that arises from the
agreement, dated as of April 19, 1996, by and between Lifetime Entertainment
Services and assumed by the Borrower and has not remained unpaid later than
ninety (90) days past the original date such payment is required to be made
under such agreement.

PP. "LLC AGREEMENT" means the Second Amended and Restated Limited
Liability Company Agreement of the Borrower, dated as of February 3, 1997, as
the same may be amended, modified or supplemented from time to time.

QQ. "LOAN DOCUMENT" means any of this Agreement, the Note, the
Security Documents, the Guaranty, the Partnership Guaranty, the Kmart Consent,
the Lifetime Consent, the Sherwin-Williams Consent, the Subordination Agreement,
any Letter of Credit Application and all other documents, instruments,
guarantees, certificates and agreements executed and/or delivered by the
Borrower, the Guarantor, the Stewart Partnership or any third party in
connection with any Loan.

RR. "LOAN PARTIES" means, collectively, the Borrower, the Guarantor
and the Stewart Partnership.

SS. "LOANS" mean the loans made by the Bank to the Borrower pursuant
to Section II.A and the issuance by the Bank of Letters of Credit for the
account of the Borrower pursuant to Section II.M. At any time and for all
purposes of this Agreement, each Letter of Credit issued by the Bank shall be
deemed to be a Loan in a principal amount equal to the sum of (i) the undrawn
amount of such Letter of Credit at such time and (ii) the aggregate unpaid
principal amount of all Reimbursement Obligations of the Borrower at such time
in respect of all drawings under such Letter of Credit.

TT. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i)
the business, assets, liabilities, properties, prospects, operations or
financial or other condition of the Borrower, or the other Loan Parties taken as
a whole, (ii) the ability of any Loan Party to perform

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<PAGE> 11
or pay the Obligations in accordance with the terms hereof or of any other Loan
Document or to perform its other obligations thereunder or (iii) the value of
the Collateral or the amount which the Bank could receive in the liquidation of
the Collateral.

UU. "MATURITY DATE" means June 30, 1998 or such later date that is
established pursuant to Section II.F.

VV. "MULTIEMPLOYER PLAN" means a Plan (other than a Welfare Plan)
which is a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA.

WW. "NOTE" means the promissory note of the Borrower, in the form of
Exhibit F hereto, evidencing the Obligations of the Borrower with respect to the
Loans and delivered to the Bank pursuant to Section III.B.(2), as such
promissory note may be modified or extended from time to time, and any
promissory note or notes issued in exchange or replacement thereof.

XX. "NOTICE OF BORROWING" has the meaning assigned to such term in
Section II.A.

YY. "OBLIGATIONS" means (i) the obligations of any Loan Party to
pay, as and when due and payable (by mandatory prepayment, by scheduled maturity
or otherwise), all amounts from time to time owing by it pursuant to any Loan
Document, whether for principal, interest, fees or otherwise and (ii) the
obligations of any Loan Party to perform or observe all of such Loan Party's
other obligations from time to time existing under any Loan Document.

ZZ. "PARTNERSHIP AGREEMENT" means the Agreement of Limited
Partnership of the Stewart Partnership, dated as of December 19, 1996, as the
same may be amended, modified or supplemented from time to time.

AAA. "PARTNERSHIP GUARANTY" means the Continuing and Unconditional
Guaranty dated as of the Closing Date executed by the Stewart Partnership for
the benefit of the Bank, in the form of Exhibit G hereto, as the same may be
amended, modified or supplemented from time to time.

BBB. "PARTNERSHIP SECURITY AGREEMENT" means the Security Agreement
dated as of the Closing Date between the Stewart Partnership and the Bank in the
form of Exhibit H hereto, as the same may be amended, modified or supplemented
from time to time.

CCC. "PBGC" means the Pension Benefit Guaranty Corporation, or any
successor agency or entity performing substantially the same functions.

DDD. "PERMITTED LIENS" has the meaning assigned to such term in
Section VI.A.

EEE. "PERSON" means an individual, limited liability company,
partnership, corporation (including a business trust), joint stock company,
trust, unincorporated association, joint venture or other entity, or
Governmental Authority.

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<PAGE> 12
FFF. "PLAN" means, at any particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or an ERISA
Affiliate is an "employer" as defined in Section 3(5) of ERISA.

GGG. "PURCHASE AGREEMENT" means the Asset Purchase Agreement dated
as of February 3, 1997 between the Borrower and Time Publishing, as the same may
be amended, modified or supplemented from time to time solely as permitted by
the terms of this Agreement.

HHH. "PURCHASE DOCUMENTS" means the Purchase Agreement and all other
documents, instruments, certificates and agreements executed and/or delivered in
connection therewith (other than the Time Publishing Agreements), as the same
may be amended, modified or supplemented from time to time solely as permitted
by the terms of this Agreement.

III. "PURCHASE TRANSACTIONS" means the transactions contemplated by
the Purchase Agreement and the other Purchase Documents.

JJJ. "REIMBURSEMENT OBLIGATION" means the obligation of the Borrower
to reimburse amounts paid by the Bank in respect of any drawings under a Letter
of Credit issued for the account of the Borrower.

KKK. "RECEIVABLES" means and includes all of the Accounts Receivable
(as defined in the Borrower Security Agreement) of the Borrower.

LLL. "REPORTABLE EVENT" means any of the events set forth in Section
4043 of ERISA, other than those events as to which the 30-day notice period is
waived under PBGC regulations.

MMM. "SECURITY DOCUMENTS" means the Borrower Security Agreement, the
Partnership Security Agreement, the Stewart Security Agreement, the Insurance
Assignments and each other agreement now existing or hereafter created providing
collateral security for, or in furtherance of the enforcement of, the payment or
performance of any Obligations.

NNN. "SHERWIN-WILLIAMS CONSENT" means the Consent and Agreement,
dated as of the date hereof, among The Sherwin-Williams Company, the Borrower
and the Bank, substantially in the form of Exhibit I hereto, as the same may be
amended, modified or supplemented from time to time.

OOO. "SOLVENT" means, with respect to any Person as of a particular
date, that on such date (i) such Person is able to pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business, (ii) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature in their ordinary course, (iii) such
Person is not engaged in a business or a transaction, and is not about to engage
in a business or a transaction, for which such Person's assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged or is to engage, (iv)
the fair value of the assets of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of such
Person and (v) the present

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<PAGE> 13
fair salable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount which, in light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.

PPP. "STEWART PARTNERSHIP" means The Martha Stewart Family Limited
Partnership, a Connecticut limited partnership.

QQQ. "STEWART SECURITY AGREEMENT" means the Security Agreement dated
as of the Closing Date between the Guarantor and the Bank in the form of Exhibit
J hereto, as the same may be amended, modified or supplemented from time to
time.

RRR. "SUBORDINATION AGREEMENT" means the Subordination Agreement
dated as of the Closing Date among the Bank, the Borrower and Time Publishing in
the form of Exhibit K hereto, as the same may be amended, modified or
supplemented from time to time.

SSS. "SUBSIDIARY" means, with respect to the Borrower, (i) any
corporation of which securities or other ownership interests representing more
than 50% of the ordinary voting power are, at the time as of which any
determination is being made, owned or controlled, directly or indirectly, by the
Borrower and/or one or more subsidiaries of the Borrower and (ii) any
partnership, association, joint venture or other entity in which the Borrower
has more than a 50% equity interest.

TTT. "TERMINATION DATE" means the earlier of (i) the Maturity Date
and (ii) the date on which the Bank terminates the Commitment following an Event
of Default.

UUU. "TIME PUBLISHING" means Time Publishing Ventures, Inc., a
Delaware corporation.

VVV. "TIME PUBLISHING AGREEMENTS" means, collectively, (i) the Note
dated February 3, 1997 made by the Borrower in favor of Time Publishing in the
principal amount of $30,000,000, (ii) the Security Agreement dated as of
February 3, 1997 between the Borrower and Time Publishing and (iii) all other
documents, instruments, guaranties, certificates and agreements executed and/or
delivered in connection therewith, as each may be amended, modified or
supplemented from time to time solely as permitted by the provisions of this
Agreement.

WWW. "TIME PUBLISHING INDEBTEDNESS" means the Indebtedness of the
Borrower under the Time Publishing Agreements.

XXX. "WELFARE PLAN" means a Plan which is a "welfare plan" as
defined in Section 3(1) of ERISA.

All accounting terms not specifically defined or specified herein shall
have the meanings attributed to such terms under United States generally
accepted accounting principles ("GAAP"),

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<PAGE> 14
as in effect from time to time, consistently applied. All calculations made for
the purposes of determining compliance with this Loan Agreement shall (except as
otherwise expressly provided herein) be made by application of GAAP applied on a
basis consistent with the most recent annual or quarterly financial statements
delivered pursuant to Section V.A. hereof; provided, however, if (a) the
Borrower shall object to determining such compliance on such basis at the time
of delivery of such financial statements due to any change in GAAP or the rules
promulgated with respect thereto or (b) the Bank shall so object in writing
within 30 days after delivery of such financial statements, then such
calculations shall be made on a basis consistent with the most recent financial
statements delivered by the Borrower to the Bank as to which no such objection
shall have been made.

II. LOANS.

A. LOAN. The Bank hereby agrees, on the terms and conditions
hereinafter set forth, to make one or more Loans (including by way of issuing
one or more Letters of Credit) to the Borrower from the Closing Date to the
Termination Date in an aggregate principal amount at any one time outstanding
not to exceed the Commitment. Notwithstanding the foregoing or anything else
contained herein or in any other Loan Document, the Bank shall have no
obligation to make a Loan (including by way of issuing a Letter of Credit) and
no Loan shall be made to the Borrower (including by way of issuing a Letter of
Credit) if, after giving effect thereto, the Availability would be less than
zero. Each Loan shall be in an amount equal to $100,000 or an integral multiple
of $25,000 in excess thereof. Each request for a Loan, other than by way of
issuing a Letter of Credit (a "Notice of Borrowing"), shall be made by
telephonic or written communication by a Person reasonably believed by the Bank
to be an authorized representative of the Borrower at least one (1) Business Day
prior to the proposed date for such requested Loan. The Notice of Borrowing
shall specify the proposed amount of such Loan and the Business Day on which
such Loan shall be made. On the Business Day specified in the Notice of
Borrowing and upon fulfillment of the applicable terms and conditions set forth
in Article III hereof, the Bank will make the proceeds of such Loan available to
the Borrower in same day funds in United States Dollars to the account specified
by the Borrower, not later than 5:00 p.m. (New York City time) on such date.
Each request for a Letter of Credit shall be made in accordance with Section
II.M. Within the limits of the Commitment and subject to the second sentence of
this Section II.A., the Borrower may borrow, repay in whole or in part and
reborrow Loans pursuant to this Section until the Termination Date.
Notwithstanding any other provision of this Agreement, the Commitment shall
expire on, and the Bank shall have no obligation to extend credit to the
Borrower or make any Loan (including by way of issuing a Letter of Credit) on or
after, the Termination Date and no Letter of Credit shall be issued that has an
expiration date that extends beyond the Termination Date.

B. NOTE. All Loans shall be evidenced by the Note. The Bank shall
record advances and principal payments thereof on the grid attached thereto or,
at its option, in its records, and the Banks record thereof shall be conclusive
absent manifest error. Notwithstanding the foregoing, the failure to make or an
error in making a notation with respect to any Loan or any payment shall not
limit or otherwise affect the Obligations of the Borrower with respect to such
Loan or payment.

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<PAGE> 15
C. INTEREST RATE AND REPAYMENT. The Borrower shall repay, and shall
pay interest on, the unpaid principal amount of the Loans in accordance with the
provisions of the Note.

D. USE OF PROCEEDS. The proceeds of the Loans shall be available
(and the Borrower agrees that it shall use such proceeds) to finance seasonal
needs, provide funds for special projects, pay transaction costs for the
Purchase Transactions and provide for the ordinary working capital of the
Borrower.

E. CLEAN-UP PERIOD. The Borrower shall reduce the aggregate
principal amount of Loans outstanding, and all accrued and unpaid interest
thereon, under this Agreement to zero for a period of at least 30 consecutive
days during each Fiscal Year; provided that no Loan that has been extended by
the issuance by the Bank of a letter of credit for the benefit of the Borrower
shall be required to be reduced as a result of this Section II.E.

F. REDUCTION OF COMMITMENT. Upon at least three Business Days'
irrevocable notice, the Borrower shall have the right to permanently terminate
or reduce the Commitment at any time or from time to time; provided that (i)
each partial reduction shall be in aggregate amount at least equal to $1,000,000
or any integral multiple of $100,000 in excess thereof and (ii) no reduction
shall be made to the extent it would reduce the Commitment to an amount less
than the aggregate principal amount of the Loans then outstanding. Any reduction
or termination of the Commitment under this Section 2.F. shall be permanent and
may not be reinstated.

G. EXTENSION OF MATURITY DATE. No later than 60 days before the
Maturity Date, the Borrower may deliver a written notice to the Bank specifying
that it desires to extend the Maturity Date to June 30 of the following calendar
year. Should the Borrower so notify the Bank, no later than 30 days before the
Maturity Date the Bank shall notify the Borrower whether the Bank is willing to
so extend the Maturity Date. Should the Bank agree to so extend the Maturity
Date, the Bank shall timely so notify the Borrower and the Maturity Date shall
be extended to June 30 of the following calendar year. If the Bank does not
agree to extend the Maturity Date, the Bank shall so notify the Borrower and the
Maturity Date shall remain unchanged.

H. PREPAYMENTS.

(1) MANDATORY PREPAYMENTS.

(a) If, at any time and from time to time, the Bank
notifies the Borrower that the aggregate principal amount of the Loans then
outstanding exceeds an amount equal to the Borrowing Base on such date, the
Borrower shall repay the Loans within two (2) Business Days of the date such
notice is given by the amount equal to such excess, together with accrued and
unpaid interest to the date of such prepayment on the principal amount so
prepaid. Any amount of principal of a Loan so prepaid may be reborrowed in
accordance with Section II.A.

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<PAGE> 16
(b) The Borrower shall, on each day on which funds are
deposited in the Account (as defined in the Security Agreement), apply such
funds to prepay the outstanding principal amount of the Loans, together with
accrued and unpaid interest to the date of such prepayment on the principal
amount so prepaid. Any amount of principal of a Loan so prepaid may be
reborrowed in accordance with Section II.A.

(2) OPTIONAL PREPAYMENT. The Borrower may prepay any Loan in
whole at any time or in part from time to time, without penalty or premium, and
each such prepayment shall be accompanied by the payment of accrued interest to
the date of such prepayment on the amount prepaid; provided that (i) each
partial prepayment shall be in a principal amount equal to $10,000 or an
integral multiple thereof and (ii) the Borrower shall give the Bank written
notice at least one (1) Business Day prior to the date of the prepayment of a
Loan. Each notice of prepayment shall be irrevocable and shall specify the date
and the amount of the prepayment. Any amount of principal of a Loan so prepaid
may be reborrowed in accordance with Section II.A.

I. COMMITMENT FEE. The Borrower will pay in immediately available
funds on the last Business Day of each March, June, September and December and
on the Termination Date, a commitment fee (the "Commitment Fee") equal to
one-half of one percent (1/2%) per annum on the average amount, calculated on a
daily basis, by which the Commitment exceeds the sum of the aggregate
outstanding principal amount of all Loans during the quarterly (or shorter)
period ending on such date. The Commitment Fee due under this Section II.H.
shall be calculated by the Bank (which calculation shall be conclusive absent
demonstrable error), shall commence to accrue on the Closing Date and shall
cease to accrue on the Termination Date.

J. PAYMENT. Payment of principal, interest and any other sums due
under this Agreement or under the Note shall be made without setoff or
counterclaim in United States dollars and in immediately available funds on the
day such payment is due not later than 12:00 noon (New York time). All sums
received after such time shall be deemed received on the next Business Day, and
principal payments or sums (other than interest) due hereunder shall bear
interest for an additional day or days, as applicable. All payments shall be
made to the Bank in accordance with the Bank's written instructions.

K. COMPUTATIONS OF INTEREST; BUSINESS DAY.

(1) All computations of interest under this Agreement and the
Note shall be made on the basis of a year of three hundred sixty (360) days and
actual days elapsed. Interest shall accrue daily on each Loan outstanding from
and including the date such Loan is made by the Bank to but excluding the date
on which such Loan is repaid.

(2) Payment of all amounts due hereunder shall be made on a
Business Day. Any payment due on a day that is not a Business Day shall be made
on the next Business Day.

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L. INCREASED COSTS, ETC.

(1) If, after the date of this Agreement, due to either (i)
the introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law),
there shall be any (x) change in the basis of taxation of payments to the Bank
of the principal of or interest on any Loan (excluding changes in the rate of
tax payable on the Bank's overall income or income allocable to a particular
jurisdiction and bank franchise taxes) or (y) imposition or change in any
reserve or similar requirement, and the result of any of the foregoing is an
increase in the cost to the Bank of agreeing to make or making, funding or
maintaining any Loan, then the Borrower shall from time to time, upon demand by
the Bank, pay to the Bank an additional amount which the Bank has determined
reasonably and in good faith to be sufficient to compensate the Bank for such
increased cost. The Bank shall give the Borrower written notice of such
occurrence and deliver to the Borrower a certificate setting forth the amount of
such increased cost, together with its reasonably detailed calculations used to
determine such amount, which shall be conclusive and binding for all purposes,
absent demonstrable error.

(2) If the Bank determines that compliance with any law or
regulation or any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by the Bank
or any corporation controlling the Bank and that the amount of such capital is
increased by or based upon the existence of any Loan or the Commitment, then the
Borrower shall, upon demand by the Bank, pay to the Bank an additional amount
sufficient to compensate the Bank or such corporation in the light of such
circumstances, to the extent that the Bank reasonably determines such increase
in capital to be allocable to the existence of such Loans or the Commitment. A
certificate as to such amounts, submitted to the Borrower by the Bank, shall be
conclusive and binding for all purposes, absent demonstrable error.

(3) Prior to making any demand for compensation under this
Section II.K., (i) the Bank will use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to file any certificate
or document requested by the Borrower or to change the jurisdiction of its
lending office if the making of such a filing or change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the judgment of the Bank, be otherwise disadvantageous
to the Bank, and (ii) the Bank will permit the Borrower to prepay all or any
part of the affected Loans, together with interest to the date of payment;
provided that nothing herein shall relieve the Borrower from its obligations to
compensate the Bank for increased costs or reduced return incurred prior to the
taking of the actions contemplated by clauses (i) and (ii) above.

M. LETTERS OF CREDIT. Subject to the terms of this Agreement, the
Commitment may be utilized, upon the request of the Borrower, in addition to
making Loans pursuant to Section II.A., by the issuance by the Bank of letters
of credit ("Letters of Credit") for the account of the Borrower. At least three
(3) Business Days prior to the proposed date of issuance of any requested Letter
of Credit, the Borrower shall deliver to the Bank a completed and executed
application in form satisfactory to the Bank (a "Letter of Credit Application")
with

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<PAGE> 18
respect to such Letter of Credit which shall specify the account party or
parties therefor and shall describe in reasonable detail the proposed terms of
such Letter of Credit (including the beneficiary thereof) and the nature of the
transactions or obligations proposed to be supported thereby. The Borrower shall
observe and perform all of the agreements to be observed and to be performed by
it under each Letter of Credit Application, including its obligation to pay any
letter of credit fee specified therein and its Reimbursement Obligation with
respect thereto. The issuance by the Bank of each Letter of Credit shall, in
addition to the conditions precedent set forth in Article III, be subject to the
conditions precedent that (i) such Letter of Credit shall be in such form,
contain such terms and support such transactions as shall be satisfactory to the
Bank and (ii) the Borrower shall have executed and delivered a Letter of Credit
Application and such other instruments relating to such Letter of Credit as to
the Bank shall reasonably request; provided, however, that in the event of any
conflict between any Letter of Credit Application or other instrument and the
provisions of any other Loan Document, the provisions of such other Loan
Document shall govern.

III. CONDITIONS TO LOANS.

A. CONDITIONS TO ALL LOANS. The obligation of the Bank to make any
Loan hereunder on any date is subject to the conditions precedent that:

(1) The following statements shall be true on and as of the
date when such Loan is made, and the acceptance of the proceeds of such Loan by
the Borrower shall be deemed to be a representation and warranty of the Borrower
on the date of such Loan that: (a) the representations and warranties contained
in Article IV hereof and in each other Loan Document are true and correct on and
as of such date, before and after giving effect to such Loan and to the
application of the proceeds therefrom and (b) no event has occurred and is
continuing or would result from the making of such Loan, which constitutes a
Default or an Event of Default hereunder;

(2) The Bank shall have received a Notice of Borrowing in
accordance with Section II.A. with respect to such Loan;

(3) The Bank shall have determined that there is sufficient
Availability to make such Loan; and

(4) The Bank shall not have determined that the prospect of
payment or performance of any Loan has been materially impaired as a result of
any event or condition causing a Material Adverse Effect.

B. CONDITIONS TO INITIAL LOAN. The obligation of the Bank to make
the initial Loan hereunder is subject to the following additional conditions
precedent:

(1) The Bank shall have received this Agreement, duly executed
by the Borrower.

(2) The Bank shall have received the Note, duly executed by
the Borrower.

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<PAGE> 19
(3) The Bank shall have received the Guaranty, duly executed
by the Guarantor.

(4) The Bank shall have received the Partnership Guaranty,
duly executed by the Stewart Partnership.

(5) The Bank shall have received the Borrower Security
Agreement, duly executed by the Borrower, the Partnership Security Agreement,
duly executed by the Stewart Partnership, and the Stewart Security Agreement,
duly executed by the Guarantor, together with:

(a) copies of proper Uniform Commercial Code financing
statements, and other appropriate filings, each duly filed or ready for
filing in all jurisdictions and offices that the Bank may deem necessary
in order to perfect the security interests created by the Borrower
Security Agreement, the Partnership Security Agreement and the Stewart
Security Agreement,

(b) completed requests for information, listing all
effective financing statements filed in the jurisdictions referred to in
paragraph (a) above that name the Borrower, the Stewart Partnership or the
Guarantor as debtor, together with copies of such financing statements
(none of which shall cover the Collateral purported to be covered by the
Borrower Security Agreement, the Partnership Security Agreement or the
Stewart Security Agreement), and

(c) evidence that all other actions necessary or, in the
good faith opinion of the Bank, desirable to perfect and protect the
security interests created by the Borrower Security Agreement, the
Partnership Security Agreement and the Stewart Security Agreement have
been taken, in form and substance reasonably satisfactory to the Bank.

(6) The Bank shall have received a Borrowing Base Certificate
setting forth the Borrowing Base as of the Closing Date.

(7) The Bank shall have received the Kmart Consent, duly
executed by Kmart Corporation and acknowledged by the Borrower.

(8) The Bank shall have received the Lifetime Consent, duly
executed by Lifetime Entertainment Services and acknowledged by the Borrower.

(9) The Bank shall have received the Sherwin-Williams Consent,
duly executed by The Sherwin-Williams Company and acknowledged by the Borrower.

(10) The Bank shall have received the Subordination Agreement,
duly executed by the Borrower and Time Publishing.

(11) Prior to or simultaneously with the Closing Date, the
transactions contemplated under the Time Publishing Agreements and the Purchase
Transactions shall have

15
<PAGE> 20
been consummated in accordance with (i) the Time Publishing Agreements and the
Purchase Documents, without any waiver or amendment not consented to by the Bank
of any term, provision or condition set forth therein and (ii) all applicable
laws or requirements of any applicable Governmental Authority.

(12) All representations and warranties of the Borrower and
Time Publishing contained in the Time Publishing Agreements and the Purchase
Documents shall be true and correct in all material respects on the Closing
Date, as though made on and as of such date (except insofar as such
representations and warranties relate expressly to an earlier date, in which
case they shall be true and correct in all material respects as of such earlier
date) and no default or event of default shall exist thereunder.

(13) The Bank shall have received true and complete copies,
certified by an officer of the Borrower, of the Purchase Agreement with all
schedules and exhibits thereto, each other Purchase Document, each Time
Publishing Agreement and each Assigned Contract (as defined in the Borrower
Security Agreement).

(14) The Bank shall have received

(a) a copy of the Certificate of Formation of the
Borrower, as amended to such date, certified as of a recent date by the
Secretary of State of the State of Delaware, and a certificate of good
standing from such Secretary of State dated as of a recent date;

(b) a certificate of an officer of the Borrower, dated
the Closing Date and certifying (i) that attached thereto is a true and
complete copy of the LLC Agreement and other constitutive documents as in
effect on the date of such certificate, (ii) that attached thereto is a
true and complete copy of the resolutions adopted by the managers of the
Borrower authorizing the execution, delivery and performance of each of
the Loan Documents and the Contemplated Transactions and that such
resolutions have not been modified, rescinded or amended and are in full
force and effect, (iii) that the Borrower's Certificate of Formation has
not been amended since the date of the last amendment thereto shown on the
certificate of good standing delivered pursuant to subparagraph 14(a)
above, (iv) that attached thereto is a true and complete list of the
members, officers and directors of the Borrower as of the date of such
certificate and (v) as to the incumbency and specimen signature of each of
the Borrower's officers executing this Agreement, the Note, each Security
Document or any other Loan Document delivered herewith or therewith, as
applicable; and

(c) a certificate of another of the officers of the
Borrower as to the incumbency and signature of the officer delivering the
certificate described in subparagraph 14(b) above.

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<PAGE> 21
(15) The Bank shall have received

(a) a copy of the Certificate of Limited Partnership of
the Stewart Partnership, as amended to such date, certified as of a recent
date by the Secretary of State of the State of Connecticut, and a
certificate of existence from such Secretary of State dated as of a recent
date;

(b) a certificate of the general partner of the Stewart
Partnership, dated the Closing Date and certifying (i) that attached
thereto is a true and complete copy of the Partnership Agreement and other
constitutive documents as in effect on the date of such certificate, (ii)
that the Certificate of Limited Partnership of the Stewart Partnership has
not been amended since the date of the last amendment thereto shown on the
certificate of good standing delivered pursuant to subparagraph 15(a)
above, (iii) that attached thereto is a true and complete list of the
partners of the Stewart Partnership as of the date of such certificate and
(iv) as to the incumbency and specimen signature of each of the Stewart
Partnership's partners executing the Loan Documents to which the Stewart
Partnership is party; and

(c) a certificate of another of the partners of the
Stewart Partnership as to the incumbency and signature of the partner
delivering the certificate described in subparagraph 15(b) above.

(16) The LLC Agreement shall have been executed by the members
of the Borrower and shall be in form and substance satisfactory to the Bank.

(17) The Borrower shall have paid to the Bank the fee of
$100,000 with respect to the issuance of the commitment letter dated as of
January 13, 1997 among the Bank, the Borrower, the Guarantor, Martha Stewart,
Inc. and Martha Stewart Company.

(18) The Bank shall have received, and determined the same to
be in form and substance satisfactory to it, evidence of the Borrower's
compliance with Section V.B. hereof.

(19) The Account shall have been established in accordance
with the terms of this Agreement and the Borrower Security Agreement.

(20) The Bank shall have received favorable opinions of
Wachtell, Lipton, Rosen & Katz and Kenyon & Kenyon, counsel to the Borrower, as
to such matters as the Bank may reasonably request, in form and substance
reasonably satisfactory to the Bank.

(21) The Bank shall have received a certificate(s) evidencing
the interest of the Stewart Partnership in the Company, together with a stock
power executed in blank with medallion guaranty.

(22) All legal matters in connection with the Contemplated
Transactions and the Purchase Transactions shall be satisfactory to the Bank and
its counsel in their sole discretion.

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<PAGE> 22
(23) The Bank shall have received all other promissory notes,
loan agreements, security agreements, financing statements, assignments,
guaranties, corporate resolutions, appraisals and other documents and
instruments that are, in the opinion of the Bank, necessary in connection with
the Loans, and such other financial or other information as the Bank may
reasonably require.

IV. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Bank as follows:

A. GOOD STANDING. The Borrower (i) is a limited liability company,
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (ii) has the requisite power and authority to own, lease and
operate its property and assets and to carry on its business as conducted and
currently proposed to be conducted and (iii) is qualified to do business in each
jurisdiction where the failure to so qualify could have a Material Adverse
Effect.

B. AUTHORIZATION. The Borrower (i) has the power and authority to
execute, deliver and perform its obligations under this Agreement, the Note, the
other Loan Documents, the Time Publishing Agreements and the Purchase Documents
to which it is a party and (ii) is duly authorized to execute, deliver and
perform this Agreement, each of the other Loan Documents, the Time Publishing
Agreements and the Purchase Documents to which it is a party, borrow hereunder,
grant the security interests in the Collateral created by the Security Documents
and consummate the Contemplated Transactions and the Purchase Transactions and
to incur the Time Publishing Indebtedness.

C. NO CONFLICTS. Neither the execution and delivery of the Loan
Documents, the Time Publishing Agreements and the Purchase Documents, nor the
consummation of the transactions contemplated herein and therein, nor the
performance of and compliance with the terms and provisions hereof and thereof
by the Borrower will (i) violate or conflict with any provision of its
Certificate of Formation or the LLC Agreement or other constitutive documents,
(ii) violate, contravene or conflict with any law, regulation (including,
without limitation, Regulation G, T, U or X of the Board of Governors of the
Federal Reserve), order, writ, judgment, injunction, decree or permit of any
Governmental Authority or arbitration authority applicable to it, (iii) violate,
contravene or conflict with contractual provisions of, or cause a default under,
any indenture, agreement, mortgage, deed of trust or other agreement or
instrument to which it is a party or by which it may be bound, the violation of
which could reasonably be expected to have a Material Adverse Effect, or (iv)
result in or require the creation of any Lien (other than Permitted Liens) upon
any property or assets of the Borrower.

D. APPROVALS. No registration or filing with, consent or approval
of, or other action by, any Governmental Authority is or will be required on
behalf of the Borrower in connection with the Contemplated Transactions, the
Purchase Transactions or the incurrence of the Time Publishing Indebtedness,
other than the filings necessary to perfect the Liens as contemplated by the
Subordination Agreement and those which the failure to obtain could not have a
Material Adverse Effect.

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<PAGE> 23
E. BINDING AGREEMENT. Each of this Agreement, the other Loan
Documents, the Purchase Documents and the Time Publishing Agreements to which
the Borrower is a party have been duly executed and delivered by the Borrower
and each constitutes its valid and legally binding obligation, enforceable
against the Borrower in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.

F. LITIGATION. There is no litigation or proceeding involving the
Borrower pending or, to the knowledge of the Borrower, threatened before any
court or other Governmental Authority or arbitration authority, against or
affecting the Borrower or its business, assets or rights, the Purchase
Transactions or the transactions contemplated by the Time Publishing Agreements.

G. COMPLIANCE WITH LAWS. The Borrower is not in violation of any
law, rule or regulation or in default with respect to any judgment, writ,
injunction or decree, of any Governmental Authority or arbitration authority the
violation of which could have a Material Adverse Effect.

H. TAXES. All taxes and assessments due and payable by the Borrower
have been paid or are being contested in good faith by appropriate proceedings
and the Borrower has filed all tax returns which it is required to file.

I. ACCURACY OF INFORMATION. All information furnished by the
Borrower to the Bank in connection with this Agreement and the other Loan
Documents is and will be accurate and complete in all material respects on the
date as of which such information is delivered to the Bank and is not and will
not be incomplete by the omission of any fact necessary to make such information
not materially misleading.

J. USE OF PROCEEDS. The proceeds of the Loans are to be used solely
for the purposes set forth in and permitted by Section II.D. hereof. None of
such proceeds will be used for the purpose of purchasing or carrying any Margin
Stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve.

K. OWNERSHIP OF PROPERTIES. The Borrower has good and marketable
title to its assets, free and clear of all Liens, other than Permitted Liens.
The Borrower has good and marketable title to all the assets purchased by it
from Time Publishing under the Purchase Documents, free and clear of all Liens
other than Permitted Liens, and such assets comprise all of the rights and
property necessary to permit the Borrower to conduct the business of Martha
Stewart Living Enterprises division, including, without limitation, Martha
Stewart Living Television, Martha by Mail and Home for the Holidays, in all
material respects as it was conducted by Time Publishing.

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<PAGE> 24
L. ERISA. With respect to the provisions of ERISA:

(1) Each Plan has complied with and has been administered in
all material respects in accordance with applicable provisions of ERISA and the
Code.

(2) No Reportable Event has occurred with respect to any Plan
that resulted or is reasonably likely to result in any unpaid liability that
could have a Material Adverse Effect.

(4) Neither the Borrower nor any ERISA Affiliate has received
notice that any Multiemployer Plan is in reorganization or insolvent where such
reorganization or insolvency has resulted, or would be reasonably likely to
result in an unpaid liability that is reasonably likely to have a Material
Adverse Effect nor, to the best knowledge of the Borrower, is any such
reorganization or insolvency reasonably likely to occur. Neither the Borrower
nor any ERISA Affiliate has incurred any unpaid withdrawal liability, or is
reasonably expected to incur any withdrawal liability, to any Multiemployer
Plan.

M. ENVIRONMENTAL. The conduct of the Borrower's business operations
and the condition of the Borrower's property does not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials the violation of which could
reasonably be expected to have a Material Adverse Effect.

N. PURCHASE DOCUMENTS. The Purchase Documents have been duly
executed and delivered by the parties thereto, are in full force and effect,
constitute valid and legally binding obligations of the parties thereto and are
enforceable against such parties in accordance with the terms thereof. The
Purchase Transactions to occur on or prior to the Closing Date have been
consummated, and all conditions precedent to such transactions have been
satisfied or waived in writing. The representations and warranties of the
Borrower and, to the knowledge of the Borrower, Time Publishing contained in the
Purchase Documents are each true and correct in all material respects.

O. SOLVENCY. The Borrower is and, immediately after consummation of
the Contemplated Transactions and the transactions contemplated by the Purchase
Documents and the Time Publishing Agreements, will be Solvent.

P. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. The
Borrower is not an "investment company" as defined in, or is otherwise subject
to regulation under, the Investment Company Act of 1940. The Borrower is not a
"holding company" as that

20
<PAGE> 25
term is defined in or is otherwise subject to regulation under, the Public
Utility Holding Company Act of 1935.

V. AFFIRMATIVE COVENANTS. Until full payment and performance of all
Obligations and the termination of the Commitment, the Borrower will, and will
cause each of the Subsidiaries to, unless the Bank consents otherwise in writing
(and without limiting any requirement of any other Loan Document):

A. FINANCIAL STATEMENTS AND OTHER INFORMATION. Furnish to the Bank,
in form and content reasonably acceptable to the Bank, the following:

(1) as soon as available, but not later than 90 days after the
end of each Fiscal Year, a copy of the audited consolidated balance sheet of the
Borrower as at the end of such Fiscal Year and the related consolidated
statements of income and statements of earnings, operations, cash flow and
members' equity for such Fiscal Year, prepared in accordance with GAAP and
certified in a manner reasonably acceptable to the Bank by independent certified
public accountants reasonably acceptable to the Bank;

(2) as soon as available, but not later than 45 days after the
end of each of the first three quarters of each Fiscal Year of the Borrower, an
unaudited consolidated balance sheet of the Borrower as of the end of such
quarter and a consolidated income statement, and consolidated statement of
earnings, operations, cash flows and members' equity for the period commencing
at the end of the previous Fiscal Year and ending with end of such quarter,
prepared in accordance with GAAP and certified (subject to normal year-end audit
adjustment and the absence of footnotes) on behalf of the Borrower by the chief
financial officer of the Borrower;

(3) as soon as available, but not later than 30 days after the
end of each month, an unaudited consolidated balance sheet of the Borrower as of
the end of such month and a consolidated income statement and consolidated
statement of earnings, operations, cash flows and members' equity for each such
month, prepared in accordance with GAAP and certified (subject to normal
year-end audit adjustment and the absence of footnotes) on behalf of the
Borrower by the chief financial officer of the Borrower;

(4) concurrently with any delivery under paragraph (1), (2) or
(3) above, a certificate of the chief financial officer of the Borrower (a)
certifying that no Default or Event of Default has occurred and, if a Default or
Event of Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto and (b)
setting forth computations and conclusions, in such detail as the Bank may
reasonably request, with respect to compliance with this Agreement, and the
other Loan Documents, including computations of all quantitative covenants;

(5) as soon as practicable, copies of all registration
statements, annual, periodic or other reports, forms, filings, proxy statements,
loan documents, financial information, and other information filed by any Loan
Party with or submitted to the Securities and Exchange Commission or any
Governmental Authority that may be substituted therefor, or any national

21
<PAGE> 26
securities exchange and copies of all proxy statements, financial statements and
reports submitted to its shareholders;

(6) not later than November 30 of each year, a copy of the
business plan and the projections of the operating budget and cash flow budget
of the Borrower and the Subsidiaries for the next succeeding Fiscal Year, such
projections to be accompanied by a summary of assumptions and operating
statistics used in calculating such budgets and a certificate of the chief
financial officer of the Borrower certifying that such projections have been
prepared in good faith on the basis of reasonable assumptions and that such
officer has no reason to believe that they are incorrect or misleading in any
material respect, and within 45 days after the end of each fiscal quarter, an
update or revision to such plan, and any other updates or revisions to such plan
as soon as available;

(7) as soon as available, but not later than 20 days after the
end of each month,

(a) a summary aging schedule of the Receivables as of
the last day of such month for the Borrower, and

(b) a Borrowing Base Certificate as of the last day of
such month executed by the chief financial officer of the Borrower;

(8) promptly upon, and in any event not later than five (5)
days after, becoming aware thereof, notice of

(a) the breach by any party of any Assigned Contract,
any Purchase Document or any Time Publishing Agreement;

(b) the issuance by any Governmental Authority of any
injunction, order, decision or other restraint prohibiting, or having the
effect of prohibiting, the making of the Loans, or invalidating, or having
the effect of invalidating, any provision of this Agreement, the Note, the
other Loan Documents or any Time Publishing Agreement or Purchase
Document, or the initiation of any litigation or similar proceeding
seeking any such injunction, order, decision or other restraint;

(c) the filing or commencement of any action, suit or
proceeding against the Borrower or any Subsidiary before any Governmental
Authority the adverse determination of which could reasonably be expected
to have a Material Adverse Effect;

(d) any Default or Event of Default, specifying the
nature and extent thereof and the action (if any) which is proposed to be
taken with respect thereto;

(e) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan;

22
<PAGE> 27
(f) the institution of proceedings or the taking or
expected taking of any other action by the PBGC or the Borrower or any
ERISA Affiliate to terminate, withdraw or partially withdraw from any
Plan, and, with respect to any Multiemployer Plan, the reorganization or
insolvency of such Plan;

(g) any development in the business or affairs of the
Borrower, the Subsidiaries or any other Loan Party which has had or could
reasonably be expected to have a Material Adverse Effect;

(h) the commencement by the United States Internal
Revenue Service of an audit of any Federal income tax return of the
Borrower, any Subsidiary or any other Loan Party; and

(i) the commencement of any proceeding pursuant to which
the Borrower, any Subsidiary or any other Loan Party contests the validity
or amount of any tax, assessment or governmental charge or levy which is
in excess of $100,000;

(9) promptly upon receipt or delivery thereof, copies of all
notices received or delivered under or pursuant to the Purchase Documents or the
Time Publishing Agreements; and

(10) promptly such other information, reports and other
information as the Bank may reasonably request.

B. INSURANCE. Maintain at all times insurance with responsible
insurance companies (i) on such of its properties, in such amounts and against
such risks as is customarily maintained by similar businesses operating in the
same vicinity, specifically to include fire and extended coverage insurance
covering all assets, business interruption insurance, workers' compensation
insurance and liability insurance, all to be with such companies as are
reasonably satisfactory to the Bank and providing for at least 30 days' prior
notice to the Bank of any cancellation thereof and (ii) of the type and in the
amounts specified in the definition of Insurance Assignments herein. All
casualty insurance, credit insurance and other insurance covering tangible
personal property subject to a Lien in favor of the Bank granted pursuant to the
Security Documents shall provide that the Bank is a loss payee.

C. EXISTENCE AND COMPLIANCE. Do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence, and comply in all respects with all laws, rules, regulations and
orders of any Governmental Authority (including, without limitation, those
relating to environmental laws) applicable to the operation of its business
whether now in effect or hereafter enacted if noncompliance with such law, rule,
regulation or order could reasonably be expected to have a Material Adverse
Effect.

D. TAXES. Pay and discharge promptly when due all material taxes,
assessments and governmental charges, levies or claims imposed upon it or upon
its income or profits or in respect of its property before the same shall become
delinquent or in default, as well as all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might give

23
<PAGE> 28
rise to Liens upon such properties or any part thereof, except such taxes,
assessments and governmental charges, levies and claims which are diligently
contested in good faith by appropriate proceedings and as to which adequate
reserves have been established in accordance with GAAP.

E. USE OF PROCEEDS. Use the proceeds of the Loans solely as
permitted under Section II.D.

F. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, copyrights, privileges, permits,
franchises, certificates and the like necessary for the operation of its
business.

G. ENVIRONMENTAL. Immediately advise the Bank in writing of (i) any
and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials affecting the Borrower's or any Subsidiary's business
operations and (ii) all claims made or threatened by any third party against the
Borrower or a Subsidiary relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials which if
adversely determined could reasonably be expected to have a Material Adverse
Effect. The Borrower shall promptly notify the Bank of any remedial action taken
by the Borrower or any Subsidiary with respect to any Hazardous Materials
affecting business operations of the Borrower or such Subsidiary. The Borrower
will not use or permit any other party to use any Hazardous Materials at any of
the Borrower's or the Subsidiaries' places of business or at any other property
owned by the Borrower except such materials as are incidental to the Borrower's
or such Subsidiary's normal course of business, maintenance and repairs and
which are handled in compliance with all applicable environmental laws. The
Borrower agrees to permit the Bank, its agents, contractors and employees to
enter and inspect any of the Borrower's or the Subsidiaries' places of business
or any other property of the Borrower or any Subsidiary at any reasonable times
upon three (3) days' prior notice for the purposes of conducting an
environmental investigation and audit (including taking physical samples) to
insure that the Borrower and the Subsidiaries are complying with this covenant
and the Borrower shall reimburse the Bank on demand for the costs of any such
environmental investigation and audit. The Borrower and the Subsidiaries shall
provide the Bank, its agents, contractors, employees and representatives with
access to and copies of any and all data and documents relating to or dealing
with any Hazardous Materials used, generated, manufactured, stored or disposed
of by the Borrower's and the Subsidiaries' business operations within five (5)
days of the request therefor.

H. ERISA. Pay and discharge promptly any liability imposed upon it
pursuant to the provisions of Title IV of ERISA; provided, however, that neither
the Borrower nor any ERISA Affiliate shall be required to pay any such liability
if (i) the amount, applicability or validity thereof shall be diligently
contested in good faith by appropriate proceedings, and (ii) such Person shall
have set aside on its books reserves which, in the opinion of the independent
certified public accountants of such Person, are adequate with respect thereto.

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I. OBLIGATIONS UNDER LOAN DOCUMENTS. (i) Make full and timely
payment of the Obligations, whether now existing or hereafter arising, (ii) duly
comply with all the terms and covenants contained in this Agreement and in each
of the other Loan Documents, and (iii) except for the filing of continuation
statements and the making of other filings by the Bank as secured party or
assignee, at all times take all actions necessary to maintain the Liens and
security interests provided for under any of the Loan Documents as valid and
perfected first priority Liens on the property intended to be covered thereby
(subject only to Permitted Liens) and supply all information to the Bank
necessary for such maintenance.

J. OTHER OBLIGATIONS. Perform in all respects all of its obligations
under the terms of all agreements, indentures, mortgages, security agreements or
other instruments to which it is a party or by which it or its properties is
bound (including those contained in the Purchase Documents and the Time
Publishing Agreements), except where the failure to perform could not reasonably
be expected to have a Material Adverse Effect.

K. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS; RIGHT
TO AUDIT. Maintain financial records in accordance with GAAP and, upon
reasonable notice, at all reasonable times and as often as the Bank may
reasonably request, permit any authorized representative designated by the Bank
to visit and inspect the properties and financial records of the Borrower and
the Subsidiaries, subject to Section IX.A. hereof, and permit any authorized
representative designated by the Bank to discuss the affairs, finances and
condition of the Borrower and the Subsidiaries with the chief financial officer
of the Borrower and such other officers as the Bank shall deem appropriate and
the independent public accountants of the Borrower, as applicable. At the
expense of the Borrower, subject to Section IX.A. hereof, the Bank shall have
the right to audit (i) as often as it may reasonably request, the books and
records of the Borrower and the Subsidiaries and to review its compliance with
the terms and conditions of this Agreement and the other Loan Documents, and
(ii) at least twice each Fiscal Year, the books and records of the Borrower
relating to the Receivables.

L. MAINTENANCE OF ACCOUNTS. Maintain the Account, and maintain all
of its deposit accounts and cash concentration accounts with the Bank or its
Affiliates, except as is permitted by the Borrower Security Agreement.

M. ASSIGNMENT OF LIFE AND DISABILITY INSURANCE; COPYRIGHT AND
TRADEMARK FILINGS. As soon as practicable, (i) but not later than 60 days after
the Closing Date, deliver to the Bank the Insurance Assignments duly executed by
the Borrower and acknowledged by the issuers of the policies assigned thereunder
and (ii) but not later than 10 days after request therefor by the Bank, deliver
to the Bank such documents and instruments as the Bank may request to perfect
the Bank's Lien in the Copyrights and Trademarks (as defined in the Borrower
Security Agreement) pursuant to the Borrower Security Agreement.

N. FURTHER ASSURANCES. Execute any and all further documents and
take all further actions which may be required under applicable law, or which
the Bank may reasonably request, to grant, preserve, protect and perfect the
first priority security interest created by the Security Documents in the
Collateral.

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<PAGE> 30
VI. NEGATIVE COVENANTS. Until full payment and performance of all
Obligations and the termination of the Commitment, the Borrower will not, and
will not permit its Subsidiaries to, without the prior written consent of the
Bank (and without limiting any requirement of any other Loan Documents):

A. LIENS. Incur, create, assume or permit to exist any Lien on any
of its property or assets, whether owned on the Closing Date or hereafter
acquired, or assign or convey any rights or security interest in any future
revenues, except for the following (collectively, "Permitted Liens"):

(i) Liens incurred and pledges and deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance,
old-age pensions and other social security benefits (not including any Lien
described in Section 412(m) of the Code) and utility company deposits; (ii)
Liens imposed by law, such as landlord, carriers', warehousemen's, mechanics',
materialmen's and vendors' Liens and other similar Liens, incurred in good faith
in the ordinary course of business and securing obligations which are not
overdue or are being contested in good faith by appropriate proceedings; (iii)
zoning restrictions, easements, licenses, reservations, provisions, covenants,
conditions, waivers, restrictions on the use of real property (and with respect
to leasehold interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord, ground lessor or owner of the leased property, with or without
consent of the lessee) which do not in the aggregate materially detract from the
value of the property or the assets or materially impair the use thereof in the
operation of the business of the Borrower and the Subsidiaries; (iv) Liens
created in favor of the Bank; (v) Liens securing the Indebtedness permitted
under clause (v) of Section VI.B. and which are at all times subordinate to the
Lien created by the Borrower Security Agreement in accordance with the terms of
the Subordination Agreement; (vi) judgment Liens which do not constitute an
Event of Default; provided that the execution or enforcement of any such Lien is
effectively stayed and the claim secured thereby is being actively contested in
good faith and by appropriate proceedings; (vii) purchase money Liens on any
property acquired by the Borrower or any Subsidiary securing Indebtedness
incurred or assumed by the Borrower or such Subsidiary in compliance with the
provisions of this Agreement and for the purpose of financing all or any part of
the cost of acquiring such property; provided that such Lien (A) is created or
incurred contemporaneously with such acquisition, (B) attaches solely to the
property so acquired in such transaction and (C) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 100% of the
original purchase price of such property at the time it was acquired; (viii)
Liens arising by virtue of any statutory or common law provision relating to
banker's liens, rights of setoff or similar rights with respect to deposit
accounts permitted to exist under this Agreement; (ix) inchoate Liens for taxes
not yet due and payable or for taxes that are being contested actively and in
good faith by appropriate proceedings for which appropriate reserves have been
established in accordance with GAAP; and (x) Liens constituting intellectual
property licenses entered into in the ordinary course of business.

B. DEBT. Incur, create, assume or permit to exist any Indebtedness
other than (i) Indebtedness secured by Liens permitted under Section VI.A.; (ii)
Indebtedness existing on the Closing Date and listed on Schedule VI.B hereto,
and any extension, renewal or refunding

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<PAGE> 31
thereof on terms and conditions no more favorable, in the aggregate, to the
obligee under such Indebtedness, but not any increase thereof; (iii)
Indebtedness incurred hereunder and under the other Loan Documents; (iv)
Indebtedness in respect of current accounts payable and accrued expenses
incurred in the ordinary course of business including, to the extent not
current, accounts payable and accrued expenses that are subject to good faith
dispute; and (v) the Time Publishing Indebtedness in an amount not to exceed
$30,000,000 in aggregate principal amount outstanding at any time and which
shall at all times be subordinate to the Loans and the Obligations in accordance
with terms of the Subordination Agreement.

C. INVESTMENTS. Make any Investments except for Investments which
are (i) accounts receivable created, acquired or made in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms,
(ii) except to the extent limited or prohibited by any other provision of this
Agreement, leases, subleases and capital leases, regardless of whether rent is
paid in arrears or in advance, (iii) deposits made or expenses prepaid in the
ordinary course of business in connection with workers' compensation, real
estate taxes and insurance policies required to be maintained hereunder, (iv)
any other prepaid expenses not to exceed $9,500,000 in the aggregate for the
Borrower and the Subsidiaries, (v) Investments in each Fiscal Year not to exceed
$750,000 in the aggregate for the Borrower and the Subsidiaries, (vi)
Investments listed on Schedule IV to the Borrower Security Agreement, (vii)
Collateral Investments (as defined in the Borrower Security Agreement) and
(viii) Investments in Subsidiaries in compliance with Section VI.O.

D. CAPITAL EXPENDITURES. Permit or suffer the aggregate amount of
payments made for Capital Expenditures, at the time incurred, to exceed (i)
$6,500,000 in 1997 and (ii) $2,000,000 in 1998 for the Borrower and the
Subsidiaries.

E. DIVIDENDS, DISTRIBUTIONS AND PAYMENTS. Declare or pay, directly
or indirectly, any cash dividends or make any other distribution in cash,
property, securities (other than its own membership interests or shares of its
capital stock) or a combination thereof, with respect to any of its membership
interests or shares of its capital stock, or directly or indirectly redeem,
purchase, retire or otherwise acquire for value any of its membership interests
or any shares of its capital stock, or set aside any amount for any such purpose
(including, without limitation, making the Call Offer, as such term is defined
in the LLC Agreement), except that (i) any Subsidiary may pay dividends or
distributions to the Borrower or any Subsidiary, (ii) the Borrower may pay
distributions to its members as provided in Section 9.2 of the LLC Agreement as
in effect on the date hereof and (iii) the Borrower may pay the Time Special
Distribution (as defined in the LLC Agreement).

F. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. Consolidate or merge
into any other Person or sell, lease, transfer or assign to any Person,
voluntarily or by operation of law, or otherwise dispose of any of its assets
(whether now owned or hereafter acquired), or permit another Person to merge
into it, except that (i) the Borrower or any Subsidiary may sell any of its
inventory in the ordinary course of business, (ii) the Borrower or any
Subsidiary may sell, lease, transfer, assign or otherwise dispose of its assets
which are no longer necessary for the proper conduct of its business, (iii) the
Borrower may transfer its assets to a corporation to which the Borrower is
converting in accordance with Section 15.1(a) of the LLC Agreement as in effect

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<PAGE> 32
on the date thereof and such transfer otherwise satisfies the requirements of
Section X.C. and (iv) the Borrower may pledge its assets to Time Publishing in
accordance with the terms of the Subordination Agreement.

G. SALE AND LEASE-BACK TRANSACTIONS. Enter into any arrangement,
directly or indirectly, with any person whereby the Borrower or any Subsidiary
shall sell or transfer any real or personal property and thereafter rent or
lease such property or such other property which the Borrower or such Subsidiary
intends to use for substantially the same purpose as the property being sold or
transferred.

H. SALES OF RECEIVABLES. Sell, assign, discount, transfer or
otherwise dispose of any Receivable, promissory note, draft or trade acceptance
or other right to receive payment held by it, except for (i) the purpose of
collection or settlement in the ordinary course of business and (ii) the grant
of Liens thereon pursuant to the Loan Documents and the Time Publishing
Agreements in accordance with the terms of the Subordination Agreement.

I. QUICK RATIO. Permit or suffer the ratio of Current Assets to
Current Liabilities of the Borrower and the Subsidiaries at the end of any
calendar quarter to be less than 1.35 to 1.0 for the three-month period then
ending.

J. DEBT SERVICE COVERAGE RATIO. Permit or suffer the Debt Service
Coverage Ratio of the Borrower and the Subsidiaries at each June 30 and December
31 to be less than 2.0 to 1.0 for the six-month period then ending, except as
may occur solely as a result of any payment of the Time Publishing Indebtedness
required to be made pursuant thereto as a result of the registration by the
Borrower of any equity securities of the Borrower pursuant to a registration
statement under the Securities Act of 1933, as amended.

K. CHARACTER OF BUSINESS. Change the general character of its
business as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.

L. SUBSIDIARIES. Create, acquire or otherwise cause to come into
existence any Subsidiary; provided that the Borrower may create, acquire or
otherwise cause to come into existence a Subsidiary wholly owned (directly or
indirectly) by the Borrower if (i) the Borrower pledges all of its equity
interest in such Subsidiary to the Bank to secure the Obligations pursuant to a
pledge agreement in form and substance reasonably satisfactory to the Bank, (ii)
such Subsidiary guarantees the Obligations pursuant to a guaranty agreement in
form and substance reasonably satisfactory to the Bank, (iii) such Subsidiary
grants to the Bank a first priority security interest in all of its assets of
any kind or nature to secure such Subsidiary's obligations under the guaranty
described in clause (ii) above pursuant to a security agreement in form and
substance reasonably satisfactory to the Bank and (iv) the Bank receives such
board resolutions, officer's certificates and opinions of counsel as the Bank
shall reasonably request in connection with the actions described in clauses
(i), (ii) and (iii) above.

M. ACCOUNTING CHANGE. Make any change in its accounting treatment or
financial reporting practices except as required or permitted by GAAP, or change
its Fiscal Year.

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N. TRANSACTIONS WITH AFFILIATES. Directly or indirectly purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or enter into any other transaction with, any equity holder, Affiliate or agent
of such Person, or any relative thereof, except (i) transfers of membership
interests in the Borrower to employees of the Borrower as incentive compensation
in connection with such employment in an aggregate amount not to exceed at any
time 15% of the outstanding membership interests in the Borrower, (ii)
transactions pursuant to the agreements set forth on Schedule VI.N hereto as
such agreements are in effect on the date hereof and (iii) other transactions at
prices and on terms not less favorable to it than that which would have been
obtained in an arm's-length transaction with a non-affiliated third party.

O. ERISA. (1) Engage in any transaction in connection with which the
Borrower or any ERISA Affiliate is reasonably likely to be subject to either a
material civil penalty assessed pursuant to the provisions of Section 502 of
ERISA or a material tax imposed under the provisions of Section 4975 of the
Code.

(2) Terminate any Pension Plan in a "distress termination"
under Section 4041 of ERISA or take any other action which could result in a
material liability of the Borrower or any ERISA Affiliate to the PBGC.

(3) Fail to make payment when due of all amounts which, under
the provisions of any Plan, the Borrower or any ERISA Affiliate is required to
pay as contributions thereto, or, with respect to any Pension Plan, permit to
exist any material "accumulated funding deficiency" (within the meaning of
Section 302 of ERISA and Section 412 of the Code), whether or not waived, with
respect thereto.

(4) Adopt an amendment to any Pension Plan requiring the
provision of security under Section 307 of ERISA or Section 401(a)(29) of the
Code.

P. PREPAYMENT OR MODIFICATION OF INDEBTEDNESS; MODIFICATION OF
AGREEMENTS.

(1) Other than the Indebtedness incurred under any Loan
Document, directly or indirectly prepay, redeem, purchase or retire in advance
of its scheduled maturity any Indebtedness, including, without limitation, the
Time Publishing Indebtedness, except as is permitted by the terms of the
Subordination Agreement.

(2) Directly or indirectly amend, modify, supplement or waive
compliance with any term or provision of its Certificate of Formation, the LLC
Agreement, certificate of incorporation, bylaws or other constitutive documents
if the effect thereof could have a Material Adverse Effect.

(3) Directly or indirectly amend, modify, supplement or waive
compliance with, or seek a waiver, in any manner under any term or provision of
any of the Purchase Documents or the Time Publishing Agreements, or consent to
any of the foregoing.

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<PAGE> 34
(4) Directly or indirectly amend, modify, supplement or waive
compliance with or seek a waiver under any term or provision of or any other
agreement, instrument or document to which the Borrower or such Subsidiary is a
party if the effect thereof could reasonably be expected to have a Material
Adverse Effect.

Q. NEGATIVE PLEDGES, ETC. Enter into or be subject to, directly or
indirectly, including, without limitation, as a non-party subsidiary of a party
to any agreement, any agreement (other than this Agreement, any other Loan
Document or any Time Publishing Agreement) which prohibits or restricts, in any
manner (i) the incurrence, creation or assumption of any Indebtedness or any
Lien upon any property of the Borrower or the Subsidiaries, or the sale,
disposition or pledge of any asset of the Borrower or the Subsidiaries, except
restrictions in any purchase money financing agreement permitted hereunder
relating only to the asset financed thereunder, or (ii) any amendment or
supplement to, or waiver under, this Agreement or any other Loan Document.

VII. REMEDIES UPON DEFAULT. If an Event of Default (as defined in the
Note) shall occur, the Bank may exercise all rights, powers and remedies
available to it under each of the Loan Documents, as well as all rights and
remedies available at law or in equity.

VIII. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:

if to the Borrower:

Martha Stewart Living Omnimedia LLC
20 West 43rd Street
25th Floor
New York, New York 10036
Attention: David Steward
Telecopy No.: (212) 522-7875

with a copy to:

Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew J. Nussbaum, Esq.
Telecopy No.: (212) 403-2000

if to the Bank:

NationsBank, N.A.
Credit Services Center
101 South Tryon Street, 6th Floor
NationsBank Plaza
Charlotte, North Carolina 28255

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<PAGE> 35
Attention: Tom Fruge
Telecopy No.: (704) 388-0040

with a copy to:

NationsBank, N.A.
Private Client Group
767 Fifth Avenue, 6th Floor
New York, New York 10153
Attention: Jane Heller
Telecopy No.: (212) 407-5461

and

Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Neale M. Albert, Esq.
Telecopy No.: (212) 757-3990

or to such other address as any party may designate by written notice to all of
the parties. Each such notice, request and demand shall be deemed given or made
as follows:

(1) If sent by hand delivery, upon delivery;

(2) If sent by certified mail, upon the earlier of the date of receipt or
five (5) days after receipt in the U.S. mail, first class postage prepaid;

(3) If telecopied, telegraphed, telexed or cabled, when telecopied with
telephonic confirmation of the receipt thereof, delivered to the telegraph
company, confirmed by telex answerback or delivered to the cable company,
respectively.

IX. COSTS, EXPENSES AND ATTORNEYS' FEES.

A. The Borrower agrees to pay on demand all reasonable costs and
expenses, including, without limitation, all due diligence, transportation,
computer, duplication, appraisal, audit, insurance, consultant, search, filing
and recording fees and expenses, incurred by the Bank and its successors in
interest in connection with the preparation and administration of this Agreement
and any of the Loan Documents and the other documents to be delivered hereunder
or with any amendments, modifications, waivers, extensions, renegotiations or
workouts of the provisions hereof or thereof (whether or not consummated) or
after a Default and the continuance thereof or an Event of Default and the
continuance thereof, or in connection with any pending or threatened action,
proceeding or investigation relating to the foregoing, including, without
limitation, in each case, the reasonable fees and out-of-pocket expenses of
outside counsel for the Bank with respect thereto and with respect to advising
the Bank as to its rights and responsibilities under any Loan Document. The
Borrower further agrees to pay on demand all reasonable costs and expenses, if
any (including reasonable outside counsel fees and out-of-

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<PAGE> 36
pocket expenses), incurred by the Bank and its successors in interest in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of the Loan Documents and the other documents to be delivered
hereunder, including, without limitation, reasonable outside counsel fees and
out-of-pocket expenses incurred in connection with the enforcement of rights
under this Article IX.

B. The Borrower hereby indemnifies the Bank and each of its
Affiliates, and their officers, directors, employees, agents, advisors and
successors in interest (each, an "Indemnified Party") against, and agrees to
hold each such Indemnified Party harmless from, any and all claims, damages,
losses, liabilities and expenses, including, without limitation, reasonable fees
and expenses of counsel, that may be incurred by or asserted or awarded against
any such Indemnified Party, in each case arising out of, in any way connected
with, or as result of, (i) the use of any of the proceeds of the Loans, (ii)
this Agreement or any of the other Loans Documents or the other documents
contemplated hereby or thereby, (iii) the performance by the parties hereto and
thereto of their respective obligations hereunder and thereunder and
consummation of the Contemplated Transactions, (iv) breach of any representation
or warranty by the Borrower, or (v) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not an Indemnified Party
is a party thereto, or whether or not such investigation, litigation or
proceeding is brought by the Borrower, its members or creditors or an
Indemnified Party and whether or not the Contemplated Transactions are
consummated; provided, however, that such indemnity shall not apply to the
extent that any such claims, damages, losses, liabilities or expenses are found
in a final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.

C. The provisions of this Article IX shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the Contemplated Transactions, the repayment of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or the Note, or any investigation made by or on behalf of the Bank.
All amounts due under this Article IX shall be payable on written demand
therefor.

X. MISCELLANEOUS. The Borrower and the Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:

A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
the Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other right and may be exercised in addition to any and all
other rights of the Bank, and no delay in exercising any right shall operate as
a waiver thereof, nor shall any single or partial exercise by the Bank of any
right preclude any other future exercise thereof or the exercise of any other
right. The Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on the Borrower in any case
shall, of itself, entitle the Borrower to any other or future notice or demand
in similar or other circumstances.

B. APPLICABLE LAW. This Agreement and the Note and the rights and
obligations of the parties hereunder and thereunder shall be governed by and
interpreted in accordance with the laws of the State of New York without regards
to conflict of laws provisions.

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<PAGE> 37
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by the Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer that is at least a vice president of the Bank, and then shall be
effective only in the specified instance and for the purpose for which given.
This Agreement is binding upon the Borrower and its successors and assigns, and
inures to the benefit of the Bank, its successors and assigns; however, no
assignment or other transfer of the Borrower's rights or obligations hereunder
shall be made or be effective without the Bank's prior written consent, nor
shall it relieve the Borrower of any obligations hereunder, except that the
Borrower may assign and transfer its rights and obligations hereunder to any
corporation to which the Borrower may be converted in accordance with Section
15.1(a) of the LLC Agreement as in effect on the date hereof if (i) no Default
or Event of Default is then continuing or would result from such assignment,
transfer or conversion and (ii) such corporation executes and delivers to the
Bank such agreements, documents and other instruments (including promissory
notes, security agreements and financing statements) as the Bank may request to
effectuate and evidence such assignment and transfer. There is no third party
beneficiary of this Loan Agreement.

D. RIGHT TO SETOFF. If an Event of Default shall have occurred and
be continuing, the Bank shall and is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any
Indebtedness at any time owing by the Bank to or for the credit or account of
the Borrower against any and all of the Obligations now or hereafter existing
under this Agreement, the Note or any other Loan Document, irrespective of
whether the Bank shall have made any demand therefor and although such
Obligations may be unmatured. The Bank agrees to notify promptly the Borrower
after any such setoff and application so made, but the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of the Bank under this Section X.D. are in addition to other rights and remedies
which may be available to the Bank.

E. DOCUMENTS. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to the Bank shall be in
form and content satisfactory to the Bank and its counsel.

F. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity of
any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any Person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
Persons or circumstances.

G. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loans and shall continue in full force and effect until indefeasible
payment in full in cash of all Obligations.

H. HEADINGS. Article and Section headings and the Table of Contents
used herein are for convenience of reference only and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Agreement.

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<PAGE> 38
I. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be considered
to be an original and all of which taken together shall constitute one and the
same instrument.

XI. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR
THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF
ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.

A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY
OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS AGREEMENT AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.

B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR
(II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C.
Section 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT
OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSURE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING
OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
AGREEMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR

34
<PAGE> 39
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.

XII. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.

BORROWER: BANK:
Martha Stewart NationsBank, N.A.
Living Omnimedia LLC

By: /s/David Stewart By: /s/ Jane R. Heller
------------------------------- --------------------------------
Name: David Stewart Jane R. Heller
Title: Chief Adm. Officer Senior Vice President

<PAGE> 1
EXHIBIT 4.3

AMENDMENT NO. 1 TO LOAN AGREEMENT

AMENDMENT NO. 1, dated as of June 30, 1998 (the "Amendment"), to the LOAN
AGREEMENT, dated as of February 3, 1997 (the "Loan Agreement"), between MARTHA
STEWART LIVING OMNIMEDIA LLC, a Delaware limited liability company (the
"Borrower"), and NATIONSBANK, N.A. (the "Bank").

The parties desire to amend the Loan Agreement.

Therefore, in consideration of the premises and the agreements herein, the
Borrower hereby agrees with the Bank as follows:

1. Definitions. All terms used herein which are defined in the Loan
Agreement and not otherwise defined herein are used herein as defined therein.

2. Amendments.

(a) Section I.UU. of the Loan Agreement is hereby amended and restated in
its entirety as follows:

"UU. "MATURITY DATE" means June 30, 1999 or such later date that is
established pursuant to Section II.G."

(b) Article IV of the Loan Agreement is hereby amended to add the
following as a new Section IV.Q.:

"Q. YEAR 2000 REPRESENTATIONS AND WARRANTIES.

(1) The Borrower has (i) begun analyzing the operations of the
Borrower and its subsidiaries and affiliates that could be adversely affected by
failure to become Year 2000 compliant (that is, that computer applications,
imbedded microchips and other systems will be able to perform date-sensitive
functions prior to and after December 31, 1999): and (ii) developed a plan for
becoming Year 2000 compliant in a timely manner, the implementation of which is
on schedule in all material respects. The Borrower reasonably believes that it
will become Year 2000 compliant for its operations and those of its subsidiaries
and affiliates on a timely basis except to the extent that a failure to do so
could not reasonably be expected to have a material adverse effect upon the
financial condition of the Borrower.

(2) The Borrower reasonably believes any suppliers and vendors that
are material to the operations of the Borrower or its subsidiaries and
affiliates will be Year 2000 compliant for their own computer appli-

<PAGE> 2
expected to have a material adverse effect upon the financial
condition of the Borrower.

(3) The Borrower will promptly notify the Bank in the event the
Borrower determines that any computer application which is material to
the operations of the Borrower, its subsidiaries or any of its
material vendors or suppliers will not be fully Year 2000 compliant on
a timely basis, except to the extent that such failure could not
reasonably be expected to have a material adverse effect upon the
financial condition of the Borrower."

"(3) as soon as available, but not later than 45 days after the end of
each month, an unaudited consolidated balance sheet of the Borrower as of
the end of such month and a consolidated income statement and consolidated
statement of earnings, operations, cash flows and members' equity for each
such month, prepared in accordance with GAAP and certified (subject to
normal year-end audit adjustment and the absence of footnotes) on behalf of
the Borrower by the chief financial officer of the Borrower, provided, that
the Borrower shall be required to comply with this paragraph (3) only
during any period in which a Loan is outstanding;"

(d) Paragraph (7) of Section V.A. of the Loan Agreement is hereby
amended and restated in its entirety as follows:

"(7) as soon as available, but no later than 45 days after the end of
each March, June, September and December of each Fiscal Year,

(a) a summary aging schedule of the Receivables as of the last
day of such month for the Borrower, and

(b) a Borrowing Base Certificate as of the last day of such month
executed by the chief financial officer of the Borrower;

provided, that during any period in which a Loan is outstanding, the
summary aging schedule and Borrowing Base Certificate described in clauses
(a) and (b) above shall be required to be delivered to the Bank as soon as
available, but not later than 45 days after the end of each month;"

3. Representations and Warranties. The Borrower hereby represents
and warrants to the Bank as follows:

(a) The representations and warranties made by the Borrower in the
Loan Agreement, as amended hereby, and in each other Loan Document to which it
is a party deliv-

-2-
<PAGE> 3
ered to the Bank on or prior to the date hereof are true and correct on and as
of the date hereof as though made on and as of the date hereof (except to the
extent such representations and warranties expressly relate to an earlier date).

(b) The Borrower has all requisite power and authority to execute,
deliver and perform this Amendment and the Amended and Restated Note (as
defined below) and to perform the Loan Agreement, as amended hereby.

(c) The execution, delivery and performance by the Borrower of this
Amendment and the Amended and Restated Note, and the performance by the
Borrower of the Loan Agreement, as amended hereby, (i) do not and will not
contravene any law or any contractual restriction binding on or affecting the
Borrower or any of its properties, and (ii) do not and will not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties, other than in favor
of the Bank.

(d) Each of this Amendment, the Amended and Restated Note and the
Loan Agreement, as amended hereby, constitutes the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower In accordance with
its terms.

4. Continued Effectiveness of the Loan Agreement. Except as
otherwise expressly provided herein, the Loan Agreement and the other Loan
Documents are, and shall continue to be, in full force and effect and are hereby
ratified and confirmed in all respects except that on and after the date hereof
(i) all references in the Loan Agreement to "this Agreement," "hereto,"
"hereof," "hereunder" or words of like import referring to the Loan Agreement
shall mean the Loan Agreement as amended by this Amendment and (ii) all
references in the other Loan Documents to the "Loan Agreement," "thereto,"
"thereof," "thereunder" or words of like import referring to the Loan Agreement
shall mean the Loan Agreement as amended by this Amendment and all references in
the Loan Documents to the "Note," "thereto," "thereof," "thereunder" or words of
like import referring to the Note shall mean the amended and restated promissory
note attached as Exhibit A hereto (the "Amended and Restated Note").

5. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.

6. Headings. Section headings herein are included for convenience
of reference only and shall not constitute a part of this Amendment for any
other purpose.

7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.

8. Amendment as Loan Document. The Borrower hereby acknowledges and
agrees that this Amendment constitutes a "Loan Document."

9. Effectiveness. This Amendment will become effective on the date
upon which the following conditions precedent shall have been satisfied: (i)
execution and delivery of

-3-
<PAGE> 4
this Amendment by the parties hereto; and (ii) the Borrower shall have executed
the Amended and Restated Note and delivered it to the Bank.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered as of the date first above written.

MARTHA STEWART OMNIMEDIA LLC

By: /s/ Barry Pincus
---------------------------
Name: Barry Pincus
Title: CFO

NATIONSBANK, N.A.

By: /s/ Jane R. Heller
---------------------------
Name: Jane R. Heller
Title: SVP

Acknowledged and Agreed
this 30th day of June, 1998:

MARTHA STEWART, INC.

By: /s/ Barry Pincus
---------------------------
Name: Barry Pincus
Title: Treasurer

THE MARTHA STEWART FAMILY LIMITED PARTNERSHIP

By: /s/ Martha Stewart
---------------------------
Martha Stewart
General Partner

/s/ Martha Stewart
- - - -------------------------------
Martha Stewart

-4-

<PAGE> 1
EXHIBIT 4.4

AMENDMENT NO. 2 TO LOAN AGREEMENT

AMENDMENT NO. 2, dated as of March 30, 1999 (the "Amendment"), to
the LOAN AGREEMENT, dated as of February 3, 1997, as amended (the "Loan
Agreement"), between MARTHA STEWART LIVING OMNIMEDIA LLC, a Delaware limited
liability company (the "Borrower"), and NATIONSBANK, N.A. (the "Bank").

The parties desire to amend the Loan Agreement.

Therefore, in consideration of the premises and the agreements
herein, the Borrower hereby agrees with the Bank as follows:

1. Definitions. All terms used herein which are defined in the Loan
Agreement and not otherwise defined herein are used herein as defined therein.

2. Amendments.

(a) Section I.A of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"A. "Affiliate" of the Bank means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with
the Bank and, without limiting the generality of the foregoing, includes
(i) any Person which beneficially owns or holds 10% or more of any class
of voting securities of the Bank or 10% or more of the equity interest in
the Bank, (ii) any Person of which the Bank beneficially owns or holds 10%
or more of any class of voting securities or in which the Bank
beneficially owns or holds 10% or more of the equity interest in such
Person and (iii) any director, officer, member or partner of the Bank."

(b) Section I.N. of the Loan Agreement is hereby amended by
(i) deleting the phrase "the Partnership Security Agreement and the Stewart
Security Agreement" and (ii) inserting in place of such deleted phrase "the
Company Security Agreement."

"P-1. "Company Guaranty" means the Continuing and Unconditional Guaranty
of the Stewart Company, dated February 6, 1997, as the same may be
amended, modified or supplemented from time to time.
<PAGE> 2
2

P-2 "Company Security Agreement" means the Security Agreement, dated
February 6, 1997, between the Stewart Company and the Bank, as the same
may be amended, modified or supplemented from time to time."

(d) Section I.U. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"U. "Debt Service Coverage Ratio" means, for any period, the consolidated
net income of the Borrower and the Subsidiaries for such period plus (to
the extent such items were deducted in the determination of such
consolidated net income) the sum for such period of (i) the Borrower's and
the Subsidiaries' consolidated interest expense, (ii) provision for taxes
based on or measured by income for the Borrower and the Subsidiaries and
(iii) the Borrower's and the Subsidiaries' provision for amortization
(including, without limitation, amortization of intangibles), divided by
the sum for such period of (w) the current portion of principal and
interest on Indebtedness and Capital Lease Obligations, (x) the Borrower's
and the Subsidiaries' consolidated interest expense, (y) Capital
Expenditures and (z) all distributions, whether in cash, securities or
other property, declared by the Borrower to be payable to any holder of
any membership interest, capital stock or other equity security of the
Borrower in respect of such interest, stock or security ("Dividends")
(other than Dividends paid pursuant to Section 9.2 of the LLC Agreement as
in effect on the date hereof )."

(e) Section I.EE. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"EE. [intentionally omitted]."

(f) Section I.QQ. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"QQ. "Loan Document" means any of this Agreement, the Note, the Security
Documents, the Company Guaranty and all other documents, instruments,
guarantees, certificates and agreements executed and/or delivered by the
Borrower or the Stewart Company in connection with the Loans, and from and
after such time, if any, that Stewart and the Stewart Partnership execute
and deliver guaranties and security agreements to the Bank as contemplated
by Section 4.(j)(iii) of the Note, the term "Loan Documents" shall include
such guaranties and security agreements."

(g) Section I.RR. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"RR. "Loan Parties" mean, collectively, the Borrower and the Stewart
Company and from and after such time, if any, that Stewart and the Stewart
Partnership are required to execute and deliver guaranties and security
agreements to the Bank as contemplated by Section 4.(j)(iii) of the Note,
the term "Loan Parties" shall include Stewart and the Stewart
Partnership."
<PAGE> 3
3

(h) Section I.TT. of the Loan Agreement is hereby amended by
amending and restating clauses (i) and (ii) thereof as follows:

"(i) the business, assets, liabilities, properties, prospects, operations
or financial or other condition of the Loan Parties taken as a whole, (ii)
the ability of the Loan Parties to perform or pay the Obligations in
accordance with the terms hereof or of any other Loan Document or to
perform their obligations thereunder or"

(i) Section I.UU. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"UU. "Maturity Date" means June 30, 2000 or such later date that is
established pursuant to Section II.G."

(j) Section I.WW. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"WW. "Note" means the promissory note of the Borrower , in the form of
Exhibit A to the Amendment No. 2 to this Agreement, dated as of March
31, 1999, as such promissory note may be modified or extended from time
to time, and any promissory note or notes issued in exchange or
replacement thereof."

(k) Section I.YY. of the Loan Agreement is hereby amended by
inserting the phrase "to the Bank or its Affiliates" (i) following the phrase
"from time to time owing by it" in clause (i) thereof and (ii) following the
phrase "such Loan Party's other obligations" in clause (ii) thereof.

(l) Section I.MMM. of the Loan Agreement is hereby amended by
(i) deleting the phrase the Borrower Security Agreement, the Partnership
Security Agreement, the Stewart Security Agreement" therein and (ii) inserting
in place of such deleted phrase the following: "the Borrower Security Agreement,
the Company Security Agreement".

(m) The Loan Agreement is hereby amended by inserting the
following after Section I.OOO:

"OOO-1. "Stewart Company" means Martha Stewart, Inc., a Connecticut
corporation."

(n) Section I.VVV.(iii) of the Loan Agreement is hereby
amended by inserting the phrase "(other than the LLC Agreement)" following the
phrase "in connection therewith".

(o) Section IV.F. of the Loan Agreement is hereby amended and
restated by deleting the balance of such Section following the phrase "assets or
rights" contained therein and inserting in place thereof the following:
<PAGE> 4
4

", except as such as could not reasonably be expected to cause a
Material Adverse Effect."

(p) Section IV.H. of the Loan Agreement is hereby amended by
deleting the phrase "All taxes and assessments" and inserting in its place the
phrase "All material taxes and assessments".

(q) Section IV.L. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"L. ERISA. With respect to the provisions of ERISA:

(1) Each Plan has complied with and has been administered in all
material respects in accordance with applicable provisions of ERISA and
the Code other than any non-compliance which would not be reasonably
expected to have a Material Adverse Effect.

(2) No Reportable Event has occurred with respect to any Plan that
resulted or is reasonably likely to result in any unpaid liability that
would be reasonably expected to have a Material Adverse Effect.

(3) The present value of all accrued benefits under each Single
Employer Plan maintained by the Borrower or any ERISA Affiliate (based on
then current assumptions used to fund such Plan as of the last annual
valuation date applicable thereto), did not, as of such valuation date,
exceed the value of the assets of each such Plan allocable to such
benefit, except where such event would not reasonably be expected to have
a Material Adverse Effect and, to Borrower's knowledge, no material change
has occurred to such funded status as of the valuation date.

(4) Neither the Borrower nor any ERISA Affiliate has received notice
that any Multiemployer Plan is in reorganization or insolvent where such
reorganization or insolvency has resulted, or would be reasonably likely
to result in an unpaid liability that would be reasonably expected to have
a Material Adverse Effect nor, to the best knowledge of the Borrower, is
any such reorganization or insolvency (which would be reasonably expected
to have a Material Adverse Effect) reasonably likely to occur. Neither the
Borrower nor any ERISA Affiliate has incurred any unpaid withdrawal
liability, or is reasonably expected to incur any withdrawal liability, to
any Multiemployer Plan (which in any such case would be reasonably
expected to have a Material Adverse Effect)."

(r) Section IV.N. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"N. [intentionally omitted]."
<PAGE> 5
5

(s) Section IV.Q. of the Loan Agreement is hereby amended by
(i) deleting the phrase "and its Affiliates" in each of the places it appears
therein and (ii) amending and restating clause 1(ii) thereof in its entirety as
follows:

"(ii) developed a plan for becoming Year 2000 complaint in all material
respects in a timely manner, the implementation of which is on schedule in
all material respects."

(t) Section V.A.(3) of the Loan Agreement is hereby amended
and restated in its entirety as follows:

"(3) [intentionally omitted];"

(u) Section V.A(6) of the Loan Agreement is hereby amended by
(i) deleting the phrase "November 30" contained therein and replacing it with
the phrase "December 15" and (ii) deleting the phrase "and within 45 days after
the end of each fiscal quarter, an update or revision to such plan," and
replacing it with the following:

"and within 45 days after the end of each fiscal quarter either (i) notify
the Bank that the Borrower has not updated or revised such plan or (ii)
furnish the Bank with an update or revision to such plan if it has been
revised or updated,".

(v) Section V.A.(8) of the Loan Agreement is hereby amended by
(i) deleting the phrase in clause (a) thereof "the breach by" and replacing such
deleted phrase with the phrase "the material breach by" and (ii) deleting the
phrase "the Borrower, the Subsidiaries or any other Loan Party" in clause (g)
thereof and replacing such deleted phrase with the phrase "the Loan Parties".

(w) Section V.A.(8)(c) of the Loan Agreement is hereby amended
by deleting the phrase "the adverse determination of" contained therein.

(x) Section V.A.(8)(e) and (f) of the Loan Agreement are
hereby amended by adding at the end of each thereof the phrase "within 10
Business Days thereof".

(y) Section V.H. of the Loan Agreement is hereby amended by
inserting the following prior to the phrase ";provided, however": "where the
failure to so pay or discharge would reasonably be expected to result in a
Material Adverse Effect".

(z) Section V.M. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"M. [intentionally omitted]."

(aa) Section VI.B. of the Loan Agreement is hereby amended and
restated in its entirety as follows:
<PAGE> 6
6

"B. [intentionally omitted]."

(bb) Section VI.C. of the Loan Agreement is hereby amended by
(i) amending and restating clause (v) thereof as follows: "(v) Investments not
to exceed $5,000,000 in the aggregate for the Borrower and the Subsidiaries,"
and (ii) adding the following at the end of such Section:

", (ix) other Investments consented to by the Bank, which consent will not
be unreasonably withheld and (x) advances to employees made in the
ordinary course of business."

(cc) Section VI.D. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"D. [intentionally omitted]."

(dd) Section VI.E. of the Loan Agreement is hereby amended and
restated in its entirety as follows:

"E. [intentionally omitted]."

(ee) Section VI.F. of the Loan Agreement is hereby amended by
deleting the phrase "voluntarily or by operation of law, or otherwise dispose of
any of its assets" contained therein and replacing it with the following:

"voluntarily or by operation of law, or otherwise dispose (except for
licenses entered into in the ordinary course of business and dispositions
of inventory in the ordinary course of business) of any of its material
assets"

(ff) Section VI.H. of the Loan Agreement is hereby amended by
inserting the following at the end thereof: "and the Term Agreement (as such
term is defined in Amendment No. 2 to this Agreement, dated as of March 31,
1999)."

(gg) Section VI.N. of the Loan Agreement is hereby amended by
(i) deleting the phrase "15%" contained therein and substituting it with the
phrase "25%" and (ii) adding the following at the end thereof:

", (iv) customary fees to Persons serving as a director of the Borrower
who are not officers or employees of the Borrower or any Subsidiary and
(v) indemnification, insurance and similar arrangements for directors and
officers of the Borrower or any Subsidiary."

(hh) Section VI.O. of the Loan Agreement is hereby amended and
restated in its entirety as follows:
<PAGE> 7
7

"O. ERISA. Except where any such action or failure to act would not
reasonably be expected to result in a Material Adverse Effect:

(1) engage in any transaction in connection with which
the Borrower or any ERISA Affiliate is reasonably likely to be subject to
either a material civil penalty assessed pursuant to the provisions of
Section 502 of ERISA or a material tax imposed under the provisions of
Section 4975 of the Code;

(2) terminate any Pension Plan in a "distress
termination" under Section 4041 of ERISA or take any other action which
could result in a material liability of the Borrower or any ERISA
Affiliate to the PBCG;

(3) fail to make payment when due of all amounts which,
under the provisions of any Plan, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto, or, with respect to any Pension
Plan, permit to exist any material "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA and Section 412 of the Code),
whether or not waived, with respect thereto; or

(4) adopt an amendment to any Pension Plan requiring the
provision of security under Section 307 of ERISA or Section 401(a)(29) of
the Code."

(ii) Section VI.P. of the Loan Agreement is hereby amended by
(i) inserting the phrase "or the Term Agreement" in clause (1) thereof following
the phrase "Loan Document" and (ii) deleting the phrase "if the effect thereof
could" in clause (2) thereof and replacing such deleted phrase with the phrase
"if the effect thereof would reasonably be expected to".

(jj) Section VI.Q of the Loan Agreement is hereby amended by
inserting the following at the beginning of the text: "other than in connection
with the Term Agreement".

(kk) Section VIII. of the Loan Agreement is hereby amended by
(i) deleting the references therein to "David Steward" and Telecopy No. "(212)
522-7875" and replacing such references with Barry Pincus" and Telecopy No.
"(212) 827-8330" and (ii) deleting the references therein to "Credit Services
Center" and "Tom Fruge" and replacing such references with "Private Lending
Center" and "Jackie Tatikus".

3. Representations and Warranties. The Borrower hereby represents
and warrants to the Bank as follows:

(a) The representations and warranties made by the Borrower in
the Loan Agreement, as amended hereby, and in each other Loan Document to which
it is a party delivered to the Bank on or prior to the date hereof are true and
correct on and as of the date
<PAGE> 8
8

hereof as though made on and as of the date hereof (except to the extent such
representations and warranties expressly relate to an earlier date).

(b) The Borrower has all requisite power and authority to
execute, deliver and perform the Note in the form attached hereto and this
Amendment and to perform the Loan Agreement, as amended hereby.

(c) The execution, delivery and performance by the Borrower of
the Note in the form attached hereto and this Amendment, and the performance by
the Borrower of the Loan Agreement, as amended hereby, (i) do not and will not
contravene any law or any contractual restriction binding on or affecting the
Borrower or any of its properties, and (ii) do not and will not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties, other than in favor
of the Bank.

(d) Each of the Note in the form attached hereto and this
Amendment and the Loan Agreement, as amended hereby, constitutes the legal,
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its terms.

4. Terminated Documents. Upon the execution and delivery of this
Amendment by the parties hereto, the Guaranty, the Partnership Guaranty, the
Stewart Security Agreement and the Partnership Security Agreement (as such terms
are defined in the Loan Agreement prior to the date of this Amendment) shall be
of no further force or effect and shall be deemed terminated and cancelled and
all Liens purported to be created by the Stewart Security Agreement and the
Partnership Security Agreement shall be fully and effectively discharged and
terminated.

5. Continued Effectiveness of the Loan Agreement. Except as
otherwise expressly provided herein, the Loan Agreement and the other Loan
Documents are, and shall continue to be, in full force and effect and are hereby
ratified and confirmed in all respects except that on and after the date hereof
(i) all references in the Loan Agreement to "this Agreement," "hereto,"
"hereof," "hereunder" or words of like import referring to the Loan Agreement
shall mean the Loan Agreement as amended by this Amendment, (ii) all references
in the other Loan Documents to the "Loan Agreement," "thereto," "thereof,"
"thereunder" or words of like import referring to the Loan Agreement shall mean
the Loan Agreement as amended by this Amendment and (iii) all references in the
Loan Documents to the "Note," "thereto," "thereof," "thereunder" or words of
like import referring to the Note shall mean the Note in the form attached
hereto.

6. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
<PAGE> 9
9

7. Headings. Section headings herein are included for convenience of
reference only and shall not constitute a part of this Amendment for any other
purpose.

8. Governing Law. This Amendment shall be governed by, and construed
in accordance with, the laws of the State of New York.

9. Amendment as Loan Document. The Borrower hereby acknowledges and
agrees that this Amendment constitutes a "Loan Document." To the extent there is
a conflict between the representations, warranties and covenants contained in
Sections IV, V and VI (or, where appropriate, the definitions contained in
Section I) of the Loan Agreement, dated as of March 30, 1999 (the "Term
Agreement"), between the Borrower and the Bank and the representations,
warranties and covenants contained in Sections IV, V and VI (and the appropriate
definitions contained in Section I) of the Loan Agreement (other than those
relating to the revolving nature of the Loans, the Borrowing Base, the
Availability and the Maturity Date), the provisions of Sections IV, V and VI
(and, where appropriate, Section I) of the Term Agreement shall govern.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered as of the date first above written.

MARTHA STEWART OMNIMEDIA LLC

By: /s/ Martha Stewart
---------------------------------------
Name: Martha Stewart
Title: CEO

NATIONSBANK, N.A.

By: /s/ Jane R. Heller
---------------------------------------
Name: Jane R. Heller
Title: Senior Vice President

<PAGE> 1
EXHIBIT 10.4

MARTHA STEWART LIVING OMNIMEDIA LLC

PHANTOM PERFORMANCE UNIT PLAN

ARTICLE I - GENERAL

1.01 PURPOSE

The purposes of the Martha Stewart Living Omnimedia LLC Phantom Performance Unit
Plan (the "Plan") are to more closely align the interests of participants in the
Plan ("Participants") with those of equity owners ("members") of Martha Stewart
Living Omnimedia LLC ("MSLO") and to motivate Participants to achieve "over and
above" performance in the future to result in enhanced MSLO profitability and
value.

1.02 ADMINISTRATION

The Plan shall be administered collectively by the Board of Directors of MSLO or
a committee thereof (hereinafter referred to as "the Board") and Martha Stewart.

1.03 ELIGIBILITY FOR PARTICIPATION

Eligible participants in the Plan include all employees with at least one year
of service with MSLO as of the year end of the year preceding the award year,
with an exception for officers of MSLO (i.e., EVP's, SVP's, VP's, and AVP's).
Officers of MSLO may be immediately eligible upon their employment with MSLO to
participate in the Plan at the discretion of Martha Stewart.

1.04 EFFECTIVE DATE OF THE PLAN

The Plan shall become effective on the date approved by the Board.

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<PAGE> 2
ARTICLE II - PHANTOM PERFORMANCE UNITS

2.01 TYPES OF AWARDS UNDER PLAN

(a) Phantom Performance Units ("Units") represent a contingent right, pursuant
to the terms of this Plan and the related grant letter, to receive (a)
shares of MSLO common stock upon consummation of an initial public
offering of such stock (an "IPO"), or (b) cash if an IPO does not occur
before the fifth anniversary of the date as of which the Units were
granted. This contingent right will become vested based on continued
employment with MSLO, as provided in Section 2.04 below.

(b) The value of a Unit shall be determined based on achieving predetermined
MSLO profit targets over the term of the Plan (see Section 2.05 below).

2.02 FREQUENCY OF PHANTOM PERFORMANCE UNIT AWARDS

(a) There will potentially be three awards of Units, with the first award year
beginning January 1, 1998 ("Year 1"), the next award year beginning
January 1, 1999 ("Year 2"), and the last award year beginning January 1,
2000 ("Year 3"). Notwithstanding the preceding sentence, no Units will be
awarded following an IPO.

(b) Subject to the Change in Control provisions of Section 2.07 below, this
plan will be terminated as of the earlier of the successful completion of
an IPO, or December 31, 2004. Upon the occurrence of these events, prior
grants will be treated as provided in this Plan.

2.03 NUMBER OF PHANTOM PERFORMANCE UNITS AWARDED

Year 1 awards will consist of approximately 10,000 Units awarded equally among
all eligible employees. The number of Units , if any, awarded in Year 2 and Year
3 will be determined by the Board, based upon, among other considerations,
corporate financial performance of MSLO.

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<PAGE> 3
2.04 PHANTOM PERFORMANCE UNIT VESTING REQUIREMENTS

Subject to Sections 2.07, 2.08 and 2.09, in order for Units to vest,
Participants must remain employed with MSLO through the earlier of (i) the
completion of an IPO, and (ii) the fifth anniversary of the date as of which the
relevant Units were awarded (the earlier to occur of (i) and (ii), the
"Settlement Date"). Upon termination of service with MSLO prior to such time for
reasons other than death, Retirement, or Disability, Units will lapse worthless.
(See Section 2.08 for a discussion of termination due to the Death of a
Participant. See Section 2.09 for a discussion of termination due to Retirement
or Disability of a Participant.)

2.05 DETERMINING VALUE OF UNITS

The value of a Unit will be based on MSLO's Earnings Before Interest Taxes and
Amortization (EBITA) (as defined in Section 3.09(a) below) as of the Settlement
Date for such Unit. With respect to each award, the Board shall set forth the
Unit values for all possible EBITA's of MSLO as of the Settlement Date for such
Units. For Year 1 awards such values shall be determined pursuant to the
following matrix:

<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------
If MSLO's Less 2x 1997 4x 1997 Equal to
EBITA than 2x EBITA EBITA or Greater
as of the 1997 Than 6x
Settlement EBITA 1997 EBITA
Date for
Year 1
Awards is:
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Value $0 $50 $100 $150
Per Year 1
Unit shall
be:
- - - -------------------------------------------------------------------------------
</TABLE>

Unit values for EBITA performances falling between 2x and 4x, and 4x and 6x,
1997 EBITA will be interpolated on a straight-line basis.

For Unit Values for Year 2 and Year 3 Awards, if any, see addendums to the Plan.

3
<PAGE> 4
Contingent values for any Units awarded in Year 2 and Year 3 will be determined
at the beginning of each of these years by the Board, based upon, among other
considerations, EBITA projections and other applicable factors. The Board's
determination as to any matter relating to value will be binding on the
Participant.

The Board shall be under no obligation to issue additional Units in any future
period. In the event that MSLO disposes of a significant portion of its
businesses, acquires a business or makes a significant investment which, in each
case, results in a material change in the nature of MSLO's existing businesses,
then the Board may, in its discretion, take such actions with respect to the
Unit values as it determines appropriate in light of such transaction,
including, without limitation, (i) adjusting the Unit values so that such values
relate to the MSLO business as altered by such transaction; (ii) providing that
Unit values shall be based on the EBITA of the MSLO businesses as they existed
prior to the time of such transaction; or (iii) leaving Unit values unchanged
and dependent on the EBITA of the entire MSLO business, as altered by the
transaction.

2.06 SETTLEMENT OF PHANTOM PERFORMANCE UNITS

(a) The number of shares of MSLO common stock a Participant receives after
the completion of an IPO is determined by the number of Units received
upon award, multiplied by the value of each Unit as of the date of the
IPO, divided by the initial offering price of a share of MSLO common
stock in the IPO. A Participant will receive the shares of MSLO common
stock due on account of such Participant's Units as soon as is
practicable following the consummation of an IPO. At MSLO's
discretion, cash may be paid in lieu of fractional shares.

(b) Alternatively, if an IPO does not occur prior to the fifth anniversary
of the date upon which a Unit was awarded, such Unit will be settled in
cash on or about the fifth anniversary of the date on which it was
awarded. Settlement in cash is subject to any and all restrictions
pursuant to indebtedness of MSLO, whether owed to financial
institutions or other parties. In the event settlement in cash is
restricted by such indebtedness, MSLO shall settle any such Units by
delivering to the Participant a promissory note of MSLO bearing
interest at a rate of 5% per annum, compounded annually, payable
promptly when such restrictions are no longer applicable. The
settlement amount will be determined by multiplying the number of Units
received upon award by the value of each Unit.

(c) Subject to the provisions of Sections 2.07, 2.08 and 2.09, Participants
will receive value for their Units only if the Participant is employed
with MSLO on the Settlement Date for such Units.

4
<PAGE> 5
2.07 CHANGE IN CONTROL

Notwithstanding anything in this Plan to the contrary, in the event of a Change
in Control (as defined below) of MSLO, the Board shall value all outstanding
Units as of the date immediately prior to such Change in Control, as though such
date was the Settlement Date for such Units. Immediately prior to consummation
of the Change in Control, Participants employed by MSLO as of such time shall
receive the value for their Units determined pursuant to the preceding sentence.
The Board, in its discretion, may determine to pay the value of the Units using
cash or shares of MSLO common stock, or, if different from the foregoing, the
form of consideration to be received by Members or shareholders, as the case may
be, of MSLO in the Change of Control transaction. For purposes of this Plan,
"Change in Control" shall mean (i) a sale of all or substantially all of the
assets of MSLO to an entity not controlled by Martha Stewart and her affiliates
(collectively, "Stewart"), or (ii) a merger, tender offer, exchange offer,
recapitalization, spin-off or other extraordinary corporate transaction which
results in Stewart beneficially owning or controlling (whether by proxy,
shareholders agreement or similar arrangement) immediately following such
transaction (a) less than 50% of the outstanding voting power of the entity
resulting from such transaction and another person or entity becoming the
beneficial owner of more than the percentage of the outstanding voting power
beneficially owned or controlled by Stewart or (b) less than 30% of the
outstanding voting power of the entity resulting from such transaction.

2.08 DEATH OF PARTICIPANT

Any Units of a Participant employed with MSLO on the date of such Participant's
death shall not terminate as a result of such death and may be settled on the
Settlement Date for such Units by the Participant's estate, or by a person who
acquires the right to settle such Units by bequest or inheritance or by reason
of the death of the Participant.

2.09 RETIREMENT OR DISABILITY OF PARTICIPANT

Upon termination of a Participant's employment by reason of retirement (pursuant
to the retirement policies of MSLO in effect from time to time), or disability
(as determined by the Board), the Participant's Units shall not terminate as a
result of such retirement or disability and the Participant may settle any Units
as of the Settlement Date for such Units.

5
<PAGE> 6
ARTICLE III - MISCELLANEOUS

3.01 NON-ASSIGNABILITY

No Unit shall be assignable or transferable by the recipient thereof, except by
will or by the laws of descent and distribution. During the life of a
Participant, such Participant's Units shall be settled only by such Participant
or by such Participant's guardian or legal representative.

3.02 WITHHOLDING TAXES

Whenever MSLO is required by the Plan to issue or transfer securities or cash to
a Participant in satisfaction of a Unit, MSLO shall have the right to require
the recipient to remit to MSLO an amount sufficient to satisfy any Federal,
State and/or Local withholding tax requirements prior to the delivery of such
securities or cash. Alternatively, MSLO may issue or transfer such securities or
cash net of the amount of such securities or cash sufficient to satisfy the
withholding tax requirements.

3.03 RIGHT TO TERMINATE EMPLOYMENT

Nothing in the Plan or in any agreement entered into pursuant to the Plan shall
confer upon any Participant the right to continue in the employment of MSLO or
effect any right which MSLO may have to terminate the employment of such
Participant.

3.04 NON-UNIFORM DETERMINATIONS

The Board's determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and timing of
such awards, the terms and provisions of such awards and the agreements
evidencing same) need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, awards under the Plan.

3.05 RIGHTS AS A SHAREHOLDER

The recipient of any Units under the Plan shall have no rights as a member or
shareholder with respect thereto unless and until shares of MSLO common stock
are issued to her/him in settlement of such Units.

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<PAGE> 7
3.06 LEAVES OF ABSENCE

The Board shall be entitled to make such rules, regulations and determinations
as it deems appropriate under the Plan in respect of any leave of absence taken
by the recipient of any award. Without limiting the generality of the foregoing,
the Board shall be entitled to (i) determine whether or not any such leave of
absence shall constitute a termination of employment within the meaning of the
Plan, (ii) determine the impact, if any, of any such leave of absence, and (iii)
reinstate an employee's Units which had previously been forfeited as a result of
such employee's termination of employment with the Company, provided that such
employee has re-commenced employment with the Company within six months of such
employee's earlier termination (which power shall, until further action of the
Board, be exercisable by Martha Stewart at her discretion).

3.07 NEWLY ELIGIBLE EMPLOYEES

The Board shall be entitled to make such rules, regulations, determinations and
awards as it deems appropriate in respect of any employee who becomes eligible
to participate in the Plan or any portion thereof after the commencement of an
award or performance period.

3.08 AMENDMENT OR TERMINATION OF THE PLAN

(a) The Board may, without receiving further consideration from the
Participants, amend this Plan to comply with changes in tax, securities,
exchange, or other rules, laws or regulations applicable to this Plan.

(b) The Board may at any time and from time to time terminate or modify or
amend the Plan in any respect, except that without the approval of the
members of MSLO, the Board may not (i) extend the period during which
an award may be granted, or (ii) extend the term of the Plan. The
termination or any modification or amendment of the Plan, except as
provided above in Section, 3.08(a), shall not, without the consent of a
Participant, adversely affect his or her rights under an award
previously granted to her or him.

3.09 DEFINITIONS

(a) "EBITA" shall, as of a particular time, mean:

(1) Net Income (Loss) of MSLO for the four fiscal quarters most recently
ended as of such time (with respect to which such

7
<PAGE> 8
figures are then available) as it would appear on its statement of
income (loss) contained in its audited financial statements (if
statements were prepared for such period), which shall reflect a
reduction for all management and employee annual bonuses earned and
accrued with respect to such period, prepared in accordance with
U.S. generally accepted accounting principles (GAAP), consistently
applied;

- PLUS (MINUS) -

(2) Any PROVISION (BENEFIT) for income taxes deducted (added) in
calculating such net income (loss);

- PLUS (MINUS) -

(3) Any net interest expense (net interest income) deducted (added) in
calculating such net income (loss). (Note: For purposes of this
item, interest expense and interest income will be netted);

- PLUS -

(4) Amortization expenses deducted in calculating such net income
(loss);

- PLUS (MINUS) -

(5) Any UNUSUAL LOSSES (GAINS) DEDUCTED (ADDED) in calculating such net
income (loss). (Unusual items are intended to include transactions
considered outside the ordinary course of business, as determined by
the Board. EBITA will be adjusted to eliminate the effects, if any,
of such transactions, the intent being to calculate EBITA as if such
transaction had not occurred);

- PLUS (MINUS) -

(6) Any COMPENSATION EXPENSE (INCOME) DEDUCTED (ADDED) in calculating
such net income (loss) attributable to transactions involving Units
of MSLO.

3.10 GOVERNING LAW

The Plan will be governed by and in accordance with the laws of the State of
Delaware, without regards to its conflicts of laws and principles.

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<PAGE> 9
ADDENDUM #1 TO THE MSLO PHANTOM PERFORMANCE UNIT
PLAN: YEAR 2 AWARD VALUES

VALUE MATRIX

The values for Units awarded as of January 1, 1999, shall be determined as
follows:

<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------
If MSLO's Less 2.5x 4x 1997 Equal to
EBITA than 1997 EBITA EBITA or Greater
as of the 2.5x Than 6x
Settlement 1997 1997 EBITA
Date for EBITA
Year 2
Awards is:
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Value $0 $60 $120 $180
Per Year 2
Unit shall
be:
- - - -------------------------------------------------------------------------------
</TABLE>

Per Unit values for EBITA performances falling between 2.5x and 4x 1997 EBITA
will be interpolated on a straight-line basis. Per Unit values for EBITA
performances falling between 4x and 6x 1997 EBITA will be interpolated on a
straight-line basis.

<PAGE> 1
EXHIBIT 10.5

MARTHA STEWART LIVING OMNIMEDIA LLC
NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION PLAN

ARTICLE I - GENERAL

1.01 PURPOSE

The purposes of the Martha Stewart Living Omnimedia Nonqualified Class A LLC
Unit/Stock Option Plan (the "Plan") are to: (1) closely associate the interests
of executives, key employees, and outside consultants of Martha Stewart Living
Omnimedia LLC (MSLO) with those of MSLO Class A, Class B, and Class C LLC
unitholders by reinforcing the relationship between participants' rewards and
unitholder gains; (2) recognize, through participation in the Plan, key
performers for their contributions to building the assets of MSLO; (3) motivate
key performers to continue to achieve "over and above" performance in the future
to result in enhanced MSLO profitability and value; and (4) provide an incentive
to executives and key employees for continued employment with MSLO.

1.02 ADMINISTRATION

(a) The Plan shall be administered by the Board of Directors or a committee
thereof (hereinafter referred to as "the Board"), and by Martha Stewart as
provided herein. Martha Stewart may delegate any of her administrative
duties hereunder to the Board.

(b) Martha Stewart, subject to the approval of the Board, shall have the
authority to, from time to time:

(i) designate the employees or classes of employees, and the outside
consultants eligible to participate in the Plan;

(ii) grant awards provided for in the Plan in such form and amount as the
Board shall determine; and

(iii) impose such limitations, restrictions and conditions upon any such
award as the Board shall deem appropriate.

(c) Decisions and determinations of Martha Stewart and the Board on all
matters relating to the Plan shall be in their sole discretion and shall
be conclusive.

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<PAGE> 2

1.03 ELIGIBILITY FOR PARTICIPATION

Individuals eligible to be Plan participants are those executives, key
employees, and outside consultants that added significant value to the
businesses that were previously contributed to or acquired by MSLO and, with
respect to employees, were employed in these predecessor businesses before
January 1, 1996, with the exception of corporate officers employed after January
1, 1996. Corporate officers employed after January 1, 1996 who occupy
responsible managerial or professional positions and who have the capability of
making a substantial contribution to the success of MSLO will also be eligible
to participate in the Plan.

Participants in the Plan shall be selected by Martha Stewart, subject to
approval by the Board, based on the purposes of the Plan. In making this
selection and in determining the number of Options to be awarded under the Plan,
Martha Stewart will consider factors deemed relevant by her, including an
individual's functions, responsibilities, value of services to MSLO and an
individual's contributions to MSLO's profitability and sound growth.

1.04 TYPES OF AWARDS UNDER THE PLAN

Awards to be made under the Plan will be in the form of Nonqualified Class A LLC
Unit/Stock Option awards, as further described in Article II, Section 2.01
below, and hereinafter referred to as "Option(s)."

1.05 AGGREGATE LIMITATIONS ON AWARDS

(a) Class A LLC units which may be issued under the Plan upon Option exercise
prior to an IPO (as defined in Article III, Section 3.10(d) below) shall
be Class A LLC units of MSLO. Shares of MSLO common stock which may be
issued under the Plan upon Option exercise after an IPO shall be
authorized shares of MSLO common stock. The maximum number of Class A LLC
units (or shares of MSLO common stock into which such LLC units may be
converted) which may be issued under the Plan shall be equivalent to
approximately 5% of the number of outstanding LLC units of all classes as
of the Effective Date (as defined in Article I, Section 1.06) of the Plan
(or shares of MSLO common stock into which such Class A LLC units may be
converted).

(b) Any Class A LLC units/shares of MSLO common stock subject to an Option,
which for any reason is forfeited, terminated unexercised, or expires,
shall again be available for issuance under the Plan.

1.06 EFFECTIVE DATE AND TERM OF PLAN

The Plan shall become effective on the date (the "Effective Date") it is
approved by the Board and approved by other holders of LLC interests, to the
extent required by law or the Second Amended and Restated Operating Agreement of
the LLC. The term of the Plan is ten years from its

2
<PAGE> 3

Effective Date, provided that any Options granted shall remain outstanding
consistent with the terms of the Plan and the related Option Agreement.

ARTICLE II - CLASS A LLC UNITS/STOCK OPTIONS

2.01 CLASS A LLC UNIT/STOCK OPTION AWARDS

Martha Stewart (subject to the provisions of the Plan and to approval by the
Board) may award to any eligible individual in the Plan one or more Options to
purchase Class A LLC units (if exercise occurs prior to an IPO), or shares of
MSLO common stock (if exercise occurs after an IPO). The date on which an Option
is awarded shall mean the date selected by the Board when the Board approves its
grant of an Option with respect to a specific number of Class A LLC units/shares
of MSLO common stock to a participant pursuant to the Plan.

In the event of an IPO, all unexercised Options will automatically convert to
Options to purchase a number of shares of MSLO common stock, and the related
Option Price shall also be adjusted. The Options shall be adjusted so that, upon
exercise, each Option would be exercisable for the same number of shares of MSLO
common stock that the holder would have received had the Option been exercised
immediately prior to the IPO (without regard to vesting or exercisability). The
per share Option Price shall be adjusted such that the aggregate Option Price
for each Option immediately prior to the IPO equals the aggregate Option Price
for the Option thereafter. The Board shall make the determination regarding the
foregoing adjustments and shall notify each holder of an Option of the
adjustments. After the IPO, all other terms of the Options shall continue to be
governed by the terms of this Plan and the related Option Agreement.

2.02 NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION AGREEMENTS

The award of an Option shall be evidenced by a written Nonqualified Class A LLC
Unit/Stock Option Agreement ("Option Agreement"), executed by MSLO and the
holder of an Option (the "Optionee"), stating the number of Class A LLC
units/shares of MSLO common stock subject to the Option(s) evidenced thereby,
and in such form as the Board may from time to time determine. Each Option shall
be governed by the terms of the Option Agreement and this Plan.

2.03 NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION PRICE

The Option Price (as defined in Article III, Section 3.10(f) below) per Class A
LLC unit/share of MSLO common stock deliverable upon the exercise of an Option
shall be determined by the Board as of the date of grant and shall be set forth
in the Option Agreement governing such Option.

2.04 TERM, VESTING AND EXERCISABILITY

3
<PAGE> 4

Options vest pursuant to the following vesting schedule (whether or not an IPO
occurs) unless otherwise modified or accelerated by Martha Stewart and approved
by the Board, or as otherwise provided in a specific Option Agreement:

- 10% calendar year end 1998

- 10% calendar year end 1999

- 20% calendar year end 2000

- 20% calendar year end 2001

- 40% calendar year end 2002

Vesting of Options pursuant to the above provisions is contingent upon the
Optionee's continued employment with MSLO (or, with respect to outside
consultants, engagement to perform services for MSLO) through the scheduled
vesting dates. Vested options are not exercisable except as provided below.

Vested Options become fully exercisable at the earlier of Termination of service
with MSLO Without Cause (as defined in Article III, Section 3.10(h) below), or
the completion of an IPO (as defined in Article III, Section 3.10(d) below). All
Options which vest after an IPO shall be exercisable upon vesting.

The term of the Option(s) is ten years beginning at the effective date of the
Plan and subject to the terms of the Plan. No Option shall be exercisable after
the expiration of the respective Option term. If an IPO or Termination of
service Without Cause does not occur within the ten-year term of the Plan,
Options will expire unexercised. Upon Termination of service Without Cause (as
defined in Article III, Section 3.10(h) below), vested Options as of the date of
termination will expire and no longer be exercisable 90 days following
termination (except for extended exercise periods upon death, retirement, or
disability), and unvested Options as of the date of the termination will expire
immediately without exercise. In the event that a Plan participant is Terminated
for Cause (as defined in Article III, Section 3.10(g) below), both his/her
vested and unvested Options will expire immediately without exercise. (See
Article II, Section 2.10 for a discussion of termination due to the Death of
Optionee. See Article II, Section 2.11 for a discussion of termination due to
Retirement or Disability of an Optionee.)

4
<PAGE> 5

2.05 MANNER OF PAYMENT

The Optionee shall exercise options by written notice to MSLO, which notice
shall specify the number of LLC units/shares to be purchased, and which (except
as provided below) shall be accompanied by a check in full payment of the Option
Price for such LLC units/shares. Until such payment, the Optionee shall have no
rights in the underlying LLC units/shares.

The Optionee may exercise Options after an IPO (as defined in Article III,
Section 3.10(d) below) in the manner discussed above, or may direct a broker, as
specified by MSLO, to execute a cashless exercise transaction whereby Options
will be exercised, and shares of MSLO common stock sufficient to cover the
Option Price will be sold. The resulting shares of MSLO common stock, net of the
shares sold to cover the Option Price, will be issued to the Optionee. The
broker will remit the Option Price to MSLO.

Alternatively, the Optionee may direct the broker to sell all shares of MSLO
common stock subject to the Options exercised, to withhold and remit to MSLO the
Option Price, and to remit the sales proceeds net of the above to the Optionee
in cash.

After an IPO, payment of the Option Price may be made in whole or in part, in
the form of unrestricted shares of MSLO common stock already owned by the
Optionee based on the Fair Market Value (as defined in Article III, Section
3.10(c)(ii) below) of the common stock on the date of exercise, provided that
such shares of MSLO common stock have been held by the Optionee for at least six
months at the time of exercise.

2.06 NON-TRANSFERABILITY OF CLASS A LLC UNITS

CLASS A LLC UNITS ISSUED UNDER THIS PLAN SHALL NOT BE TRANSFERABLE BY THE
OPTIONEE FOR A PERIOD OF SIX MONTHS FOLLOWING THE DATE OF EXERCISE, UNLESS
OTHERWISE PERMITTED BY THE BOARD, EXCEPT BY WILL OR BY THE LAWS OF DESCENT AND
DISTRIBUTION. HOLDERS OF CLASS A LLC UNITS PURSUANT TO EXERCISED OPTIONS SHALL
GENERALLY HAVE NO VOTING RIGHTS IN SUCH UNITS AND STEWART SHALL VOTE SUCH UNITS
PURSUANT TO THE LLC AGREEMENT.

THEREAFTER, TRANSFERABILITY OF CLASS A LLC UNITS WILL BE DETERMINED BY THE
PROVISIONS OF THE THIRD AMENDED AND RESTATED OPERATING AGREEMENT OF THE MSLO
LIMITED LIABILITY COMPANY, AS AMENDED FROM TIME TO TIME (THE "LLC AGREEMENT"),
WHICH IMPOSES SUBSTANTIAL LIMITATIONS ON TRANSFERABILITY.

2.07 RESTRICTIONS ON CLASS A LLC UNITS

As soon as practicable after receipt of payment upon exercise of an Option prior
to an IPO (as defined in Article III, Section 3.10(d) below), MSLO shall deliver
to the Optionee a certificate or certificates for such Class A LLC units. The
Optionee shall become a Unitholder of MSLO with respect to Class A LLC units
represented by unit certificates so issued, and as such shall be entitled to all
rights of a Class A Unitholder in respect of his/her unitholdings, subject to
the following restrictions:

5
<PAGE> 6

(a) LEGEND:

The certificates for Class A LLC units purchased under this Plan upon Option
exercise shall bear the following restrictive legend, (and other appropriate
language regarding limitations on transfer):

"The MSLO Class A LLC units represented by this certificate have not been
registered by MSLO under the Securities Act of 1933 or state securities
laws. They are subject to an Option Plan of, and related Option Agreement
with, MSLO and they may not be sold or otherwise transferred except as
therein provided, or as provided in the Third Amended and Restated
Operating Agreement of the MSLO Limited Liability Company (or any successor
agreement), and any sale or other transfer in violation thereof shall be
void and of no effect. A copy of such Agreement is on file at MSLO's
principal office."

(b) VOTING RIGHTS:

Class A LLC units purchased under this Option by the Optionee will be subject to
a proxy pursuant to which Martha Stewart, or in the event of her death or
disability, her legally designated representative, the majority Class A LLC
unitholder will exercise all voting rights over such Class A LLC units with
respect to all matters submitted for the vote or consent of holders of Class A
LLC units. Such proxy shall be irrevocable and coupled with an interest for
purposes of Delaware law. Each Option holder agrees, as a condition to the
receipt of an Option, to execute any additional documents that may be required
to effect such proxy.

(c) Class A LLC units purchased pursuant to exercise of an Option under this
Plan may be re-acquired by MSLO as follows, or disposed of as allowed by
the provisions of the Third Amended and Restated Operating Agreement of
the MSLO Limited Liability Corporation.

(i) MSLO CALL OPTION EXERCISE

The Optionee is obligated to resell Class A LLC units to MSLO when
"called" upon to do so. Upon receipt of written notification from
MSLO of its decision to exercise its "Call Option" with respect to
such units, the Optionee agrees to sell all Class A LLC units
purchased at the lower of their Book Value (as defined in Article
III, Section 3.10(a) below) and their Fair Market Value (as defined
in Article III, Section 3.10(c)(i) below) on the "Call Date" (as
defined in Article II, Section 2.07 (c)(A) below).

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<PAGE> 7

(A) DELIVERY OF CERTIFICATES AND PAYMENT FOLLOWING A CALL

The date on which written notification from MSLO of its decision to
exercise its "Call Option" is received by the Optionee will be considered
the "Call Date". The certificates for any Class A LLC units to be sold to
MSLO pursuant to this Plan will be delivered by the Optionee or her/his
legal representative to MSLO at its principal office, duly assigned to
MSLO with signature guaranteed, on a date not less than ten (10) nor more
than thirty (30) days following the giving of written notice by MSLO of
intention to "call" pursuant to the provisions thereof. In exchange
therefore, MSLO will pay to the Optionee the lower of the Book Value (as
defined in Article III, Section 3.10(a) below) or the Fair Market Value
(as defined in Article III, Section 3.10(c)(i) below), of the Class A LLC
units on the "Call Date". Payment for such Class A LLC units will either
be made in cash or made in the form of a promissory note of MSLO, as
provided below. Settlement in cash is subject to any and all restrictions
pursuant to indebtedness of MSLO whether owed to financial institution or
other parties. In the event that Units would be settled in cash but for
the restrictions in such indebtedness, MSLO shall settle such Class A LLC
units by delivering to the participant a promissory note of MSLO, payable
promptly, when such restrictions are no longer applicable, with the note
bearing interest at a rate of 5% per annum, compounded annually. The
applicability of the immediately preceding sentence will be determined in
the sole discretion of the Board. MSLO will pay all transfer taxes, if
any, due in connection with such sale.

(B) DURATION OF CALL OPTION

The "Call Option" will remain in effect until one of the following events
occurs: (a) the consummation of an IPO; or (b) a Change in Control of
MSLO, defined as follows:

(i) a sale of all or substantially all of the assets of MSLO to an
entity not controlled by Martha Stewart and/or her affiliates
(collectively, "Stewart"), or

(ii) a merger, tender offer, exchange offer, recapitalization, spin-off
or other extraordinary corporate transaction (or a sale of LLC units
or shares of MSLO common stock) (each a "Transaction") which results
in Stewart and her affiliates beneficially owning or controlling in
the aggregate (whether by proxy, shareholders agreement or similar
arrangement) immediately following such transaction: (a) less than
50% of the outstanding voting power of the entity resulting from
such transaction and another person or entity becoming the
beneficial owner of more than the percentage of the aggregate
outstanding voting power beneficially owned or controlled by Stewart
and her affiliates, or (b) less than 30% of the outstanding voting
power, or

(iii) a majority of the members of the Board is replaced during any
12-month period by individuals whose appointment or election is not
endorsed by a majority of the members of the Board prior to the date
of the appointment or election.

The determination of the Board as to the occurrence of a Change in
Control shall be final, and it shall promptly notify the Optionee
thereof. Upon the occurrence of any of the foregoing events, the
obligation of the Unitholder or his/her legal representative to sell
to MSLO any Class A LLC units acquired by the Unitholder hereunder
shall terminate.

7
<PAGE> 8

2.08 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

(a) CLASS A LLC UNITS AND SHARES OF COMMON STOCK AVAILABLE FOR AWARDS AND
OPTIONS

In the event of any change in the number of LLC units/shares of MSLO
common stock outstanding by reason of any recapitalization, merger,
consolidation, combination, stock dividend or split, reverse stock split,
spin-off, split-up or exchange of LLC units/shares of MSLO common stock or
similar corporate event, the maximum aggregate number of Class A LLC
units/shares of MSLO common stock with respect to which the Board may
award Options shall be appropriately adjusted by the Board and the Board
shall likewise appropriately adjust the number of LLC units/shares and the
Option Price of any outstanding Option. In the event of any change in the
number of LLC units/shares of MSLO common stock outstanding by reason of
any other event or transaction, the Board may, but need not, make such
adjustments in the number and class of LLC units/shares of MSLO common
stock with respect to which Options may be awarded as the Board may deem
appropriate.

(b) OUTSTANDING CLASS A LLC UNITS AND SHARES OF COMMON STOCK

The Board shall appropriately adjust any issuance of Class A LLC
units/shares of MSLO common stock, subject to an outstanding Option, to
reflect any recapitalization, merger, consolidation, combination, stock
dividend or split, reverse stock split, spin-off, exchange of LLC
units/shares or similar corporate change as the Board may deem appropriate
to prevent the enlargement or dilution of rights of Optionees under the
award.

In the event of a merger, consolidation or similar event pursuant to which
LLC Units/MSLO shares are exchanged for or converted into other securities
or property, or with respect to which holders of LLC units/MSLO shares
receive any other form of consideration (an "Extraordinary Transaction"),
the Board shall appropriately adjust each outstanding Option (including
the number of Class A LLC units/shares subject to the Option and the
Option Price, as appropriate) such that, upon exercise thereof, each
Option will entitle the holder to receive the securities and/or property
that such holder would have received had the Option been exercised
immediately prior to the Extraordinary Transaction upon payment of the
applicable Option Price. Notwithstanding the foregoing, in the event an
Extraordinary Transaction is also a Change in Control, the provisions of
the penultimate paragraph of this Section 2.08(c) shall apply in lieu of
this paragraph.

In the event of an IPO (as defined in Article III, Section 3.10(d) below),
a Unitholder's Class A LLC interests shall be treated in the same manner
as Class A LLC interests not issued pursuant to the Plan, as set forth in
the LLC Agreement.

8
<PAGE> 9

In the event of a Change in Control (as defined in (B) above), pursuant to
the discretion of the Board, at least one of the following alternatives
shall apply: (i) each outstanding Option shall become immediately and
fully exercisable and shall remain exercisable pursuant to the terms of
the Plan; (ii) each outstanding Option shall become immediately and fully
exercisable, and shall terminate as of a date to be fixed by the Board,
and not less than 30 days written notice of such date shall be given to
each Optionee; (iii) each outstanding Option shall be canceled in exchange
for a payment in an amount equal to the excess of the highest price paid
per Class A LLC Unit in the Change in Control transaction, over the Option
Price of the Option (any such payment shall be made by a promissory note
if required by Article II, Section 2.07(c)(i)(A)); the Board shall
appropriately adjust each outstanding Option pursuant to Article II,
Section 2.08 to preserve the value of such Option following the Change in
Control transaction, and may provide that, upon exercise thereof, each
Option will entitle the holder to receive the securities and/or property
that such holder would have received had the Option been exercised
immediately as of the date of termination, prior to the Change in Control
and the holder had been permitted to sell his/her Class A LLC Units in the
Change in Control transaction.

The determination of the Board as to the occurrence, and adjustment with
respect to, of any of the events specified in this paragraph shall be
final, and it shall promptly notify the Optionee and/or Unitholder
thereof.

(d) NO OTHER RIGHTS

Except as expressly provided in the Plan, no Optionee shall have any
rights by reason of any subdivision or consolidation of LLC units/shares
of stock of any class, any increase or decrease in the number of LLC
units/shares of stock of any class or any dissolution, liquidation, merger
or consolidation of MSLO or any other corporation. Except as expressly
provided in the Plan, no issuance by MSLO of LLC units/shares of stock of
any class, or securities convertible into LLC units/shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number of Class A LLC units/shares of MSLO common
stock subject to an Option.

9
<PAGE> 10

2.09 CONFIDENTIALITY

Optionees shall not, during the period of employment (or, with respect to
outside consultants, the period of engagement), or at any time thereafter
(irrespective of the circumstances under which Optionee's employment or
engagement by MSLO terminates), except as required by law, directly or
indirectly give any Confidential Records or Information (as defined in Article
III, Section 3.10(b) below) to, or permit any inspection or copying of
Confidential Records or Information by, any individual or entity.

2.10 DEATH OF OPTIONEE

Upon the death of the Optionee, any vested and exercisable Options, on the date
of death, may be exercised by the participant's estate, or by a person who
acquires the right to exercise such Options, by bequest or inheritance or by
reason of the death of the Optionee within twelve months following termination
due to death of the Optionee.

2.11 RETIREMENT OR DISABILITY

Upon termination of the Optionee's employment (or, with respect to outside
consultants, engagement) by reason of retirement (pursuant to the retirement
policies of MSLO in effect from time to time), or disability (as determined by
the Board), the Optionee may exercise any Options within twelve months following
termination due to retirement or disability of the Optionee to the extent such
Options were vested and exercisable as of the date of retirement or disability.

2.12 TERMINATION FOR OTHER REASONS

Except as otherwise determined by the Board, all unvested Options shall expire
without exercise upon the termination of the Optionee's employment (or
engagement) for any reason. In the event an Optionee's employment with (or, with
respect to outside consultants, engagement by) MSLO Terminates Without Cause (as
defined in Article III, Section 3.10(h) below), vested Options as of the date of
termination, will become immediately exercisable for a period of 90 days
following such termination. In the event the Optionee's service with MSLO is
Terminated for Cause, (as defined in Article III, Section 3.10(g) below), vested
as well as unvested Options as of the date of such termination shall expire
without exercise immediately upon the termination of the Optionee's employment
(or, with respect to outside consultants, engagement).

10
<PAGE> 11

ARTICLE III - MISCELLANEOUS

3.01 GENERAL RESTRICTION

Each award under the Plan shall be subject to the requirement that, if at any
time the Board shall determine that (i) the listing, registration or
qualification of the Class A LLC units or shares of MSLO common stock subject or
related thereto upon any securities exchange or under any Federal or State law,
or (ii) the consent or approval of any government regulatory body, or (iii) an
agreement by the Optionee of an Option with respect to the disposition of Class
A LLC units or shares of MSLO common stock is, in each case, necessary or
desirable as a condition of, or in connection with, the awarding of such Option
or the issue or purchase of Class A LLC units or shares of MSLO common stock
thereunder, such issue or purchase may not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Board.

3.02 NON-ASSIGNABILITY

No award under the Plan shall be assignable or transferable by the recipient
thereof, except by will or by the laws of descent and distribution. During the
life of the recipient, such award shall be exercisable only by such person or by
such person's guardian or legal representative.

3.03 WITHHOLDING TAXES

Whenever MSLO is required to issue or transfer Class A LLC units or shares of
MSLO common stock under the Plan, MSLO shall have the right to require the
Optionee to remit to MSLO an amount sufficient to satisfy any Federal, State
and/or Local withholding tax requirements prior to the delivery of any
certificate or certificates for such Class A LLC units or shares of MSLO common
stock. Alternatively, in the sole discretion of the Board, MSLO may issue or
transfer such Class A LLC units or MSLO shares of common stock net of the number
of Class A LLC units or shares of MSLO common stock sufficient to satisfy the
withholding tax requirement, or the Optionee may deliver to MSLO previously
owned shares of MSLO common stock sufficient to satisfy the withholding
liability. In the case of a cashless exercise transaction, a broker (as
specified by MSLO) may issue or transfer shares of MSLO common stock net of the
number of shares of MSLO common stock sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the Fair Market Value of Class A LLC
units (as defined in Article III, Section 3.10(c) (i) below) and the Fair Market
Value of shares of MSLO common stock (as defined in Article III, Section 3.10(c)
(ii) below) shall be determined on the date the tax withholding obligation is
incurred.

11
<PAGE> 12

3.04 RIGHT TO TERMINATE EMPLOYMENT OR ENGAGEMENT

Nothing in the Plan, the Option Agreements, or any other agreements entered into
pursuant to the Plan shall confer upon any participant the right to continue in
the employment of MSLO (or, with respect to outside consultants, to be engaged
by MSLO), or effect any right which MSLO may have to terminate the employment
(or, with respect to outside consultants, the engagement) of such participant.

3.05 NON-UNIFORM DETERMINATIONS

Determinations by the Board and/or Martha Stewart under the Plan (including
without limitation determinations of the persons to receive awards, the form,
amount and timing of such awards, the terms and provisions of such awards and
the agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan.

3.06 RIGHTS AS A UNITHOLDER/SHAREHOLDER

The recipient of any award under the Plan shall have no rights as a
unitholder/shareholder with respect thereto unless and until she/he has given
written notice of exercise and has paid the Option Price in full, and has
satisfied all applicable tax withholding requirements.

The rights and privileges of LLC unitholders are governed by the LLC Agreement,
as amended from time to time, except as specifically modified herein, and Class
A LLC units purchased pursuant to an Option shall also be subject to the proxy
described in Section 2.07(b) of this Plan.

3.07 LEAVES OF ABSENCE

The Board shall be entitled to make such rules, regulations and determinations
as it deems appropriate under the Plan in respect of any employee leave of
absence taken by the Optionee. Without limiting the generality of the foregoing,
the Board shall be entitled to determine (i) whether or not any such leave of
absence shall constitute a termination of employment within the meaning of the
Plan and pursuant to its Termination Policy, as described in Section I, (E) of
MSLO House Rules and Etiquette and (ii) the impact, if any, of any such leave of
absence on awards under the Plan theretofore made to any Optionee who takes such
leave of absence.

12
<PAGE> 13

3.08 NEWLY ELIGIBLE OPTIONEES

The Board and Martha Stewart shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any individual
who becomes eligible to participate in the Plan, or any portion thereof, after
the commencement of an award or incentive period.

3.09 AMENDMENT OF THE PLAN

(a) Except as set forth in Section 3.09(b) below, the Board may, without
further action by Class A, Class B and Class C LL unitholders (or
shareholders following an IPO), and without receiving further
consideration from the participants, terminate the Plan or amend the
provisions of this Plan or condition or modify awards under this Plan for
any reason whatsoever, except that no termination, amendment or
modification that adversely affects a participant's rights under an award
previously awarded to him or her may be made without such participant's
consent unless it is in response to changes in tax, securities or other
laws or rules, regulations or regulatory interpretations thereof
applicable to this Plan or to comply with exchange rules or requirements.

(b) Without LLC unitholder approval (or, if after an IPO, shareholder
approval), the Board may not (i) increase the maximum number of Class A
LLC units or shares of MSLO common stock which may be issued under the
Plan (other than increases pursuant to Article III, Section 2.08 above),
(ii) extend the period during which any award may be awarded or exercised,
(iii) extend the term of the Plan or (iv) modify or amend the provisions
of Article II, Section 2.07 above.

3.10 DEFINITIONS

In this Plan, the following definitions shall apply:

(a) "Book Value" of Class A LLC units in all cases will be determined by the
Board on a semi-annual basis, to the extent necessary, in its sole
discretion based on generally accepted accounting principles (GAAP) as
consistently applied. In the event that transactions that require a
determination of Book Value fall in between the Board's semi-annual
determinations of Book Value, the determination of Book Value made on the
semi-annual valuation date immediately preceding such transactions shall
be used. The Board's determination as to any matter relating to Book Value
hereunder, will be final and binding on both MSLO and any Optionee.

(b) "Confidential Records or Information" means all MSLO LLC, LLC unitholder,
and general business correspondence, memoranda, files, manuals, books,
lists, financial, operating or marketing records, magnetic tape, or
electronic or other media or equipment of any kind, or confidential or
proprietary information which may be in the Optionee's possession or under
his/her control or accessible to him/her. "Confidential Records or
Information" will not include information that has become publicly
available other than due to a breach by the Optionee of the obligation
herein.

13
<PAGE> 14

(c) (i) "Fair Market Value" of Class A LLC units will in all cases be
determined by the Board, in its sole discretion, on a semi-annual
basis, to the extent necessary, based on consultation with
investment bankers or other financial advisors. In the event that
transactions that require a determination of Fair Market Value fall
in between semi-annual valuation dates, the determination of Fair
Market Value made on the semi-annual valuation date immediately
preceding such a transaction shall be used. The Board's
determination as to any matter relating to Fair Market Value
hereunder, including without limitation, the method of valuation to
be applied, will be final and binding on both MSLO and the Optionee.

(ii) "Fair Market Value" as of any date in respect of any shares of MSLO
common stock shall be defined as: (i) the average of the closing bid
and asked price of a share of MSLO common stock on such date if
shares of MSLO common stock are traded on NASDAQ or, (ii) the
average of the high and low price of a share of MSLO common stock on
such date as reported on the composite trading system if shares of
MSLO common stock are traded on NYSE or AMEX. If there was no such
price (or the common stock was not traded) on such date, Fair Market
Value shall be determined on the last preceding date or on which
there was such a price (on which the common stock was traded).

(d) "Initial Public Offering" ("IPO") shall mean upon the consummation of a
public offering for shares of MSLO common stock pursuant to a registration
statement filed with the Securities and Exchange Commission on Form S-1,
or some similar form, that has become effective.

(e) "Option" means an MSLO Nonqualified Class A LLC Unit/Stock Option.

(f) "Option Price" means the purchase price per Class A LLC unit/share of MSLO
common stock deliverable upon the exercise of a Nonqualified Class A LLC
Unit/Stock Option.

(g) "Termination for Cause" may occur at the option of MSLO because the
Optionee:

(1) has been convicted of, or has pled guilty or nolo contendere to a
felony or to any other crime involving moral turpitude, or

(2) has embezzled or misappropriated MSLO funds or property, or

(3) has continued use of alcohol or drugs to an extent that interferes
with the performance by the Optionee of her/his employment (or, with
respect to outside consultants, engagement) responsibilities, or

(4) has violated the Confidentiality provisions of Article II, Section
2.09, above, or

(5) has been terminated for any other reason pursuant to MSLO's
Discipline Policy, as defined in Section I, (E) of MSLO House Rules
and Etiquette, or

14
<PAGE> 15

(6) has materially breached any employment, consulting or other
agreement with MSLO, or

(7) has failed to use reasonable best efforts to perform his/her duties
and obligations of employment with (or engagement by) MSLO.

(h) "Termination Without Cause" is any cessation of an Optionee's employment
with (or, with respect to outside consultants, engagement by) MSLO other
than a Termination for Cause (as defined in Section 3.10(g) above),
retirement or disability.

3.11 GOVERNING LAW

The Plan will be governed by and in accordance with the laws of the State of
Delaware, without regards to its conflicts of laws and principles.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

New York, New York
July 29, 1999

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 1, 1997, with respect to the financial statements
of Martha Stewart Living (a wholly owned operation of Time Inc.) as of December
31, 1996 and for the year then ended included in the Registration Statement
(Form S-1) and related Prospectus of Martha Stewart Living Omnimedia, Inc. for
the registration of Class A common stock.

ERNST & YOUNG LLP

New York, New York
July 28, 1999

<PAGE> 1

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, MARTHA STEWART LIVING OMNIMEDIA, INC., a Delaware corporation
(hereinafter referred to as the "Registrant"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities Act
of 1933, as amended, a registration statement on Form S-1 with respect to shares
of Class A common stock of the Registrant (the "Registration Statement");

WHEREAS, the undersigned is Chairman of the Board and Chief Executive
Officer of the Registrant, as indicated below her signature; and

WHEREAS, the undersigned hereby constitutes and appoints Gregory Blatt
(with full power to act alone), her true and lawful attorney-in-fact and agent,
with full power of substitution, for her and on her behalf to sign, execute and
file this Registration Statement and any or all amendments (including, without
limitation, post-effective amendments and any amendment or amendments or
abbreviated registration statement increasing the amount of securities for which
registration is being sought) to this Registration Statement, with all exhibits
and any and all documents required to be filed with respect thereto, with the
Securities and Exchange Commission or any regulatory authority, granting unto
such attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises in order to effectuate the same as fully to all
intents and purposes as she might or could do if personally present, hereby
ratifying and confirming all that such attorney-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 26th day of July, 1999.
/s/ Martha Stewart
--------------------------------------
Name: Martha Stewart
Title: Chairman of the Board and Chief
Executive Officer
<PAGE> 2

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, the undersigned is President, Chief Operating Officer and a
director of the Registrant, as indicated below her signature; and

WHEREAS, the undersigned hereby constitutes and appoints Gregory Blatt
(with full power to act alone), her true and lawful attorney-in-fact and
agent, with full power of substitution, for her and on her behalf to sign,
execute and file this Registration Statement and any or all amendments
(including, without limitation, post-effective amendments and any amendment or
amendments or abbreviated registration statement increasing the amount of
securities for which registration is being sought) to this Registration
Statement, with all exhibits and any and all documents required to be filed with
respect thereto, with the Securities and Exchange Commission or any regulatory
authority, granting unto such attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as she might or could
do if personally present, hereby ratifying and confirming all that such
attorney-in-fact and agents, or any of them, or their substitute or substitutes,
may lawfully do or cause to be done.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 26th day of July, 1999.
/s/ Sharon Patrick
--------------------------------------
Name: Sharon Patrick
Title: President, Chief Operating
Officer and Director
<PAGE> 3

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, the undersigned is Senior Vice President, Finance and Controller
of the Registrant, as indicated below his signature; and

WHEREAS, the undersigned hereby constitutes and appoints Sharon Patrick and
Gregory Blatt, or either of them (with full power to each of them to act alone),
his true and lawful attorney-in-fact and agent, with full power of substitution,
for him and on his behalf to sign, execute and file this Registration Statement
and any or all amendments (including, without limitation, post-effective
amendments and any amendment or amendments or abbreviated registration statement
increasing the amount of securities for which registration is being sought) to
this Registration Statement, with all exhibits and any and all documents
required to be filed with respect thereto, with the Securities and Exchange
Commission or any regulatory authority, granting unto such attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as he might
or could do if personally present, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 29th day of July, 1999.

/s/ James Follo
--------------------------------------
Name: James Follo
Title: Senior Vice President, Finance
and Controller
<PAGE> 4

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, the undersigned is a director of the Registrant, as indicated
below her signature; and

WHEREAS, the undersigned hereby constitutes and appoints Sharon Patrick and
Gregory Blatt, or either of them (with full power to each of them to act alone),
her true and lawful attorney-in-fact and agent, with full power of substitution,
for her and on her behalf to sign, execute and file this Registration Statement
and any or all amendments (including, without limitation, post-effective
amendments and any amendment or amendments or abbreviated registration statement
increasing the amount of securities for which registration is being sought) to
this Registration Statement, with all exhibits and any and all documents
required to be filed with respect thereto, with the Securities and Exchange
Commission or any regulatory authority, granting unto such attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as she
might or could do if personally present, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 26th day of July, 1999.

/s/ Charlotte Beers
--------------------------------------
Name: Charlotte Beers
Title: Director
<PAGE> 5

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, the undersigned is a director of the Registrant, as indicated
below his signature; and

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 26th day of July, 1999.
/s/ L. John Doerr
--------------------------------------
Name: L. John Doerr
Title: Director

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 AND MARCH 31, 1999 CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND
IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 24,578 17,363
<SECURITIES> 0 0
<RECEIVABLES> 25,260 29,738
<ALLOWANCES> 0 0
<INVENTORY> 6,522 8,088
<CURRENT-ASSETS> 59,673 58,408
<PP&E> 11,468 11,380
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 125,372 123,467
<CURRENT-LIABILITIES> 53,635 59,382
<BONDS> 27,650 12,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 36,815 43,434
<TOTAL-LIABILITY-AND-EQUITY> 125,372 123,467
<SALES> 0 0
<TOTAL-REVENUES> 180,048 53,379
<CGS> 0 0
<TOTAL-COSTS> 152,663 45,959
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,243 457
<INCOME-PRETAX> 25,142 6,963
<INCOME-TAX> 1,336 344
<INCOME-CONTINUING> 23,806 6,619
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 23,806 6,619
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0

</TABLE>