<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1999
REGISTRATION NO. 333-84001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MARTHA STEWART LIVING OMNIMEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2721 52-2187059
(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)
------------------------
GREGORY R. BLATT, ESQ.
EXECUTIVE 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)
------------------------
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>
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$.01 per share................. 8,280,000 shares $15.00 $124,200,000 $34,528(3)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes an aggregate of 1,080,000 shares which the Underwriters have the
option to purchase from the Registrant 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.
(3) Of this amount, $27,800 has previously been paid.
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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- --------------------------------------------------------------------------------
<PAGE> 2
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 5,760,000 shares of Class A common stock. The second prospectus
relates to a concurrent public offering outside the United States and Canada of
an aggregate of 1,440,000 shares of Class A common stock. The prospectuses for
each of these 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.
<PAGE> 3
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 September 24, 1999
7,200,000 Shares
[Martha Stewart Living Omnimedia 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 $13 AND $15 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.
------------------------
OUR CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE, SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "MSO."
------------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS THE COMPANY
------------ ------------- ------------
<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 1,080,000 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 MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE BANC OF AMERICA SECURITIES LLC
, 1999
<PAGE> 4
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) [International Cover Page]
Issued September 24, 1999
7,200,000 Shares
[Martha Stewart Living Omnimedia 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 $13 AND $15 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.
------------------------
OUR CLASS A COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE, SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "MSO."
------------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS THE COMPANY
------------ ------------- ------------
<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 1,080,000 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 MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE BANK OF AMERICA INTERNATIONAL LIMITED
, 1999
<PAGE> 5
[Inside front cover page double gatefold graphics: consists of pictures intended
to represent our four business segments publishing, television, merchandising
and Internet - and our seven core content areas - home, keeping, garden,
weddings, holidays, cooking and crafts - through photos of cover pages of, and
photos from, various issues of Martha Stewart Living(R) and Martha Stewart
Weddings(TM) magazines and various books; photos of cover pages of, and photos
depicting products available in, various Martha by Mail(R) catalogs; photos of
sample products bearing the Martha Stewart Everyday(R) and Martha Stewart Home
brands; images used in store signage and product packaging; sample webpages from
the marthastewart.com website; and a stillframe of a studio set for the Martha
Stewart Living television series.]
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Recent Developments--Strategic
Investment.......................... 9
Risk Factors.......................... 10
Special Note With Respect to Forward-
Looking Information................. 19
Reorganization Transactions Occurring
Prior to This Offering.............. 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Selected Historical and Pro Forma
Consolidated Financial Data......... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 36
Management............................ 56
Certain Relationships and Related
Transactions........................ 69
Principal Stockholders................ 73
Description of Capital Stock.......... 75
Shares Eligible for Future Sale....... 78
Material U.S. Federal Income Tax
Considerations for Non-U.S.
Holders............................. 79
Underwriters.......................... 82
Legal Matters......................... 84
Experts............................... 84
Additional Information................ 85
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
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.
------------------------
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.
1
<PAGE> 7
(This page has been left blank intentionally.)
2
<PAGE> 8
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 "we," "us" and "our" refer to Martha Stewart
Living Omnimedia, Inc. and, unless the context requires otherwise, Martha
Stewart Living Omnimedia LLC, the legal entity that 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 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, radio segments and
products relating to our seven core content areas. We have two primary strategic
objectives:
-- to provide our original "how to" content and information to as many
consumers as possible
-- 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 by distributing our "how to" content
over a broad range of different media outlets. These outlets comprise what we
call our "omnimedia" platform, which currently includes:
-- two magazines, Martha Stewart Living(R) and Martha Stewart
Weddings(TM), 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, plus a weekly segment on CBS This Morning
-- From Martha's Kitchen(TM), a daily cable television program
-- 27 books, which together have sold more than 8.5 million copies
-- a weekly askMartha(R) newspaper column, syndicated in 233 newspapers
-- the askMartha radio program, airing on 270 stations throughout the
United States
-- marthastewart.com, our website, with over 925,000 registered users
To accomplish our second business objective, we have created our
"omnimerchandising" platform. Our omnimerchandising platform consists of
products we design or select for production and sale. As of July 1999, our
merchandise included more than 2,800 distinct variations of products, including
bed and bath products, interior paints, craft kits, outdoor furniture and garden
tools. Through this platform, we seek to offer our consumers quality,
convenience and choice across a broad range of retail and direct to consumer
channels. Retail sales of Martha Stewart branded merchandise by Kmart
Corporation and our other merchandising partners reached $763 million in 1998,
an increase of 96% over 1997.
3
<PAGE> 9
We distribute our products through:
-- the mass market discount channel in the United States and Canada
-- the national department store channel in the United States and Canada
-- specialty paint stores and specialty craft and fabric stores across
the United States
-- our upscale catalog, Martha by Mail(R)
-- our online Martha by Mail store
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 our
merchandising capabilities to create a one-stop online destination for consumers
interested in the domestic arts.
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 we believe include our:
-- established, highly recognizable brand name
-- position as a leading authority across key categories of domestic
arts
-- extensive library of high-quality content, products and designs
-- extensive research and development process
-- highly experienced team of creative and business personnel
-- organizational structure that promotes creativity and efficiency
-- strong relationships with key distribution, fulfillment and marketing
vendors
STRATEGIES
Our strategies focus on continuing to create new content and products and
leveraging our brands across multiple media and retail channels. Our strategies
are to:
-- expand our merchandising along our core content lines
-- leverage the cost of developing high quality content across our media
and merchandising platforms
-- capitalize on revenue opportunities created by the Internet
-- cross-sell and cross-promote our brands
-- evolve our brands through team-based content and reduce dependence on
our founder
------------------------
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 information and other content
contained on our website are not part of this prospectus.
4
<PAGE> 10
THE OFFERING
Unless we specifically state otherwise, the information in this prospectus
does not take into account the possible issuance of up to 1,080,000 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 15,479,527 shares of Class A common stock
outstanding following this offering.
Class A common stock
offered....................... 7,200,000 shares
Common stock to be outstanding
after this offering:
Class A common stock..... 14,399,527 shares
Class B common stock..... 34,126,831 shares
----------
Total.......... 48,526,358 shares
----------
----------
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" for a description of the
material terms of our common stock.
Use of proceeds............... We may use approximately $41.7 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. See "Use of Proceeds" for additional
information on our intentions with respect to
the proceeds of this offering.
The number of shares of Class A and Class B common stock to be outstanding
after this offering include 88,764 shares to be issued to our employees upon
completion of this offering under the Martha Stewart Living Omnimedia Phantom
Performance Unit Plan. These numbers exclude 7,600,000 shares of Class A common
stock reserved for issuance under our 1999 incentive and director compensation
plans. Of these reserved shares, at the time of this offering, we expect to
issue options to acquire 4,592,220 shares of Class A common stock at an exercise
price equal to the initial public offering price. See "Management --
Compensation of Outside Directors -- The Non-Employee Director Stock and Option
Compensation Plan" and "-- The 1999 Stock Incentive Plan" for more information
on these issuances. For information regarding options granted prior to this
offering, see "Management -- Employee Incentive Compensation Plans --
Nonqualified Class A LLC Unit/Stock Option Plan" and "-- Executive Employment
Arrangements -- Employment Arrangements with Helen Murphy -- Option Agreement."
5
<PAGE> 11
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with summary historical and pro forma
financial information of Martha Stewart Living Omnimedia LLC. The following
consolidated statement of operations data for the years ended December 31, 1997
and 1998 is derived from the audited consolidated financial statements of Martha
Stewart Living Omnimedia LLC included elsewhere in this prospectus. The
following consolidated statement of operations data for the six months ended
June 30, 1998 and 1999 and the consolidated balance sheet data as of June 30,
1999 have been derived from the unaudited financial statements of Martha Stewart
Living Omnimedia 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 six-month period ended June 30, 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 statement of operations data for all of the periods presented
includes an adjustment to the income tax provision reflecting the
reorganization of Martha Stewart Living Omnimedia LLC into a C
corporation as though the reorganization had occurred prior to the
start of each period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" for
further information on this adjustment.
-- The statement of operations data for the six months ended June 30,
1999 does not include a one-time benefit of approximately $2.9
million that will result from the change in the tax status of Martha
Stewart Living Omnimedia LLC at the time it is reorganized into a C
corporation. The benefit actually recognized will be determined on
the effective date of the reorganization.
-- The balance sheet data as of June 30, 1999 is presented on both a pro
forma and pro forma as adjusted basis:
-- The pro forma data gives effect to $16.0 million of distributions to
the members of Martha Stewart Living Omnimedia LLC. This amount
consists of one or more distributions of profits which will total no
more than $10.0 million, and a $6.0 million distribution for tax
payments. The $6.0 million distribution is based on the taxable
income of Martha Stewart Living Omnimedia LLC as of June 30, 1999.
The amount of the actual tax distribution will change based upon the
actual results of operations of Martha Stewart Living Omnimedia LLC
from June 30, 1999 through the effective date of the reorganization.
-- The pro forma data also gives effect to the sale of 5% of Martha
Stewart Living Omnimedia LLC and a warrant to Kleiner Perkins
Caufield & Byers in exchange for $25.0 million, which transaction we
describe under "Recent Developments -- Strategic Investment," 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
7,200,000 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. Since Time Publishing Ventures retains the decision
whether to accept our call offer for its shares of common stock,
these adjustments do not reflect the possible purchase by us of
Time's shares.
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
represent 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.
6
<PAGE> 12
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 Martha
Stewart Living Omnimedia LLC and the combined financial statements of Martha
Stewart Living and, in each case, the notes to these financial statements,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------- ---------------------
1997 1998 1998 1999
-------- ---------- ------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Publishing.................................. $108,694 $ 127,020 $64,701 $ 73,314
Television.................................. 12,396 23,351 10,587 12,787
Merchandising............................... 6,919 15,004 6,622 11,509
Internet/Direct Commerce.................... 4,812 14,673 4,343 13,892
-------- ---------- ------- ----------
Total revenues......................... 132,821 180,048 86,253 111,502
-------- ---------- ------- ----------
Operating costs and expenses
Production, distribution and editorial...... 59,148 82,930 36,492 54,710
Selling and promotion....................... 31,973 34,540 17,838 19,994
General and administrative.................. 21,182 29,659 14,005 18,601
Depreciation and amortization............... 3,927 5,534 2,665 2,732
-------- ---------- ------- ----------
Total operating costs and expenses..... 116,230 152,663 71,000 96,037
-------- ---------- ------- ----------
Income from operations........................ 16,591 27,385 15,253 15,465
-------- ---------- ------- ----------
Interest expense, net......................... 2,195 2,243 1,315 597
Income tax provision.......................... 467 1,336 750 702
-------- ---------- ------- ----------
Net income.................................... 13,929 23,806 13,188 14,166
-------- ---------- ------- ----------
Pro forma (unaudited)
Adjustment to income tax provision.......... (7,038) (10,817) (6,289) (6,753)
-------- ---------- ------- ----------
Pro forma net income.......................... $ 6,891 $ 12,989 $ 6,899 $ 7,413
======== ========== ======= ==========
Pro forma basic and diluted net income per
share....................................... $ 0.27 $ 0.15
Pro forma weighted average common shares
outstanding................................. 48,526,358 48,526,358
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ 22,269 $ 16,269 $108,013
Total assets....................................... 123,845 117,845 209,589
Long-term debt (including current maturities)...... 15,000 -- --
Members'/Stockholders' equity...................... 49,559 58,559 150,303
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------- ------------------
1997 1998 1998 1999
-------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER DATA:
EBITDA............................................ $ 20,518 $ 32,919 $17,918 $18,197
Capital expenditures.............................. 11,027 2,730 1,954 1,279
</TABLE>
7
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8
<PAGE> 14
RECENT DEVELOPMENTS--STRATEGIC INVESTMENT
The following summary description of the material terms of a recent
investment in Martha Stewart Living Omnimedia by Kleiner Perkins Caufield &
Byers is qualified in its entirety by reference to the agreements relating to
this investment, which we have filed as exhibits to the registration statement
of which this prospectus is a part.
On July 27, 1999, we completed a strategic transaction in which an
affiliate of Kleiner Perkins purchased an equity interest in Martha Stewart
Living Omnimedia LLC. In this transaction, a Kleiner Perkins fund acquired a 5%
interest in Martha Stewart Living Omnimedia LLC, as well as a warrant that we
describe below, for $25.0 million in cash, of which $250,000 was allocated to
the warrant. 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 Martha Stewart Living Omnimedia LLC, Kleiner Perkins' interest
in our company will be converted into shares of our Class A common stock. See
"Reorganization Transactions Occurring Prior to This Offering" for a description
of the reorganization.
We have agreed with Kleiner Perkins to investigate opportunities to
maximize the value to our stockholders of our Internet and Martha by Mail
business and our company as a whole, including potential strategic transactions
relating to that business. We have no definite plans regarding any strategic
transactions, but instead intend to continue to develop our Internet and Martha
by Mail business and to evaluate potential strategic transactions periodically.
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 and Martha
by Mail 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 issue that is intended
to reflect the performance of that 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 and Martha by Mail business or contribute an additional business or
asset to that business. The warrant expires ten days after the earliest 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 is subject to
exceptions, including, after six months, distributions by Kleiner Perkins of up
to 50% of the shares it receives in the reorganization to its limited partners.
In addition, in the event that Kleiner Perkins exercises its warrant in exchange
for any Martha Stewart Living Omnimedia securities, it has agreed not to sell or
transfer those securities for one year, subject to exceptions similar to those
described above for our common stock, and, for six months following exercise of
the warrant, to not transfer any additional shares of our common stock if that
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. See "Certain
Relationships and Related Transactions--Stockholders Agreement and Registration
Rights" for a description of the registration rights we have granted to Kleiner
Perkins.
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/Direct Commerce business.
There can be no assurance, however, that we will succeed in this, or any other,
aspect of our strategy.
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RISK FACTORS
You should carefully consider the following risks and the other information
contained in this prospectus before investing in our Class A common stock. The
trading price of our 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 REVENUES, RESULTS OF OPERATIONS AND PROSPECTS
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. See "Management--Key Executive Insurance"
for a description of key executive life insurance policies we maintain with
respect to Martha Stewart.
One of our business strategies is to reduce our dependence on Martha
Stewart, but we may be unable to do so. If we are unsuccessful in accomplishing
this strategy because, for example, we are unable to develop the public
reputation of our other experts, and Martha Stewart's services become
unavailable to us, our business and prospects would be materially adversely
affected.
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--Executive Employment Arrangements--Employment Agreement with
Martha Stewart" for a description of this agreement.
Our continued success also is dependent upon the 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 REVENUES, RESULTS OF OPERATIONS AND PROSPECTS 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.
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Our licensees were to diminish the quality of our brands
We have entered into license agreements for our branded products with a
number of strategic partners. While we require that our licensees maintain the
quality of our brands through specific contractual provisions, we 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 many 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 REVENUES, RESULTS OF OPERATIONS AND
PROSPECTS
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, we would be limited in our
ability to create new marks containing the Martha Stewart name, Martha Stewart
could compete with us and we would have to pay Martha Stewart a royalty on
revenues relating to her name. If Martha Stewart were to compete with us or if
we were to lose our rights to use this intellectual property, our business would
be adversely affected. See "Business--Intellectual Property" for a description
of the terms of this license agreement, and "Management -- Executive Employment
Arrangements -- Employment Agreement with Martha Stewart" for a description of
the terms 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. We derive significant income from our combined
licensing arrangements. In 1998 we received in the aggregate approximately 27%
of our total operating income before corporate charges from our licensing
agreements. We could be materially adversely affected if these key contracts
were to terminate before we had similar arrangements in place with other
partners. In addition, 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 effectively manage
our existing licensing relationships, this failure could have a material adverse
affect on our financial condition and results of operations. See
"Business -- Omnimedia and Omnimerchandising Platforms -- Merchandising" for
more information on these agreements, including their expiration dates.
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,
descriptions of which may be found in "Certain Relationships and
Related Transactions -- Transactions with Time Publishing Ventures
and Its Affiliates -- Ongoing Service Agreements"
-- our agreements with printers under which our magazines and catalogs
are printed
-- our agreements with tier-one hosting services for our website
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If our relationship with any of these 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, and have limited influence with respect to the manner in
which they conduct their businesses. If our strategic partners were to
experience a significant downturn in their businesses or were otherwise unable
to honor their obligations to us, our business could be disrupted and our
revenues and results of operations could be materially adversely affected.
TERMINATION OF OUR LICENSING AGREEMENT WITH KMART RELATING TO BED AND BATH
PRODUCTS COULD ADVERSELY AFFECT OUR REVENUES AND RESULTS OF OPERATIONS
In 1998, we received approximately 70% of our merchandising revenues and
18.4% of our total operating income before corporate charges from our 1997
licensing agreement with Kmart relating to bed and bath products. This agreement
provides Kmart with the right in the United States and its territories during
the term to use the trademark Martha Stewart Everyday Home(TM) in connection
with bed and bath products designed by us and sold by Kmart. This right is
exclusive to Kmart in the U.S. mass market discount channel of distribution. The
agreement expires in February 2000 and is renewable for an additional three
years by Kmart if it gives notice to us not later than 90 days before expiration
of the agreement. Although we expect Kmart to renew this agreement and believe
that we would be able to find another mass market discount merchandising partner
for our bed and bath products if Kmart did not elect to renew it, the failure of
Kmart to renew and our inability to enter into similar arrangements with another
partner in a timely manner would adversely affect our revenues and results of
operations. We have recently entered into other agreements with Kmart, but these
agreements do not expire before 2003.
OUR BUSINESS IS CURRENTLY HEAVILY DEPENDENT ON PUBLISHING, AND THE REVENUE AND
INCOME WE DERIVE FROM PUBLISHING COULD DECREASE AS A RESULT OF 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 charges. 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 revenue, results of operations and
financial condition.
IF OUR TELEVISION SHOWS FAIL TO MAINTAIN A SUFFICIENT AUDIENCE, IF ADVERSE
TRENDS DEVELOP IN THE TELEVISION PRODUCTION BUSINESS GENERALLY OR IF MARTHA
STEWART WERE TO CEASE TO BE ABLE TO DEVOTE SUBSTANTIAL TIME TO OUR TELEVISION
BUSINESS, THAT BUSINESS COULD BECOME UNPROFITABLE
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
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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 1998 to a 1.9 household rating for the 1998-99 season
as of August 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. If
production of the television program were to cease, it could result in a
writedown of our capitalized programming costs. The amount of any writedown
would vary depending on a number of factors, including when production ceased
and the extent to which we continued to generate revenues from the use of our
existing program library.
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.
Dependence on Martha Stewart
Martha Stewart's services are currently 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 AND ADVERSELY AFFECT OUR PROSPECTS
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(TM) and Martha Stewart Everyday Housewares(TM) 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 AND INCOME COULD DECLINE DUE TO GENERAL ECONOMIC TRENDS AND
DECLINES IN CONSUMER SPENDING
The industry segments in which we operate, including publishing, television
and merchandising, are cyclical and our revenues are largely generated by
discretionary consumer spending. Business spending on advertising in our
magazines and on our television programming, and consumer spending on our
products tend to decline during recessionary periods because of the
discretionary nature of this spending 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 AND ADVERSELY AFFECT OUR PROSPECTS
Our growth depends to a significant degree upon the development of our
Internet/Direct Commerce business. We have limited experience in the businesses
comprising our Internet/Direct Commerce business and have experienced operating
losses of $5.0 million in 1998 and $4.0 million for the six months ended
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June 30, 1999 in that segment. In order for our Internet/Direct Commerce
business to succeed, we must, among other things:
-- make significant investments in our Internet/Direct Commerce
business, including upgrading our technology and adding a significant
number of new employees
-- 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 or that our Internet/Direct Commerce business will ever be
profitable. If we are not successful in achieving these objectives, our
business, financial condition and prospects would be materially adversely
affected.
Our Internet/Direct 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/Direct Commerce business are
relatively new and rapidly evolving, and are characterized by a number of
entrants that have introduced or plan to introduce competing products or
services. As a result, demand for and market acceptance of new products or
services are subject to a high level of uncertainty, risk and competition, and
there are few proven products and services. These pressures may force us to
incur significant expenditures to remain competitive in these marketplaces, and,
if we fail to appropriately address these pressures, our business, financial
condition and prospects could be materially adversely affected.
SYSTEM FAILURES COULD IMPAIR OUR REPUTATION, DAMAGE OUR BRANDS AND ADVERSELY
AFFECT OUR PROSPECTS
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.
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OUR GROWTH IS DEPENDENT UPON THE CONTINUED ACCEPTANCE AND GROWTH OF THE INTERNET
AND ELECTRONIC COMMERCE, AND IF SUCH GROWTH DOES NOT CONTINUE OUR PROSPECTS
COULD BE MATERIALLY ADVERSELY AFFECTED
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.
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 Martha Stewart Living Omnimedia LLC operating agreement
expressly permits Time Publishing Ventures and Kleiner Perkins, each of which is
a stockholder of Martha Stewart Living Omnimedia, and their respective
affiliates, to compete with our business. Accordingly, Time 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."
IF WE ARE UNABLE TO PREDICT, RESPOND TO AND INFLUENCE TRENDS IN WHAT THE PUBLIC
FINDS APPEALING, 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 homemakers and other consumers. In order to
accomplish this, we must be able to quickly and effectively respond to changes
in the tastes of homemakers and other consumers for ideas, information, concepts
and products. The strength of our brand name depends in part on our ability to
influence these 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 the tastes of homemakers and other
consumers. In addition, we cannot 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 this offering may vary from the
initial public
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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 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, and have experienced significant growth. 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.
IF WE ARE NOT ABLE TO EFFECTIVELY MANAGE OUR GROWTH, OUR FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND PROSPECTS COULD DECLINE
Our rapid growth in recent years has placed significant demands on our
management and other resources. If we continue to experience rapid growth, we
will require significant additional investment in personnel, systems and related
capital expenditures. We may not be able to recruit adequate personnel, or
properly train, integrate or manage our growing employee base, implement new
systems, including those for transaction processing and operational and
financial management, or invest in capital expenditures in a timely and
effective manner. If we fail to effectively manage and continue this growth, our
financial condition, results of operations and prospects could decline.
MARTHA STEWART WILL CONTROL OUR COMPANY AND THIS CONTROL COULD INHIBIT POTENTIAL
CHANGES OF CONTROL
Following this offering, Martha Stewart will control all of our outstanding
shares of Class B common stock, representing approximately 96% 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
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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 FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS
The risks posed by the inability of 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 $11.45 per share in net tangible book value of
Class A common stock from the initial public offering price. If outstanding
options to purchase shares of Class A common stock are exercised, there would be
further dilution. See "Dilution" and "Management" for information regarding
outstanding stock options and additional stock options which may be granted.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET PRICE OF
OUR CLASS A COMMON STOCK
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 14,399,527 shares of Class A
common stock and 34,126,831 shares of Class B common stock, and we will have
reserved an additional 6,925,389 shares of Class A common stock for issuance
under outstanding stock options. The shares reserved for issuance under our
option plans include 2,333,169 shares relating to options granted prior to this
offering, of which 1,997,374 shares will be largely offset by Martha Stewart's
return to us of shares of common stock controlled by her upon exercise of these
options, which we describe under "Management -- Employee Incentive Compensation
Plans -- Nonqualified Class A LLC Unit/Stock Option Plan." All of the shares of
Class A common stock to be sold in this offering will be freely tradeable
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
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1933. The remaining shares of outstanding common stock, including both Class A
and Class B, representing approximately 85% 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, Sharon
Patrick, 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--Stockholders Agreement and
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 creative personnel and existing
stockholders as well as some other individuals purchasing shares in this
offering 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.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF THE PROCEEDS
FROM THIS OFFERING
The net proceeds of our sale of 7,200,000 shares of Class A common stock in
this offering will be approximately $91.7 million, after deducting underwriting
discounts and commissions and estimated offering expenses. Our management will
retain broad discretion as to the use of those proceeds, except for the $41.7
million that will be used to repurchase Time Publishing Ventures' equity
interest if Time accepts our call offer. We intend to use the net proceeds from
this offering for general corporate purposes, but we do not have any specific
plans in this regard. The failure of our management to apply these funds
effectively could have a material adverse effect on our business, results of
operations and financial condition. For more information, see "Use of Proceeds."
18
<PAGE> 24
SPECIAL NOTE WITH RESPECT TO FORWARD-LOOKING INFORMATION
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. We are under no
duty to update any of the forward-looking statements after the date of this
prospectus.
19
<PAGE> 25
REORGANIZATION TRANSACTIONS OCCURRING PRIOR TO THIS OFFERING
From December 1996 until , 1999, we operated as a limited
liability company. In connection with this offering and immediately before we
complete this offering, Martha Stewart Living Omnimedia LLC will be reorganized
into a C corporation through a merger with Martha Stewart Living Omnimedia in
which the LLC equity interests will be converted into shares of common stock. We
will issue an aggregate of 7,110,763 shares of Class A common stock and
34,126,831 shares of Class B common stock to the LLC members in this
reorganization. The LLC members consist of The Martha Stewart Family Limited
Partnership, an entity controlled by Martha Stewart, Sharon Patrick, our
President and Chief Operating Officer, Time Publishing Ventures, KPCB Holdings,
Inc. and Grubman Indursky & Schindler, P.C., which provides legal services to
us. In addition, in connection with this reorganization:
-- we will reserve an aggregate of 2,333,169 shares of Class A common
stock for issuance upon exercise of options issued prior to this
offering, the issuance of 1,997,374 shares of which will be largely
offset by Martha Stewart's return to us of shares of common stock
controlled by her upon exercise of these options, which we describe
under "Management -- Employee Incentive Compensation Plans --
Nonqualified Class A LLC Unit/Stock Option Plan."
-- at the time of this offering we will issue up to an additional 88,764
shares of Class A common stock under the Martha Stewart Living
Omnimedia LLC Phantom Performance Unit Plan
The options to acquire Class A common stock under the Martha Stewart Living
Omnimedia 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 LLC members, other than Kleiner
Perkins, on a pro rata basis in accordance with their relative equity interests.
The $10.0 million will be distributed as follows: approximately $8.7 million to
The Martha Stewart Family Limited Partnership, $0.6 million to Sharon Patrick,
$0.7 million to Time Publishing Ventures and $31,000 to Grubman Indursky &
Schindler. Additionally, at the time of the reorganization we will make a pro
rata distribution to all LLC members to cover their respective tax liabilities
resulting from the income of Martha Stewart Living Omnimedia LLC, which
distribution as of June 30, 1999 is estimated to total $6.0 million. However,
the actual amount of this tax distribution is dependent on the results of
operations of Martha Stewart Living Omnimedia LLC through the time of the
reorganization, which we cannot predict with certainty.
Upon completion of this offering, we will exercise our right under the
existing LLC agreement to offer to purchase the shares of Class A common stock
received by Time Publishing Ventures in the reorganization for an aggregate of
approximately $41.7 million, or approximately $16.13 per share. Time Publishing
Ventures must decide whether to sell its shares to us 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 on our agreements with Time Publishing Ventures.
20
<PAGE> 26
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the 7,200,000 shares of
Class A common stock offered in this prospectus to be approximately $91.7
million, after deducting underwriting discounts and commissions and estimated
offering expenses of approximately $9.1 million. We plan to use approximately
$41.7 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, which we describe under "Certain
Relationships and Related Transactions--LLC Operating Agreement." We intend to
use the remainder of the net proceeds, over time, for general corporate
purposes. This offering will create a public market for the Class A common
stock, which will facilitate our future access to the public equity markets and
enhance our ability to use our common stock as consideration for acquisitions.
We are not currently in negotiations regarding any acquisitions 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 have not determined the specific
allocation of the uses for the net proceeds we will receive upon completion of
this offering, and there is no business plan with respect to the specific use of
these proceeds. 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.
21
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual, pro forma and pro forma as adjusted basis:
-- The pro forma column reflects our capitalization as set forth in the
actual column with the following adjustments as if each had occurred
on June 30, 1999
-- the reorganization of Martha Stewart Living Omnimedia LLC into a C
corporation
-- distributions to members of Martha Stewart Living Omnimedia LLC,
totaling $16.0 million, including $6.0 million representing tax
distribution payments based upon taxable income for the six months
ended June 30, 1999; the actual amount of this tax distribution will
change based on the actual results of operations of Martha Stewart
Living Omnimedia LLC from June 30, 1999 through the effective date of
the reorganization
-- the sale of 5% of Martha Stewart Living Omnimedia LLC and a warrant
to Kleiner Perkins in exchange for $25.0 million, and
-- the retirement of $15.0 million of indebtedness primarily with a
portion of the proceeds from the Kleiner Perkins transaction
-- 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 7,200,000 shares of Class A common stock offered in
this prospectus and our receipt and use of the estimated net proceeds
from the sale of these shares, as if this offering had been completed
on June 30, 1999. Since Time Publishing Ventures retains the decision
whether to accept our call offer for its shares of common stock, these
adjustments do not reflect the possible purchase by us of Time's
shares.
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 Martha Stewart Living Omnimedia LLC and related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 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........................................ 49,559
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; 14,399,527
shares issued and outstanding pro forma as
adjusted.......................................... -- 144
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; 34,126,831
shares issued and outstanding pro forma as
adjusted.......................................... -- 341
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........................................ 58,559 149,818
------- --------
Total stockholders' equity............................. 58,559 150,303
------- ------- --------
Total capitalization................................... $64,559 $58,559 $150,303
======= ======= ========
</TABLE>
22
<PAGE> 28
DILUTION
Our net tangible book value (deficit) as of June 30, 1999 was approximately
$(2.1) million or $(0.05) per share based on an aggregate of 39,175,714 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
-- the sale of 5% of Martha Stewart Living Omnimedia LLC in exchange for
$24.75 million, and
-- the sale of the 7,200,000 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 $14.00 per
share, our net tangible book value as of June 30, 1999 would have been $123.7
million, or $2.55 per share. This represents an immediate dilution of $11.45 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............. $14.00
Net tangible book value (deficit) per share as of June 30,
1999................................................... $(0.05)
Increase in net tangible book value per share attributable
to Kleiner Perkins..................................... .60
Increase in net tangible book value per share attributable
to new investors....................................... 2.00
------
Pro forma net tangible book value per share after the
reorganization and this offering.......................... 2.55
------
Dilution per share to new investors......................... $11.45
======
</TABLE>
The following table summarizes, as of June 30, 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 $14.00, before deducting the underwriting
discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 39,264,478 80.9% $ 21,666 -- --
Kleiner Perkins......... 2,061,880 4.3 24,750,000 19.7% $12.00
New investors........... 7,200,000 14.8 100,800,000 80.3 14.00
---------- ------- ------------ ------- ------
Total.............. 48,526,358 100.0% $125,571,666 100.0%
========== ======= ============ =======
</TABLE>
23
<PAGE> 29
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 Martha Stewart Living Omnimedia LLC. The
following selected consolidated statement of operations 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
Martha Stewart Living Omnimedia LLC that have been audited by Arthur Andersen
LLP, independent public accountants, which are not included in this prospectus.
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 operations 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 Martha Stewart Living Omnimedia LLC that have been
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this prospectus. The following consolidated statement of operations
data for the six months ended June 30, 1998 and 1999 and the consolidated
balance sheet data as of June 30, 1999 have been derived from the unaudited
financial statements of Martha Stewart Living Omnimedia 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 six-month period
ended June 30, 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 statement of operations data for all of the periods presented
includes an adjustment to the income tax provision reflecting the
reorganization of Martha Stewart Living Omnimedia LLC into a C
corporation as though the reorganization had occurred prior to the
start of each period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" for
further information.
-- The statement of operations data for the six months ended June 30,
1999 does not include a one time benefit of approximately $2.9
million that will result from the change in the tax status of Martha
Stewart Living Omnimedia LLC at the time it is reorganized into a C
corporation. The benefit actually recognized will be determined on
the effective date of the reorganization.
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
represent 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.
24
<PAGE> 30
The financial data set forth below should be read in conjunction with, and
is qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the consolidated financial statements of
Martha Stewart Living Omnimedia LLC and the combined financial statements of
Martha Stewart Living and, in each case, the related notes to those financial
statements, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ --------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ -------- ---------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Publishing........................... $3,161 $3,647 $3,899 $108,694 $ 127,020 $64,701 $73,314
Television........................... -- -- -- 12,396 23,351 10,587 12,787
Merchandising........................ -- -- -- 6,919 15,004 6,622 11,509
Internet/Direct Commerce............. -- -- -- 4,812 14,673 4,343 13,892
------ ------ ------ -------- ---------- ------- ----------
Total revenues................... 3,161 3,647 3,899 132,821 180,048 86,253 111,502
------ ------ ------ -------- ---------- ------- ----------
Operating costs and expenses
Production, distribution and
editorial.......................... -- -- -- 59,148 82,930 36,492 54,710
Selling and promotion................ -- -- -- 31,973 34,540 17,838 19,994
General and administrative........... 725 131 99 21,182 29,659 14,005 18,601
Depreciation and amortization........ -- -- -- 3,927 5,534 2,665 2,732
------ ------ ------ -------- ---------- ------- ----------
Total operating costs and
expenses...................... 725 131 99 116,230 152,663 71,000 96,037
------ ------ ------ -------- ---------- ------- ----------
Income from operations................. 2,436 3,516 3,800 16,591 27,385 15,253 15,465
------ ------ ------ -------- ---------- ------- ----------
Interest expense, net................ -- 153 165 2,195 2,243 1,315 597
Income tax provision................. 71 45 -- 467 1,336 750 702
------ ------ ------ -------- ---------- ------- ----------
Net income............................. 2,365 3,318 3,635 13,929 23,806 13,188 14,166
------ ------ ------ -------- ---------- ------- ----------
Pro forma (unaudited)
Adjustment to income tax provision... (976) (1,401) (1,563) (7,038) (10,817) (6,289) (6,753)
------ ------ ------ -------- ---------- ------- ----------
Pro forma net income................... $1,389 $1,917 $2,072 $ 6,891 $ 12,989 $ 6,899 $7,413
====== ====== ====== ======== ========== ======= ==========
Pro forma basic and diluted net income
per share............................ $0.27 $0.15
Pro forma weighted average common
shares outstanding................... 48,526,358 48,526,358
BALANCE SHEET DATA (AT PERIOD END):
Cash................................... $ 46 $ 7 $ 85 $ 9,971 $ 24,578 $22,269
Total assets........................... 1,145 2,786 4,074 105,706 125,732 123,845
Total long-term debt................... -- -- -- 30,000 27,650 15,000
Members'/Stockholders' Equity
(deficit)............................ 88 (436) 589 13,235 36,815 49,559
OTHER DATA:
EBITDA................................. $2,436 $3,516 $3,800 $ 20,518 $ 32,919 $17,918 $18,197
Capital expenditures................... -- -- -- 11,027 2,730 1,954 1,279
</TABLE>
25
<PAGE> 31
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
six months ended June 30, 1998 and 1999. This discussion should be read in
conjunction with "Selected Historical and Pro Forma Consolidated Financial
Data," the consolidated financial statements of Martha Stewart Living Omnimedia
LLC and the combined financial statements of Martha Stewart Living and, in each
case, the notes related to these financial statements, included elsewhere in
this prospectus.
OVERVIEW
The original businesses of Martha Stewart Living Omnimedia began operations
in 1982 with Martha Stewart's publication of the book Entertaining. Through
1996, Martha Stewart Living Omnimedia 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 a number of 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. The
purchase price was calculated taking into consideration the special income
distribution of $18.0 million payable to Time Publishing Ventures under the
operating agreement of Martha Stewart Living Omnimedia LLC. This distribution
was paid in February 1997.
Our businesses have expanded to comprise four 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
-- 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 expenses relating to our Internet/Direct Commerce segment. In
our Merchandising segment, substantially all of our costs are reimbursed by our
licensing partners, and are therefore not reflected in our operating results. 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 six-month
26
<PAGE> 32
period ended June 30, 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 Martha Stewart Living Omnimedia
LLC for federal and some state income tax purposes, and we have generally not
been subject to income tax on such earnings, other than some state and local
franchise and similar taxes. In connection with this offering, and due to the
merger of the LLC with and into Martha Stewart Living Omnimedia, Martha Stewart
Living Omnimedia 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 June 30, 1999, the net
future tax benefit would have been approximately $2.9 million. In connection
with this offering, Martha Stewart Living Omnimedia LLC will make one or more
distributions to its members of approximately $16.0 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 $6.0 million in respect of
tax liabilities of all members for the six months ended June 30, 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.
27
<PAGE> 33
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, % OF JUNE 30, % OF
1998 REVENUES 1999 REVENUES
---------- ------------- ---------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Publishing.................... $64,701 75.0% $ 73,314 65.7%
Television.................... 10,587 12.3% 12,787 11.5%
Merchandising................. 6,622 7.7% 11,509 10.3%
Internet/Direct Commerce...... 4,343 5.0% 13,892 12.5%
------- ----- -------- -----
Total revenues........... 86,253 100.0% 111,502 100.0%
------- ----- -------- -----
Operating costs and expenses
Production, distribution and
editorial.................. 36,492 42.3% 54,710 49.1%
Selling and promotion......... 17,838 20.7% 19,994 17.9%
General and administrative.... 14,005 16.2% 18,601 16.7%
Depreciation and
amortization............... 2,665 3.1% 2,732 2.4%
------- ----- -------- -----
Total operating costs and
expenses.............. 71,000 82.3% 96,037 86.1%
------- ----- -------- -----
Income from operations.......... 15,253 17.7% 15,465 13.9%
------- ----- -------- -----
Other expenses
Interest expense, net......... 1,315 1.5% 597 0.5%
Income tax provision.......... 750 0.9% 702 0.6%
------- ----- -------- -----
Net income...................... $13,188 15.3% $ 14,166 12.7%
======= ===== ======== =====
</TABLE>
Revenues. Total revenues increased $25.2 million, or 29%, to $111.5
million for the six months ended June 30, 1999, from $86.3 million for the six
months ended June 30, 1998. Publishing revenues increased $8.6 million, or 13%,
to $73.3 million for the six months ended June 30, 1999 from $64.7 million for
the six months ended June 30, 1998. This increase reflects an increase in
advertising revenues of $7.2 million, primarily due to an increase in
advertising pages sold in Martha Stewart Living magazine of 14%, an increase in
advertising rates of 5% and advertising revenues of $1.4 million from an issue
of Martha Stewart Weddings magazine published during the six months ended June
30, 1999. No issues of Martha Stewart Weddings magazine were published during
the six months ended June 30, 1998. Television revenues increased $2.2 million,
or 21%, to $12.8 million for the six months ended June 30, 1999 from $10.6
million for the six months ended June 30, 1998. The increase is due primarily to
revenues of $2.9 million associated with 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 of $1.1 million resulting from
lower ratings for the six months ended June 30, 1999. Merchandising revenues
increased $4.9 million, or 74%, to $11.5 million, for the six months ended June
30, 1999 from $6.6 million for the six months ended June 30, 1998, due primarily
to $2.4 million in revenues from the addition of our Martha Stewart Everyday(R)
line of garden products, sold in Kmart stores beginning in January 1999.
Revenues of our Martha Stewart Everyday bed and bath products also increased
$0.8 million due to offering the full product line during the six months ended
June 30, 1999, whereas the full product line was not available during the six
months ended June 30, 1998. In addition, $1.7 million of revenues were received
in 1999 resulting from an adjustment to revenues earned in prior years.
Internet/Direct Commerce revenues increased $9.5 million, or 220%, to $13.9
million for the six months ended June 30, 1999 from
28
<PAGE> 34
$4.3 million for the six months ended June 30, 1998, due to higher merchandise
sales of $9.1 million resulting from higher catalog circulation and increased
advertising revenues of $0.4 million.
Production, distribution and editorial. Production, distribution and
editorial expenses increased $18.2 million, or 50%, to $54.7 million for the six
months ended June 30, 1999 from $36.5 million for the six months ended June 30,
1998. Publishing segment costs increased $5.9 million reflecting increased costs
for Martha Stewart Living magazine of $4.4 million due to a 12% increase in the
number of pages printed per issue, a 4% increase in copies printed and higher
printing costs. In addition, costs for Martha Stewart Weddings magazine
increased $1.7 million due to the publication of one issue during the six months
ended June 30, 1999 as compared to no issues during the six months ended June
30, 1998. Television costs increased $0.5 million, primarily as a result of
higher production and distribution costs incurred for the additional half-hour
of programming in 1999. Internet/Direct Commerce costs increased $11.8 million
due to an increase of $3.3 million in catalog production and distribution costs
resulting from higher catalog circulation. In addition, fulfillment costs
increased $2.4 million and cost of goods sold increased $4.0 million, each as a
result of higher revenues.
Selling and promotion. Selling and promotion expenses increased $2.2
million, or 12%, to $20.0 million for the six months ended June 30, 1999 from
$17.8 million for the six months ended June 30, 1998. This increase primarily
reflects increased Publishing segment costs resulting from increased circulation
costs of $1.2 million and advertising sales costs of $0.6 million 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 $4.6 million, or 33%, to $18.6 million for the
six months ended June 30, 1999 from $14.0 million for the six months ended June
30, 1998. We have incurred higher costs as a result of continued infrastructure
development to support higher levels of revenues. In addition, we incurred $1.1
million in consulting costs during the six months ended June 30, 1999, primarily
related to human resource and information technology-related projects.
Depreciation and amortization. Depreciation and amortization remained
unchanged at $2.7 million.
Interest expense, net. Interest expense, net, decreased $0.7 million, or
55%, to $0.6 million for the six months ended June 30, 1999 from $1.3 million
for the six months ended June 30, 1998, as a result of lower outstanding
long-term debt, and higher interest income earned on higher invested cash
balances.
Net income increased $1.0 million, or 7%, to $14.2 million for the six
months ended June 30, 1999 from $13.2 million for the six months ended June 30,
1998, primarily as a result of the above mentioned factors.
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<PAGE> 35
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 of $14.9 million due to an increase in advertising pages
sold in Martha Stewart Living magazine of 17% and an increase in per page
advertising rates of 5%, as well as additional advertising revenues of $1.6
million received from a special issue published in the fourth quarter of 1998.
Circulation revenues increased $4.4 million as a result of generally higher
newsstand revenues, including newsstand 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 of $1.9 million earned from licensing a second half
hour of "best of" show during the fourth quarter of 1998. These increases were
partially offset by the elimination of revenues of $0.8 million 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
an increase in revenues of $4.7 million, resulting 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, which contributed $1.3 million to
revenues in 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 increased $1.1 million, primarily due to our website's first full year
of operation in 1998, compared with only four months in 1997.
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<PAGE> 36
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 December 31, 1997.
Publishing segment costs increased $7.3 million, as a result of an increased
number of pages printed per issue of 17% resulting from the increase in
advertising pages sold, costs associated with the special issue 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,
due to an increase of $3.9 million in catalog production and distribution costs
resulting from higher catalog circulation. In addition, fulfillment costs
increased $2.3 million and cost of goods sold increased $4.7 million, each as a
result of higher revenues.
Selling and promotion. Selling and promotion expenses increased $2.6
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 primarily reflects
increased Publishing segment costs of $1.3 million resulting from increased
circulation costs and increased Television segment expenses of $0.9 million
associated with the expanded programming schedule.
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 costs associated with increased
revenues, 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.
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<PAGE> 37
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 Martha Stewart Living Omnimedia 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 Martha Stewart Living Omnimedia LLC
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA % OF % OF
1996 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 of $22.2
million due to more advertising pages sold and increased per page advertising
rates, as well as higher circulation revenues of $12.9 million resulting from
both higher subscription revenues of $11.5 million and newsstand revenues of
$1.4 million 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 a 24% increase in the number of pages printed per issue
due to the increase in advertising pages sold
32
<PAGE> 38
and a 22% increase in the size of the 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 $32.0 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.
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 $22.3 million at June 30, 1999, compared to
$19.7 million at June 30, 1998. Cash and cash equivalents decreased $2.3 million
during the six months ended June 30, 1999, and increased $9.8 million during the
six months ended June 30, 1998, as stated below.
Cash flows from operating activities were $13.0 million during the six
months ended June 30, 1999, compared with $11.7 million for the six months ended
June 30, 1998. The increase in cash flows from operating activities in 1999 was
primarily a result of increased net income.
Cash flows used in investing activities were $1.3 million during the six
months ended June 30, 1999, representing capital expenditures to acquire
property and equipment. Cash flows provided by investing activities were $0.4
million during the six months ended June 30, 1998, representing proceeds
received from a sale/leaseback of $2.4 million, offset by $2.0 million of
capital expenditures to acquire property and equipment.
Cash flows used in financing activities during the six months ended June
30, 1999 were $14.1 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 June 30,
1999, we had no outstanding borrowings under this facility. The line of credit
is secured by accounts receivable, inventory, intangible assets and contracts
and contains customary financial and other covenants relating to our financial
condition and business. Distributions to members were $1.4 million for the six
months ended June 30, 1999.
33
<PAGE> 39
Capital expenditures, primarily for information technology, television
studio and other equipment, office furniture and leasehold improvements, were
$11.0 million, $2.7 million, $2.0 million and $1.3 million for the years ended
December 31, 1997 and 1998 and for the six months ended June 30, 1998 and 1999,
respectively. In 1998, we sold property and equipment for $2.4 million and
leased back that property and equipment under operating leases. In July 1999,
Martha Stewart Living Omnimedia refinanced existing operating leases for
computer and television studio equipment. Under this refinancing, the new lease
will be recorded as a capital lease. Accordingly, in July 1999, Martha Stewart
Living Omnimedia recorded property, plant and equipment of $4.7 million with a
corresponding liability for capital lease obligations.
While we extend credit to our customers, no one customer accounts for more
than 10% of our outstanding accounts receivable balance at June 30, 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 Martha Stewart Living Omnimedia
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 through at least 2000. 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 to our
stockholders.
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 September 1999, we completed the research and validation of all
infrastructure, hardware and software, including platform, wide-area network and
local-area network components. We completed testing all systems identified
during the research and validation phase in September 1999. Contingency plans
have been 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 October 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 September
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.
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<PAGE> 40
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 $0.3 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 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.
35
<PAGE> 41
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 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:
-- to provide our original "how to" content and information to as many
consumers as possible
-- 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 by distributing our content through a
broad range of media outlets, which we call our "omnimedia" platform. We
accomplish our second objective through our branded products, which we call 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
-- From Martha's Kitchen, a daily television program on the Food Network
-- 27 books, which together 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
-- 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
-- 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
-- marthastewart.com, our website, with over 925,000 registered users
and 627,000 different visitors and over ten million page views in
June 1999
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. Monthly gross adult impressions is the sum of our
monthly magazine readership and the number of times our television programs
36
<PAGE> 42
and website are viewed, and the number of times people listen to our radio
program, during the course of a typical month.
OMNIMERCHANDISING PLATFORM
We believe our branded products, or omnimerchandising platform, offer our
consumers quality, convenience and choice across a wide range of retail and
direct to consumer channels. As of July 1999, our omnimerchandising platform
included more than 2,800 distinct product variations called stock keeping units,
or 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, 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, among other things, expanding the seven
linked channels, or subsites, we recently introduced on our website, each of
which is dedicated to 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.
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 revenues were $180.0 million and our
operating income was $27.4 million, representing a 36% and 65% increase,
respectively, over 1997 revenues and operating income. Our net income was $23.8
million in 1998, as compared to $13.9 million in 1997. During the six-month
period ended June 30, 1999, our revenues were $111.5 million and our operating
income was $15.5 million, representing a 29% and 1% increase, respectively, over
the six-month period ended June 30, 1998. Our net income for the six-month
period ended June 30, 1999 was $14.2 million, as compared to $13.2 million for
the six-month period ended June 30, 1998.
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 them with
other businesses previously owned by Martha
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<PAGE> 43
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
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..... Martha Stewart Living Omnimedia 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
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
Seven dedicated subsites launched on marthastewart.com
From Martha's Kitchen television program begins to air daily
on the Food Network cable channel
Branded decorative fabrics launched
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 we believe include our:
ESTABLISHED, HIGHLY RECOGNIZABLE BRAND NAME
Our principal assets consist of the Martha Stewart brand name and our
related trademarks, which include Martha Stewart Living, Martha Stewart
Weddings, Martha Stewart Everyday, Martha Stewart Home, askMartha, Martha by
Mail and marthastewart.com. We believe the Martha Stewart brands have
significant name recognition and trust among consumers. We believe that
consumers associate the brands with the particular 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.
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POSITION AS A 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
-- 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 believe 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, 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 taken 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 of our content library, excluding merchandise, as of December
31, 1998:
<TABLE>
<CAPTION>
MARTHA STEWART
LIVING
MARTHA Martha Television,
STEWART Stewart INCLUDING ASKMARTHA ASKMARTHA
LIVING Weddings Prime Time Newspaper Radio
Magazine Magazine Specials 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) (columns) (segments)
</TABLE>
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 merchandise into the market. We
believe this research and development process ensures that we are regarded as
the "source for the source," and that our content and merchandise continue to
consist of innovative and appealing designs, projects, information and recipes.
In 1998, we created over 1,000 original recipes in our own research facilities,
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and we published over 275 pages of, and broadcast over 50 television and 25
radio segments devoted to, original craft projects.
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
merchandise to be distributed across our omnimedia and omnimerchandising
platforms and presenting our new and existing content and merchandise to our
customers. Our business staff focuses on bringing our content and merchandise
profitably to market. Many of our creative and business executives have been
with us since 1991, the year we launched the Martha Stewart Living magazine.
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 structure through which 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 Inc., a unit of CBS Inc., The Sherwin-Williams
Company, P/Kaufmann, Inc. and affiliates of Time Publishing Ventures, among
others, enable us to widely distribute 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 merchandise 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 merchandise are our direct
responsibility or 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 merchandise 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(TM) 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 gardening, in which our
Martha Stewart Everyday Garden collection will be expanded in 2000 to include
our live plants program.
LEVERAGE THE COST OF DEVELOPING HIGH QUALITY CONTENT ACROSS 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
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cost-leveraging strategy also enables us to make substantial investments in
producing higher quality content. By leveraging our content across multiple
media platforms, we can in turn generate additional profit on this content as it
is reused. For example, existing food-related segments which we have adapted
from the Martha Stewart Living television series began airing in September 1999
as a twice-daily half-hour series, From Martha's Kitchen, on the Food Network.
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 August 1999, marthastewart.com had over
925,000 registered members. We have recently established seven linked channels,
or subsites, on our website, each dedicated to one of our core content areas,
which we intend to use to drive revenues. We also intend 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 merchandise 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 on Kleiner Perkins' investment.
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, which is 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
company-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
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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.
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 six-month period ended June 30, 1999:
<TABLE>
<CAPTION>
REVENUES OPERATING INCOME
------------------------------------- -------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
% OF JUNE 30, % OF % OF JUNE 30, % 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% $ 73,314 65.7% $ 42,669 75.0% $ 24,090 72.4%
Television...................... 23,351 13.0 12,787 11.5 3,924 6.9 1,758 5.3
Merchandising................... 15,004 8.3 11,509 10.3 15,305 26.9 11,430 34.4
Internet/Direct Commerce........ $ 14,673 8.2 $ 13,892 12.5 $ (4,998) (8.8) $ (4,011) (12.1)
-------- ----- -------- ----- -------- ----- -------- -----
Total.................. $180,048 100.0% $111,502 100.0% $ 56,900 100.0% $ 33,267 100.0%
======== ===== ======== ===== ===== =====
Corporate Charges............... (29,515) (17,802)
-------- --------
Operating Income................ $ 27,385 $ 15,465
======== ========
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview" and notes 1 and 12 to the Consolidated
Financial Statements of Martha Stewart Living Omnimedia LLC included elsewhere
in this prospectus for further information on our business segments.
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
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special interest publications are as follows, with the ad pages column
reflecting data reported to Publisher's Information Bureau, or, if unreported,
as calculated by the publisher using a similar methodology:
<TABLE>
<CAPTION>
SPECIAL INTEREST
MARTHA STEWART LIVING MARTHA STEWART WEDDINGS PUBLICATIONS
------------------------------- -------------------------------- ------------------------
FREQUENCY AD FREQUENCY AD FREQUENCY
PER YEAR RATE BASE PAGES PER YEAR DISTRIBUTION PAGES 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>
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. In the event actual circulation for an issue were to
fall below the guaranteed circulation, advertisers in that issue would be
entitled to a credit for the proportionate share of the circulation shortfall.
However, since the launch of the magazine, no shortfall in guaranteed
circulation has occurred. 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 Martha Stewart Living Omnimedia 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 is 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
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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. Our 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 under 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. Total expenses incurred for these
services in 1998 were $9.2 million.
Books
In 1982, Clarkson N. Potter, Inc., a division of Random House, a subsidiary
of Bertelsmann AG, published Entertaining, Martha Stewart's first book.
Entertaining is currently in its 30th printing. Since 1982, Martha Stewart and
Martha Stewart Living Omnimedia 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(R)
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 materially reduced. We sell the hardcover 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 some retail channels. The Best of
Martha Stewart Living books also are distributed through other 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 sold through retail distribution channels.
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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
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 Newspaper Column and Radio Program
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.
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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 launched a companion column, askMartha Weddings, in the summer of 1999,
which appears 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.
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
Westwood One and us. 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 vignettes, 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.
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 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 that began in September 1999 and periodic prime-time network
specials
-- late night -- From Martha's Kitchen, on the Food Network
-- weekend -- Martha Stewart Living weekend, a half-hour syndicated
program airing on Saturday or Sunday and the 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
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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 August 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 August 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, was 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. In 1998, we incurred
distribution fees of $4.3 million, and we earned $1.9 million in licensing fees
under this agreement. 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.
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
In September 1999, the Food Network cable channel began airing a half-hour
Martha Stewart branded program twice a day, seven days a week, entitled From
Martha's Kitchen. This program consists primarily of food-related segments
repackaged from previous Martha Stewart Living programs. In exchange for the
programming, we 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
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library to create new programming primarily relating to individual core content
areas. Finally, we are exploring on a preliminary basis the licensing of our
programs in new international markets, including Japan and several European
countries.
MERCHANDISING
Our merchandising group translates our core content expertise into branded
products that are distributed to a wide audience through a broad range of 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, retail sales of Martha
Stewart branded merchandise by Kmart and our other merchandising partners were
$763 million, providing substantial royalty revenues for Martha Stewart Living
Omnimedia. In 1998, our operating income from our merchandising segment was
approximately $15.3 million, or 26.9% of our total operating income before
corporate charges, of which our agreements with Kmart represented approximately
68.0%, or 18.4% of our total operating income before corporate charges. 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:
<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 stores
Araucana Colors()(R) and March 1995 Fine Paints of Specialty paint
Colors of the Europe, Inc. dealers
Garden()(R) 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, by designing the products and
being actively involved in the development of packaging, in-store display and
print and television advertisements, all of which are subject to our approval.
We license the right to use our trademarks only in connection with the sale of
merchandise designed or selected 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,
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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 generally allow us to retain
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 have direct responsibility for 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 merchandise display space in a typical Kmart home fashion department.
Additionally, Kmart funds a majority of the design and 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 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 Martha
Stewart Living Omnimedia and the paints are manufactured and distributed by
Sherwin-Williams. As of August 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
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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 a portion of our design costs. In September 1999, the Martha
Stewart Home collection began selling 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.
INTERNET/DIRECT COMMERCE
Our Internet/Direct Commerce business leverages our content and
merchandising capabilities to create a one-stop, user-friendly experience for
our consumers. Our Internet/Direct Commerce business is still in its
introductory phase but has achieved significant online acceptance and
viewership, with over 925,000 registered users as of August 1999. We plan to
accelerate the expansion of our Internet/Direct Commerce business by expanding
the seven linked channels, or subsites, that we recently introduced on our
website, each of which is 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 different visitors per month, who on
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average viewed nine pages for 14 minutes, according to Media Metrix. As of June
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.
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. Additionally, in October 1999, we will introduce our
Martha's Flowers(TM) program, through which consumers can purchase
Christmas greens or growers bunches of selected flowers or subscribe
to a flowers-of-the-month program. Martha's Flowers will be available
exclusively through marthastewart.com and Martha by Mail catalogs.
-- Community: we intend to expand 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 Martha Stewart Living Ominimedia LLC to Kleiner Perkins.
John Doerr, a general partner of Kleiner Perkins, has become a member of our
Board of Directors. See "Recent Developments -- Strategic Investment" for more
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information on this transaction. 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 our media
platforms and business segments are controlled by one central advertising sales
and advertising sales marketing services staff. As of August 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, including our website
-- 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. Our top 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 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 Motor Company, which generates revenues for three Martha
Stewart Living Omnimedia 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
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consistent across our omnimedia and omnimerchandising platforms and conforms to
the overall quality that our consumers expect from our branded products.
Our print production services team is also responsible for the purchasing
of paper, our principal raw material, for our magazines and catalogs. We
currently purchase paper through a transition services agreement with an
affiliate of Time Publishing Ventures, the term of which we have agreed with
Time to extend through the end of 2000 as it relates to paper. The type of paper
we use is generally widely available. We use no other significant raw materials.
As of August 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 our direct to consumer businesses. The primary function of the
department is to execute marketing campaigns to promote Martha Stewart Living
Omnimedia products to our customer base and outside lists. The group controls
our customer database, uses various of our 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 August 1999, our
consumer marketing department consisted of 12 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 Martha
Stewart Living Omnimedia 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 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; however, Martha Stewart may terminate
the license if we fail to make the royalty payments described below. 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, 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 we derive 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.
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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.
PROPERTIES
Information concerning the location, use and approximate square footage of
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 116,840
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
601 West 26th Street.............. Photography studio, test kitchens,
New York, New York prop storage and Internet
development 75,000
</TABLE>
The leases for these offices and facilities expire between August 2000 and
November 2010, and some of these leases are subject to our renewal. 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.
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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 location rental agreement, we refer you
to "Certain Relationships and Related Transactions--Agreements with Martha
Stewart--Location Rental Agreement."
We believe that our existing facilities are well maintained and in good
operating condition.
EMPLOYEES
As of August 1999, we had approximately 385 employees, all of whom are
located in the United States. Most of our creative and business leaders have
been with us since 1991, the year we launched the Martha Stewart Living
magazine. 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 we intend, 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............ 58 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
Naomi O. Seligman......... 66 Director
Helen Murphy.............. 36 Chief Financial and Administrative Officer
Gregory R. Blatt.......... 31 Executive Vice President, General Counsel and Secretary
Dora Braschi Cardinale.... 43 Executive Vice President, Print Production
Stephen Drucker........... 46 Executive Vice President, Editorial Core and Editor-in-
Chief
Peter Mark................ 33 Executive Vice President, Corporate Infrastructure
Development and Television Operations
Suzanne Sobel............. 43 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
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 Martha Stewart Living Omnimedia 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 professional 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 Martha Stewart Living Omnimedia 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 Martha Stewart Living
Omnimedia 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 Martha Stewart Living Omnimedia
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 joined 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 Sun Microsystems, Inc., as well as several private
companies.
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Naomi O. Seligman has been a director of Martha Stewart Living Omnimedia
since September 1999. Ms. Seligman is a co-founder and has served as a senior
partner of the Research Board, Inc., an information technology research group,
since 1975. Ms. Seligman currently serves as a director of The Dun & Bradstreet
Corporation, Chemdex Corporation and Exodus Communications, Inc.
Helen Murphy has served as Chief Financial and Administrative Officer of
Martha Stewart Living Omnimedia since September 1999. Prior to that, Ms. Murphy
was Senior Vice President and Chief Financial Officer of Westvaco Corporation
from January 1999 to September 1999. From 1990 through 1998, Ms. Murphy held
various positions with PolyGram N.V., including serving as Chief Financial
Officer from 1997 to December 1998, Senior Vice President, Worldwide Investor
Relations and United States Mergers and Acquisitions from 1995 to 1997 and
Senior Vice President, Corporate Finance and Treasurer from 1992 to 1995. Ms.
Murphy has an additional six years of experience in business and finance,
including with Richardson Greenshields of Canada, Ltd. and Prudential-Bache
Securities.
Gregory R. Blatt has served as Executive Vice President, General Counsel
and Secretary of Martha Stewart Living Omnimedia since September 1999, and as
Senior Vice President, General Counsel of Martha Stewart Living Omnimedia 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.
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 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 Martha Stewart Living
Omnimedia 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 Martha Stewart Living Omnimedia since January 1999. Prior to that,
Ms. Sobel served as Senior Vice President, Advertising Sales & Marketing and
Publisher during 1998 and as Publisher 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 Martha Stewart Living Omnimedia since January 1999. Prior to that, Ms.
Stanich was Senior Vice President, Consumer Marketing 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 Martha Stewart Living Omnimedia 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.
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Shelley Lewis Waln has served as Executive Vice President, Integrated
Marketing of Martha Stewart Living Omnimedia since April 1998. Prior to that,
Ms. Waln was Executive Vice President, Advertising Sales & Marketing 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.
James Follo has served as Senior Vice President, Finance and Controller of
Martha Stewart Living Omnimedia 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.
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>
Stephen A. Earle......................... 39 Senior Vice President, Style Director
Frederick Karch.......................... 42 Senior Vice President, Style Director
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
Darcy S. Miller.......................... 30 Vice President, Weddings Editor
Hannah Carpenter Milman.................. 40 Vice President, Crafts Editor
</TABLE>
Stephen A. Earle has served as Senior Vice President, Style Director of
Martha Stewart Living Omnimedia since September 1999, and as Vice President,
Style Director 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 Senior Vice President, Style Director of
Martha Stewart Living Omnimedia since September 1999, and as Vice President,
Style Director since January 1999. Prior to that, Mr. Karch was Style Director
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.
Eric A. Pike has served as Senior Vice President, Design Director of Martha
Stewart Living Omnimedia since January 1999. Prior to that, Mr. Pike served as
Vice President, Design Director 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 Martha
Stewart Living Omnimedia 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 Martha
Stewart Living Omnimedia since March 1999. Prior to that, Ms. Spungen served as
Vice President, Food Editor from 1997
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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.
Darcy S. Miller has served as Vice President, Weddings Editor of Martha
Stewart Living Omnimedia since January 1, 1998. During 1997, Ms. Miller was
Weddings Editor. 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
Martha Stewart Living Omnimedia since February 1999. Prior to that, Ms. Milman
was Style Editor from 1996 until 1997. Ms. Milman was also Senior Editor from
1992 to 1996 and a Contributing Editor from 1991 to 1992 for Martha Stewart
Living. Ms. Milman has an additional ten years experience in style and product
design, working for clients such as Garnet Hill, Barneys New York, Calvin Klein
and Donna Karan.
BOARD OF DIRECTORS
When this offering is completed, we will have a Board of Directors
comprised of five individuals. 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 "--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, 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 $1,695,717 -- --
Chairman and Chief Executive Officer
Sharon Patrick........................... 493,755 518,443 -- --
President and Chief Operating Officer
Gael Towey............................... 300,000 305,000 -- --
Executive Vice President--Art and Style
Creative Director
Stephen Drucker.......................... 265,000 198,750 -- --
Executive Vice President--Editorial
Core and Editor-in-Chief
Suzanne Sobel............................ 239,000 225,855 -- --
Executive Vice President--Advertising
Sales and Marketing, Publisher
</TABLE>
We did not grant any long term compensation to any named executive officer
in 1998. See also "Certain Relationships and Related Transactions -- Agreements
with Martha Stewart -- Pre-Offering Agreements" for additional amounts paid by
us to Martha Stewart in 1998.
OPTION EXERCISES AND HOLDINGS
The following table provides information regarding exercises and holdings
of stock options by our Chief Executive Officer and our other four most highly
compensated executive officers for the fiscal year ended December 31, 1998, as
if our reorganization into a corporation had occurred on that date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES OF CLASS A
COMMON STOCK
SHARES OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
CLASS A OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
COMMON STOCK END AT FISCAL YEAR-END ($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martha Stewart........ -- -- -- -- -- --
Sharon Patrick........ -- -- -- 135,404 -- 1,814,414
Gael Towey............ -- -- -- 382,782 -- 5,129,279
Stephen Drucker....... -- -- -- 32,646 -- 437,456
Suzanne Sobel......... -- -- -- 65,295 -- 874,953
</TABLE>
We did not grant any options to, and no options were exercised by, any of
the named executive officers in 1998. The value of unexercised options in the
above table was calculated based on the mid-point of the offering range, $14.00
per share. Upon completion of this offering, 10% of the options listed in the
above table as unexercisable at the end of our last fiscal year will become
exercisable, except for Gael Towey's options, with respect to which 50% will
become exercisable.
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The following summary descriptions of the material terms 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.
EXECUTIVE EMPLOYMENT ARRANGEMENTS
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 Martha Stewart Living Omnimedia.
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 our other executive officers 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:
-- accrued, but unpaid, base salary and vacation through the date of
termination
-- three times her annual base salary
-- 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 the longer
of three years and the remainder of the employment period. 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 less any disability
benefits. 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:
-- an assignment of duties or responsibilities, or a change in title or
authority, inconsistent with her position as Chairman and Chief
Executive Officer
-- any failure by us to comply with the employment agreement's
compensation provisions
-- a requirement for Martha Stewart to relocate
-- the failure of a successor entity to assume the employment agreement
-- any other material breach of the employment agreement
"Cause," for purposes of the employment agreement, means
-- 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 us, or
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-- Martha Stewart's conviction of a felony or willful gross misconduct,
which in either case results in material and demonstrable damage to
our business or reputation
Under 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.
SEVERANCE AGREEMENT WITH SHARON PATRICK
In September 1999, we entered into a severance agreement with Sharon
Patrick that continues in effect until the fourth anniversary of the completion
of the offering. If Sharon Patrick resigns within 30 days following a change in
control, or if we terminate her employment without "Cause," as defined in the
severance agreement, she will be entitled to receive a lump sum payment equal to
the sum of:
-- accrued but unpaid base salary, vacation and expense reimbursements
and vested benefits under our benefit plans through the date of
termination
-- a pro rata bonus at a rate equal to her target bonus for the year of
termination, and any declared but unpaid bonus for the previous year,
and if not yet declared, a bonus equal to her target bonus
-- an amount equal to her annual base salary and target bonus
The agreement also provides that if Sharon Patrick terminates her
employment for "Good Reason," she will receive the above lump sum payment. "Good
Reason" generally occurs if Sharon Patrick terminates her employment with us
shortly after we diminish her salary or title as President or if her
responsibilities are diminished or modified in a manner that is materially
inconsistent with her position as our President. In addition, in the case of a
termination without Cause, a Good Reason termination, any unvested options which
would become vested within four years of the termination date will become vested
as of her termination date and, in the case of termination without cause
following a change in control, will be exercisable for one year and in other
cases as provided in the relevant option agreement.
EMPLOYMENT ARRANGEMENTS WITH HELEN MURPHY
Employment Agreement
In September 1999, we entered into an employment agreement with Helen
Murphy that provides for her employment as our Chief Financial and
Administrative Officer and continues in effect until terminated by either Helen
Murphy or us. Under the employment agreement, Helen Murphy's initial base salary
is $480,000, and her target bonus is 75% of her base salary. The actual amount
of her bonus will vary based on the compensation policies we establish and our
performance. Helen Murphy also received a signing bonus of $200,000, and will
receive an additional bonus of $247,500 payable upon one year of service with
us.
If Helen Murphy resigns within 30 days following a change in control or if
we terminate her employment without "Cause," as defined in her employment
agreement, she will be entitled to receive a lump sum payment based on her
salary and bonus on the same terms as described above for Sharon Patrick, as
well as an additional $236,250 if her termination occurs in her first year of
employment. In addition, the employment agreement has provisions substantially
similar to the Good Reason provisions in Sharon Patrick's agreement relating to
a termination by Helen Murphy based on changes in her role as Chief Financial
Officer or her salary. Helen Murphy's options would vest and become exercisable
on the same terms as applicable to Sharon Patrick in the case of a termination
without Cause, or a termination following a change in control or for Good
Reason.
The agreement also provides that four and one-half years after her start
date, Helen Murphy will be entitled to a special bonus ranging from zero to $3.0
million, which amount declines based on a formula that reflects increases in our
market capitalization since her date of hire. If Helen Murphy's employment with
us terminates before the four-year anniversary of the start date due to her
death, disability, our termination of her employment with Cause or a termination
of employment by her following a change in control, the amount
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owed to Helen Murphy under the special bonus provision is reduced to reflect the
shortened employment period. In addition, the special bonus will not be paid if
we terminate Helen Murphy for Cause or she terminates other than due to death,
disability or within 30 days following a change in control.
Option Agreement
We also entered into an LLC unit option agreement with Helen Murphy. Under
this agreement, we granted her options to acquire 85,715 LLC units at an
exercise price of $47.50 per unit, which options will be converted in our
reorganization to a corporation into options to purchase 335,795 shares of our
Class A common stock at an exercise price of $12.125 per share. The options will
vest in four equal installments, beginning on the last day before the first
anniversary of Helen Murphy's start date with us. Following completion of this
offering, the other terms of these options will be generally the same as the
terms of options granted under our 1999 Stock Incentive Plan.
KEY EXECUTIVE INSURANCE
We currently carry key executive life insurance on Martha Stewart with
aggregate coverage of $67.0 million. We also currently carry disability
insurance on Martha Stewart with an aggregate coverage of $55.0 million. We have
pledged a portion of the proceeds from these policies as security for our
existing credit facility, under which there are currently no outstanding
borrowings.
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 may be paid either in shares
of Class A common stock or in cash, at the election of the non-employee
director, under 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 300,000 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.
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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 vest and
become 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
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, by a written beneficiary designation and,
in the case of an option, by 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.
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
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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.
PHANTOM PERFORMANCE UNIT PLAN
We established a phantom performance unit plan in November 1997, under
which participants could 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 this offering. All
employees who had been employed by us for at least one year at the time of an
award received awards.
Our Board of Directors has determined to pay out these awards 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 76 employees participate in the 1998 grants, and each
participant's interest will be deemed to have a $5,000 value as of this
offering. Approximately 144 employees participate in the 1999 grants, and each
participant's interest will be deemed to have a $6,000 value as of this
offering. Up to an aggregate 88,764 shares of Class A common stock will be
delivered to participants upon completion of this offering.
NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION PLAN
We adopted the Nonqualified Class A LLC Unit/Stock Option Plan in November
1997, under which options for 539,564 LLC units were outstanding as of December
31, 1998, based on an assumed 10 million outstanding LLC Units. Under the
merger, the current outstanding options for approximately 509,841 LLC units will
be converted into options for 1,997,374 shares of Class A common stock. Options
granted under the plan generally vested 10% on December 31, 1998, 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, Martha Stewart
Living Omnimedia. 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 Martha Stewart Living
Omnimedia, 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 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,
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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 7,300,000.
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, by a written
beneficiary designation and, in the case of a nonqualified option, by 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.
At the time of this offering, we expect to grant options to purchase
4,582,220 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
-- the acquisition of an amount of common stock greater than the amount
held, directly or indirectly, by Martha Stewart and representing at
least 30% of the outstanding common stock or voting securities
-- a change in the majority of the members of the Board of Directors,
unless approved by the incumbent directors or Martha Stewart
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-- the completion of a merger involving Martha Stewart Living Omnimedia
in which, among other things, our stockholders do not retain more than
50% of the common stock and voting power
-- 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.
THE EMPLOYEE STOCK PURCHASE PLAN
We adopted our Employee Stock Purchase Plan in July 1999. The purpose of
the purchase plan is to further our long-term stability and financial success by
providing a method for employees to increase their ownership of Class A common
stock. Under the purchase plan, 730,000 shares of Class A common stock will be
available for issuance and sale. Unless sooner terminated at the discretion of
our Board of Directors, the purchase plan will terminate on December 31, 2009.
Eligibility
All of our employees and all of the employees of designated subsidiaries
generally will be eligible to participate in the purchase plan, other than
employees whose customary employment is 20 hours or less per week or is for not
more than five months in a calendar year, or who are ineligible to participate
due to restrictions under the Internal Revenue Code.
General Description
A participant in the purchase plan may authorize regular salary deductions
of a maximum of 15% and a minimum of 1% of base compensation. The fair market
value of shares which may be purchased by any employee during any calendar year
may not exceed $25,000. The amounts so deducted and contributed will be applied
to the purchase of full shares of Class A common stock under options to purchase
shares at 85% of the lesser of the fair market value of such shares on the date
of purchase or on the offering date for such offering period. The offering dates
will be January 1 and July 1 of each purchase plan year, and each offering
period shall consist of one six-month purchase period. Any offering period,
however, beginning in 1999 would be commenced after July 1, and would be for
less than a six-month period. Shares will be purchased for participating
employees on the last business days of June and December for each purchase plan
year and each such participant will have the rights of a Class A stockholder
with respect to such shares.
Participants may decrease their payroll deductions at any time but not more
than once during any offering period. Participants may increase or decrease
their payroll deductions for any subsequent offering period by notifying the
purchase plan administrator no later than 15 days prior to such offering period.
Participants may also withdraw from participation in the purchase plan at any
time on or prior to the 15th day of the last month of the offering period. If a
participant withdraws from the purchase plan, any contributions that have not
been used to purchase shares will be refunded. A participant who has withdrawn
may not participate in the purchase plan again until the next offering period.
In the event of retirement or other termination of employment before the
15th day of the last month in the offering period, any contributions that have
not yet been used to purchase shares will be refunded and a certificate issued
for the full shares in the participant's account. In the event of a
participant's death, any contributions that have not yet been used to purchase
shares and all shares in such participant's account will be delivered to the
participant's beneficiary designated in writing and filed with us, or, if no
beneficiary has been designated or survives the participant, to the
participant's estate. Any payroll deductions that have not been used to purchase
shares will be returned to the participant after the end of the applicable
offering period.
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Amendments or Termination of the Purchase Plan
Our Board of Directors may amend the purchase plan in any respect, although
our stockholders must approve any amendment that would increase the number of
securities that may be issued under the purchase plan or would cause the plan to
fail to qualify for beneficial tax treatment under Section 423 of the Internal
Revenue Code. Our Board of Directors may suspend or terminate the purchase plan
at any time. However, in the event of a termination while an offering period is
in progress, our Compensation Committee may return accumulated payroll
deductions or shorten the offering period by setting a new date of purchase.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by applicable Delaware law, we have included in our
certificate of incorporation a provision to generally eliminate the personal
liability of our directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors. In addition, our by-laws provide that we
are required to indemnify our officers and directors under a number of
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 under
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 Martha Stewart Living Omnimedia or our officers, employees
or agents in connection with 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 the material terms 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, 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 Martha Stewart Living
Omnimedia LLC, which was a recently formed entity controlled by Martha Stewart.
The 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, Martha Stewart Living Omnimedia 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 the LLC. The purchase price was
calculated taking into consideration the special income distribution of $18.0
million payable to Time Publishing Ventures under the LLC operating agreement.
This distribution was paid in February 1997. The LLC operating agreement also
expressly permits Time Publishing Ventures and its affiliates to compete with us
and eliminates any obligation that Time Publishing Ventures offer corporate
opportunities to the LLC.
Incident to its equity interest, Time Publishing Ventures received 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 some
circumstances at an earlier date. These rights, other than registration rights,
will terminate upon our purchase of Time Publishing Ventures' shares under our
offer or Time Publishing Ventures' rejection of that offer. 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 its affiliates, Time Inc., Time
Customer Service, Inc. and Time Distribution Services, Inc., also entered into
agreements with us to provide us with various services. These agreements
included:
-- newsstand distribution services for our magazines, including
marketing and merchandising services for our magazine
-- fulfillment services for the magazine
-- fulfillment services for Martha by Mail
-- administrative and other services
-- 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, Time Distribution Services
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. In 1998, we incurred fees of $1.4 million under this agreement.
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The fulfillment agreements with Time Customer Service provide for inventory
management, "back-office processing" and processing of mail and phone orders for
our magazines and our 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. In 1998, we incurred fees of $11.3 million
under these agreements.
Under a transition services agreement with Time, we receive administrative,
editing and sales services, and purchase our paper, from Time. The
administrative, editing and sales services portions of the agreement generally
expire in February 2001 and are automatically renewed for successive six-month
or one-year periods, depending on the service, unless a party terminates that
service prior to expiration of the particular term. The purchasing portion of
this agreement can be cancelled by either party on 180 days' prior notice. We
have agreed with Time to extend the paper purchasing portion of the agreement
through the end of 2000. In 1998, we incurred expenses of $26.6 million,
including $26.0 million for paper purchases, under this agreement.
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(TM) 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
receive 50% of the net profit. We earned $2.0 million in income under this
agreement in 1998. 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 our Board of Directors. Following this offering, Mr.
Logan will not be a director of Martha Stewart Living Omnimedia.
LLC OPERATING AGREEMENT
In connection with our acquisition of Time Publishing Ventures' Martha
Stewart-related businesses in February 1997, the members in Martha Stewart
Living Omnimedia LLC, our predecessor company, consisting of The Martha Stewart
Family Limited Partnership, Time Publishing Ventures, Sharon Patrick and Grubman
Indursky & Schindler, P.C. entered into an agreement governing the operation of
the LLC and the rights of its members. Among the various rights that this
agreement afforded the LLC was the right to make an offer to purchase the
membership interests held by Time Publishing Ventures for a target price of
$37.0 million plus 5% interest, compounding semi-annually, from February 3,
1997. 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 Martha Stewart Living Omnimedia 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 $25.0 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
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-- 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
-- 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
-- the per share price received by Martha Stewart Living Omnimedia or
Martha Stewart over
-- 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
-- the total number of shares sold in the subsequent transaction and 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
TAX INDEMNIFICATION
Under the merger agreement providing for the conversion of Martha Stewart
Living Omnimedia LLC into a corporation for purposes of effecting this initial
public offering, the LLC will make distributions in an aggregate amount of $6.0
million, as of June 30, 1999, in respect of taxes paid by the members relating
to the profits of the LLC. We also agree to indemnify the members of the LLC for
any taxes relating to periods during which we were a limited liability company.
See "Reorganization Transactions Occurring Prior to This Offering" for more
information on this tax distribution.
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS
Immediately prior to the merger, we will enter into a stockholders
agreement with the members of the LLC. Under the terms of this agreement, we
have agreed to irrevocably offer to purchase the shares of common stock held by
Time Publishing Ventures. In the event that Time Publishing Ventures accepts our
offer to purchase its shares but we fail to complete that purchase, the
agreement provides that rights of Time Publishing Ventures that terminated upon
completion of the merger would be reinstated. These rights include governance
rights regarding our operations, including the right to approve transactions
between us and Martha Stewart and call and put rights relating to Time
Publishing Ventures' shares in Martha Stewart Living Omnimedia. Because the
proceeds of this offering will significantly exceed the price of purchasing Time
Publishing Ventures' shares, we do not believe there is any material risk that
were Time Publishing Ventures to accept our offer we would not complete that
transaction.
The stockholders agreement also provides that we will be able to continue
to purchase paper from Time through December 2000 in accordance with past
practice. In addition, the stockholders agreement provides Time Publishing
Ventures, which will own an aggregate of 2,585,597 shares of Class A common
stock at the time of this offering, Kleiner Perkins, which will own an aggregate
of 2,061,880 shares of Class A Common Stock, Martha Stewart, who will indirectly
control an aggregate of 34,126,831 shares of Class B common stock and Sharon
Patrick, who will own an aggregate of 2,343,124 shares of Class A Common Stock,
with the right to require us to register shares of Class A common stock owned or
controlled by them, subject to customary terms and minimum amounts. None of
these entities can 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 Martha Stewart Living
Omnimedia.
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These registration rights continue as long as these stockholders continue
to hold any of our common stock that they received in the merger of Martha
Stewart Living Omnimedia LLC into a corporation.
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. See "-- Pre-Offering
Agreements" for more information on the prior agreement. 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 compensation, benefits
and expense reimbursement. Under a 1997 location rental agreement, we paid
Martha Stewart $1.5 million annually for the use of properties owned by her in
connection with operating our 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 Martha Stewart Living Omnimedia LLC, Martha
Stewart is entitled to 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, we paid
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 Martha Stewart Living Omnimedia.
Mr. Randy Plimpton, Martha Stewart's brother-in-law, is our property
manager, responsible for property management and support services.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of Class A and Class B common stock, including the percent of the
total voting power, as of September 24, 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 BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) AFTER OFFERING
------------------------------------ % TOTAL ----------------------------------- % TOTAL
CLASS A CLASS B VOTING CLASS A CLASS B VOTING
COMMON STOCK COMMON STOCK POWER COMMON STOCK COMMON STOCK POWER
---------------- ---------------- ------- ---------------- ---------------- -------
NAME SHARES % SHARES % SHARES % SHARES %
- ---- --------- ---- ---------- --- --------- ---- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Martha Stewart(2)...... -- -- 34,126,831 100 98.0 -- -- 34,126,831 100 96.0
Time Inc.(3)........... 2,585,597 36.4 -- -- * 2,585,597 18.0 -- -- *
1271 Avenue of the
Americas
New York, New York
10020
Kleiner Perkins
Caufield &
Byers(4)............. 2,061,880 29.0 -- -- * 2,061,880 14.3 -- -- *
2750 Sand Hill Road
Menlo Park,
California 94025
L. John Doerr(4)....... 2,061,880 29.0 -- -- * 2,061,880 14.3 -- -- *
Charlotte Beers(5)..... -- -- -- -- -- -- -- -- -- --
Sharon Patrick(6)...... 2,342,339 32.9 -- -- * 2,356,664 16.4 -- -- *
Naomi O. Seligman(7)... -- -- -- -- -- -- -- -- -- --
Gael Towey(8).......... -- -- -- -- -- 192,176 1.3 -- -- *
Stephen Drucker(9)..... -- -- -- -- -- 4,050 -- -- -- *
Suzanne Sobel(10)...... -- -- -- -- -- 7,315 -- -- -- *
All directors and
executive officers as
a group (15
persons)(11)......... 4,404,219 61.9% 34,126,831 100% 99.2% 4,655,938 32.3% 34,126,831 100% 97.3%
</TABLE>
- ------------
* The percentage of shares or voting power beneficially owned does not exceed
1% of the class.
(1) Figures do not include any vested options as no options are exercisable
prior to completion of this offering.
(2) Consists of 34,126,831 shares held by The Martha Stewart Family Limited
Partnership.
(3) Consists of 2,585,597 shares held by Time Publishing Ventures, Inc., a
wholly owned subsidiary of Time Inc.
(4) Consists of 2,061,881 shares held by KPCB Holdings, Inc., a California
corporation, as nominee for Kleiner Perkins Caufield & Byers IX LP, KPCB IX
Associates, LLC and managing directors of KPCB IX Associates, LLC, of which
L. John Doerr is one. 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 Holdings, Inc. or KPCB IX Associates, LLC.
(5) Does not include unvested options to acquire 5,000 shares of Class A common
stock.
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(6) Includes 785 shares received under our phantom performance unit plan and
vested options to acquire 13,540 shares of Class A common stock. Does not
include unvested options to acquire 483,886 shares of Class A common stock.
(7) Does not include unvested options to acquire 5,000 shares of Class A common
stock.
(8) Consists of 785 shares received under our phantom performance unit plan and
vested options to acquire 191,391 shares of Class A common stock. Does not
include unvested options to acquire 524,724 shares of Class A common stock.
(9) Consists of 785 shares received under our phantom performance unit plan and
vested options to acquire 3,265 shares of Class A common stock. Does not
include unvested options to acquire 245,329 shares of Class A common stock.
(10) Consists of 785 shares received under our phantom performance unit plan and
vested options to acquire 6,530 shares of Class A common stock. Does not
include unvested options to acquire 237,318 shares of Class A common stock.
(11) Includes 6,280 shares received under our phantom performance unit plan and
vested options to acquire 245,439 shares of Class A common stock. Does not
include unvested options to acquire 2,808,586 shares of Class A common
stock.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the material provisions of 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. Immediately prior to this offering, we had 7,110,763
shares of Class A common stock, 34,126,831 shares of Class B common stock and no
shares of preferred stock outstanding. After this offering, there will be
14,399,527 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 or except as otherwise provided in our
certificate of incorporation, 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 in this prospectus 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, 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
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-- 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
-- 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, 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 Martha Stewart Living Omnimedia
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 Martha Stewart Living
Omnimedia 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 and this control could inhibit potential changes of control"
for information on other factors which could impact a change of control.
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 generally prevents Delaware
corporations, including those with securities listed on the New York Stock
Exchange, from engaging in a business combination with any interested
stockholder for three years following the date that the stockholder became an
interested stockholder, unless that business combination has been approved in
one of a number of specific ways. For purposes of Section 203, a "business
combination" includes, among other things, a merger or consolidation involving
Martha Stewart Living Omnimedia 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
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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.
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 96% 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 ChaseMellon Shareholder
Services L.L.C.
LISTING
Our Class A common stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the symbol "MSO."
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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 completion of this offering, we will have
14,399,527 shares of Class A common stock outstanding, of which the 7,200,000
shares offered in this prospectus will be freely tradeable 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. All other shares, including all 34,126,831 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 those 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, 143,995
shares immediately after this offering, without giving effect to the
over-allotment option, or
-- the average weekly trading volume of our Class A 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 this offering, Martha Stewart and entities controlled by
her will own 34,126,831 shares of Class B common stock, Sharon Patrick will own
2,343,124 shares of Class A common stock, Time Publishing Ventures will own
2,585,597 shares of Class A common stock and KPCB Holdings, Inc. will own
2,061,880 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 this
offering, or into which Martha Stewart's shares of Class B common stock are
convertible. See "Certain Relationships and Related Transactions--Stockholders
Agreement and Registration Rights" for more information on these registration
rights.
All of our directors, executive officers, key creative personnel and
existing stockholders as well as some other individuals purchasing shares in
this offering have entered into lock-up agreements with the representatives of
the underwriters, under which 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 exceptions, including the call by Martha Stewart Living
Omnimedia of Time Publishing Ventures' shares. See "Underwriters" for more
information on these lock-up agreements.
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MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of the material 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
-- a citizen or resident of the United States
-- a corporation created or organized in the United States or under the
laws of the United States or of any state
-- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source
-- a trust if
-- a court within the United States is able to exercise primary
supervision over the administration of the trust, and
-- 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 under the Internal Revenue Code, 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 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 the required 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 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, for some Non-U.S. Holders that
are entities, the owner or owners of such entities, will be required to satisfy
certification requirements in order to claim a reduced rate of withholding under
an applicable income tax treaty.
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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
-- 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
-- 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 meets
other tests
-- the Non-U.S. Holder is subject to tax under the provisions of the
Internal Revenue Code regarding the taxation of U.S. expatriates, or
-- Martha Stewart Living Omnimedia is or has been a U.S. real property
holding corporation for U.S. federal income tax purposes, which Martha
Stewart Living Omnimedia does not believe that it has been, currently
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 Martha Stewart Living Omnimedia were or were to become a U.S. real
property holding corporation 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
We 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 applicable 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 other required 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
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-- a U.S. person
-- a "controlled foreign corporation" for U.S. federal income tax
purposes, or
-- a foreign person 50% or more of whose gross income from a specified
period 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 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 these U.S. federal income tax considerations is
not tax advice and is not based on an opinion of counsel. 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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UNDERWRITERS
Morgan Stanley & Co. Incorporated is acting as sole book-running manager
for this offering. With respect to the offering of shares in the United States
and Canada, Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner
& Smith Incorporated are acting as joint lead managers and Bear, Stearns & Co.
Inc. is acting as co-lead manager. With respect to the offering of shares
outside of the United States and Canada, Morgan Stanley International and
Merrill Lynch International are acting as joint lead managers, and Bear, Stearns
International Limited is acting as co-lead manager.
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 Bank 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............................................. 5,760,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited................
Merrill Lynch International...............................
Bear, Stearns International Limited.......................
Donaldson, Lufkin & Jenrette International................
Bank of America International Limited.....................
---------
Subtotal............................................. 1,440,000
---------
Total............................................. 7,200,000
=========
</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 in this
prospectus are subject to the approval of specified 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.
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 some 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
other dealers. After the initial offering of the shares of Class A common stock,
the offering price and other selling terms may be varied by the representatives.
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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 1,080,000
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 in 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 underwriting
discounts and commissions would be $ and the total proceeds to Martha
Stewart Living Omnimedia 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 671,000 shares of
Class A common stock offered hereby for sale at the initial public offering
price to some of our employees and to other persons and entities that we believe
have contributed to the development and success of our business. The number of
shares available for sale to the general public will be reduced to the extent
that these persons and entities 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.
The Class A common stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the symbol "MSO."
The underwriters intend to sell shares to a minimum of 2,000 beneficial owners
in lots of 100 or more so as to meet the distribution requirements of this
listing.
Each of Martha Stewart Living Omnimedia and our directors, executive
officers, key creative personnel and stockholders prior to this offering 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
-- file a registration statement, in the case of Martha Stewart Living
Omnimedia, 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 in a number
of circumstances, including:
-- the sale of the shares of Class A common stock to the underwriters
-- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after
the completion of this offering
-- the completion of our call of Time Publishing Ventures' equity
interest under the LLC operating agreement
-- the exchange of shares of Class B common stock for shares of Class A
common stock under the terms of our certificate of incorporation
-- the granting 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
-- the issuance by us of shares of common stock upon the exercise of
options or warrants or the conversion of securities outstanding on
the date of the underwriting agreement or as of the closing date of
this offering, of which the underwriters have been advised in writing
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-- the exercise of options granted pursuant to our stock option plans or
-- the sale or other transfer of any shares of common stock by 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 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.
Some 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 some
liabilities relating to this offering, 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 other financial and operating information in recent periods, and
the price-earnings ratios, price-sales ratios, market prices of securities and
other financial and operating information of companies engaged in activities
similar to ours.
LEGAL MATTERS
A number of legal matters relating to this offering 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 one or more of the
underwriters, and Wachtell, Lipton, Rosen & Katz has in the past represented and
continues to represent Martha Stewart Living Omnimedia, 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.
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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 to the registration statement, 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 and amendments to the registration statement, 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 with
those requirements, 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.
85
<PAGE> 91
(This page has been left blank intentionally.)
<PAGE> 92
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 June 30, 1999 (unaudited)..................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the six months
ended June 30, 1998 and 1999 (unaudited)............... F-4
Consolidated Statements of Members' Equity for the years
ended December 31, 1996, 1997 and 1998 and for the six
months ended June 30, 1999 (unaudited)................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the six months
ended June 30, 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
MARTHA STEWART LIVING OMNIMEDIA, INC.
</TABLE>
The financial statements of Martha Stewart Living Omnimedia Inc. have not
been included in this prospectus as this company has been formed in connection
with this offering and accordingly has no operating history, assets or
liabilities.
F-1
<PAGE> 93
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> 94
MARTHA STEWART LIVING OMNIMEDIA LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998 AND JUNE 30, 1999 (UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ $ 9,971 $ 24,578 $ 22,269
Accounts receivable, net................................. 17,947 25,260 24,683
Inventories.............................................. 3,427 6,522 7,977
Deferred television production costs..................... 3,805 3,038 3,190
Other current assets..................................... 606 275 1,329
-------- -------- --------
Total current assets............................. 35,756 59,673 59,448
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, net......................... 13,852 11,468 11,491
-------- -------- --------
INTANGIBLE ASSETS, net..................................... 55,183 53,108 51,633
-------- -------- --------
OTHER NONCURRENT ASSETS.................................... 915 1,123 1,273
-------- -------- --------
Total assets..................................... $105,706 $125,372 $123,845
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................. $ 16,650 $ 21,242 $ 22,771
Accrued payroll and related costs........................ 2,056 4,056 3,093
Accrued interest payable................................. 2,581 1,581 265
Current maturities of long term debt..................... -- -- 3,000
Current portion of deferred subscription income.......... 23,444 26,756 26,483
-------- -------- --------
Total current liabilities........................ 44,731 53,635 55,612
-------- -------- --------
DEFERRED ROYALTY INCOME.................................... 13,203 1,782 1,151
-------- -------- --------
DEFERRED SUBSCRIPTION INCOME............................... 4,137 4,722 4,674
-------- -------- --------
LONG TERM DEBT, less current maturities.................... 30,000 27,650 12,000
-------- -------- --------
OTHER NONCURRENT LIABILITIES............................... 400 768 849
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY............................................ 13,235 36,815 49,559
-------- -------- --------
Total liabilities and members' equity............ $105,706 $125,372 $123,845
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 95
MARTHA STEWART LIVING OMNIMEDIA LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 (UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
------ -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Publishing........................... $3,899 $108,694 $127,020 $64,701 $ 73,314
Television........................... -- 12,396 23,351 10,587 12,787
Merchandising........................ -- 6,919 15,004 6,622 11,509
Internet/Direct Commerce............. -- 4,812 14,673 4,343 13,892
------ -------- -------- ------- --------
Total revenues............... 3,899 132,821 180,048 86,253 111,502
------ -------- -------- ------- --------
Operating costs and expenses
Production, distribution and
editorial......................... -- 59,148 82,930 36,492 54,710
Selling and promotion................ -- 31,973 34,540 17,838 19,994
General and administrative........... 99 21,182 29,659 14,005 18,601
Depreciation and amortization........ -- 3,927 5,534 2,665 2,732
------ -------- -------- ------- --------
Total operating costs and
expenses................... 99 116,230 152,663 71,000 96,037
------ -------- -------- ------- --------
Income from operations................. 3,800 16,591 27,385 15,253 15,465
------ -------- -------- ------- --------
Other expenses
Interest expense, net................ 165 2,195 2,243 1,315 597
Income tax provision................. -- 467 1,336 750 702
------ -------- -------- ------- --------
Total other expenses......... 165 2,662 3,579 2,065 1,299
------ -------- -------- ------- --------
Net income............................. $3,635 $ 13,929 $ 23,806 $13,188 $ 14,166
====== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 96
MARTHA STEWART LIVING OMNIMEDIA LLC
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 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................................................ 14,166
Capital distributions..................................... (1,422)
--------
BALANCE, June 30, 1999 (unaudited).......................... $ 49,559
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 97
MARTHA STEWART LIVING OMNIMEDIA LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 (UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
---------------------------- -------------------
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 $13,188 $ 14,166
------ ------- ------- ------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization....... -- 3,927 5,534 2,665 2,732
Changes in operating assets and
liabilities, net of assets
acquired--
Accounts receivable, net.......... (1,192) 341 (7,314) 765 577
Inventories....................... -- (1,077) (3,561) (1,652) (1,455)
Other current assets.............. -- 4,983 333 (1,140) (1,054)
Deferred television production
costs.......................... -- -- 767 1,714 (152)
Other noncurrent assets........... (18) (838) (209) (34) (150)
Accounts payable and accrued
liabilities.................... 164 12,075 4,942 976 (750)
Deferred royalty income........... 99 12,454 (11,420) (5,414) (631)
Deferred subscription income...... -- (1,621) 4,278 612 (321)
Other noncurrent liabilities...... -- 400 368 -- 80
------ ------- ------- ------- --------
(947) 30,644 (6,282) (1,508) (1,124)
------ ------- ------- ------- --------
Net cash provided by operating
activities................... 2,688 44,573 17,524 11,680 13,042
------ ------- ------- ------- --------
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) (1,954) (1,279)
Proceeds from sale leaseback
transaction......................... -- -- 2,389 2,389 --
------ ------- ------- ------- --------
Net cash provided by (used in)
investing activities......... -- (12,896) (341) 435 (1,279)
------ ------- ------- ------- --------
Cash flows from financing activities
Principal repayment of long term
debt................................ -- -- (2,350) (2,350) (27,650)
Long term debt borrowings.............. -- -- -- -- 15,000
Distributions to members............... (2,610) (21,791) (226) -- (1,422)
------ ------- ------- ------- --------
Net cash used in financing
activities................... (2,610) (21,791) (2,576) (2,350) (14,072)
------ ------- ------- ------- --------
Net increase (decrease) in
cash......................... 78 9,886 14,607 9,765 (2,309)
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 $19,736 $ 22,269
====== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 98
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 solely 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 a promissory note for $30,000
and a 6.27% equity interest in the Company. The purchase price was calculated
taking into consideration the special income distribution of $18 million payable
to Time Publishing Ventures pursuant to the limited liability company agreement
of the Company. This distribution was made in February 1997. 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. In addition, Time Publishing Ventures and certain of its
affiliates entered into transition and other service agreements with the Company
which are described in Note 8.
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.
F-7
<PAGE> 99
MARTHA STEWART LIVING OMNIMEDIA LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
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.
F-8
<PAGE> 100
MARTHA STEWART LIVING OMNIMEDIA LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
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.
F-9
<PAGE> 101
MARTHA STEWART LIVING OMNIMEDIA LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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 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.
Options granted under the plan generally vested 10% at December 31, 1998
and will generally vest 10%, 20%, 20% and 40% on December 31 of each of the next
four years.
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,
who have no minimum service period. On January 1, 1998, the
F-10
<PAGE> 102
MARTHA STEWART LIVING OMNIMEDIA LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
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 agreements 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
F-11
<PAGE> 103
MARTHA STEWART LIVING OMNIMEDIA LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
The Company entered into a location rental agreement with Martha Stewart in
1997, relating to the Company's use of various properties owned by Martha
Stewart. The fees for use of these properties amounted to $1,500 in 1997 and
1998.
The Company used the service of a law firm of which Martha Stewart's
son-in-law is a partner. In 1998, the Company paid an aggregate of approximately
$92 in fees and expenses in respect of such services.
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 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>
F-12
<PAGE> 104
MARTHA STEWART LIVING OMNIMEDIA LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
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, $1,144 and $2,197 for the years ended
December 31, 1996, 1997 and 1998, and the six months ended June 30, 1998 and
1999, respectively.
Income taxes paid were $0, $458, $502, $247 and $650 for the years ended
December 31, 1996, 1997 and 1998, and the six months ended June 30, 1998 and
1999, respectively.
F-13
<PAGE> 105
MARTHA STEWART LIVING OMNIMEDIA LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
12. INDUSTRY SEGMENTS
The Company's industry segments are discussed in Note 1. 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 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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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> 114
[Inside back cover page graphics: picture of four concentric ovals intended to
represent our businesses:
-- the innermost oval, "CORE CONTENT," names the seven core content areas
- HOME, COOKING AND ENTERTAINING, GARDENING, CRAFTS, HOLIDAYS, KEEPING
and WEDDINGS - around our logo
-- the next larger oval, "OMNIMEDIA," lists the elements of our omnimedia
platform together with the type of media each element represents (in
parentheses) - Martha Stewart Living and Martha Stewart Weddings
(MAGAZINES), Martha Stewart Living Books and Martha Stewart Books
(BOOKS), AskMartha (NEWSPAPERS), AskMartha (RADIO), Martha Stewart
Living (NETWORK TELEVISION) and From Martha's Kitchen (CABLE
TELEVISION)
-- the next larger oval, "OMNIMERCHANDISING," lists the products
comprising our omnimerchandising platform together with the related
channels of distribution (in parentheses) - Martha Stewart Everyday
Colors paints (NATIONAL DEPARTMENT STORES), Martha Stewart Everyday
(MASS MARKET), Martha Stewart Home and Fine Paints of Europe
(SPECIALTY RETAILERS) and Martha By Mail (CATALOG)
-- the largest oval, "INTERNET/DIRECT COMMERCE" names our website -
marthastewart.com - and lists the content and services available on
our website - E-COMMERCE AND CATALOG (Martha By Mail), E-COMMERCE
(MarthasFlowers), CONTENT (AskMartha) and COMMUNITY (Meeting Place)]
<PAGE> 115
[Martha Stewart Logo]
<PAGE> 116
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........................................ $ 34,528
NASD filing fee............................................. 12,920
New York Stock Exchange listing fee......................... 125,000
Printing expenses........................................... 150,000
Legal fees and expenses..................................... 1,000,000
Accounting fees and expenses................................ 500,000
Blue sky fees and expenses.................................. 2,500
Transfer agent and registrar fees and expenses.............. 25,000
Miscellaneous............................................... 150,052
----------
Total............................................. $2,000,000
==========
</TABLE>
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> 117
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 its 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 Registrant's 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 7,110,763 shares of the Registrant's Class A common stock,
par value $.01 per share, and 34,126,831 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.
In addition, on July 27, 1999 we completed a transaction in which an
affiliate of Kleiner Perkins purchased a 5% equity interest in MSLO LLC and a
warrant to purchase certain additional securities for aggregate consideration of
$25.0 million. See "Recent Developments -- Strategic Investment" for more
information on this transaction.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<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.*
</TABLE>
II-2
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <C> <S>
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 -- 1999 Employee Stock Purchase Plan.
10.5 -- Martha Stewart Living Omnimedia LLC Phantom Performance Unit
Plan.*
10.6 -- Martha Stewart Living Omnimedia LLC Nonqualified Class A LLC
Unit/Stock Option Plan.*
10.7 -- Form of Employment Agreement, by and between Registrant and
Martha Stewart.
10.8 -- Form of Intellectual Property License and Preservation
Agreement, by and between Registrant and Martha Stewart.
10.9 -- Form of Location Rental Agreement, by and between Registrant
and Martha Stewart.
10.10 -- 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.*
10.11 -- Lease, dated as of March 31, 1998, between 11 West 42
Limited Partnership and Martha Stewart Living Omnimedia
LLC.*
10.12 -- Lease, dated August, 1999, between 601 West Associates LLC
and Martha Stewart Living Omnimedia LLC.*
10.13 -- Lease, dated as of March 6, 1996, between Newtown Group
Properties Limited Partnership and Time Publishing Ventures,
Inc., with amendments.*
10.14 -- Lease, dated as of August 1, 1996, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
10.15 -- Lease, dated as of August 14, 1997, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
10.16 -- License Agreement, dated January 28, 1997, by and between
Martha Stewart Living Omnimedia LLC and Kmart Corporation.+*
10.17 -- Severance Agreement, dated September 23, 1999, by and
between Martha Stewart Living Omnimedia LLC and Sharon
Patrick.
10.18 -- Letter Agreement, dated September 3, 1999, by and between
Martha Stewart Living Omnimedia LLC and Helen Murphy.
10.19 -- LLC Unit Option Agreement, dated September 3, 1999, by and
between Martha Stewart Living Omnimedia LLC and Helen
Murphy.
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>
- ------------
* Previously filed.
** Powers of Attorney not filed herewith were previously filed.
*** To be filed by amendment.
+ Portions of Exhibit 10.16 have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Securities
and Exchange Commission.
II-3
<PAGE> 119
(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.
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> 120
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 24th day of September 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
* Chief Financial and Administrative Officer
- --------------------------------------------------- (Principal Financial Officer)
Helen Murphy
* Senior Vice President, Finance and Controller
- --------------------------------------------------- (Principal Accounting Officer)
James Follo
* Director
- ---------------------------------------------------
Charlotte Beers
* Director
- ---------------------------------------------------
L. John Doerr
* Director
- ---------------------------------------------------
Naomi O. Seligman
*By: /s/ GREGORY R. BLATT
---------------------------------------------
Gregory R. Blatt
(Attorney-in-Fact)
September 24, 1999
</TABLE>
II-5
<PAGE> 121
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> 122
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> 123
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 -- 1999 Employee Stock Purchase Plan.
10.5 -- Martha Stewart Living Omnimedia LLC Phantom Performance Unit
Plan.*
10.6 -- Martha Stewart Living Omnimedia LLC Nonqualified Class A LLC
Unit/Stock Option Plan.*
10.7 -- Form of Employment Agreement, by and between Registrant and
Martha Stewart.
10.8 -- Form of Intellectual Property License and Preservation
Agreement, by and between Registrant and Martha Stewart.
10.9 -- Form of Location Rental Agreement, by and between Registrant
and Martha Stewart.
10.10 -- 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.*
10.11 -- Lease, dated as of March 31, 1998, between 11 West 42
Limited Partnership and Martha Stewart Living Omnimedia
LLC.*
10.12 -- Lease, dated August, 1999, between 601 West Associates LLC
and Martha Stewart Living Omnimedia LLC.*
10.13 -- Lease, dated as of March 6, 1996, between Newtown Group
Properties Limited Partnership and Time Publishing Ventures,
Inc., with amendments.*
10.14 -- Lease, dated as of August 1, 1996, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
10.15 -- Lease, dated as of August 14, 1997, between Newtown Group
Properties Limited Partnership and Martha Stewart Living
Omnimedia LLC.*
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <C> <S>
10.16 -- License Agreement, dated January 28, 1997, by and between
Martha Stewart Living Omnimedia LLC and Kmart Corporation.+*
10.17 -- Severance Agreement, dated September 23, 1999, by and
between Martha Stewart Living Omnimedia LLC and Sharon
Patrick.
10.18 -- Letter Agreement, dated September 3, 1999, by and between
Martha Stewart Living Omnimedia LLC and Helen Murphy.
10.19 -- LLC Unit Option Agreement, dated September 3, 1999, by and
between Martha Stewart Living Omnimedia LLC and Helen
Murphy.
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>
- ------------
* Previously filed.
** Powers of Attorney not filed herewith were previously filed.
*** To be filed by amendment.
+ Portions of Exhibit 10.16 have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Securities
and Exchange Commission.
<PAGE> 1
EXHIBIT 4.1
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY
Martha Stewart Living Omnimedia, Inc.
Martha Stewart Living Omnimedia, Inc. Class A Common Stock
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
CUSIP 573083 10 2
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF MARTHA STEWART LIVING OMNIMEDIA, INC.
CLASS A COMMON STOCK PAR VALUE OF $0.01 PER SHARE OF
Martha Stewart Living Omnimedia, Inc., transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate, properly endorsed. This certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
Dated:
SECRETARY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder Services L.L.C.
TRANSFER AGENT
AND REGISTRAR,
BY
AUTHORIZED SIGNATURE
<PAGE> 2
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, A FULL STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS FOR
THE SHARES REPRESENTED BY THIS CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM-as tenants in common
TEN ENT-as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT Custodian
------------------------ ----------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list. For
value received, hereby sell, assign and transfer unto PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
Shares of the capital stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.2
MARTHA STEWART LIVING OMNIMEDIA, INC.
1999 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Company a competitive advantage
in attracting, retaining and motivating officers, employees and/or consultants
and to provide the Company and its Subsidiaries and Affiliates with a stock plan
providing incentives directly linked to the profitability of the Company's
businesses and increases in the Company's shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
(a) "Affiliate" means a corporation or other entity controlled by,
controlling or under common control with the Company and designated by the
Committee from time to time as such.
(b) "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock, Performance Unit, or other stock-based award.
(c) "Award Agreement" means a written agreement setting forth the terms
and conditions of an Award.
(d) "Award Cycle" shall mean a period of consecutive fiscal years or
portions thereof designated by the Committee over which Performance Units are to
be earned.
(e) "Board" means the Board of Directors of the Company.
(f) "Business Combination" has the meaning set forth in Section
10(b)(iii).
(g) "Cause" means, unless otherwise provided by the Committee, (1)
"Cause" as defined in any Individual Agreement to which the participant is a
party, or (2) if there is no such Individual Agreement or, if it does not define
Cause, any of the following on the part of the participant: an intentional
failure to perform assigned duties; willful misconduct in the course of the
participant's employment; breach of a fiduciary duty involving personal profit;
or acts or omissions of personal dishonesty, any of which results in material
loss to the Company or any of its Subsidiaries or Affiliates. The Committee
shall, unless otherwise provided in an Individual Agreement with the
participant, have the sole discretion to determine whether "Cause" exists, and
its determination shall be final.
(h) "Change in Control" has the meaning set forth in Section 10(b).
(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(j) "Commission" means the Securities and Exchange Commission or any
successor agency.
<PAGE> 2
(k) "Committee" means the Committee referred to in Section 2.
(l) "Common Stock" means Class A common stock, par value $.01 per
share, of the Company.
(m) "Company" means Martha Stewart Living Omnimedia, Inc., a Delaware
corporation.
(n) "Covered Employee" means a participant designated prior to or at
the time of the grant of Restricted Stock or Performance Units by the Committee
as an individual who is or may be a "covered employee" within the meaning of
Section 162(m)(3) of the Code in the year in which Restricted Stock or
Performance Units are expected to be taxable to such participant.
(o) "Disability" means, unless otherwise provided by the Committee,
"Total Disability" as defined in the Group Long Term Disability Insurance
contract between Martha Stewart Living Omnimedia LLC (the predecessor of the
Company) with First Reliance Standard Life Insurance Company. Effective February
4, 1997, or if not so defined or otherwise defined in an Individual Agreement,
shall mean the permanent and total inability of a participant by reason of
mental or physical infirmity, or both, to perform the work customarily assigned
to him or her, if a medical doctor selected or approved by the Board, and
knowledgeable in the field of such infirmity, advises the Committee either that
it is not possible to determine when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said participant's lifetime.
(p) "Eligible Individuals" means officers, employees and consultants of
the Company or any of its Subsidiaries or Affiliates, and prospective employees
and consultants, who have accepted offers of employment or consultancy from the
Company or its Subsidiaries or Affiliates, and who are or will be responsible
for or contribute to the management, growth or profitability of the business of
the Company, or its Subsidiaries or Affiliates.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(r) "Fair Market Value" of the Common Stock means, as of any given
date, the closing price of the Common Stock on the composite transaction tape of
the New York Stock Exchange on such date or, if there are no reported sales on
such date, on the last day prior to such date on which there were sales of the
Common Stock on the New York Stock Exchange or, if the Common Stock is not
listed on such exchange, on any other national securities exchange on which the
Common Stock is listed or on The Nasdaq Stock Market. If there is no regular
public trading market for such Common Stock, the Fair Market Value of the Common
Stock shall be determined by the Committee in good faith.
(s) "Freestanding Stock Appreciation Right" has the meaning set forth
in Section 6(a).
(t) "Incumbent Board" has the meaning set forth in Section 10(b)(ii).
-2-
<PAGE> 3
(u) "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
(v) "Individual Agreement" means an employment, consulting or similar
agreement between a participant and the Company or one of its Subsidiaries or
Affiliates.
(w) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(x) "Outstanding Company Common Stock" has the meaning set forth in
Section 10(b)(i).
(y) "Outstanding Company Voting Power" has the meaning set forth in
Section 10(b)(i).
(z) "Qualified Performance-Based Award" means an Award of Restricted
Stock or Performance Units designated as such by the Committee at the time of
grant, based upon a determination that (i) the recipient is a Covered Employee
and (ii) the Committee wishes such Award to qualify for the Section 162(m)
Exemption.
(aa) "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock or Performance Units.
In the case of Qualified Performance-Based Awards, (i) such goals shall be based
on the attainment of specified levels of one or more of the following measures:
return on equity, return on assets, operating income, earnings per share, net
income and/or achievement of pre-determined, objectively defined strategic
performance goals, and (ii) such Performance Goals shall be set by the Committee
within the time period prescribed by Section 162(m) of the Code and related
regulations. Performance Goals may be stated in the alternative or in
combination.
(bb) "Performance Units" means an Award granted under Section 8.
(cc) "Performance Units Agreement" means a written agreement setting
forth the terms and conditions of an award of Performance Units.
(dd) "Person" has the meaning set forth in Section 10(b)(i).
(ee) "Plan" means the Martha Stewart Living Omnimedia, Inc. 1999 Stock
Incentive Plan, as set forth herein and as hereinafter amended from time to
time.
(ff) "Restricted Stock" means an Award granted under Section 7.
(gg) "Restricted Stock Agreement" means a written agreement setting
forth the terms and conditions of an award of Restricted Stock.
(hh) "Restriction Period" has the meaning set forth in Section
7(c)(ii).
-3-
<PAGE> 4
(ii) "Retirement" means retirement from the employ of the Company or
its Subsidiaries or Affiliates at the normal or early retirement date as set
forth in any tax-qualified retirement/pension plan of the Company.
(jj) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.
(kk) "Section 162(m) Exemption" means the exemption from the limitation
on deductibility imposed by Section 162(m) of the Code that is set forth in
Section 162(m)(4)(C) of the Code.
(ll) "Stock Appreciation Right" means an Award granted under Section 6.
(mm) "Stock Option" means an Award granted under Section 5.
(nn) "Subsidiary" means any corporation, partnership, joint venture or
other entity during any period in which at least a 50% voting or profits
interest is owned, directly or indirectly, by the Company or any successor to
the Company.
(oo) "Tandem Stock Appreciation Right" has the meaning set forth in
Section 6(a).
(pp) "Termination of Employment" means the termination of the
participant's employment with, or performance of services for, the Company and
any of its Subsidiaries or Affiliates. A participant employed by, or performing
services for, a Subsidiary or an Affiliate shall also be deemed to incur a
Termination of Employment if the Subsidiary or Affiliate ceases to be such a
Subsidiary or an Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of, or service-provider for, the
Company or another Subsidiary or Affiliate. Temporary absences from employment
because of illness, vacation or leave of absence and transfers among the Company
and its Subsidiaries and Affiliates shall not be considered Terminations of
Employment. For purposes of the Plan, a participant's employment shall be deemed
to have terminated at the close of business on the day preceding the first date
on which he or she is no longer for any reason whatsoever employed by the
Company or any of its Subsidiaries or Affiliates.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the
Board or such other committee of the Board as the Board may from time to time
designate (the "Committee"), which shall be composed of not less than two
directors, and shall be appointed by and serve at the pleasure of the Board.
The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan to Eligible Individuals.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
-4-
<PAGE> 5
(a) To select the Eligible Individuals to whom Awards may from time to
time be granted;
(b) To determine whether and to what extent Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Units and other stock-based awards or any combination thereof are to
be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) To determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to Section
5(a)), any vesting condition, restriction or limitation (which may be related to
the performance of the participant, the Company or any Subsidiary or Affiliate)
and any vesting acceleration or forfeiture waiver regarding any Award and the
shares of Common Stock relating thereto, based on such factors as the Committee
shall determine;
(e) To modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including but not limited to Performance
Goals; provided, however, that the Committee may not (i) subject to the last
paragraph of Section 3, reduce the exercise price or cancel and regrant a Stock
Option theretofore granted or (ii) adjust upwards the amount payable with
respect to a Qualified Performance-Based Award or waive or alter the Performance
Goals associated therewith;
(f) To determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in
cash or Common Stock under Sections 5(j), 6(b) and 8(b)(iv).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the Committee may, except to the extent prohibited by applicable law
or the applicable rules of a stock exchange, allocate all or any portion of its
responsibilities and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it; provided, that no such delegation may be made that would cause
Awards or other transactions under the Plan to cease to be exempt from Section
16(b) of the Exchange Act or cause an Award designated as a Qualified
Performance-Based Award not to qualify for, or to cease to qualify for, the
Section 162(m) Exemption. Any such allocation or delegation may be revoked by
the Committee at any time.
-5-
<PAGE> 6
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.
Any authority granted to the Committee may also be exercised by the
full Board, except to the extent that the grant or exercise of such authority
would cause any Award or transaction to become subject to (or lose an exemption
under) Section 16(b) of the Exchange Act or cause an Award designated as a
Qualified Performance-Based Award not to qualify for, or to cease to qualify
for, the Section 162(m) Exemption. To the extent that any permitted action taken
by the Board conflicts with action taken by the Committee, the Board action
shall control.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The maximum number of shares of Common Stock that may be delivered to
participants and their beneficiaries under the Plan shall be 7,300,000. No
participant may be granted Stock Options and Freestanding Stock Appreciation
Rights covering in excess of 1,000,000 shares of Common Stock in any calendar
year. No participant may be granted more than 1,000,000 shares of Restricted
Stock or Performance Units covering in excess of 1,000,000 shares of Common
Stock under this Plan. Shares subject to an Award under the Plan may be
authorized and unissued shares or may be treasury shares.
If any Award is forfeited or if any Stock Option (and related Stock
Appreciation Right, if any) terminates, expires or lapses without being
exercised, or if any Stock Appreciation Right is exercised for cash, shares of
Common Stock subject to such Awards shall again be available for distribution in
connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or an extraordinary corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, the Committee or
Board may make such substitution or adjustments to reflect such change or
transaction in (i) the aggregate number and kind of shares reserved for issuance
under the Plan; (ii) the limitation upon Stock Options and Stock Appreciation
Rights to be granted to any participant, to the extent such adjustment does not
cause any Qualified Performance-Based Award to fail to qualify for the Section
162(m) Exemption; (iii) the number, kind and option price of shares subject to
outstanding Stock Options, Stock Appreciation Rights and Restricted Stock; (iv)
the number and kind of shares subject to other outstanding Awards granted under
the Plan; and/or (v) such other equitable manner, in each case, as it may
determine to be appropriate in its sole discretion; provided, however, that the
number of shares subject to any Award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount payable by the
Company upon the exercise of any Tandem Stock Appreciation Right.
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SECTION 4. ELIGIBILITY
Awards may be granted under the Plan to Eligible Individuals. No grant
shall be made under this Plan to a director who is not an officer or a salaried
employee of the Company or its Subsidiaries or Affiliates.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and
Nonqualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Company and its subsidiaries (within the meaning of Section
424(f) of the Code). To the extent that any Stock Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an Incentive
Stock Option on or subsequent to its grant date, it shall constitute a
Nonqualified Stock Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Nonqualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an Eligible Individual to receive a grant of
a Stock Option, determines the number of shares of Common Stock to be subject to
such Stock Option to be granted to such Eligible Individual and specifies the
terms and provisions of the Stock Option. The Company shall notify an Eligible
Individual of any grant of a Stock Option, and a written option agreement or
agreements shall be duly executed and delivered by the Company to the
participant. Such agreement or agreements shall become effective upon execution
by the Company and the participant.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee and set
forth in the option agreement, and shall not be less than the Fair Market Value
of the Common Stock subject to the Stock Option on the date of grant unless
otherwise determined by the Committee at the time of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
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(c) Exercisability. Except as otherwise provided herein or as
determined by the Committee at the time of grant, each Stock Option shall be
exercisable in four equal annual installments, beginning on the first
anniversary of the date of grant. The Committee may at any time waive such
installment exercise provisions, in whole or in part, based on such factors as
the Committee may determine. In addition, the Committee may at any time
accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying the
number of shares of Common Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Company may
accept. If approved by the Committee, payment, in full or in part, may also be
made in the form of unrestricted Common Stock (by delivery of such shares or by
attestation) already owned by the optionee of the same class as the Common Stock
subject to the Stock Option (based on the Fair Market Value of the Common Stock
on the date the Stock Option is exercised); provided, however, that, in the case
of an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Stock Option may be authorized only at the time the Stock Option is granted;
and provided, further, that such already owned shares have been held by the
optionee for at least six months at the time of exercise or had been purchased
on the open market.
If approved by the Committee, payment in full or in part may also be
made by delivering a properly executed exercise notice to the Company, together
with a copy of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds necessary to pay the purchase price,
and, if requested, reduced by the amount of any federal, state, local or foreign
withholding taxes. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
In addition, if approved by the Committee, payment in full or in part
may also be made by instructing the Committee to withhold a number of such
shares having a Fair Market Value on the date of exercise equal to the aggregate
exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor
has been made. Except as otherwise provided in Section 5(j), an optionee shall
have all of the rights of a shareholder of the Company holding the Common Stock
that is subject to such Stock Option (including, if applicable, the right to
vote the shares and the right to receive dividends), when the optionee has given
written notice of exercise, has paid in full for such shares and, if requested,
has given the representation described in Section 13(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) in the case of a Nonqualified Stock Option, as
otherwise expressly permitted by the Committee including, if so permitted,
pursuant to a transfer to such optionee's immediate family, whether directly or
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indirectly or by means of a trust or partnership or otherwise. For purposes of
the Plan, unless otherwise determined by the Committee, "immediate family" shall
mean, except as otherwise defined by the Committee, any child, sibling,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
sister-in-law or brother-in-law, including adoptive relationships, of the
optionee. All Stock Options shall be exercisable, subject to the terms of the
Plan, only by the optionee, the guardian or legal representative of the
optionee, or any person to whom such option is transferred pursuant to this
paragraph, it being understood that the terms "holder" and "optionee" include
such guardian, legal representative and other transferee.
(f) Termination by Death. Unless otherwise determined by the Committee
or as set forth in an Award Agreement, if an optionee incurs a Termination of
Employment by reason of death, any Stock Option held by such optionee may
thereafter be exercised, to the extent then exercisable, or on such accelerated
basis as the Committee may determine, for a period of one year (or such other
period as the Committee may specify in the option agreement) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is shorter.
(g) Termination by Reason of Disability or Retirement. Unless otherwise
determined by the Committee or as set forth in an Award Agreement, if an
optionee incurs a Termination of Employment by reason of Disability or
Retirement, any Stock Option held by such optionee may thereafter be exercised
by the optionee, to the extent it was exercisable at the time of termination, or
on such accelerated basis as the Committee may determine, for a period of one
year (or such other period as the Committee may specify in the option agreement)
from the date of such Termination of Employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter; provided,
however, that if the optionee dies within such period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
period, continue to be exercisable to the extent to which it was exercisable at
the time of death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is
shorter. If an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, such Stock
Option will thereafter be treated as a Nonqualified Stock Option.
(h) Other Termination. Unless otherwise determined by the Committee or
as set forth in an Award Agreement: (A) if an optionee incurs a Termination of
Employment for Cause, all Stock Options held by such optionee shall thereupon
terminate; and (B) if an optionee incurs a Termination of Employment for any
reason other than death, Disability, Retirement or for Cause, any Stock Option
held by such optionee, to the extent it was then exercisable at the time of
termination, or on such accelerated basis as the Committee may determine, may be
exercised for the lesser of three months from the date of such Termination of
Employment or the balance of such Stock Option's term; provided, however, that
if the optionee dies within such three-month period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-month period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of such
death or until the expiration of the stated term of such Stock Option, whichever
period is shorter. Notwithstanding any other
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provision of this Plan to the contrary, in the event an optionee incurs a
Termination of Employment other than for Cause during the 24-month period
following a Change in Control, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, including on such accelerated basis as provided in Section
10(a), for (x) the longer of (i) one year from such date of termination or (ii)
such other period as may be provided in the Plan for such Termination of
Employment or as the Committee may provide in the option agreement, or (y) until
expiration of the stated term of such Stock Option, whichever period is shorter.
If an Incentive Stock Option is exercised after the expiration of the
post-termination exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Nonqualified Stock
Option.
(i) Cashing Out of Stock Option. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Common Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of the Common Stock over the option price times the number of
shares of Common Stock for which the Option is being exercised on the effective
date of such cash-out.
(j) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of an Option, receipt of all or a portion
of the shares of Common Stock subject to such Option and/or to receive cash at
such later time or times in lieu of such deferred shares, all on such terms and
conditions as the Committee shall determine. If any such deferrals are
permitted, then notwithstanding Section 5(d) above, an optionee who elects such
deferral shall not have any rights as a stockholder with respect to such
deferred shares unless and until shares are actually delivered to the optionee
with respect thereto, except to the extent otherwise determined by the
Committee.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) Grant and Exercise. Stock Appreciation Rights may be granted
without relationship to a Stock Option (each, a "Freestanding Stock Appreciation
Right") or in conjunction with all or part of any Stock Option granted under the
Plan (each, a "Tandem Stock Appreciation Right"). In the case of a Nonqualified
Stock Option, Tandem Stock Appreciation Rights may be granted either at or after
the time of grant of such Stock Option. In the case of an Incentive Stock
Option, Tandem Stock Appreciation Rights may be granted only at the time of
grant of such Stock Option. A Tandem Stock Appreciation Right shall terminate
and no longer be exercisable upon the termination or exercise of the related
Stock Option.
(b) Terms of Freestanding Stock Appreciation Rights. Freestanding Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined by the Committee, including the following:
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(i) a Freestanding Stock Appreciation Right shall be
exercisable as determined by the Committee, but in no event after ten
years from the date of grant;
(ii) the base price of a Freestanding Stock Appreciation Right
shall be the Fair Market Value of a share of Common Stock on the date
of grant. A Freestanding Stock Appreciation Right shall entitle the
holder, upon exercise of such right, to an amount in cash, shares of
Common Stock or both (as determined by the Committee), with a value
equal to the product of (A) the excess of the Fair Market Value of a
share of Common Stock on the date of exercise of the Stock Appreciation
Right over the base price of the Stock Appreciation Right and (B) the
number of shares of Common Stock as to which such Stock Appreciation
Right shall have been exercised with the Committee having the right to
determine the form of payment;
(iii) a Freestanding Stock Appreciation Right shall be
exercised by giving written notice of exercise to the Company or its
designated agent specifying the number of shares of Common Stock as to
which such Stock Appreciation Right is being exercised; and
(iv) a Freestanding Stock Option shall not be transferable
other than by will or laws of descent and distribution.
(c) Terms of Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined by the Committee, including the following:
(i) Tandem Stock Appreciation Rights shall be exercisable only
at such time or times and to the extent that the Stock Options to which
they relate are exercisable in accordance with the provisions of
Section 5 and this Section 6;
(ii) upon the exercise of a Tandem Stock Appreciation Right,
an optionee shall be entitled to receive an amount in cash, shares of
Common Stock or both, in value equal to the excess of the Fair Market
Value of one share of Common Stock over the option price per share
specified in the related Stock Option multiplied by the number of
shares in respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment;
(iii) a Tandem Stock Appreciation Right may be exercised by an
optionee in accordance with this Section 6(c) by surrendering the
applicable portion of the related Stock Option in accordance with
procedures established by the Committee, and upon such exercise and
surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in this Section 6(c); and Stock
Options which have been so surrendered shall no longer be exercisable
to the extent the related Tandem Stock Appreciation Rights have been
exercised;
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(iv) upon the exercise of a Tandem Stock Appreciation Right,
the Stock Option or part thereof to which such Tandem Stock
Appreciation Right is related shall be deemed to have been exercised
for the purpose of the limitation set forth in Section 3 on the number
of shares of Common Stock to be issued under the Plan, but only to the
extent that the number of shares covered by the Tandem Stock
Appreciation Right at the time of exercise is based on the value of the
Tandem Stock Appreciation Right at such time; and
(v) Tandem Stock Appreciation Rights shall be transferable
only to permitted transferees of the underlying Stock Option in
accordance with Section 5(e).
SECTION 7. RESTRICTED STOCK
(a) Administration. Shares of Restricted Stock may be awarded either
alone or in addition to other Awards granted under the Plan. The Committee shall
determine the Eligible Individuals to whom and the time or times at which grants
of Restricted Stock will be awarded, the number of shares to be awarded to any
Eligible Individual, the conditions for vesting, the time or times within which
such Awards may be subject to forfeiture and any other terms and conditions of
the Awards, in addition to those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of such participant and shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Award,
substantially in the following form:
The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Martha Stewart Living
Omnimedia, Inc. 1999 Stock Incentive Plan and a Restricted
Stock Agreement. Copies of such Plan and Agreement are on file
at the offices of Martha Stewart Living Omnimedia, Inc., 20
West 43rd Street, New York, NY 10036.
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:
(i) the Committee may, prior to or at the time of grant,
designate an Award of Restricted Stock as a Qualified Performance-Based
Award, in which event it shall condition the grant or vesting, as
applicable, of such Restricted Stock upon the
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attainment of Performance Goals. If the Committee does not designate an
Award of Restricted Stock as a Qualified Performance-Based Award, it
may also condition the grant or vesting thereof upon the attainment of
Performance Goals. Regardless of whether an Award of Restricted Stock
is a Qualified Performance-Based Award, the Committee may also
condition the grant or vesting thereof upon the continued service of
the participant. The conditions for grant or vesting and the other
provisions of Restricted Stock Awards (including without limitation any
applicable Performance Goals) need not be the same with respect to each
recipient. The Committee may at any time, in its sole discretion,
accelerate or waive, in whole or in part, any of the foregoing
restrictions; provided, however, that (except as otherwise provided in
Section 7(c)(iv) or 10(a)(ii)) in the case of Restricted Stock that is
a Qualified Performance-Based Award, the applicable Performance Goals
have been satisfied;
(ii) subject to the provisions of the Plan and the Restricted
Stock Agreement referred to in Section 7(c)(vi), during the period, if
any, set by the Committee, commencing with the date of such Award for
which such participant's continued service is required (the
"Restriction Period"), and until the later of (i) the expiration of the
Restriction Period and (ii) the date the applicable Performance Goals
(if any) are satisfied, the participant shall not be permitted to sell,
assign, transfer, pledge or otherwise encumber shares of Restricted
Stock;
(iii) except as provided in this paragraph (iii) and Sections
7(c)(i) and 7(c)(ii) and in the Restricted Stock Agreement and except
as otherwise determined by the Committee, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
stockholder of the Company holding the class or series of Common Stock
that is the subject of the Restricted Stock, including, if applicable,
the right to vote the shares and the right to receive any cash
dividends. If so determined by the Committee in the applicable
Restricted Stock Agreement and subject to Section 13(e) of the Plan,
(A) cash dividends or distributions of property other than Common Stock
with respect to the class or series of Common Stock that is the subject
of the Restricted Stock Award shall be automatically deferred and
reinvested in additional Restricted Stock, held subject to the vesting
of the underlying Restricted Stock, or held subject to meeting
Performance Goals applicable only to dividends, and (B) dividends
payable in Common Stock shall be paid in the form of Restricted Stock
of the same class as the Common Stock with which such dividend was
paid, held subject to the vesting of the underlying Restricted Stock,
or held subject to meeting Performance Goals applicable only to
dividends;
(iv) except to the extent otherwise provided in the applicable
Restricted Stock Agreement or Section 7(c)(i), 7(c)(ii), 7(c)(v) or
10(a)(ii), upon a participant's Termination of Employment for any
reason during the Restriction Period or before the applicable
Performance Goals are satisfied, all shares still subject to
restriction shall be forfeited by the participant; provided, however,
that the
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Committee shall have the discretion to waive, in whole or in
part, any or all remaining restrictions (other than, in the case of
Restricted Stock which is a Qualified Performance-Based Award,
satisfaction of the applicable Performance Goals unless the
participant's employment is terminated by reason of death or
Disability) with respect to any or all of such participant's shares of
Restricted Stock;
(v) if and when any applicable Performance Goals are satisfied
and the Restriction Period expires without a prior forfeiture of the
Restricted Stock, unlegended certificates for such shares shall be
delivered to the participant upon surrender of the legended
certificates; and
(vi) each Award shall be confirmed by, and be subject to, the
terms of a Restricted Stock Agreement.
SECTION 8. PERFORMANCE UNITS
(a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the Eligible Individuals to whom and the time or times at which Performance
Units shall be awarded, the number of Performance Units to be awarded to any
Eligible Individual, the duration of the Award Cycle and any other terms and
conditions of the Award, in addition to those contained in Section 8(b).
(b) Terms and Conditions. Performance Units Awards shall be subject to
the following terms and conditions:
(i) the Committee may, prior to or at the time of the grant,
designate Performance Units as Qualified Performance-Based Awards, in
which event it shall condition the settlement thereof upon the
attainment of Performance Goals, except as otherwise provided in
Section 8(b)(ii) or 10(a)(iii). If the Committee does not designate
Performance Units as Qualified Performance-Based Awards, it may also
condition the settlement thereof upon the attainment of Performance
Goals. Regardless of whether Performance Units are Qualified
Performance-Based Awards, the Committee may also condition the
settlement thereof upon the continued service of the participant. The
provisions of such Awards (including without limitation any applicable
Performance Goals) need not be the same with respect to each recipient.
Subject to the provisions of the Plan and the Performance Units
Agreement referred to in Section 8(b)(v), Performance Units may not be
sold, assigned, transferred, pledged or otherwise encumbered during the
Award Cycle;
(ii) except to the extent otherwise provided in the applicable
Performance Unit Agreement or Section 8(b)(iii) or 10(a)(iii), upon a
participant's Termination of Employment for any reason during the Award
Cycle or before any applicable Performance Goals are satisfied, all
rights to receive cash or stock in settlement of
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<PAGE> 15
the Performance Units shall be forfeited by the participant;
provided, however, that the Committee shall have the discretion to
waive, in whole or in part, any or all remaining payment limitations
(other than, in the case of Performance Units that are Qualified
Performance-Based Awards, satisfaction of the applicable Performance
Goals unless the participant's employment is terminated by reason of
death or Disability) with respect to any or all of such participant's
Performance Units;
(iii) a participant may elect to further defer receipt of cash
or shares in settlement of Performance Units for a specified period or
until a specified event, subject in each case to the Committee's
approval and to such terms as are determined by the Committee. Subject
to any exceptions adopted by the Committee, such election must
generally be made prior to commencement of the Award Cycle for the
Performance Units in question;
(iv) at the expiration of the Award Cycle, the Committee shall
evaluate and certify the Company's performance in light of any
Performance Goals for such Award, and shall determine the number of
Performance Units granted to the participant which have been earned,
and the Committee shall then cause to be delivered (A) a number of
shares of Common Stock equal to the number of Performance Units
determined by the Committee to have been earned, or (B) cash equal to
the Fair Market Value of such number of shares of Common Stock to the
participant, as the Committee shall elect (subject to any deferral
pursuant to Section 8(b)(iii)); and
(v) each Award shall be confirmed by, and be subject to, the
terms of a Performance Unit Agreement.
SECTION 9. OTHER STOCK-BASED AWARDS
Other Awards of Common Stock and other Awards that are valued in whole
or in part by reference to, or are otherwise based upon, Common Stock, including
(without limitation) dividend equivalents and convertible debentures, may be
granted either alone or in conjunction with other Awards granted under the Plan.
In the event that an Award is granted under this Section 9 to a participant who
is an officer, the Award shall be granted in lieu of additional cash
compensation to the officer for services.
SECTION 10. CHANGE IN CONTROL PROVISIONS
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, except as otherwise provided in the applicable Award Agreement, in
the event of a Change in Control:
(i) any Stock Options and Stock Appreciation Rights
outstanding as of the date such Change in Control is determined to have
occurred, and which are not
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then exercisable and vested, shall become fully exercisable
and vested to the full extent of the original grant;
(ii) the restrictions and deferral limitations applicable to
any Restricted Stock shall lapse, and such Restricted Stock
shall become free of all restrictions and become fully vested
and transferable to the full extent of the original grant;
(iii) all Performance Units shall be considered to be earned
and payable in full, and any deferral or other restriction
shall lapse and such Performance Units shall be settled in
cash as promptly as is practicable; provided, that, if such
cash settlement would make a Change in Control transaction
ineligible for pooling-of-interests accounting under APB No.
16 (that but for the nature of such payment would otherwise be
eligible for such accounting treatment), the Committee shall
have the ability to substitute Common Stock with a Fair Market
Value (as of the effective date of the Change in Control)
equal to the cash that would otherwise be payable hereunder
for such cash settlement or, if necessary to preserve such
accounting treatment, otherwise modify or eliminate such
right; and
(iv) the Committee may also make additional adjustments and/or
settlements of outstanding Awards as it deems appropriate and
consistent with the Plan's purposes and shall, with respect to
any right granted under this Plan that would make a Change in
Control transaction ineligible for pooling-of-interests
accounting under APB No. 16 (that but for the nature of such
grant would otherwise be eligible for such accounting
treatment), equitably adjust such Award or, if necessary to
preserve such accounting treatment, otherwise modify or
eliminate such right (as determined by the Committee in its
sole discretion).
(b) Definition of Change in Control. For purposes of the Plan, a "Change in
Control" shall mean the happening of any of the following events:
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of both (A)
30% or more of either (1) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding
Company Voting Power") and (B) more than both the Outstanding
Company Common Stock and the Outstanding Company Voting Power
owned or controlled directly or indirectly by Martha Stewart
and/or her controlled affiliates, heirs, estate, legal
representative and/or beneficiaries (collectively, "Stewart");
provided, however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a Change in
Control: (1) any acquisition directly from the Company, (2)
any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation
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controlled by the Company or (4) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (1), (2) and (3) of subsection (iii) of this Section
10(b); or
(ii) individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board") cease for any
reason not to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the effective date of the Plan whose election,
or nomination for election by the Company's stockholders, was
approved by Martha Stewart and her controlled affiliates (so
long as such affiliates are controlled by her) at a time when
such entities controlled at least a majority of the
Outstanding Company Voting Power or by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination: (1) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company
Voting Power immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries), (2) in
the event that Stewart does not own or control at least 50% of
the Outstanding Company Voting Power upon the consummation of
the Business Combination, no Person (excluding any employee
benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting
securities of such corporation (and such amount exceeds the
amount owned or controlled by Stewart) except to the extent
that such person had such ownership of the Outstanding Company
Common Stock or Outstanding Company Voting Power immediately
prior to the Business Combination and (3) at least a majority
of the members of the board of directors of the corporation
resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
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(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
SECTION 11. TERM, AMENDMENT AND TERMINATION
The Plan will terminate on the tenth anniversary of the effective date
of the Plan. Awards outstanding under the Plan as of such date shall not be
affected or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award, Performance Unit Award or other stock-based Award
theretofore granted without the optionee's or recipient's consent, except such
an amendment made to comply with applicable law, stock exchange rules or
accounting rules. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by applicable law or stock exchange rules; provided, however, that stockholder
approval shall be required for any amendment which (i) increases the maximum
number of shares for which Stock Options may be granted under the Plan (subject,
however, to the provisions of Section 3 hereof), (ii) reduces the exercise price
at which Awards may be granted (subject, however, to the provisions of Section 3
hereof), (iii) extends the period during which Stock Options may be granted or
exercised beyond the times originally prescribed, (iv) changes the persons
eligible to participate in the Plan, or (v) materially increases the benefits
accruing to participants under the Plan.
Subject to the repricing restrictions in Section 2(e)(i), the Committee
may amend the terms of any Stock Option or other Award theretofore granted,
prospectively or retroactively, but no such amendment shall be permitted that
would cause an Award that is, or is intended to be, a Qualified
Performance-Based Award to fail or cease to qualify for the Section 162(m)
Exemption, nor shall any such amendment impair the rights of any holder without
the holder's consent except such an amendment made to cause the Plan or Award to
comply with applicable law, stock exchange rules or accounting rules.
Subject to the above provisions, the Board shall have the authority to
amend the Plan to take into account changes in law and in tax and accounting
rules as well as other developments, and to grant Awards which qualify for
beneficial treatment under such rules without stockholder approval.
SECTION 12. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or make payments; provided, however, that
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
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SECTION 13. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) listing or approval for listing upon notice of issuance
of such shares on the New York Stock Exchange, Inc., or
such other securities exchange as may at the time be the
principal market for the Common Stock;
(2) any registration or other qualification of such shares of
the Company under any state or federal law or regulation,
or the maintaining in effect of any such registration or
other qualification which the Committee shall, in its
absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) obtaining any other consent, approval, or permit from any
state or federal governmental agency which the Committee
shall, in its absolute discretion after receiving the
advice of counsel, determine to be necessary or
advisable.
(b) Nothing contained in the Plan shall prevent the Company or any
Subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) The Plan shall not constitute a contract of employment, and
adoption of the Plan shall not confer upon any employee any right to continued
employment, nor shall it interfere in any way with the right of the Company or
any Subsidiary or Affiliate to terminate the employment of any employee at any
time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the participant. The Committee may establish such
procedures as it deems appropriate, including making irrevocable elections, for
the settlement of withholding obligations with Common Stock.
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(e) Reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Common Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid or by whom any
rights of the participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of a Subsidiary
of the Company, the Company may, if the Committee so directs, issue or transfer
the shares of Common Stock, if any, covered by the Award to the Subsidiary, for
such lawful consideration as the Committee may specify, upon the condition or
understanding that the Subsidiary will transfer the shares of Common Stock to
the employee in accordance with the terms of the Award specified by the
Committee pursuant to the provisions of the Plan. All shares of Common Stock
underlying Awards that are forfeited or canceled shall revert to the Company.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
(i) Except as otherwise provided in Section 5(e) or 6(c)(v) or by the
Committee, Awards under the Plan are not transferable except by will or by the
laws of descent and distribution.
(j) In the event an Award is granted to an Eligible Individual who is
employed or providing services outside the United States and who is not
compensated from a payroll maintained in the United States, the Committee may,
in its sole discretion, modify the provisions of the Plan as they pertain to
such individual to comply with applicable foreign law.
SECTION 14. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is adopted by the Board,
subject to the approval of the Company's stockholders.
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EXHIBIT 10.3
MARTHA STEWART LIVING OMNIMEDIA, INC.
NON-EMPLOYEE DIRECTOR STOCK AND
OPTION COMPENSATION PLAN
SECTION 1. PURPOSE
The purposes of the Plan are to assist the Company in (a) promoting a
greater identity of interests between the Company's non-employee directors and
its stockholders, and (b) attracting and retaining directors by affording them
an opportunity to share in the future successes of the Company.
SECTION 2. DEFINITIONS
"Award" shall mean an award of Common Stock or Share Units as
contemplated by Sections 6 and 7 of the Plan.
"Board" shall mean the Board of Directors of the Company.
"Business Combination" shall have the meaning set forth in Section
11(b).
"Cash Account" shall have the meaning set forth in Section 7(b).
"Cash Deferral Election" shall have the meaning set forth in Section
7(b).
"Change in Control" shall have the meaning set forth in Section 11.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Committee" shall have the meaning set forth in Section 5.
"Common Stock" shall mean the Class A common stock, $0.01 par value, of
the Company.
"Company" shall mean Martha Stewart Living Omnimedia, Inc., a Delaware
corporation.
"Deferral Election" shall mean a Cash Deferral Election or a Stock
Deferral Election.
"Effective Date" shall have the meaning set forth in Section 14.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" of a share of Common Stock shall mean, as of any
given date, the closing price of the Common Stock on the composite transaction
tape of the New York Stock Exchange on such date or, if there are no reported
sales on such date, on the last day prior
<PAGE> 2
to such date on which there were sales of the Common Stock on the New York Stock
Exchange or, if the Common Stock is not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or on the
Nasdaq Stock Market. If there is no regular public trading market for such
Common Stock, the Fair Market Value of the Common Stock shall be determined by
the Committee in good faith.
"Fees" shall mean the annual retainer fee for a Non-Employee Director
in connection with his or her service on the Board for any calendar year of the
Company, any additional annual fees for such Non-Employee Director's service as
chairman of a Board or Committee and any fees scheduled to be paid for
attendance at Board or committee meetings, including telephonic meetings, during
the calendar year.
"Incumbent Board" shall have the meaning set forth in Section 11(b).
"Initial Grant" shall have the meaning set forth in Section 8(a).
"IPO" shall mean the Company's initial public offering of Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended.
"Mandatory Stock Grant" shall have the meaning set forth in Section
6(a).
"New Director" shall have the meaning set forth in Section 6(b).
"Non-Employee Director" shall mean each member of the Board who is not
an employee of the Company.
"Option" shall mean an Award granted pursuant to Section 8.
"Outstanding Company Common Stock" shall have the meaning set forth in
Section 11(b).
"Outstanding Common Voting Power" shall have the meaning set forth in
Section 11(b).
"Person" shall have the meaning set forth in Section 11(b).
"Plan" shall mean the Martha Stewart Living Omnimedia, Inc.
Non-Employee Director Stock and Option Compensation Plan.
"Retirement" shall mean the retirement by a Non-Employee Director from
the Board in accordance with any stated policy of the Company on retirement by
members of the Board.
"Share Account" shall have the meaning set forth in Section 7(a).
"Share Election" shall have the meaning set forth in Section 6(b).
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"Stock Deferral Election" shall have the meaning set forth in Section
7(a).
"Stock Option" shall mean a non-qualified stock option awarded to a
Non-Employee Director pursuant to Section 8.
SECTION 3. ELIGIBILITY
Each Non-Employee Director shall be eligible to participate in the
Plan. Any Non-Employee Director who becomes an employee of the Company shall not
thereafter be entitled to additional Stock Options or Awards under the Plan, but
shall retain all Options and existing Awards pursuant to the terms of the Plan.
SECTION 4. SHARES SUBJECT TO THE PLAN
The maximum number of shares of Common Stock which shall be reserved
and available for use under the Plan shall be 300,000, subject to adjustment
pursuant to Section 13 hereunder. The shares issued under the Plan may be
authorized and unissued shares or may be treasury shares or both.
SECTION 5. ADMINISTRATION
The Plan shall be administered by the Board or any committee thereof so
designated by the Board (the "Committee"), which shall have full authority to
construe and interpret the Plan, to establish, amend and rescind rules and
regulations relating to the Plan, and to take all such actions and make all such
determinations in connection with the Plan as it may deem necessary or
desirable.
SECTION 6. STOCK IN LIEU OF RETAINER
(a) Mandatory Stock In Lieu of Retainer. Each Non-Employee Director
shall receive in lieu of cash the number of shares of Common Stock equal in
value to 25% of the Fees (the "Mandatory Stock Grant"). Except with respect to
shares as to which a Stock Deferral Election is made in accordance with the
procedures established by the Committee from time to time, such shares of Common
Stock shall be delivered quarterly pursuant to Section 6(c) hereof.
(b) Elective Stock In Lieu of Retainer. Each Non-Employee Director who
delivers to the Company written notice of an irrevocable election (a "Share
Election"), in accordance with the procedures established by the Committee from
time to time, concerning the portion of the Fees remaining after the Mandatory
Stock Grant shall receive in lieu of cash (subject to a Stock Deferral Election)
an amount of shares of Common Stock equal in value to the portion of such
remaining Fees, as so designated by the Non-Employee Director in such written
notice (but only in increments of 25% of the Fees, and in no event to exceed
100% of the Fees).
(c) Number of Shares. The shares of Common Stock to be delivered with
respect to a Mandatory Stock Grant shall be determined by dividing (i) 25% of
the Non-
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Employee Director's Fees for the applicable calendar quarter by (ii) the Fair
Market Value of a share of Common Stock on the last business day of such
calendar quarter. The shares of Common Stock to be delivered with respect to a
Share Election shall be determined by dividing (A) the dollar amount of a
Non-Employee Director's Fees for the appropriate calendar quarter to which the
Share Election applies, by (B) the Fair Market Value of the Common Stock on the
last business day of such calendar quarter. Notwithstanding the foregoing, only
whole numbers of shares shall be obtainable pursuant to this Section 6, and any
remaining Fees which otherwise would have purchased a fractional share shall be
paid in cash.
(d) Effect of Share Election. Any Share Election made by a Non-Employee
Director shall remain in effect for subsequent years during which the Plan is in
effect unless such Non-Employee Director delivers a written notice setting forth
a different election with respect to Fees which shall be applied to Plan years
beginning after such different election is filed. In the event a Stock Deferral
Election is not made, the shares of Common Stock shall be transferred to the
Non-Employee Director on the first business day after the end of each calendar
quarter. Share Elections must be delivered prior to the commencement of the
calendar year in which the fees are to be earned; provided, however, that any
Non-Employee Director who commences his or her directorship during a calendar
year may make a Share Election during the 30-day period immediately following
commencement of his or her directorship (a "New Director"); provided, further,
that Non-Employee Directors may make Share Elections with respect to 1999 prior
to the Effective Date.
SECTION 7. DEFERRAL ELECTION
(a) Share Units. Each Non-Employee Director may irrevocably elect
annually (a "Stock Deferral Election") to defer receiving all or a portion of
the shares of Common Stock that would otherwise be transferred upon a Mandatory
Stock Grant or Share Election. A Non-Employee Director who makes a Stock
Deferral Election with respect to a Mandatory Stock Grant or Share Election
shall have a number of stock units representing the amount of deferred shares of
Common Stock credited to a "Share Account" maintained by the Company in the form
of "Share Units."
(b) Cash Deferral. Each Non-Employee Director may irrevocably elect
annually (a "Cash Deferral Election") to defer receiving all or a portion of the
Fees that would otherwise be paid in cash. A Non-Employee Director who makes a
Cash Deferral Election with respect to such Fees shall have the amount of such
deferred Fees credited to a "Cash Account" maintained by the Company. Amounts
credited to a Cash Account shall accrue interest (credited to the account
monthly) at the prime rate as published in the Wall Street Journal as in effect
from time to time.
(c) Amount and Timing of Deferral Election. Deferral Elections shall be
made in multiples of 25% of the Fees. The Deferral Election shall be in writing
and delivered to the Secretary of the Company on or prior to December 31 of the
calendar year immediately preceding the calendar year in which the applicable
Fees are to be earned; provided, however, that a New Director may make a
Deferral Election with respect to Fees earned subsequent to
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such election during the 30-day period immediately following the commencement of
his or her directorship; provided, further that Non-Employee Directors may make
Deferral Elections prior to the Effective Date. A Deferral Election, once made,
shall be irrevocable for the calendar year with respect to which it is made and
shall remain in effect for future calendar years unless modified or revoked by a
subsequent Deferral Election in accordance with the provisions hereof.
(d) Cash Dividends and Share Accounts. Whenever cash dividends are paid
by the Company on outstanding Common Stock, there shall be credited to a
Non-Employee Director's Share Account additional Share Units equal to (i) the
aggregate dividend that would be payable on outstanding shares of Common Stock
equal to the number of Share Units in such Share Account on the record date for
the dividend, divided by (ii) the Fair Market Value of the Common Stock on the
last trading business day immediately preceding the date of payment of the
dividend.
(e) Commencement of Distributions. Except as otherwise provided in
Section 7(f) or 11, a Non-Employee Director's Share Account and/or Cash Account
shall become distributable as soon as practicable following the date the
Non-Employee Director terminates service as a director. Distributions from a
Share Account shall be made by converting Share Units into Common Stock on a
one-for-one basis, with payment of fractional shares to be made in cash.
(f) Manner of Distributions. In his or her Deferral Election, each
Non-Employee Director shall elect to receive distribution of his or her Share
Account and/or Cash Account, in each case, either in a single distribution or in
two to 15 substantially equal annual distributions. In the event of a
Non-Employee Director's death, distribution of the remaining portion of the
Non-Employee Director's Share Account and/or Cash Account will be made to the
Non-Employee Director's beneficiary in a single distribution as soon as
practicable following the Non-Employee Director's death.
(g) Designation of Beneficiary. At the discretion of the Committee,
each Non-Employee Director or former Non-Employee Director entitled to a
distribution from a Share Account and/or Cash Account hereunder from time to
time may designate any beneficiary or beneficiaries (who may be designated
concurrently, contingently or successively) to whom any such Share Units and/or
cash are to be distributed in case of the Non-Employee Director's death before
receipt of any or all of such Share Units and/or cash. Each designation will
revoke all prior designations by the Non-Employee Director or former
Non-Employee Director, shall be in a form prescribed by the Company, and will be
effective only when filed by the Non-Employee Director or former Non-Employee
Director, during his or her lifetime, in writing with the Secretary of the
Company. Reference in this Plan to a Non-Employee Director's "beneficiary" at
any date shall include such persons designated as concurrent beneficiaries on
the Non-Employee Director's beneficiary designation form then in effect. In the
absence of any such designation, any Share Units remaining in a Non-Employee
Director's or former Non-Employee Director's Share Account and/or Cash Account
at the time of the Non-Employee Director's death shall be distributed to such
Non-Employee Director's estate in a single distribution.
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<PAGE> 6
SECTION 8. STOCK OPTIONS
(a) Initial Grant. Effective as of the Effective Date, each
Non-Employee Director shall be granted a Stock Option to purchase 5,000 shares
of Common Stock (the "Initial Grant"). The option price per share for the
Initial Grant shall be the initial public offering price pursuant to the IPO.
(b) Subsequent Grants. Each person who first becomes a Non-Employee
Director after the IPO shall be granted a Stock Option to purchase 5,000 shares
of Common Stock as of the date such person is elected or appointed to the Board;
provided, that no such grant shall be made to a Non-Employee Director who
received an option grant under the Company's 1999 Stock Incentive Plan during
the two-year period immediately preceding such election or appointment to the
Board.
(c) Annual Grants. Commencing in 2000, a Stock Option to purchase 2,000
shares of Common Stock shall be granted to each Non-Employee Director
automatically on the first business day following the Company's Annual Meeting
of stockholders for such year. Grants under this Section 8(c) shall be in
addition to any grants of Stock Options under Section 8(a) or 8(b).
(d) Option Price. Options granted under Section 8(b) or 8(c) shall be
exercisable at a price per share equal to Fair Market Value on the grant date.
(e) Exercisability. Each Stock Option shall vest and become exercisable
on the first anniversary of the grant date. In the event a Non-Employee
Director's membership on the Board terminates before a Stock Option has vested
(whether by reason of death, disability, Retirement, removal from office or
otherwise), then any such unvested Stock Option granted to such Non-Employee
Director shall be canceled and the Non-Employee Director shall have no further
right or interest in such forfeited Stock Option.
(f) Termination. Each vested Stock Option shall remain outstanding
until the tenth anniversary of the date of grant; provided, that in the event a
Non-Employee Director's membership on the Board terminates (other than for
"cause" as described in Section 12), any vested Stock Option then held by the
Non-Employee Director shall be canceled one year after such termination of Board
membership to the extent it is not sooner exercised.
SECTION 9. TRANSFERABILITY
No Stock Option, Share Unit or interest in a Cash Account shall be
transferable by a Non-Employee Director other than (a) by will or by the laws of
descent and distribution, (b) in the Committee's discretion, pursuant to a
written beneficiary designation or (c) in the case of a Stock Option only, in
the Committee's discretion, pursuant to a transfer to such Non-Employee
Director's immediate family, whether directly or indirectly, by means of a
trust, partnership, limited liability company or otherwise. For purposes of this
Section 9, "immediate family" shall mean, except as otherwise defined by the
Committee, any child, sibling, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, niece, nephew, mother-in-law, father-in-
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<PAGE> 7
law, son-in-law, daughter-in-law, sister-in-law or brother-in-law, including
adoptive relationships, of the Non-Employee Director. Such permitted transferees
may transfer a Stock Option only by will or by the laws of descent and
distribution. All Stock Options shall be exercisable, subject to the terms of
this Plan, only by the optionee, guardian, legal representative or beneficiary
of the optionee, or permitted transferee, it being understood that the terms
"holder" and "optionee" include any such guardian, legal representative,
beneficiary, or transferee.
SECTION 10. AMENDMENT AND TERMINATION
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of a
Non-Employee Director under any Stock Option or Award theretofore granted or
Share Account or Cash Account without such person's consent. In addition, no
such amendment shall be made without the approval of the Company's stockholders
to the extent such approval is required by law or stock exchange rule.
The Board or the Committee may amend the terms of any Stock Option or
other Award theretofore granted, prospectively or retroactively, but no such
amendment shall impair the rights of any holder without the holder's consent.
Notwithstanding the foregoing, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Stock Options or Awards which qualify
for beneficial treatment under such rules without stockholder approval.
SECTION 11. EFFECT OF CHANGE IN CONTROL
(a) Notwithstanding any other provision of the Plan to the contrary, in
the event of a Change in Control, (a) any Stock Options outstanding and not then
exercisable or vested as of the date such Change in Control is determined to
have occurred shall become fully exercisable and vested to the full extent of
the original grant, (b) all Share Units credited to a Share Account shall be
converted into either (1) Common Stock or (2) into the consideration received by
Stockholders in the transaction constituting a Change in Control, at the
discretion of the Committee, and shall be transferred or distributed as soon as
practicable to the Non-Employee Director and (c) the balance in any Cash Account
shall be transferred or distributed as soon as practicable to the Non-Employee
Director.
(b) For the purposes of this Plan, "Change in Control" shall mean the
happening of any of the following events:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of both (A) 30% or more of either (1) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (2) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
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<PAGE> 8
directors (the "Outstanding Company Voting Power") and (B) more than both the
Outstanding Company Common Stock and the Outstanding Company Voting Power owned
or controlled directly or indirectly by Martha Stewart and/or her controlled
affiliates, heirs, estate, legal representative and/or beneficiaries
(collectively, "Stewart"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change in
Control: (1) any acquisition directly from the Company, (2) any acquisition by
the Company, (3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (4) any acquisition by any corporation pursuant to a transaction
which complies with clauses (1), (2) and (3) of subsection (iii) of this Section
11(b); or
(ii) individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board") cease for any reason not to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the effective date of the Plan
whose election, or nomination for election by the Company's stockholders, was
approved by Martha Stewart and her controlled affiliates (so long as such
affiliates are controlled by her) at a time when such entities controlled at
least a majority of the Outstanding Company Voting Power or by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination: (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Power
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more Subsidiaries), (2) in the event that Stewart does not own or
control at least 50% of the Outstanding Company Voting Power upon the
consummation of the Business Combination, no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation (and such
amount exceeds the amount owned or controlled by Stewart) except to the extent
that such person had such ownership of the Outstanding Company Common Stock or
Outstanding Company Voting Power immediately prior to the Business Combination,
and (3) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
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<PAGE> 9
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(iv) the approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
SECTION 12. EFFECT OF TERMINATION FOR CAUSE
If a Non-Employee Director incurs a termination of membership on the
Board for cause, such Non-Employee Director's Stock Options shall be
automatically canceled immediately. Unless otherwise determined by the Board,
for purposes of the Plan "cause" shall mean (a) the conviction of the
Non-Employee Director for commission of a felony under Federal law or the law in
the state in which such action occurred, or (b) dishonesty in the course of
fulfilling the Non-Employee Director's duties as a director.
SECTION 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in corporate capitalization, such as a stock
split or an extraordinary corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, the Committee or
Board may make such substitution or adjustments to reflect such change or
transaction in (i) the aggregate number and class of shares reserved for
issuance under the Plan, (ii) the number and kind of shares subject to Stock
Options under Section 8, (iii) the number, kind and option price of shares
subject to other outstanding Awards granted under the Plan, (iv) the number and
kind of shares in each Share Account and/or (v) such other equitable manner, in
each case, as it may determine to be appropriate in its sole discretion;
provided, however, that the number of shares subject to any Award shall always
be a whole number.
SECTION 14. EFFECTIVENESS OF PLAN
The Plan shall become effective upon the date the registration
statement filed by the Company and under the Securities Act of 1933, as amended,
for the IPO is declared effective (the "Effective Date").
SECTION 15. DURATION OF PLAN
Unless earlier terminated pursuant to Section 10 hereof, this Plan
shall automatically terminate on, and no grants, awards or elections may be made
after the tenth anniversary of the Effective Date of the Plan, other than the
exercise of outstanding Stock Options, the receipt of Common Stock under Section
6 for Fees earned prior to such date and the payment of Share Accounts and Cash
Accounts under Section 7 for shares of Common Stock and cash, as applicable,
deferred prior to such date.
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<PAGE> 10
SECTION 16. PRO RATA GRANTS
(a) Options, Mandatory Stock Grants and Share Elections.
Notwithstanding anything in the Plan to the contrary, in the event that, on any
particular date, the number of shares of Common Stock available for grants of
Options, Mandatory Stock Grants, Share Elections and Stock Units under the Plan
is insufficient to make all such automatic grants and/or to accommodate all
Share Elections or issuances of Stock Units, then such shares of Common Stock
shall be allocated in the following order: (1) all Non-Employee Directors
entitled to a grant of Options on such date shall share ratably in the number of
Stock Options on shares available for grant under the Plan, (2) all Non-Employee
Directors entitled to a Mandatory Stock Grant on such date shall share ratably
in the number of shares of Common Stock on shares available for such grant under
the Plan, (3) all Non-Employee Directors who have made Share Elections as set
forth in Section 6(b) shall share ratably in the number of shares of Common
Stock available for such grant under the Plan and (4) all Non-Employee Directors
entitled to cash dividends with respect to their Share Units as set forth in
Section 7(d) shall share ratably in the number of shares of Common Stock
available with respect to such cash dividends. With respect to any Mandatory
Stock Grants or Share Elections, any Fees that have not been paid in shares of
Common Stock or Deferred Shares shall be paid in cash or credited in accordance
with a Non-Employee Director's Deferral Election, as applicable. With respect to
any Share Units that have not been issued with respect to cash dividends as set
forth in clause (4) above, an amount equal to such dividend shall be credited to
the Cash Account established for such Non-Employee Director. The Committee shall
determine the appropriate action to be taken in the event the number of shares
of Common Stock available for the grant of Options on any particular date is
insufficient to accommodate all automatic grants.
SECTION 17. GOVERNING LAW
The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
SECTION 18. UNFUNDED PLAN
The Plan is intended to constitute an unfunded plan for incentive and
deferred compensation of Directors, and the rights of Directors with respect to
Cash Accounts and/or Share Accounts under the Plan shall be those of general
creditors of the Company. The Committee may authorize the creation of trusts or
other arrangements to meet the obligations created under the Plan to deliver
Common Stock or make payments, so long as the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
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<PAGE> 1
EXHIBIT 10.4
MARTHA STEWART LIVING OMNIMEDIA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN.
Martha Stewart Living Omnimedia, Inc., a Delaware corporation (the
"Company"), proposes to grant options ("Options") for purchase of the Company's
Class A common stock, $0.01 par value ("Common Stock"), to eligible employees of
the Company and its Designated Subsidiaries (as defined in Section 5 hereof)
pursuant to this 1999 Employee Stock Purchase Plan (this "Plan"). The Company
intends this Plan to qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
in Section 423 of the Code shall have the meaning provided in Section 423 of the
Code.
2. STOCK SUBJECT TO PLAN.
A total of 730,000 shares of the Common Stock will be available for
issuance under this Plan. Such number shall be subject to adjustments effected
in accordance with Section 16 of this Plan. Any shares of Common Stock that have
been made subject to an Option that cease to be subject to the Option (other
than by means of exercise of the Option), including, without limitation, in
connection with the cancellation or termination of an Option, shall again be
available for issuance in connection with future grants of Options under this
Plan.
3. PURPOSE.
The purpose of this Plan is to encourage employees of the Company and its
designated subsidiaries, as that term is defined in Section 5 of this Plan
("Designated Subsidiaries"), to own Common Stock by permitting them to acquire
Common Stock at a discount through payroll deductions, so as to enhance such
employees' sense of participation in the affairs of the Company and Subsidiaries
and to provide an incentive for continued employment.
4. ADMINISTRATION.
This Plan shall be administered by the Compensation Committee or such
other committee of the Company's Board of Directors (the "Board") as the Board
may from time to time designate, which shall be composed of at least two
directors and shall be appointed by and serve at the pleasure of the Board (the
"Committee"). Subject to the provisions of this Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, the Committee
shall have exclusive authority, in its discretion, to determine all matters
relating to Options granted under this Plan, including all terms, conditions,
restrictions, and limitations of Options; provided, however, that all
participants granted Options under an offering pursuant to this Plan shall have
the same rights and privileges within the meaning of Code Section 423(b)(5)
except as required by applicable law.
<PAGE> 2
The Committee may act only by a majority of its members then in office,
except that the Committee may, except to the extent prohibited by applicable law
or the applicable rules of a stock exchange, allocate all or any portion of its
responsibilities and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it; provided, that no such delegation may be made that would cause
Options or other transactions under the Plan to cease to be exempt from Section
16(b) of the Exchange Act.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Option issued under the Plan and to otherwise supervise the
administration of the Plan. The Committee's exercise of discretion and
interpretation of this Plan, its rules and regulations, and all actions taken
and determinations made by the Committee pursuant to this Plan shall be
conclusive and binding on all parties involved or affected. The Committee may
delegate administrative duties to any person or persons selected by it, as it
deems advisable. All expenses incurred in connection with the administration of
this Plan shall be paid by the Company and the Designated Subsidiaries;
provided, however, that the Committee may require a participant to pay any costs
or fees in connection with the sale by the participant of shares of Common Stock
acquired under this Plan or in connection with the participant's request for the
issuance of a certificate for shares of Common Stock held in the participant's
account under the Plan.
5. ELIGIBILITY.
Any employee of the Company or the Designated Subsidiaries is eligible to
participate in the Plan for any Offering Period (as hereinafter defined) under
this Plan except the following:
(a) employees who are customarily employed for less than 20
hours per week;
(b) employees who are customarily employed for not more than
five months in a calendar year; and
(c) employees who, together with any other person whose stock
would be attributed to such employee pursuant to Section 424(d) of the
Code, own stock or hold options to purchase stock possessing five
percent or more of the total combined voting power or value of all
classes of stock of the Company or any of its Subsidiaries or who, as a
result of being granted Options under this Plan, would own stock or
hold options to purchase stock possessing five percent or more of the
total combined voting power or value of all classes of stock of the
Company or any of its Subsidiaries.
For all purposes of this Plan, (i) the term "Subsidiary" shall mean any
"subsidiary corporation" as that term is defined in Section 424(f) of the Code
and (ii) the term "Designated Subsidiaries" shall mean those Subsidiaries listed
on Annex A to this Plan or Subsidiaries which may hereafter be determined by the
Committee or the Board to be Designated Subsidiaries. A Designated Subsidiary
will cease to be a Designated Subsidiary on the earlier of (i) the date the
Com-
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<PAGE> 3
mittee or the Board determines that such Subsidiary is no longer a Designated
Subsidiary or (ii) such Designated Subsidiary ceases for any reason to be a
Subsidiary.
6. OFFERING PERIODS.
The offering periods of this Plan (individually, an "Offering Period")
shall be of periods not to exceed the maximum period permitted by Section 423 of
the Code. Until determined otherwise by the Committee or the Board, Offering
Periods shall commence on January 1 and July 1 of each calendar year and each
Offering Period shall consist of one six-month purchase period during which
payroll deductions of the participants are accumulated under this Plan;
provided, that the first Offering Period may commence on or after the IPO Date
and prior to January 1, 2000, and shall end on December 31, 1999. For the
purposes of this Plan, the "IPO Date" shall mean the date on which the
registration statement filed by the Company under the Securities Act of 1933, as
amended, for the Initial Public Offering is declared effective. The first day of
each Offering Period is referred to as the "Offering Date." The last day of each
Offering Period is referred to as the "Purchase Date." Subject to the
requirements of Section 423 of the Code, the Committee or the Board shall have
the power to change the duration of Offering Periods with respect to future
offerings if such change is announced at least 30 days prior to the Offering
Date of the first Offering Period to be affected by such change.
7. PARTICIPATION IN THIS PLAN.
An eligible employee may become a participant in this Plan on the first
Offering Date after he or she satisfies the eligibility requirements, by
delivering a properly completed enrollment form (on such form as the Committee
may prescribe) to the Committee not later than the 15th day of the month (or if
such day is not a business day for the Company or the applicable Subsidiary, on
the immediately preceding business day) before such Offering Date, unless a
later time for filing the enrollment form authorizing payroll deductions is set
by the Committee for all eligible employees with respect to a given Offering
Period. Once an employee becomes a participant in the Plan with respect to an
Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws from this Plan or terminates further
participation in the Offering Period as set forth in Sections 13 and 14 below.
No additional enrollment form shall be required for such continued participation
in this Plan.
8. GRANT OF OPTION ON ENROLLMENT.
Enrollment by an eligible employee in this Plan with respect to an
Offering Period will constitute the grant by the Company to such employee of an
Option to purchase on the relevant Purchase Date up to that number of shares of
Common Stock of the Company, and any fraction of a share, determined by dividing
(a) the amount accumulated in such employee's payroll deduction account during
the Offering Period ending on such Purchase Date, by (b) the Purchase Price as
that term is defined in Section 9; provided, however, that the number of shares
which may be
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<PAGE> 4
purchased pursuant to an Option may in no event exceed the number
of shares determined in the manner set forth in Section 11(b) of the Plan.
9. PURCHASE PRICE.
(a) Subject to Section 9(b) below, the purchase price per share (the
"Purchase Price") pursuant to any Option shall be the lower of (i) 85 percent of
the fair market value of such share on the Offering Date for such Option or (ii)
85 percent of the fair market value of such share on the Purchase Date for such
Option; provided, however, that in no event may the purchase price per share of
Common Stock be below the par value of a share of the Common Stock.
(b) For purposes of this Plan, the term "fair market value" of the
Common Stock means, as of any given date, the closing price of the Common Stock
on the composite transaction tape of the New York Stock Exchange on such date
or, if there are no reported sales on such date, on the last day prior to such
date on which there were sales of the Common Stock on the New York Stock
Exchange or, if the Common Stock is not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or on The
Nasdaq Stock Market. If there is no regular public trading market for such
Common Stock, the fair market value of the Common Stock shall be determined by
the Committee in good faith. The Committee may change the manner in which the
Purchase Price is determined, so long as (i) such determination does not have
the effect of lowering the Purchase Price to an amount less than that set forth
in Section 9(a) and (ii) such changed manner of computation is announced to
eligible employees at least 30 days prior to the Offering Date of the first
Offering Period to be affected by such change.
10. PURCHASE OF SHARES; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES.
(a) Funds contributed by each participant for the purchase of shares
under this Plan shall be accumulated by regular payroll deductions made during
each Offering Period. The deductions shall be made as a percentage of the
participant's Compensation in 1 percent increments comprising not less than 1
percent and not more than 15 percent of the participant's Compensation with
respect to such payroll period. As used herein, "Compensation" shall mean all
base salary, wages, commissions and overtime pay with respect to such payroll
period; provided, however, that, for purposes of determining a participant's
Compensation, any election by such participant to reduce his or her regular cash
remuneration under Sections 125 or 401(k) of the Code shall be treated as if the
participant did not make such election. "Compensation" does not include cash
bonuses, severance pay, hiring and relocation allowances, pay in lieu of
vacation, automobile allowances, imputed income arising under any Company group
insurance or other benefit program, income received in connection with stock
options, or any other special items of remuneration. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue
through the last payday of the Offering Period unless sooner altered or
terminated as provided in this Plan.
(b) A participant may decrease (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Committee a new
authorization for payroll deductions, in
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<PAGE> 5
which case the new rate shall become effective for the next payroll period
commencing more than 15 days after the Committee's receipt of the authorization
and shall continue for the remainder of the Offering Period unless changed as
described below. Such a decrease in the rate of payroll deductions may be made
at any time during an Offering Period, but not more than one change may be made
effective during any Offering Period. Notwithstanding the foregoing, a
participant may decrease the rate of payroll deductions to zero for the
remainder of the Offering Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Committee a new authorization for payroll deductions not later than the 15th day
of the month (or if such date is not a business day, the immediately preceding
business day) before the beginning of such Offering Period. A participant who
has decreased the rate of withholding to zero will be deemed to continue as a
participant in the Plan until the participant withdraws from the Plan in
accordance with the provisions of Section 13 or his or her participation is
terminated in accordance with the provisions of Section 14. A participant shall
have the right to withdraw from this Plan in the manner set forth in Section 13
regardless of whether the participant has exercised his or her right to decrease
the rate at which payroll deductions are made during the applicable Offering
Period.
(c) All payroll deductions made for a participant will be credited to
his or her account under this Plan and deposited with the general funds of the
Company. No interest will accrue on payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, provided that the participant has not
terminated employment in accordance with Section 14 and has not submitted to the
Committee a signed and completed withdrawal form, in each case on or before the
15th day (or if such date is not a business day, on the immediately preceding
business day) of the last month of the Offering Period in accordance with
Section 10(b) or Section 13 of this Plan, then, subject to the limitations set
forth in Section 11, the Company shall apply the funds then in the participant's
account to the purchase at the Purchase Price of whole and any fractional shares
(rounded to the nearest hundredth) of Common Stock issuable under the Option
granted to such participant with respect to the Offering Period.
(e) During a participant's lifetime, such participant's Option to
purchase shares hereunder is exercisable only by him or her or, in the event of
the participant's disability, the participant's legal representatives. The
participant shall have no interest or voting right in shares covered by his or
her Option until such Option has been exercised.
11. LIMITATIONS ON RIGHTS TO PURCHASE.
(a) No employee shall be granted an Option to purchase Common Stock
under this Plan at a rate which, when aggregated with his or her rights to
purchase stock under all other employee stock purchase plans of the Company or
any Subsidiary which is intended to meet the requirements of Code Section 423,
exceeds $25,000 in fair market value, determined as of the applicable date of
the grant of the Option, for each calendar year in which the employee
participates in this Plan (or any other employee stock purchase plan described
in this Section 11(a)).
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<PAGE> 6
(b) The number of shares which may be purchased by any employee on the
first Purchase Date to occur in any calendar year may not exceed the number of
shares determined by dividing $25,000 by the fair market value (as defined in
Section 9) of a share of Common Stock on the Offering Date of the Offering
Period in which such Purchase Date occurs. The number of shares which may be
purchased by any employee on any subsequent Purchase Date which occurs in the
same calendar year as that referred to in the preceding sentence shall not
exceed the number of shares determined by performing the calculation described
below, with all computations to be made to the nearest one hundredth of a whole
share of Common Stock or one cent, as the case may be.
STEP ONE: The number of shares purchased by the employee during any
previous Offering Period which occurred in the same calendar year shall
be multiplied by the fair market value (as defined in Section 9) of a
share of Common Stock on the first day of such previous Offering Period
in which such shares were purchased.
STEP TWO: The amount determined in Step One shall be subtracted from
$25,000.
STEP THREE: The amount determined in Step Two shall be divided by the
fair market value (as defined in Section 9) of a share of Common Stock
on the Offering Date of the Offering Period in which the subsequent
Purchase Date (for which the maximum number of shares which may be
purchased is being determined by this calculation) occurs. The quotient
so obtained shall be the maximum number of shares which may be
purchased by any employee on such subsequent Purchase Date.
Subject to the limitations of Section 423 of the Code, and notwithstanding the
foregoing, the Committee may from time to time determine that a different
maximum number of shares may be purchased on any given Purchase Date in lieu of
the maximum amounts described above in this Section 11(b), in which case the
number of shares which may be purchased by any employee on such Purchase Date
may not exceed such different limitation; provided, that any change made by the
Committee pursuant to this sentence shall only be effective for Offering Periods
that begin at least 30 days after the change is announced to eligible employees.
(c) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Committee shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's Option to each participant affected
thereby.
(d) Any payroll deductions accumulated in a participant's account which
are not used to purchase stock due to the limitations in this Section 11 shall
be returned to the participant as soon as practicable after the end of the
applicable Offering Period without interest.
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<PAGE> 7
12. EVIDENCE OF STOCK OWNERSHIP.
As soon as practicable following each Purchase Date, the number of full
shares of Common Stock purchased by each participant shall be evidenced in such
manner as the Committee may deem appropriate, including book-entry registration
or issuance of one or more stock certificates which shall be deposited into an
account established in the participant's name at a stock brokerage or other
financial services firm designated or approved by the Committee (the "Plan
Financial Agent"). A participant may request, no more than twice during any
12-month period and/or within 30 days following the termination of such
participant's employment for any reason, that a stock certificate for full (but
not fractional) shares be issued and delivered to him or her. Such request shall
be made by filing notice with the Plan Financial Agent, and the Plan Financial
Agent shall cause such shares to be delivered promptly following receipt of such
notice. Cash shall be paid in lieu of fractional shares based on the Fair Market
Value of the Common Stock on the date such notice is received by the Company. In
the event a participant or former participant shall have an account balance of
less than one full share with the Plan Financial Agent as of the Offering Date
of any Offering Period for which such participant has elected not to participate
in the Plan, the Plan Financial Agent shall cause such fractional share to be
sold as promptly as possible and the cash proceeds from such sale to be paid to
the account holder.
13. WITHDRAWAL.
Each participant may withdraw from an Offering Period under this Plan by
signing and delivering to the Committee a written notice to that effect on a
form provided for such purpose. Such withdrawal may be elected at any time on or
prior to the 15th day of the last month (or if such date is not a business day,
the immediately preceding business day) of an Offering Period (such date, the
"Withdrawal Deadline").
14. TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE.
Termination of a participant's employment for any reason, including,
without limitation, retirement, death, or the failure of a participant to remain
an eligible employee, immediately terminates his or her participation in this
Plan. For purposes of this Section 14, an employee will not be deemed to have
terminated employment or failed to remain in the continuous employ of the
Company in the case of any leave of absence approved by the Committee, but all
employees of Designated Subsidiaries that cease for any reason to be Designated
Subsidiaries who are not employed by or transferred to the employ of the Company
or another Designated Subsidiary shall be deemed to have terminated employment.
15. RETURN OF PAYROLL DEDUCTIONS.
In the event a participant's participation in this Plan is terminated by
withdrawal, termination of employment, or otherwise, the Company shall promptly
deliver to the participant all accumulated payroll deductions of the participant
to the Plan which have not yet been applied to the purchase of stock as soon as
practicable after the end of the applicable offering period, unless such
termination of participation occurs later than the Withdrawal Deadline for the
Offering Pe-
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<PAGE> 8
riod, in which event such accumulated payroll deductions will be utilized to
purchase Common Stock for the participant. No interest shall accrue on the
payroll deductions of a participant in this Plan.
16. CAPITAL CHANGES.
In the event of any change in corporate capitalization, such as a stock
split or an extraordinary corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company or sale of all or
substantially all of the Company's assets or stock, then the Committee, in its
sole discretion, may make such equitable adjustments as it shall deem
appropriate in the circumstances in the maximum number and kind of shares of
stock subject to this Plan as set forth in Sections 1 and 2, the number and kind
of shares subject to outstanding Options, and/or the Purchase Price of such
Options. The determination by the Committee as to the terms of any of the
foregoing adjustments shall be conclusive and binding.
17. NONASSIGNABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an Option or to receive shares under this
Plan may be assigned, transferred, pledged, or otherwise disposed of in any way
(other than by will, the laws of descent and distribution, or as provided in
Section 24 hereof) by the participant. Any such attempt at assignment, transfer,
pledge, or other disposition shall be void and without effect.
18. REPORTS AND STATUS OF ACCOUNTS.
Individual accounts will be maintained by the Plan Financial Agent for
each participant in this Plan. The participant shall have all ownership rights
with respect to shares of Common Stock held in his or her account(s) by the Plan
Financial Agent and/or the Company, including the right to vote such shares and
to receive any dividends or distributions which may be declared thereon by the
Board. The Committee shall send to each participant promptly after the end of
each Offering Period a report of his or her account(s) setting forth with
respect to such Offering Period the total payroll deductions accumulated, the
number of whole and any fractional share purchased, and the per share price
thereof, and also setting forth the total number of shares (including any
fractional share) then held in his or her account(s). Neither the Company nor
any Designated Subsidiary shall have any liability for any error or discrepancy
in any such report.
19. NO RIGHTS TO CONTINUED EMPLOYMENT; NO IMPLIED RIGHTS.
Neither this Plan nor the grant of any Option hereunder shall confer any
right on any employee to remain in the employ of the Company or any Subsidiary
or restrict the right of the Company or any Subsidiary to terminate such
employee's employment. The grant of any Option
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hereunder during any Offering Period shall not give a participant any right to
similar grants thereafter.
20. EQUAL RIGHTS AND PRIVILEGES.
All eligible employees shall have equal rights and privileges with respect
to this Plan except as required by applicable law so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Board, or
the Committee, be reformed to comply with the requirements of Section 423. This
Section 20 shall take precedence over all other provisions in this Plan.
21. NOTICES.
All notices or other communications by a participant to the Company under
or in connection with this Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
22. AMENDMENT OF PLAN.
The Board may amend this Plan in such respects as it shall deem advisable;
provided, however, that stockholder approval will be required for any amendment
that will increase the total number of shares as to which Options may be granted
under this Plan or, but for such shareholder approval, cause this Plan to fail
to continue to qualify as an "employee stock purchase plan" under Section 423 of
the Code.
23. TERMINATION OF THE PLAN.
The Board may suspend or terminate this Plan at any time. Upon a
suspension or termination of the Plan while an Offering Period is in progress,
the Committee shall either shorten such Offering Period by setting a new
Purchase Date before the date of such suspension or termination of the Plan or
shall return the accumulated payroll deductions of all participants as if they
had all withdrawn before the Withdrawal Deadline for such Offering Period, as
set forth in Section 15. Unless this Plan shall have been previously terminated
by the Board, this Plan shall terminate on, and no Options shall be granted
after, December 31, 2009. No Options shall be granted during any period of
suspension of this Plan.
24. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan, in the event of such participant's
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<PAGE> 10
death prior to delivery to him or her (or to the Plan Financial Agent on his or
her behalf) of such shares and cash.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant or, if
no spouse, dependent, or relative is known to the Company, to such other person
as the Company may in good faith determine to be the appropriate designee.
25. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an Option unless the exercise
of such Option and the issuance and delivery of such shares pursuant thereto
shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange or automated
quotation system upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
26. EFFECTIVE DATE.
The Plan shall be effective as of the date it is adopted by the Board,
subject to the approval of the Company's stockholders.
27. GOVERNING LAW.
Except to the extent that provisions of this Plan are governed by
applicable provisions of the Code or any other substantive provision of federal
law, this Plan and actions taken under this Plan shall be governed by and
construed in accordance with the laws of the State of Delaware without reference
to principles of conflict of laws.
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EXHIBIT 10.7
FORM OF
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of _______________ 1999 by and between
Martha Stewart Living Omnimedia, Inc., a Delaware corporation (the "Company"),
and Martha Stewart (the "Executive").
WHEREAS, the Executive was the founder of Martha Stewart
Living Omnimedia LLC, the predecessor entity to the Company ("MSLO LLC") and has
acted as the Chairman of the Board of Directors of MSLO LLC and served as its
Chief Executive Officer; and
WHEREAS, the Company recognizes that the Executive's talents
and abilities are unique, and have been integral to the success of MSLO LLC and
thus wishes to secure the ongoing services of the Executive on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth below, the parties hereby agree as follows:
1. Employment. The Company hereby agrees to employ the Executive as the
Chief Executive Officer of the Company, and the Executive hereby accepts such
employment, on the terms and conditions set forth below.
2. Term. The Executive's employment by the Company hereunder (the
"Employment Period") shall begin on _______________ , 1999 (the "Effective
Date") and end on ___________, 2004.
3. Position and Duties. During the Employment Period, the Executive
shall serve as the Chief Executive Officer of the Company and the Chairman of
the Board of Directors of the Company (the "Board"), with such duties, authority
and responsibilities as are normally associated with and appropriate for such
positions. The Executive shall report directly to the Board. The Executive shall
devote substantially all of her working time, attention and energies during
normal business hours (other than absences due to illness or vacation) to the
performance of her duties for the Company. Notwithstanding the above, the
Executive shall be permitted, to the extent such activities do not substantially
interfere with her performance of her duties and responsibilities hereunder or
violate Section 9(a) or (b) of this Agreement, to (i) manage her personal,
financial and legal affairs, (ii) serve on civic or charitable boards or
committees (it being expressly understood and agreed that the Executive's
continuing to serve on any such board and/or committees on which she is serving,
or with which she is otherwise associated, as of the Effective Date, shall be
deemed not to interfere with her performance of her duties and responsibilities
under this Agreement), (iii) serve on boards of other companies and (iv) make
personal appearances and lectures, and the Executive shall be entitled to
receive and retain all remuneration received by her from the items listed in
clauses (i) through (iv) of this paragraph.
4. Place of Performance. During the Employment Period, the Company
shall maintain executive offices for the Executive in both New York City, New
York and Westport, Connecticut and the Executive shall not be required to
relocate to any other location. During the Employment Period, the Company shall
provide the Executive with an office and staff in each of
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the above offices consistent with the practices of MSLO LLC immediately prior to
the Effective Date.
5. Compensation and Related Matters.
(a) Base Salary. During the Employment Period, the Company shall pay
the Executive a base salary at the rate of not less than $900,000 per year
("Base Salary"). The Executive's Base Salary shall be paid in approximately
equal installments in accordance with the Company's customary payroll practices.
If the Executive's Base Salary is increased by the Company, such increased Base
Salary shall then constitute the Base Salary for all purposes of this Agreement.
(b) For each full fiscal year of the Company that begins and ends
during the Employment Period, and for the portion of the fiscal year of the
Company that begins in 2004 ("Fiscal Year 2004"), the Executive shall be
eligible to earn an annual cash bonus in such amount as shall be determined by
the Compensation Committee of the Board (the "Compensation Committee") (the
"Annual Bonus") based on the achievement by the Company of performance goals
established by the Compensation Committee for each such fiscal year (or portion
of Fiscal Year 2004), which may include targets related to the earnings before
interest, taxes, depreciation and amortization ("EBITDA") of the Company;
provided, that the Annual Bonus shall be no less than $300,000. The Compensation
Committee shall establish objective criteria to be used to determine the extent
to which performance goals have been satisfied.
(c) Automobiles. The Company shall provide the Executive with
automobiles and drivers, consistent with the practices of MSLO LLC immediately
prior to the Effective Date.
(d) Business, Travel and Entertainment Expenses. The Company shall
promptly reimburse the Executive for all business, travel and entertainment
expenses consistent with the Executive's titles and the practices of MSLO LLC in
effect immediately prior to the Effective Date, including, without limitation,
first class transportation or travel on a private plane.
(e) Vacation. The Executive shall be entitled to six weeks of vacation
per year. Vacation not taken during the applicable fiscal year (but not in
excess of three weeks) shall be carried over to the next following fiscal year.
(f) Welfare, Pension and Incentive Benefit Plans. During the Employment
Period, the Executive (and her eligible spouse and dependents) shall be entitled
to participate in all the welfare benefit plans and programs maintained by the
Company from time to time for the benefit of its senior executives including,
without limitation, all medical, hospitalization, dental, disability, accidental
death and dismemberment and travel accident insurance plans and programs. In
addition, during the Employment Period, the Executive shall be eligible to
participate in all pension, retirement, savings and other employee benefit plans
and programs maintained from time to time by the Company for the benefit of its
senior executives, other than any annual cash incentive plan.
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(g) Dues. During the Employment Period, the Company shall pay or
promptly reimburse the Executive for annual dues for membership in the American
Federation of Television and Radio Artists, the Screen Actors Guild and similar
organizations.
6. Termination. The Executive's employment hereunder may be terminated
during the Employment Period under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
her death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness as determined by a physician selected by the
Executive, and reasonably acceptable to the Company, (i) the Executive shall
have been substantially unable to perform her duties hereunder for six
consecutive months, or for an aggregate of 180 days during any period of twelve
consecutive months and (ii) within thirty days after written Notice of
Termination is given to the Executive after such six- or twelve- month period,
the Executive shall not have returned to the substantial performance of her
duties on a full-time basis, the Company shall have the right to terminate the
Executive's employment hereunder for "Disability".
(c) Cause. The Company shall have the right to terminate the
Executive's employment for "Cause." For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment only upon the
Executive's:
(i) conviction of a felony or willful gross misconduct that,
in either case, results in material and demonstrable damage to the
business or reputation of the Company; or
(ii) willful and continued failure to perform her duties
hereunder (other than such failure resulting from the Executive's
incapacity due to physical or mental illness or after the issuance of a
Notice of Termination by the Executive for Good Reason) within ten
business days after the Company delivers to her a written demand for
performance that specifically identifies the actions to be performed.
For purposes of this Section 6(c), no act or failure to act by the Executive
shall be considered "willful" if such act is done by the Executive in the good
faith belief that such act is or was to be beneficial to the Company or one or
more of its businesses, or such failure to act is due to the Executive's good
faith belief that such action would be materially harmful to the Company or one
of its businesses. Cause shall not exist unless and until the Company has
delivered to the Executive a copy of a resolution duly adopted by a majority of
the Board (excluding the Executive for purposes of determining such majority) at
a meeting of the Board called and held for such purpose after reasonable (but in
no event less than thirty days') notice to the Executive and an opportunity for
the Executive, together with her counsel, to be heard before the Board, finding
that in the good faith opinion of the Board that "Cause" exists, and specifying
the particulars thereof in detail. This Section 6(c) shall not prevent the
Executive from challenging in any court of competent jurisdiction the Board's
determination that Cause exists or that the
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Executive has failed to cure any act (or failure to act) that purportedly formed
the basis for the Board's determination.
(d) Good Reason. The Executive may terminate her employment for "Good
Reason" after giving the Company detailed written notice thereof, if the Company
shall have failed to cure the event or circumstance constituting "Good Reason"
within ten business days after receiving such notice. Good Reason shall mean the
occurrence of any of the following without the written consent of the Executive
or her approval in her capacity as the Chairman of the Board:
(i) the assignment to the Executive of duties inconsistent with this
Agreement or a change in her titles or authority;
(ii) any failure by the Company to comply with Section 5 hereof in any
material way;
(iii) the requirement of the Executive to relocate to locations other
than those provided in Section 4 hereof;
(iv) the failure of the Company to comply with and satisfy Section
12(a) of this Agreement; or
(v) any material breach of this Agreement by the Company.
The Executive's right to terminate her employment hereunder for Good Reason
shall not be affected by her incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
(e) Without Cause. The Company shall have the right to terminate the
Executive's employment hereunder without Cause by providing the Executive with a
Notice of Termination.
(f) Without Good Reason. The Executive shall have the right to
terminate her employment hereunder without Good Reason by providing the Company
with a Notice of Termination.
7. Termination Procedure.
(a) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive during the Employment Period
(other than pursuant to Section 6(a)) shall be communicated by written Notice of
Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice indicating the specific termination provision
in this Agreement relied upon and setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under that provision.
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(b) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by her death, the date of her death, (ii)
if the Executive's employment is terminated pursuant to Section 6(b), thirty
(30) days after the date of receipt of the Notice of Termination (provided that
the Executive does not return to the substantial performance of her duties on a
full-time basis during such thirty (30) day period), and (iii) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given or any later date (within thirty (30) days after
the giving of such notice) set forth in such Notice of Termination.
8. Compensation Upon Termination or During Disability. In the event the
Executive is disabled or her employment terminates during the Employment Period,
the Company shall provide the Executive with the payments and benefits set forth
below. The Executive acknowledges and agrees that the payments set forth in this
Section 8 constitute liquidated damages for termination of her employment during
the Employment Period.
(a) Termination By Company without Cause or By Executive for Good
Reason. If the Executive's employment is terminated by the Company without Cause
(other than Disability) or by the Executive for Good Reason:
(i) the Company shall pay to the Executive, on or before the
Date of Termination, a lump sum payment equal to the sum of (A) Base
Salary and accrued vacation pay through the Date of Termination, (B)
three times the Base Salary and (C) the higher of $5,000,000 or three
times the highest Annual Bonus paid with respect to any fiscal year
beginning during the Employment Period;
(ii) the Company shall continue to provide the Executive and
her eligible spouse and dependents for a period equal to the greater of
(A) the remaining term of the Employment Period, or (B) three (3) years
following the Date of Termination, the medical, hospitalization, dental
and life insurance programs provided for in Section 5(f), as if she had
remained employed; provided, that if the Executive, her spouse or her
eligible dependents cannot continue to participate in the Company
programs providing such benefits, the Company shall arrange to provide
the Executive and her spouse and dependents with the economic
equivalent of the benefits they otherwise would have been entitled to
receive under such plans and programs; and provided, further, that such
benefits shall terminate on the date or dates the Executive becomes
eligible to receive equivalent coverage and benefits under the plans
and programs of a subsequent employer at an equivalent cost to the
Executive (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis);
(iii) the Company shall, consistent with past practice,
reimburse the Executive pursuant to Section 5(d) for business expenses
incurred but not paid prior to such termination of employment;
(iv) until the third anniversary of the Date of Termination,
the Company shall continue to provide the Executive with (A) the
benefits set forth in Sections 5(c) and
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5(g) hereof and (B) an office and an assistant in each of New York, New
York and Westport, Connecticut; and
(v) the Executive shall be entitled to any other rights,
compensation and/or benefits as may be due to the Executive in
accordance with the terms and provisions of any agreements, plans or
programs of the Company (other than any severance-based plan or
program).
The payments and benefits provided for as subclause (A) of clause (i) above and
in clause (iii) above are hereinafter referred to as the "Accrued Obligations".
(b) Cause or By Executive Without Good Reason. If the Executive's
employment is terminated by the Company for Cause or by the Executive other than
for Good Reason, then the Company shall provide the Executive with her Accrued
Obligations and shall have no further obligation to the Executive hereunder.
(c) Disability. During any period that the Executive fails to perform
her duties hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Executive shall continue to receive her full Base
Salary set forth in Section 5(a) until her employment is terminated pursuant to
Section 6(b). In the event the Executive's employment is terminated for
Disability pursuant to Section 6(b), the Company shall provide the Executive
with the excess, if any, of her full Base Salary over the amount of any
long-term disability benefits that she receives under the Company's welfare
benefit plans and programs, payable in accordance with the normal payroll
practices of the Company, for the remainder of the Employment Period and shall
have no further obligations to the Executive hereunder.
(d) Death. If the Executive's employment is terminated by her death,
the Company shall provide to the Executive's beneficiary, legal representatives
or estate, as the case may be, the Executive's full Base Salary, payable in
accordance with the normal payroll practices of the Company, for a period equal
to the remaining term of the Employment Period and shall have no further
obligations hereunder.
(e) Mitigation. The Executive shall not be required to mitigate damages
with respect to the termination of her employment under this Agreement by
seeking other employment or otherwise, and there shall be no offset against
amounts due the Executive under this Agreement on account of subsequent
employment except as specifically provided in this Section 8. Additionally,
amounts owed to the Executive under this Agreement shall not be offset by any
claims the Company may have against the Executive, and the Company's obligation
to make the payments provided for in this Agreement, and otherwise to perform
its obligations hereunder, shall not be affected by any other circumstances,
including, without limitation, any counterclaim, recoupment, defense or other
right which the Company may have against the Executive or others.
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9. Confidential Information; Non-Competition; Nonsolicitation.
(a) Confidential Information. Except as may be required or appropriate
in connection with her carrying out her duties under this Agreement, the
Executive shall not, without the prior written consent of the Company or as may
otherwise be required by law or any legal process, or as is necessary in
connection with any adversarial proceeding against the Company (in which case
the Executive shall cooperate with the Company in obtaining a protective order
at the Company's expense against disclosure by a court of competent
jurisdiction), communicate, to anyone other than the Company and those
designated by the Company or on behalf of the Company in the furtherance of its
business or to perform her duties hereunder, any trade secrets, confidential
information, knowledge or data relating to the Company and its businesses and
investments, obtained by the Executive during the Executive's employment by the
Company and MSLO LLC that is not generally available public knowledge (other
than by acts by the Executive in violation of this Agreement).
(b) Noncompetition. During the Employment Period and until the 12-month
anniversary of the Executive's Date of Termination if the Executive's employment
is terminated by the Company for Cause or the Executive terminates employment
without Good Reason, the Executive shall not engage in or become associated with
any Competitive Activity. For purposes of this Section 9(b), a "Competitive
Activity" shall mean any business or other endeavor that engages in any country
in which the Company has significant business operations as of the Date of
Termination to a significant degree in a business that directly competes with
all or any substantial part of the Company's business of (i) producing
television and other video programs related to the subject matter of Martha
Stewart Living Magazine (the "Magazine") or other magazines of the Company, (ii)
designing, developing, licensing, promoting and selling merchandise through
catalogs, direct marketing, Internet commerce and retail stores of the product
categories in which the Company so participates as of the Date of Termination or
using the Executive's name, likeness, image, or voice to promote or market any
such product or service or (iii) the creation, publication or distribution of
regular or special issues of a magazine in the genre or magazine category of the
Magazine (the activities described in clauses (i) through (iii), the
"Business"); provided, that, a Competitive Activity shall not include (i) any
speaking engagement to the extent such speaking engagement does not promote or
endorse a product or service of the Business, (ii) the writing of any book or
article relating to subjects other than the Business (e.g., nonfiction relating
to the Executive's career or general business advice) or (iii) the television,
video or movie business so long as such business does not relate to the
Business. The Executive shall be considered to have become "associated with a
Competitive Activity" if she becomes involved as an owner, employee, officer,
director, independent contractor, agent, partner, advisor, or in any other
capacity calling for the rendition of the Executive's personal services, with
any individual, partnership, corporation or other organization that is engaged
in a Competitive Activity and her involvement relates to a significant extent to
the Competitive Activity of such entity; provided, however, that the Executive
shall not be prohibited from (a) owning less than one percent (1%) of any
publicly traded corporation, whether or not such corporation is in competition
with the Company or (b) serving as a director of a corporation or other entity
the primary business of which is not a Competitive Activity. If, at any time,
the provisions of this Section 9(b) shall be determined to be invalid or
unenforceable, by reason of
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being vague or unreasonable as to area, duration or scope of activity, this
Section 9(b) shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Executive agrees that this Section 9(b) as so amended
shall be valid and binding as though any invalid or unenforceable provision had
not been included herein.
(c) Nonsolicitation. During the Employment Period, and for 12 months
after the Executive's Date of Termination if the Executive's employment is
terminated by the Company for Cause or the Executive terminates employment
without Good Reason, the Executive will not, directly or indirectly, solicit for
employment by other than the Company any person (other than any personal
secretary or assistant hired to work directly for the Executive) employed by the
Company or its affiliated companies, nor will the Executive, directly or
indirectly, solicit for employment by other than the Company any person known by
the Executive (after reasonable inquiry) to be employed at the time by the
Company or its affiliated companies.
(d) Injunctive Relief. In the event of a breach or threatened breach of
this Section 9, the Executive agrees that the Company shall be entitled to
injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, the Executive acknowledging that damages would be
inadequate and insufficient.
10. Indemnification.
(a) General. The Company agrees that if the Executive is made a party
or is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that the Executive is or was a trustee, director or officer of the
Company, MSLO LLC, or any predecessor to MSLO LLC (including any sole
proprietorship owned by the Executive) or any of their affiliates or is or was
serving at the request of the Company, MSLO LLC, any predecessor to MSLO LLC
(including any sole proprietorship owned by the Executive), or any of their
affiliates as a trustee, director, officer, member, employee or agent of another
corporation or a partnership, joint venture, limited liability company, trust or
other enterprise, including, without limitation, service with respect to
employee benefit plans, whether or not the basis of such Proceeding is alleged
action in an official capacity as a trustee, director, officer, member, employee
or agent while serving as a trustee, director, officer, member, employee or
agent, the Executive shall be indemnified and held harmless by the Company to
the fullest extent authorized by Delaware law, as the same exists or may
hereafter be amended, against all Expenses incurred or suffered by the Executive
in connection therewith, and such indemnification shall continue as to the
Executive even if the Executive has ceased to be an officer, director, trustee
or agent, or is no longer employed by the Company and shall inure to the benefit
of her heirs, executors and administrators.
(b) Expenses. As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, losses, judgments, liabilities, fines,
penalties, excise taxes, settlements, and costs, attorneys' fees, accountants'
fees, and disbursements and costs of
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<PAGE> 9
attachment or similar bonds, investigations, and any expenses of establishing a
right to indemnification under this Agreement.
(c) Enforcement. If a claim or request under this Section 10 is not
paid by the Company or on its behalf, within thirty (30) days after a written
claim or request has been received by the Company, the Executive may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Executive shall be
entitled to be paid also the expenses of prosecuting such suit. All obligations
for indemnification hereunder shall be subject to, and paid in accordance with,
applicable Delaware law.
(d) Partial Indemnification. If the Executive is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Expenses, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify the Executive for the portion of such
Expenses to which the Executive is entitled.
(e) Advances of Expenses. Expenses incurred by the Executive in
connection with any Proceeding shall be paid by the Company in advance upon
request of the Executive that the Company pay such Expenses, but only in the
event that the Executive shall have delivered in writing to the Company (i) an
undertaking to reimburse the Company for Expenses with respect to which the
Executive is not entitled to indemnification and (ii) a statement of her good
faith belief that the standard of conduct necessary for indemnification by the
Company has been met.
(f) Notice of Claim. The Executive shall give to the Company notice of
any claim made against her for which indemnification will or could be sought
under this Agreement. In addition, the Executive shall give the Company such
information and cooperation as it may reasonably require and as shall be within
the Executive's power and at such times and places as are convenient for the
Executive.
(g) Defense of Claim. With respect to any Proceeding as to which the
Executive notifies the Company of the commencement thereof:
(i) The Company will be entitled to participate therein at its
own expense;
(ii) Except as otherwise provided below, to the extent that it
may wish, the Company will be entitled to assume the defense thereof,
with counsel reasonably satisfactory to the Executive, which in the
Company's sole discretion may be regular counsel to the Company and may
be counsel to other officers and directors of the Company or any
subsidiary. The Executive also shall have the right to employ her own
counsel in such action, suit or proceeding if she reasonably concludes
that failure to do so would involve a conflict of interest between the
Company and the Executive, and under such circumstances the fees and
expenses of such counsel shall be at the expense of the Company.
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(iii) The Company shall not be liable to indemnify the
Executive under this Agreement for any amounts paid in settlement of
any action or claim effected without its written consent. The Company
shall not settle any action or claim in any manner which would impose
any penalty that would not be paid directly or indirectly by the
Company or limitation on the Executive without the Executive's written
consent. Neither the Company nor the Executive will unreasonably
withhold or delay their consent to any proposed settlement.
(h) Non-exclusivity. The right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in this Section 10 shall not be exclusive of any other right which the
Executive may have or hereafter may acquire under any statute or certificate of
incorporation or by-laws of the Company or any subsidiary, agreement, vote of
shareholders or disinterested directors or trustees or otherwise.
11. Legal Fees and Expenses. If any contest or dispute shall arise
between the Company and the Executive regarding any provision of this Agreement,
the Company shall reimburse the Executive for all legal fees and expenses
reasonably incurred by the Executive in connection with such contest or dispute,
but only if the Executive prevails to a substantial extent with respect to the
Executive's claims brought and pursued in connection with such contest or
dispute. Such reimbursement shall be made as soon as practicable following the
resolution of such contest or dispute (whether or not appealed) to the extent
the Company receives reasonable written evidence of such fees and expenses.
12. Successors; Binding Agreement.
(a) Company's Successors. No rights or obligations of the Company under
this Agreement may be assigned or transferred, except that the Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Company" shall include any successor to its business and/or assets (by merger,
purchase or otherwise) which executes and delivers the agreement provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) Executive's Successors. No rights or obligations of the Executive
under this Agreement may be assigned or transferred by the Executive other than
her rights to payments or benefits hereunder, which may be transferred only by
will or the laws of descent and distribution. Upon the Executive's death, this
Agreement and all rights of the Executive hereunder shall inure to the benefit
of and be enforceable by the Executive's beneficiary or beneficiaries, personal
or legal representatives, or estate, to the extent any such person succeeds to
the Executive's interests under this Agreement. If the Executive should die
following her Date of Termination while any amounts would still be payable to
her hereunder if she had continued to live, all such amounts unless otherwise
provided herein shall be paid in accordance with the
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terms of this Agreement to such person or persons so appointed in writing by the
Executive, or otherwise to her legal representatives or estate.
13. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
At her residence address most recently filed with the Company.
If to the Company:
Martha Stewart Living Omnimedia LLC
20 West 43rd Street
New York, New York 10036
Attention: General Counsel
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Andrew J. Nussbaum
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Miscellaneous. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by the Executive and by a duly authorized officer of the Company,
and such waiver is set forth in writing and signed by the party to be charged.
No waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The respective rights and obligations of the
parties hereunder of this Agreement shall survive the Executive's termination of
employment and the termination of this Agreement to the extent necessary for the
intended preservation of such rights and obligations. Except or otherwise
provided in Section 10 hereof, the validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York without regard to its conflicts of law principles.
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15. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Entire Agreement. This Agreement and the Location Rental Agreement
set forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereto
in respect of such subject matter including, without limitation, the Integrated
Agreement with Respect to Employment and Property Services, License and
Noncompetition Matters by and between MSLO LLC and the Executive, dated February
3, 1997, the License Agreement by and between MSLO LLC and the Executive, dated
February 3, 1997, and the Non-Competition Agreement by and between the Executive
and MSLO LLC, dated February 3, 1997. Any prior agreement of the parties hereto
in respect of the subject matter contained herein is hereby terminated and
canceled.
18. Withholding. All payments hereunder shall be subject to any
required withholding of Federal, state and local taxes pursuant to any
applicable law or regulation.
19. Section Headings. The section headings in this Employment Agreement
are for convenience of reference only, and they form no part of this Agreement
and shall not affect its interpretation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
MARTHA STEWART LIVING
OMNIMEDIA, INC.
By:
----------------------------------
EXECUTIVE
------------------------------------
Martha Stewart
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<PAGE> 1
EXHIBIT 10.8
Form of
Intellectual Property License and Preservation Agreement
INTELLECTUAL PROPERTY LICENSE AND PRESERVATION AGREEMENT,
dated as of [ ], 1999 (the "Agreement"), by and between Martha Stewart
("Licensor") and Martha Stewart Living Omnimedia, Inc. (the "Company").
WHEREAS, Licensor is the exclusive owner of all right, title
and interest in and to (i) her image, signature, voice and likeness and goodwill
appurtenant thereto, (ii) certain rights of publicity in and to her name, image,
likeness, voice, signature and other elements of her persona and identity, (iii)
all rights in and to her name, other than those owned by the Company and (iv)
all common law and statutory rights in the foregoing (collectively, the
"Property");
WHEREAS, Licensor and a predecessor of the Company have
previously entered into certain agreements relating to the license of certain
intellectual property, including the Property (the "Predecessor Agreements");
and
WHEREAS, Licensor and the Company wish to terminate the
Predecessor Agreements and enter into this Agreement, on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual premises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. The Company's Acknowledgment of Licensor's Rights. The Company
hereby acknowledges that (a) Licensor exclusively owns all right, title and
interest throughout the world (the "Territory") in and to the Property, which
Property has intrinsic value, and (b) Licensor otherwise reserves all rights to
the Property except those specifically granted to the
<PAGE> 2
Company herein. Licensor represents and warrants to the Company that, as of the
date hereof and other than as set forth in the Predecessor Agreements, she has
the power and authority to license the Property on the terms and conditions of
this Agreement.
2. Use of the Property. (a) Subject to the terms and conditions of this
Agreement, Licensor hereby licenses to the Company the exclusive right to use,
and to authorize others to use, pursuant to the terms hereof, any of the
Property throughout the Territory on or in connection with any products and
services of the Company (such products and services (including the magazine
Martha Stewart Living) are referred to herein as the "Licensed Products" and the
"Licensed Services") during the term of this Agreement. During the term of any
license pursuant to this Agreement, the Company shall use commercially
reasonable efforts to preserve the historical goodwill of the Property, the
Licensed Products and the Licensed Services. All use of the Property and
Licensed Services shall inure solely to the benefit of Licensor. The use of the
Property by the Company or any sublicensee thereof shall be of a quality at
least substantially consistent with the Historical Standard (as defined below);
provided that any use of the Property by the Company while Licensor is in
Control (as defined below) shall be conclusively presumed to meet the Historical
Standard. The "Historical Standard," as of any date, shall mean the quality,
style and image of the Licensed Products or Licensed Services as the Property
has been used by the Company after February 3, 1997 and before the earlier of
(1) such date or (2) the date that Licensor ceases to be either (x) Chairman of
the Board or Chief Executive Officer or (y) the owner, directly or indirectly,
of in excess of 50% of the outstanding voting power of the Company (the
circumstances in either clause (x) or (y) being referred to as "Control," and
such period since February 3, 1997 being referred to as the "Historical
Period"). At any time that
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<PAGE> 3
Licensor is not in Control (other than due to a Termination Trigger, as defined
in subparagraph (b) of this paragraph 2), (i) subject to Licensor's prior
written approval, which shall not be unreasonably withheld or delayed, the
Company may continue to use the Property in connection with new businesses not
planned or developed while Licensor was in Control, and (ii) the Company may
develop, use and register new derivatives of the Property not developed while
Licensor was in Control, so long as such new Derived Marks (as defined in
paragraph 5(a)) are substantially consistent with the image, look and goodwill
of the Property at the time when Licensor ceased to be in Control or to which
Licensor (or her legal representative, heirs or estate) have consented in
writing (such businesses and derivatives, "New Uses"). For clarity, New Uses
shall not include reasonable extensions of the lines of business in which the
Company is engaged or planned to be engaged at any time that Licensor is in
Control, which extensions shall be included in the license contained herein.
After Licensor's death or disability, the Company may use the Property for
additional New Uses, provided that any such businesses and derivatives are
substantially consistent with the image, look and goodwill of the Property at
the time at which Licensor ceased to be in Control, or to which Licensor (or her
legal representative, heirs or estate) have consented in writing. The Company
shall keep Licensor (or her legal representative, heirs or estate) advised of
any New Uses in a timely manner, so that such entity may confirm the Company's
compliance with the terms hereof. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to the Company the exclusive right to use and
exploit in any and all media her name, image, likeness and voice as it appears
in any and all television programs and/or videos (including content developed
for the Company's on line businesses) produced by or for the Company (or its
predecessor), whether such television programs and/or videos were produced,
aired, marketed or sold prior to, on, or after, the date of this Agreement,
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<PAGE> 4
provided that the grant in this sentence shall be limited to the use of such
programs and/or videos (i) substantially as a whole (it being acknowledged and
understood that the Company shall have the right to edit such programs and/or
videos for time and commercials and to add bumpers and introductions), (ii) as
part of a collection or similar compilation (such as "Best of" programs or
videos) of Licensor appearances relating to the business colloquially known as
of the date hereof as "Martha Stewart Living Television", (iii) in any other
manner used by the Company while Licensor was in Control or (iv) regarding
excerpts of such programs and/or videos, as part of the advertising, promotion
and/or marketing of either of the foregoing.
(b) The use of the Property by the Company pursuant to this Agreement
shall be on a royalty-free basis except as set forth in the next sentence of
this Section 2(b). In the event that Licensor's employment with the Company is
terminated by the Company without Cause, or Licensor terminates her employment
for Good Reason (each as defined in any employment agreement between Licensor
and the Company or its subsidiaries or, if there be no such agreement, the last
such agreement) (such a termination, a "Termination Trigger"), Licensor (or her
legal representative, heirs or estate, as the case may be) shall receive a
royalty in perpetuity of 3% of revenues (whether products, advertising,
publication sales, distribution fees or any other revenues) derived from
Licensed Products or Licensed Services of any kind, or which in any way include
any of the Property (including as a portion of any Derived Marks) (as defined in
paragraph 5(a)). Payment of the royalty amounts shall be accompanied by
reasonable written detail of the basis therefor. Such royalty amounts shall be
payable each calendar quarter, shall be subject to a late payment fee of the
greater of 10% or 2% over the Company's then-applicable cost of borrowing (such
amount, the "Interest Rate") in the event not paid within 60
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<PAGE> 5
days of the end of the applicable quarter, Licensor (or her legal
representative, heirs or estate, as the case may be) shall have the right to
audit the royalty payments no more than once per year, and any underpayments
shall be immediately due and payable upon conclusion of the audit, plus interest
at the Interest Rate from the 60th day following the end of the applicable
quarter with respect to which the underpaid amount was due.
(c) Upon a Termination Trigger, the license provided herein shall
become non-exclusive with respect to all then-active businesses of the Company
and shall not include a license to use the Property in connection with New Uses.
Upon a Termination Trigger, the Company shall automatically be deemed to have
granted Licensor an exclusive perpetual, worldwide, royalty free license to use
the Property as, or as part of, a trademark, service mark or trade name, for any
goods or services Licensor desires, to the extent, if any, that said mark or
name is likely to cause confusion with or otherwise infringe or violate the
Company's rights in any mark or name the Company owns (the "Termination Trigger
License"). The Termination Trigger License shall include, without limitation,
the right to use the Property in connection with any goods or services which
compete directly with goods or services of the Company. Notwithstanding the
foregoing, Licensor shall not have the right to use any mark or name which is
identical to any mark or name owned by the Company. The quality of Licensor's
goods and services sold pursuant to the Termination Trigger License (the
"Licensor Goods/Services") shall be of at least the same kind of quality as
goods and services sold by the Company as of the date of the Termination
Trigger, and the Company shall have the right to take reasonable steps to
monitor the quality of the Licensor Goods/Services. Upon Licensor's reasonable
request, the Company shall use its commercially reasonable best efforts to
register trademarks and/or service
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<PAGE> 6
marks which are the subject of the Termination Trigger License and shall take
reasonable steps to maintain any such registrations, in the Company's name and
at the Company's sole expense. The Company shall, at its expense, take any
action reasonably requested by Licensor to protect any trademark, service mark
or trade name which is the subject of the Termination Trigger License.
(d) Notwithstanding any other provision of this Agreement, but subject
to any employment or other agreement that Licensor may have from time to time
with the Company, the license provided herein shall not prohibit Licensor from:
(i) writing books, articles, movies, plays, scripts or other literary products
in areas other than businesses of the Company covered by this Agreement; (ii)
making speeches or public appearances (including on radio, television, in films
or over the Internet or similar media) for any purpose other than the promotion
of a product that competes in any material respect with the Licensed Products
and Licensed Services; (iii) using the Property to endorse products or engage in
business activities other than those covered by this Agreement, including the
exclusivity provisions hereof; (iv) becoming a director, employee, partner,
advisor, member, consultant or shareholder of, investor in or otherwise be
engaged with any other company, corporation, partnership or other entity; and
(v) activities which are incidental and do not significantly infringe on the
Company's rights hereunder.
(e) Any sublicense by the Company of the Property shall contain
protections with respect to the Property consistent with the terms hereof and
shall acknowledge that such sublicensee does not obtain any ownership rights in,
or goodwill to, the Property.
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<PAGE> 7
3. Term. The term of this Agreement shall commence on the date of the
initial public offering of the Company's common stock and shall be perpetual,
subject to the provisions of this Agreement.
4. Quality, Style and Image of Products and Services Provided in
Connection with Property. At any time Licensor is not in Control, upon
reasonable request and to the extent necessary to protect Licensor's rights
under this Agreement, Licensor or her designee, successor or assignee shall have
the right to request and receive, at no cost to her, a sample of each Licensed
Product and Licensed Service, as well as a prototype of each type of all
promotional, advertising and marketing material used in connection therewith,
for the purpose of evaluating the quality, style and image of the same. In the
event that in Licensor's reasonable and good faith judgment, any Licensed
Product or Licensed Service fails (other than in an immaterial manner) to
satisfy the Historical Standard, then promptly upon written notice by Licensor
to the Company, the Company and Licensor shall cooperate in good faith to make
necessary appropriate changes (if any) in the quality, style or image of such
Licensed Product or Licensed Service to comply with the standard provided for
herein, provided that nothing in this sentence shall be deemed to affect the
substantive rights and obligations of the parties hereunder.
5. The Properties. (a) Subject to the terms hereof, including Section
2(a), the Company may combine any designation with the Property so as to form a
new trademark, service mark, trade name or company name (such names or Property,
the "Derived Marks"). The Derived Marks shall include any names or marks used by
the Company prior to the date hereof which include or are derived from any
Property. Subject to the terms of this Agreement, the Company shall be the owner
of the Derived Marks (but not of the Property incorporated therein).
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<PAGE> 8
(b) The Company acknowledges that it is not, and will not become by
virtue of this Agreement, the owner of any right, title or interest in and to
the Property in any form or embodiment. The Company shall not at any time commit
any act anywhere in the world which would reasonably be expected to have a
material adverse effect on Licensor's rights in and to the Property, or any
registrations therefor or any applications for registration thereof. The Company
shall never challenge anywhere in the world Licensor's ownership of or the
validity of the Property, any application for registration therefor or any
rights therein or thereto, except as otherwise expressly provided herein.
(c) The Company, at its expense, shall file appropriate registrations
in its own name or in the name of a Company subsidiary of any Derived Marks so
as to preserve the goodwill thereof and Licensor's rights in the Property, shall
prosecute and defend such registrations and all common law rights in the Derived
Marks and Property consistent with good commercial practices, and shall use all
reasonable commercial efforts to defend and otherwise protect the Derived Marks
and the Property, provided that following a Termination Trigger, Licensor shall
have the right to reasonably direct and control such actions with respect to the
Property, in each case at the Company's expense. At the request of Licensor, her
legal representative, heirs or estate, and at the Company's expense, the Company
shall prosecute, including by filing lawsuits or other actions, any potential
infringement, dilution, libel, slander or other diminution in the goodwill or
other denigration of the Property by any third party, unless outside
intellectual property counsel to the Company advises that there is no reasonable
basis for such action. The Company shall be entitled to the proceeds, or other
legal remedies, of any such action. The Company may also institute such actions
where not requested by Licensor, her legal
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<PAGE> 9
representative, heirs or estate, in the event the Company determines that the
protection of the Property or the Derived Marks reasonably requires such action.
In the event that the Company learns of any infringement or other violation of
rights in or to the Property, it shall promptly notify Licensor thereof.
(d) At Licensor's request, the Company shall execute all documents
reasonably requested by Licensor to confirm Licensor's ownership of rights in
and to the Property. The Company shall cooperate at Licensor's reasonable
request in connection with the filing and prosecution of applications to
register the Property and in connection with the maintenance and renewal of such
registrations as may issue. Licensor and the Company shall cooperate in good
faith, taking into account their respective interests in and rights to the
Property, to determine whether or not such applications are filed and prosecuted
and registrations are maintained. The Company shall pay all costs and expenses
of any such filings or proceedings.
(e) If one party hereto reasonably requests of the other to take an
action in connection with the foregoing, the other party shall cooperate in
connection with any such action, including, without limitation, by being a
plaintiff or co-plaintiff and by causing its officers, directors, and employees
to execute documents and to testify. If the Company desires to take action with
respect to a violation or infringement of the Property, it shall consult with
Licensor and shall not take actions which Licensor reasonably requests not to be
taken. All costs and expenses of the actions described in this paragraph shall
be borne by the Company.
(f) The Company shall take actions to protect the Derived Marks and the
goodwill related thereto consistent with the provisions of this Section.
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6. Indemnity. (a) The Company hereby saves and holds Licensor, her
heirs, estate, successors and assigns (the "Indemnified Parties") harmless of
and from, and indemnifies and agrees to defend them against any and all losses,
liability, damages and expenses (including, without limitation, reasonable
attorney's fees and expenses) which they may incur or be compelled to pay, or
for which they may become liable or be compelled to pay in any action, claim or
proceeding against her, for or by reason of any acts, whether of omission or
commission, that may be committed or suffered by the Company or any of its
officers, directors, employees, agents or servants in connection with the
Company's performance of its obligations under this Agreement, the use
(including sublicensing) of the Property and the Derived Marks or the breach by
the Company of any covenant contained herein. The indemnification rights
provided for herein shall also apply to any use by the Company of the Property
or any Derived Marks prior to the date hereof.
(b) In the event that an Indemnified Party receives notice of a claim
as to which indemnification is sought, such party shall reasonably promptly
notify the Company thereof, except that the failure to so notify shall not
exempt the Company from its obligations hereunder, except to the extent that
such failure has actually prejudiced the Company's legal position with respect
to the claim. Upon receipt of notice, the Company shall advise the Indemnified
Party that it has assumed the defense thereof. The Indemnified Party shall have
the right, at the expense of the Company, to retain legal counsel to participate
in and monitor the defense of the claim, provided that the Company shall have
the right to direct and control such defense. The Company shall not, without
Licensor's written consent, settle or compromise any claim or consent to entry
of any judgment which does not include as an unconditional term
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thereof the giving by the claimant or the plaintiff to the Indemnified Party of
a release from all liability in respect of such claim, nor shall the Company
settle or compromise any claim relating to the Property or the Derived Marks
which would limit the use by Licensor of the Property in any manner whatsoever
without Licensor's consent.
(c) In connection with any action by the Company to enforce, protect or
defend the Property or the Derived Marks, Licensor may elect to retain counsel
of her own choosing, in addition to Company counsel, in order to monitor and
participate in such action. The Company agrees to consider in good faith the
views of such counsel and to keep Licensor and such counsel reasonably informed
of the progress of any such action, subject to the preceding sentence. The
reasonable fees and expenses of such counsel shall be paid for by the Company.
(d) The Company shall maintain in effect at all times errors and
omissions insurance, in customary amounts taking into account the size of the
Company, the value of the Property and the obligations of the Company hereunder,
and shall name Licensor and the other Indemnified Parties hereunder as
beneficiaries thereof for purposes of this Agreement.
7. Certain Remedies. (a) The parties agree that the remedies at law for
any material breach or threatened material breach of this Agreement, including
monetary damages, are inadequate compensation for any loss and that the
nonbreaching party shall be entitled to seek specific performance of this
Agreement. The parties hereto waive any defense to such claim that a remedy at
law would be adequate. In the event of any actual or threatened material default
in, or material breach of, any of the terms hereof, the party aggrieved thereby
shall have the right
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to seeks specific performance and injunctive or other equitable relief with
respect to its rights hereunder, in addition to any remedies available at law.
In the event that a Termination Trigger has occurred and the
Company fails to pay the royalty amounts due for any two consecutive quarters,
Licensor, after providing the Company with 10 business days' notice, during
which the Company may cure such failures, shall have the right to terminate this
Agreement, subject to a three-month sell-off period for the Company with respect
to its then-current inventory. To the extent that the Company has entered into
any agreement with a third party that is not terminable on such notice and which
involves the Property or any Derived Marks, the Company shall seek to terminate
such agreement as soon as reasonably practicable and shall pay to Licensor a 10%
royalty on any revenues derived by the Company under such agreement from and
after the date of termination under this paragraph. Termination of this
Agreement for any reason shall not affect Licensor's right to royalties for any
prior period, nor the indemnity and other obligations of the Company hereunder.
8. Miscellaneous. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) This Agreement is assignable by the Company to any successor of the
Company which acquires all or substantially all of the assets or businesses of
the Company or to an acquiror, whether by sale, merger, recapitalization or
other business combination, of all or substantially all of the assets or
businesses of the Company without Licensor's consent,
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<PAGE> 13
provided that any such successor or assignee shall provide Licensor with a
written agreement that it shall be bound by all the terms of this Agreement.
This Agreement shall be assignable by Licensor to any entity controlled by her,
and inure to the benefit of and be binding upon the successors, legal
representative, heirs and assigns of Licensor. Except as specified in this
Section 8(b), this Agreement is not assignable.
(c) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Licensor:
Martha Stewart
48 Turkey Hill Road South
Westport, CT 06880
If to the Company:
Martha Stewart Living Omnimedia, Inc.
20 West 43rd Street
New York, New York 10036
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section. Notices and communications shall be effective when
actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
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<PAGE> 14
(e) Licensor and the Company acknowledge that this Agreement supersedes
any other agreement between them concerning the subject matter hereof, including
the Predecessor Agreements.
(f) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
-------------------------------------
Martha Stewart
MARTHA STEWART LIVING OMNIMEDIA, INC.
By:
----------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.9
FORM OF
LOCATION RENTAL AGREEMENT
LOCATION RENTAL AGREEMENT (this "Agreement"), dated as of ________,
1999, by and between Martha Stewart ("Stewart") and Martha Stewart Living
Omnimedia, Inc. ("MSLO").
WHEREAS, Stewart or entities controlled by Stewart own or control
certain real property (together with the improvements thereon, the "Real
Property") which MSLO desires to use in connection with its businesses;
WHEREAS, Stewart and a predecessor of MSLO have previously entered into
an Integrated Agreement with Respect to Employment and Property Services,
License and Non-Competition Matters, dated as of February 3, 1997 (the
"Predecessor Agreement") allowing MSLO use of the Real Property; and
WHEREAS, Stewart and MSLO desire to terminate the previous agreement,
and Stewart wishes to allow MSLO to use Real Property in connection with its
businesses, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual premises set forth
herein, and for such other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Term. The term of this Agreement shall commence on the date hereof
and continue until the fifth anniversary of such date, unless this Agreement is
terminated pursuant to Section 6 hereof.
2. Consideration. During the term of this Agreement, in consideration
for the use of the Real Property, MSLO shall pay Stewart, or any entity
designated by Stewart, an annual location rental fee of $2,000,000 (the "Annual
Rental Fee"). MSLO shall pay the Annual Rental Fee in advance in eleven equal
monthly installments of $166,667 and one final monthly installment of $166,663.
These payments shall commence on January 1, 2000. No payments shall be required
with respect to MSLO's use of the Real Property during 1999.
3. Use and Availability. During the term of this Agreement, Stewart
shall provide MSLO access to the Real Property, and MSLO shall be able to use
the Real Property, in each case in connection with MSLO's businesses and in a
manner consistent with past practice and applicable law.
MSLO shall provide reasonable notice of the intended dates and manner
of use and the parties shall cooperate therewith. At the request of Stewart, any
alterations of the Real Property by MSLO in connection with the use thereof by
MSLO shall be remedied and the Real Property returned to its previous condition.
<PAGE> 2
4. Disclaimer of Legal Right; Subordination. MSLO disclaims all right,
title and interest in the Real Property, other than the right of access provided
by this Agreement. MSLO acknowledges that the right of access provided for in
this Agreement is subordinate in all respects to, and subject to, all other
interests in the Real Property.
5. Sale of the Real Property; Costs of Filming. Nothing in this
Agreement shall be construed to obligate Stewart to bear any costs of filming or
other business-related activities (other than capital improvements to the Real
Property that remain on the property, the costs of which shall be borne by
Stewart to the extent Stewart chooses to make such improvements) conducted on
the Real Property on behalf of MSLO. At any time during the term of this
Agreement, Stewart may sell any of the Real Property without the consent of
MSLO. Subject to the next sentence of this Section 5, such sale shall not affect
the obligations of MSLO under Section 2 of this Agreement. Notwithstanding the
foregoing, in the event that Stewart sells a significant portion of the Real
Property (based on MSLO's use of such property) and, due to such sale, MSLO is
required to pay money for the use of additional locations owned by other parties
to conduct its business, Stewart and MSLO shall, in good faith, agree to adjust
the Annual Rental Fee, taking into account any increased use (compared to such
use on the date hereof) by MSLO of the remaining Real Property as well as any
use by MSLO of other real property that Stewart may acquire after the date
hereof.
6. Termination. The term of this Agreement shall end as though the term
specified in Section 1 hereof had ended upon any termination of Stewart's
employment with MSLO. If MSLO terminates Stewart's employment other than for
Cause (as defined in the Employment Agreement (the "Employment Agreement"), by
and between Stewart and MSLO, dated as of the date hereof), or if Stewart
terminates her employment for Good Reason (as defined in the Employment
Agreement), then all sums due Stewart under this Agreement during the remainder
of the term specified in Section 1 shall accelerate and become immediately
payable by MSLO and this Agreement shall terminate. If MSLO terminates Stewart's
employment for Cause (as defined in the Employment Agreement), or Stewart
terminates her employment other than for Good Reason, then this Agreement shall
immediately terminate and neither MSLO nor Stewart shall any further obligations
under this Agreement.
7. Miscellaneous. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) This Agreement is assignable by MSLO to any successor of MSLO which
acquires all or substantially all of the assets or businesses of MSLO or to an
acquiror, whether by sale, merger, recapitalization or other business
combination, of all or substantially all of the assets or businesses of MSLO
without Stewart's consent, provided that any such successor or assignee shall
provide Stewart with a written agreement that it shall be bound by all the terms
of this Agreement. This Agreement shall be assignable by Stewart to any entity
controlled by her,
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and inure to the benefit of and be binding upon the successors, heirs and
assigns of Stewart. Except as specified in this Section 7(b), this Agreement is
not assignable.
(c) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Stewart:
Martha Stewart
48 Turkey Hill Road South
Westport, CT 06880
If to MSLO:
Martha Stewart Living Omnimedia, Inc.
20 West 43rd Street
New York, New York 10036
Attention: General Counsel
or to such other address as either party furnishes to the other in writing in
accordance with this Section. Notices and communications shall be effective when
actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(e) Stewart and MSLO acknowledge that this Agreement supersedes any
other agreement between them concerning the subject matter hereof, including
those provisions of the Predecessor Agreement relating to the subject matter
hereof.
(f) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed in its name on its behalf, all as of the day and year first above
written.
-------------------------------------
Martha Stewart
MARTHA STEWART LIVING OMNIMEDIA, INC.
By:
-----------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.17
[LETTERHEAD OF MARTHA STEWART LIVING OMNIMEDIA LLC]
September 23, 1999
Ms. Sharon Patrick
Martha Stewart Living Omnimedia LLC
20 West 43rd Street
New York, NY 10036
Dear Sharon:
This letter sets forth the terms of your severance if your employment
with Martha Stewart Living Omnimedia LLC or any successor entity ("MSLO")
terminates under certain circumstances at any time during the period from the
date of the Initial Public Offering until the fourth anniversary thereof (the
"Term").
1. Severance. In the event that during the Term (a) your employment
with MSLO is terminated by MSLO without Cause (as defined in Paragraph 3), or by
you for Good Reason (as defined in Paragraph 4), or (b) you terminate your
employment within 30 days following a Change in Control (as defined in Paragraph
5) (a "Change in Control Termination"), (i) you shall promptly be paid any
accrued but unpaid salary, accrued but unused vacation time, un-reimbursed
expenses which otherwise would be reimbursed in the normal course and vested
benefits under any MSLO benefit plan in which you are then a participant, (ii)
you shall promptly be paid an annual bonus with respect to the year in which
your employment is terminated, pro-rated to your date of termination at a rate
equal to your target bonus, as well as any bonus previously declared but not yet
paid with respect to a completed year of service, provided that in the event no
bonus has yet been declared with respect to a completed year of service as of
the date of your termination of employment, you shall promptly receive a bonus
equal to your target bonus with respect to such completed year, (iii) the
outstanding options granted to you on or before the date hereof and any other
unvested MSLO options which may be granted to you after the date hereof that are
scheduled to vest during the forty-eight months immediately following the date
of your termination (the "Options") shall be treated as set forth in Paragraph 2
hereof, and (iv) you shall promptly be paid twelve months of your base salary
and an amount equal to your then target bonus. The entitlements set forth in
clauses (i) through (iv) above are cumulative.
2. Options. Upon a termination of your employment during the Term by
MSLO without Cause or by you for Good Reason, or upon the occurrence of a Change
in Control of MSLO, any portion of any of your Options that is not then vested
shall become fully vested and exercisable. If you incur a termination of
employment other than for Cause during the 24-
<PAGE> 2
month period following a Change in Control, any portion of any of your Options
may thereafter be exercised by you, to the extent it was vested and exercisable
at the time of termination, including on such accelerated basis as provided
above, for one year from such date of termination or, if earlier, until the
tenth anniversary of the grant date for the applicable Option.
3. Cause. "Cause" shall mean (i) your failure to perform your material
duties as President of MSLO after written notice and a reasonable opportunity to
cure, (ii) your willful, intentional misconduct that results in material damage
to MSLO's business or reputation, (iii) your commission of a type of felony with
respect to which incarceration is a typical punishment, (iv) your fraud or
misappropriation of MSLO property (other than incidental property), or (v) your
failure to comply with MSLO's employment policies and rules after written notice
and a reasonable opportunity to cure, provided that, pursuant to the standard
policies of MSLO in effect at the time (and any disciplinary procedures set
forth therein) such failure to comply with MSLO's employment policies and rules
would otherwise give rise to termination. Any termination for Cause must be
approved by the Board of Directors.
4. Good Reason. "Good Reason" shall mean (i)(A) your title as President
of MSLO or salary is diminished, (B) your responsibilities are diminished or
modified in a manner that is inconsistent in any material respect with your
position as President of MSLO, except that this clause shall not apply in the
event MSLO creates a new entity (such as a spin-off company or a tracking stock
business) which it is necessary or appropriate, in view of potential conflicts,
legal or other fiduciary matters, to operate as a separate business with a
separate management from MSLO, so long as you are offered to be a member of the
board of directors of that entity or (C), in the event the Company hires a new
Chief Operating Officer, such person does not report to you in a significant
respect, provided that you understand that such executive would also report to
other members of the Company's executive office, (ii) you give MSLO notice of
your intent to exercise your rights under this provision within 10 business days
after you become aware of an event described in (i) above, (iii) MSLO fails to
fully cure such event within 10 business days after receiving such notice, and
(iv) you terminate your employment with MSLO within 10 business days after
conclusion of the 10-business-day period afforded to MSLO to fully cure such
event.
5. Change in Control. "Change in Control" shall mean the happening of
any of the following events:
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of both (A) 30% or more of either (1) the then outstanding shares
of common stock of MSLO (the "Outstanding Company Common Stock") or (2) the
combined voting power of the then outstanding voting securities of MSLO entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Power") and (B) more than both the Outstanding Company Common Stock and the
Outstanding Company Voting Power owned or controlled directly or indirectly by
Martha Stewart and/or her controlled affiliates, heirs, estate, legal
representative and/or beneficiaries (collectively, "Stewart"); provided,
however, that for purposes of this subsection (i), the following
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<PAGE> 3
acquisitions shall not constitute a Change in Control: (1) any acquisition
directly from MSLO, (2) any acquisition by MSLO, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by MSLO or any
corporation controlled by MSLO or (4) any acquisition by any corporation
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subsection (iii) of this Paragraph 5; or
(ii) individuals who, as of the effective date of this
Agreement, constitute the Board of Directors of MSLO (the "Incumbent Board")
cease for any reason not to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
effective date of this Agreement whose election, or nomination for election by
MSLO's stockholders, was approved by Martha Stewart and her controlled
affiliates (so long as such affiliates are controlled by her) at a time when
such entities controlled at least a majority of the Outstanding Company Voting
Power or by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors of MSLO; or
(iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of MSLO (a "Business Combination"), in each case, unless, following such
Business Combination: (1) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Power immediately prior to
such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns MSLO or all or
substantially all of MSLO's assets either directly or through one or more
subsidiaries of MSLO), (2) in the event that Stewart does not own or control at
least 50% of the Outstanding Company Voting Power upon the consummation of the
Business Combination, no Person (excluding any employee benefit plan (or related
trust) of MSLO or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation (and such amount exceeds the amount owned or
controlled by Stewart) except to the extent that such person had such ownership
of the Outstanding Company Common Stock or Outstanding Company Voting Power
immediately prior to the Business Combination and (3) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of Directors
of MSLO, providing for such Business Combination; provided, that, the conversion
of MSLO whether by merger, share exchange or otherwise, into a corporation in
anticipation of an Initial Public Offering shall not be deemed a Change in
Control; or
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<PAGE> 4
(iv) approval by the shareholders of MSLO of a complete
liquidation or dissolution of MSLO.
6. Initial Public Offering. "Initial Public Offering" shall mean the
completion of the initial public sale of shares of the common stock of MSLO
pursuant to an effective registration statement under the Securities Act of
1933, as amended, following which shares of Class A Common Stock of Martha
Stewart Living Omnimedia, Inc. with a market value of at least $50 million are
publicly held and freely transferable.
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<PAGE> 5
If the foregoing accurately sets forth our agreement, please
sign this letter and return it to me.
Very truly yours,
MARTHA STEWART LIVING OMNIMEDIA LLC
By: /s/ Martha Stewart
_________________________________
Name: Martha Stewart
Title: Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Sharon Patrick
______________________________
Sharon Patrick
Date: September 23, 1999
_______________________
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<PAGE> 1
EXHIBIT 10.18
[LETTERHEAD OF MARTHA STEWART LIVING OMNIMEDIA LLC]
September 3, 1999
Ms. Helen Murphy
46 Roundabend Road
Tarrytown, New York 10591
Dear Helen:
We are very glad that you have agreed to join the staff of Martha Stewart
Living Omnimedia LLC ("MSLO"). This letter is to confirm the material terms of
your employment. Your appointment as an executive officer of MSLO is being made
by the MSLO board of directors (the "Board of Directors").
1. POSITION: Your position will be Chief Financial Officer, subject to review
on an annual basis.
2. TERM: You shall begin work at MSLO as soon as is reasonably practicable,
provided that you shall begin no later than October 15, 1999 (the date on
which you begin, the "Start Date"), and your employment shall continue
until terminated by either you or MSLO.
3. DUTIES: Your duties will be the customary duties of a chief financial and
administrative officer. You will devote your full business time, attention
and energies to the performance of your duties, which shall not prohibit
you from engaging in other incidental activities such as personal financial
management and charitable activities, so long as such other activities do
not materially interfere with the performance of your duties hereunder. You
will directly report to MSLO's Chief Executive Officer, President and Board
of Directors, and it will be your responsibility to keep each of the
foregoing appropriately informed of matters relating to your duties
hereunder.
4. COMPENSATION: Your MSLO compensation level is Grade 41; and your initial
base salary will be $480,000 per year. This is payable as earned in 13
equal payments during each year. You will be eligible for periodic salary
review and increase, which will occur at least every other year, and will
be based upon your performance and the performance of MSLO, as the policies
of MSLO provide for senior executives at your
1
<PAGE> 2
level in effect from time to time. Notwithstanding the foregoing, at least
every other year you shall receive a salary increase that is at least equal
to a reasonable cost-of-living adjustment, as determined by the
Compensation Committee of the Board, provided this increase shall not be
incremental to any other salary increase you receive.
5. BONUS: You will receive an annual bonus at the same time as other senior
executives of MSLO (currently payable during the first quarter of a year
with respect to the prior year). Your target annual bonus shall be 75% of
your base salary. The actual annual bonus paid may be greater or less than
such target based upon (i) the compensation policies MSLO may establish
from time to time, and (ii) the performance of MSLO against certain goals
and targets set by MSLO's Executive Office (consisting of the Chief
Executive Officer and the President) or the Board of Directors (or the
Compensation Committee thereof). Currently, actual annual bonuses vary
from target annual bonuses by up to plus or minus 50%. For purposes of
clarification, you shall be entitled to a pro rata bonus for the period in
1999 commencing on the Start Date.
6. ADDITIONAL BONUSES: In addition to your regular bonus payable pursuant to
Paragraph 5 hereof, and any Special Bonus payable pursuant to paragraph 13
hereof, you shall be entitled to receive a signing bonus of $200,000,
payable within one week following the Start Date. Additionally, you shall
be entitled to a bonus of $247,500 payable on the one-year anniversary of
the Start Date, provided that you are still employed by MSLO as of such
date.
7. BENEFITS: You will receive such employee benefits, subject to any
eligibility requirements, as MSLO from time to time generally provides to
other senior executives (other than Martha Stewart).
8. LONG-TERM INCENTIVE PLANS: You are being granted options to purchase 85,715
Class A LLC Units in MSLO pursuant to the Option Agreement (the "Option
Agreement") attached hereto as Exhibit A. Additionally, you will be
eligible for additional option grants (other than at the time of an initial
public offering of MSLO's or its successor's equity) and to participate in
other long-term incentive programs of MSLO as the Board of Directors and/or
the Compensation Committee thereof determine from time to time.
9. VACATION: You will be entitled to four weeks of vacation annually.
10. SEVERANCE. In the event your employment with MSLO is terminated by MSLO
without Cause (as defined below), or you terminate your employment within
30 days following a Change in Control (as defined in the Option Agreement)
(a "Change of Control Termination"), (i) you shall promptly be paid any
accrued but unpaid salary,
2
<PAGE> 3
accrued but unused vacation time, un-reimbursed expenses which otherwise
would be reimbursed in the normal course and vested benefits under any MSLO
benefit plan in which you then are a participant, (ii) you shall promptly
be paid an annual bonus with respect to the year in which your employment
is terminated, pro-rated to your date of termination at a rate equal to
your target bonus, as well as any bonus previously declared but not yet
paid with respect to a completed year of service, provided that in the
event no bonus has yet been declared with respect to a completed year of
service as of the date of your termination of employment you shall promptly
receive a bonus equal to your target bonus with respect to such completed
year, (iii) the options being granted to you pursuant to the Option
Agreement will be treated as set forth therein and any other unvested MSLO
options which may be granted to you after the date hereof that are
scheduled to vest during the forty-eight months immediately following the
date of your termination shall be treated in a manner at least
substantially comparable to the treatment of the options granted to you
pursuant to the Option Agreement, which terms shall be reflected in any
option agreements governing any such subsequent grants, (iv) you shall
promptly be paid twelve months of your base salary and an amount equal to
your then target bonus, and (v) in the event any such termination occurs
within the first twelve months following the Start Date, you shall be paid
an additional $236,250. The entitlements set forth in clauses (i) through
(v) above are cumulative.
11. CAUSE. "Cause" shall mean (i) your failure to perform your material duties
hereunder after written notice and a reasonable opportunity to cure, (ii)
your willful, intentional misconduct that results in material damage to
MSLO's business or reputation, (iii) your commission of a type of felony
with respect to which incarceration is a typical punishment, (iv) your
fraud or misappropriation of MSLO property (other than incidental
property), or (iv) your failure to comply with MSLO's employment policies
and rules after written notice and a reasonable opportunity to cure,
provided that pursuant to the standard policies of MSLO in effect at the
time (and any disciplinary procedures set forth therein) such failure to
comply with MSLO's employment policies and rules would otherwise give rise
to termination. Any termination for Cause must be approved by the Board of
Directors.
12. CONSTRUCTIVE TERMINATION. In the event that (A)(i) MSLO breaches any of its
obligations under this letter, or your title or salary are diminished, or
(ii) your responsibilities are diminished or modified in a manner that is
inconsistent in any material respect with the position of Chief Financial
Officer, (B) you give MSLO notice of your intent to exercise your rights
under this provision within 10 business days after you become aware of an
event described in (A) above, (C) MSLO fails to fully cure such event
within 10 business days after receiving such notice, and (D) you terminate
your employment with MSLO within 10-business-days after conclusion of the
10 business day period afforded to MSLO to fully cure such event, then such
termination will be deemed to be a termination by MSLO without Cause.
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<PAGE> 4
13. SPECIAL BONUS. On the four-and-one-half year anniversary of the Start Date
(the "Special Bonus Date"), you will be entitled to a bonus (the "Special
Bonus"), which Special Bonus shall in no case exceed $3 million, equal to:
($868,417,917 - Peak Capitalization) x 0.00814292561
"Peak Capitalization" equals the product of (i) the average of the ten
highest closing prices of the common stock of Martha Stewart Living
Omnimedia, Inc.("MSLO, Inc.") over any 20 consecutive trading days during
the six-month period immediately prior to the Special Bonus Date (the
"Measurement Period"), and (ii) the number of shares of MSLO, Inc. common
stock into which MSLO's LLC interests are converted, in the aggregate, in
the merger occurring immediately prior to MSLO, Inc.'s initial public
offering, as equitably adjusted for splits, stock dividends, etc.
Notwithstanding the foregoing:
(i) no Special Bonus shall be payable in the event (a) the calculation
of the Special Bonus amount results in a negative number, (b) your
employment by MSLO terminates prior to the fourth anniversary of
the Start Date for reasons other than your death or disability or
a termination by MSLO without Cause, (c) your employment with MSLO
is terminated at any time prior to the Special Bonus Date by MSLO
for Cause, or (d) there is no initial public offering of MSLO,
Inc.'s common stock prior to the Special Bonus Date (as such date
may be modified under clause (ii) below); and
(ii) in the event of your death or disability, the termination of your
employment by MSLO without Cause, or Change of Control
Termination, in each case prior to the fourth anniversary of the
Start Date, the Special Bonus shall be payable as follows:
(1) (A) in the event of death or disability, the Special Bonus
Date shall be the one year anniversary of the date of
termination of employment and the Measurement Period shall be
the twelve-month period following the date of termination of
employment, and (B) in the event of a termination without
Cause or a Change of Control Termination, the Special Bonus
Date shall be the three-month anniversary of the date of
termination of employment and the Measurement Period shall be
the three-month period following the date of termination of
employment;
(2) in lieu of using the number $868,417,917 in the calculation of
the Special Bonus, a number shall be employed that is equal to
$500,000,000 if termination of employment occurs on the Start
Date and $868,417,917 if termination of employment occurs on
the fourth anniversary of the Start
4
<PAGE> 5
Date, and for any termination date between such dates the
number employed shall be interpolated on a straight-line basis
(e.g., if termination occurred on the second anniversary of
the Start Date the number would be $684,208,958); and
(3) the Special Bonus shall not be greater than $0 if a
termination of employment occurs on the Start Date, and
$3,000,000 if termination of employment occurs on the fourth
anniversary of the Start Date, and for any termination date
between such dates the maximum amount of the Special Bonus
shall be interpolated on a straight-line basis (e.g. if
termination occurred on the second anniversary of the Start
Date the maximum amount of the Special Bonus would be
$1,500,000).
14. CONFIDENTIALITY: You have signed the MSLO standard confidentiality
agreement in the form attached hereto as Exhibit B.
15. AT WILL STATUS: You specifically understand and agree that your employment
hereunder shall be at all times on an "at will" basis, and nothing
contained herein shall be construed as establishing any other relationship
between you and MSLO.
16. NON-SOLICITATION. In the event your employment with MSLO ceases for any
reason other than due to a termination by MSLO without Cause, you shall not
(i) for a period of one year following the date of such termination, hire
for any position (on your own behalf or on behalf of any third party) any
person who was an employee of MSLO during the six-month period prior to the
date of your termination, or (ii) for the eighteen month period commencing
on the date six months prior to the date of your termination of employment,
solicit or induce any employee of MSLO to terminate their employment with
MSLO (on your own behalf or on behalf of any third party).
If the foregoing accurately sets forth our agreement, please sign this
letter and the enclosed job description and return it to me.
5
<PAGE> 6
We are very excited that you will be working with us at Martha Stewart
Living Omnimedia. I think that you will enjoy the collaborative atmosphere, and
I know that we will enjoy having you here.
Very truly yours,
MARTHA STEWART LIVING
OMNIMEDIA LLC
By: /s/ Martha Stewart
----------------------------
Name: Martha Stewart
Title: Chairman and Chief
Executive Officer
ACCEPTED AND AGREED:
/s/ Helen Murphy
- ---------------------------------
Helen Murphy
Date: September 3, 1999
---------------------------
6
<PAGE> 1
EXHIBIT 10.19
LLC UNIT OPTION AGREEMENT
THIS LLC UNIT OPTION AGREEMENT (this "Agreement"), made and
entered into as of this 3rd day of September, 1999, by and between Martha
Stewart Living Omnimedia LLC, a Delaware limited liability company (the
"Company"), and Helen Murphy (the "Executive").
WHEREAS, the Company has agreed pursuant to the Employment
Letter to award the Executive an option to acquire Class A LLC Units of the
Company (the "Class A LLC Units") on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. Grant of Option. Pursuant to, and subject to, the terms
and conditions set forth herein, the Company hereby grants to the Executive an
option to acquire 85,715 Class A LLC Units (the "Option"), which number is
based on the implied current outstanding capitalization of the Company of a
total of 10,526,316 units of all classes.
2. Grant Date. The Grant Date of the Option granted hereby is
September 3, 1999.
3. Identification of Option. The Option granted hereby is not
an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
4. Exercise Price. The exercise price per Class A LLC Unit
subject to the Option granted hereby is $47.50.
5. Vesting. Subject to the Executive's continued employment
with the Company, such Option shall become vested in four equal annual
installments, beginning on the last day before the first anniversary of the
Start Date; provided, however, that upon a Termination of Employment by the
Company without Cause or upon the occurrence of a Change in Control of the
Company, in either case prior to the last day before the fourth anniversary of
the Start Date, any portion of the Option that is not then vested shall become
fully vested and exercisable.
6. Term. (a) Option Term. The Option shall expire on the
earliest of the dates set forth in clauses (b) through (d) below, as
applicable, or if earlier, the tenth anniversary of the Grant Date.
(b) Termination by Death. If the Executive incurs a Termination
of Employment by reason of death, the Option may thereafter be exercised, to
the extent then vested and exercisable, for a period of one year from the date
of such death or, if earlier, until the tenth anniversary of the Grant Date.
<PAGE> 2
(c) Termination by Reason of Disability or Retirement. If the
Executive incurs a Termination of Employment by reason of Disability or
Retirement, the Option may thereafter be exercised by the Executive, to the
extent it was vested and exercisable at the time of termination, for a period
of one year from the date of such Termination of Employment or, if earlier,
until the tenth anniversary of the Grant Date; provided, however, that if the
Executive dies within such period, any unexercised portion of the Option shall,
notwithstanding the expiration of such period, continue to be exercisable to
the extent to which it was vested and exercisable at the time of death for a
period of one year from the date of such death or, if earlier, until the tenth
anniversary of the Grant Date.
(d) Other Termination. (A) If the Executive incurs a
Termination of Employment for Cause, the Option shall thereupon terminate and
cease to be exercisable; and (B) if the Executive incurs a Termination of
Employment for any reason other than death, Disability, Retirement or for
Cause, the Option, to the extent it was then vested and exercisable at the time
of termination may be exercised during the three-month period following the
date of such Termination of Employment or, if earlier, until the tenth
anniversary of the Grant Date; provided, however, that if the Executive dies
within such three-month period, any unexercised portion of the Option shall,
notwithstanding the expiration of such three-month period, continue to be
exercisable to the extent to which it was vested and exercisable at the time of
death for a period of one year from the date of such death or, if earlier,
until the tenth anniversary of the Grant Date.
(e) Notwithstanding any other provision of this Section 6 to
the contrary, in the event the Executive incurs a Termination of Employment
other than for Cause during the 24-month period following a Change in Control,
any portion of the Option may thereafter be exercised by the Executive, to the
extent it was vested and exercisable at the time of termination, including on
such accelerated basis as provided in Sections 5 and 7(a), for one year from
such date of termination or, if earlier, until the tenth anniversary of the
Grant Date.
7. Exercise; Method of Exercise. (a) The vested portion of the
Option shall become exercisable at the earliest of an IPO, a Change in Control
or a Termination of Employment without Cause, subject in each case to the
provisions of this Section 7. Subject to the provisions of this Section 7, the
Option may be exercised, in whole or in part, at any time after the Option has
become vested and exercisable and during the option term by giving written
notice of exercise to the Company specifying the number of Class A LLC Units or
shares of Common Stock, as the case may be, subject to the Option to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Company may
accept.
(b) Method of Exercise After an IPO.
(i) After an IPO, if approved by the Committee, payment in full
or in part may also be made in the form of unrestricted shares (by
delivery of such share(s) or by attestation) already owned by the
Executive of the same class as the common stock for which the Option
becomes exercisable in connection with the conversion of the
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<PAGE> 3
Company into a corporation (the "Common Stock") subject to the Option
(based on the Fair Market Value of the Common Stock on the date the
Option is exercised); provided that such already owned Common Stock
have been held by the Executive for at least six months at the time of
exercise or had been purchased on the open market.
(ii) In addition, after an IPO, payment in full or in part may
also be made by either or both of the following methods, as selected by
the Committee:
(A) by instructing the Committee to withhold a
number of shares of such Common Stock having a Fair Market Value
on the date of exercise equal to the aggregate exercise price of
the Option; or
(B) by delivering a properly executed exercise
notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds necessary to pay the purchase
price, and, if requested, reduced by the amount of any federal,
state, local or foreign withholding taxes. To facilitate the
foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
(c) No Class A LLC Units or Common Stock shall be issued prior
to the time that full payment therefor has been made; provided that the
issuance of Class A LLC Units or Common Stock shall be subject to Section 10
hereof. The Executive shall have all of the rights of a shareholder of the
Company holding Class A LLC Units or the Common Stock that is subject to the
Option (including, if applicable, the right to receive dividends and, after an
IPO, to vote the Common Stock), when the Executive has given written notice of
exercise and has paid in full for such Class A LLC Units or Common Stock;
provided, that, prior to an IPO, the Executive's rights shall be limited as set
forth in Sections 10, 11 and 12 hereof.
8. Change in Capitalization. In the event of any change in
corporate capitalization, such as a stock split or an extraordinary corporate
transaction, such as any merger, consolidation, spin-off, or other distribution
of stock or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, the Board of
Directors of the Company (the "Board") or the Compensation Committee of the
Board (the "Committee") may make such substitution or adjustments to reflect
such change or transaction in (i) the number, kind and option price of equity
subject to the Option; and/or (ii) such other equitable adjustment as it may
determine to be appropriate in its sole discretion; provided, however, that the
number of units or shares subject to the Option shall always be a whole number
and; provided, further, that if any such substitution or adjustment to reflect
such change or transaction is made with respect to the options outstanding
pursuant to the Company's Nonqualified Class A LLC Unit/Stock Option Plan or
the Company's
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1999 Stock Incentive Plan, the same substitution or adjustment shall be made
with respect to the Option.
9. Conditions to Option Grant; Option Transfer Restrictions.
(a) Nontransferability of Option. The Option shall not be transferable by the
Executive other than (i) by will or by the laws of descent and distribution or
(ii) as otherwise expressly permitted by the Committee including, if so
permitted, pursuant to a transfer to the Executive's immediate family, whether
directly or indirectly or by means of a trust or partnership or otherwise. For
purposes of this Agreement, unless otherwise determined by the Committee,
"immediate family" shall mean the Executive's children, spouse and
grandchildren (the persons referred to in the above clauses (i) and (ii), the
"Permitted Transferees"). The Option shall be exercisable, subject to the terms
of this Agreement, only by the Executive, the guardian or legal representative
of the Executive, or any person to whom the Option is transferred pursuant to
this paragraph, it being understood that the terms "holder" and "Executive"
include such guardian, legal representative and other transferee.
10. Restrictions on LLC Units and Common Stock; Conditions to
Exercise. (a) Notwithstanding any other provision of this Agreement made
pursuant thereto, the Company shall not be required to issue or deliver any
certificate or certificates for Class A LLC Units or shares of Common Stock
under this Agreement prior to fulfillment of all of the following conditions:
(i) any registration or other qualification of such Class A
LLC Units or shares of Common Stock under any state or federal law or
regulation, or the maintaining in effect of any such registration or
other qualification which the Committee shall, in its absolute
discretion upon the advice of counsel, deem necessary or advisable; and
(ii) obtaining any other consent, approval, or permit from any
state or federal governmental agency which the Committee shall, in its
absolute discretion after receiving the advice of counsel, determine to
be necessary or advisable.
(b) Securities Law Restrictions. As a condition to exercise of
the Option granted hereby at any time prior to the date on which an IPO occurs,
the Executive (i) will be required to make representations, warranties and
agreements with respect to the Class A LLC Units obtained through such exercise
substantially similar to the representations, warranties and agreements as set
forth in Exhibit A hereto, as the Committee may reasonably determine based on
the advice of counsel; (ii) understands and agrees that she will not offer,
resell, transfer or otherwise dispose of the Class A LLC Units obtained through
such exercise other than as provided in this Agreement and pursuant to an
available exemption from registration under Securities Act or pursuant to an
effective registration statement, if any; and (iii) shall agree to be subject
to any other restrictions as the Committee may reasonably deem necessary based
on the advice of counsel to comply with all applicable law. The Executive
further understands and agrees that the Company is under no obligation to file
any
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registration statement with the Securities and Exchange Commission in order to
permit transfers of the Class A LLC Units.
(c) Nontransferability of Class A LLC Units and Common Stock.
Unless otherwise permitted by the Board or by will or by the laws of descent
and distribution, Class A LLC Units or Common Stock issued under this Agreement
shall not be transferable by the Executive until the earlier of (i) 180 days
from the date of exercise, and (ii) the effective date of an IPO (subject to
any holding period required by the underwriters).
(d) Legend: The certificates for Class A LLC Units purchased
under this Agreement upon Option exercise prior to an IPO shall bear the
following restrictive legend (and other appropriate language regarding
limitations on transfer):
"The Class A LLC Units represented by this certificate have not been
registered by the Company under the Securities Act of 1933 or state
securities laws. They are subject to an Option Agreement with the
Company and they may not be sold or otherwise transferred except as
therein provided 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
the Company's principal office."
(e) Form S-8. Within a reasonable time following an IPO, the
Company shall register the issuance of the Common Stock underlying the Option
on Form S-8 (or any successor form) and will use its reasonable efforts to
cause such registration statement to remain effective until the full exercise
or expiration of the Option, and to the extent necessary will promptly prepare
and deliver any prospectus in connection with the resale of the Common Stock
underlying the Option.
11. Voting Rights Prior to IPO. Prior to an IPO, Class A LLC
Units purchased by the Executive under this Option shall be subject to a proxy
pursuant to which Martha Stewart, or in the event of her death or disability,
her legally designated representative who becomes the majority Class A LLC
unitholder, shall exercise all voting rights over such Common Stock with
respect to all matters submitted for the vote or consent of holders of shares
of Common Stock. Until the effective date of an IPO, such proxy shall be
irrevocable and coupled with an interest for purposes of Delaware law. The
Executive agrees, as a condition to the receipt of this Option, to execute any
additional documents that may be required to effect such proxy, as determined
by the Board.
12. Company's Call Right Prior to IPO. (a) Call Option
Exercise. The Company shall have the right to acquire, and the Executive shall
have the obligation to sell, Class A LLC Units acquired by the Executive upon
exercise of the Option, pursuant to the terms of this Section 12 (the "Call
Option"). Upon receipt of written notification from the Company of its decision
to exercise the Call Option with respect to such Class A LLC Units, the
Executive agrees to sell all shares of Class A LLC Units at the lower of their
Fair Market Value and Book Value on the "Call Date." The "Call Date" shall be
the date on which the Company delivers written notice to the Executive of its
decision to exercise the Call Option.
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(b) Delivery of Certificates and Payment Following a Call. The
Executive or her legal representative shall deliver the share certificates for
any Class A LLC Units covered by the Call Option to the Company at its
principal office, duly assigned to the Company with signature guaranteed, no
later than thirty days following the delivery to the Executive of written
notice by the Company of its intention to exercise the Call Option. In exchange
therefore, the Company shall pay the Executive the lower of the Fair Market
Value and the Book Value of the Class A LLC Units subject to the Call Option.
Payment for such shares of Class A LLC Units shall be made either, at the
discretion of the Board, in (1) cash or (2) in the event restrictions pursuant
to indebtedness of the Company (whether owed to financial institution or other
parties) prevent such payment, by delivery of a promissory note. Such
promissory note shall be payable as soon as practicable following the date on
which such restrictions are no longer applicable, as determined by the Board,
and shall bear interest at a rate of 5% per annum, compounded annually. The
Company shall pay all transfer taxes, if any, due in connection with the sale
of Class A LLC Units in connection with a Call Option.
(c) Duration of Call Option. The Call Option shall remain in
effect until the earlier of: (a) the consummation of an IPO and (b) a Change in
Control of the Company..
13. Amendment and Waiver. This Agreement may be amended or
modified by a written agreement executed by the parties hereto. The waiver of
or failure to enforce or delay in enforcing any breach of or default under this
Agreement shall not be deemed to be a waiver or acquiescence in any other
breach thereof and shall not impair any right, power or remedy under this
Agreement. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the extent
specifically set forth in such writing.
14. Integration. This Agreement contains the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter,
including, without limitation, the Employment Letter.
15. Successors, Assigns and Transferees. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and each
of their respective successors, assigns and transferees, provided that the
Executive may not assign to any person any of his rights hereunder other than
in connection with a transfer to such person of the Option granted hereby in
accordance with the provisions hereof.
16. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but which
together constitute one and the same instrument. Notwithstanding the foregoing,
any duly authorized officer of the
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<PAGE> 7
Company may execute this Agreement by providing an appropriate facsimile
signature, and any counterpart or amendment hereto containing such facsimile
signature shall for all purposes be deemed an original instrument duly executed
by the Company. In the event that such a facsimile signature is used, such duly
authorized officer shall execute, in original, a certificate attesting to the
entry into this Agreement or all similar Agreements or any amendment hereto or
thereto, which certificate shall list the names of all of the parties to such
Agreements or amendments and shall be filed with the permanent records of the
Company.
17. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
without regard to the principles of conflict of laws.
18. Withholding. No later than the date as of which an amount
first becomes includible in the gross income of the Executive for federal
income tax purposes with respect to the Option, the Executive shall pay to the
Company, or make arrangements satisfactory to the Company regarding the payment
of, any federal, state, local or foreign taxes of any kind required by law to
be withheld with respect to such amount. If the Executive elects, such
withholding obligations may be settled with Class A LLC Units or Common Stock,
including Class A LLC Units or shares of Common Stock that are part of the
Option that gives rise to the withholding requirement; provided, that such
withholding of Class A LLC Units or shares of Common Stock shall not exceed the
minimum amount necessary to satisfy the legal requirements for such
withholding. The obligations of the Company under this Agreement shall be
conditional on such payment or arrangements, and the Company and its Affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Executive. The Committee may establish
such procedures as it deems appropriate, including making irrevocable
elections, for the settlement of withholding obligations with the Class A LLC
Units or Common Stock.
19. Certain Definitions.
"Agreement" has the meaning set forth in the preamble hereof.
"Affiliate" means a corporation or other entity controlled by,
controlling or under common control with the Company and designated by the
Committee from time to time as such.
"Board" has the meaning set forth in Section 8.
"Book Value" of a Class A LLC Unit means the amount determined by
the Board, in its sole discretion, on a semiannual basis based on generally
accepted accounting principles as consistently applied. In the event a
transaction that requires a determination of Book Value falls between the
semiannual valuation dates, the determination of Book Value made on the
semiannual valuation date immediately preceding such a transaction shall be
used. The Board's determination of Book Value, including without limitation the
method to be applied, shall be binding on both the Company and the Executive.
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<PAGE> 8
"Call Date" has the meaning set forth in Section 12(a).
"Call Option" has the meaning set forth in Section 12(a).
"Cause" has the meaning set forth in the Employment Letter.
"Change in Control" means the happening of any of the following
events:
(i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of both (A) 30% or more of
either (1) the then outstanding total LLC Units or shares of common
stock of the Company (the "Outstanding Company Equity") or (2) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Power") and (B) more than both the
Outstanding Company Common Stock and the Outstanding Company Voting
Power owned or controlled directly or indirectly by Martha Stewart;
provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control: (1)
any acquisition directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (4) any acquisition by any corporation
pursuant to a transaction which complies with clauses (1), (2) and (3)
of subsection (iii) of this Section 13(c); or
(ii) individuals who, as of the effective date of this
Agreement, constitute the Board (the "Incumbent Board") cease for any
reason not to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
effective date of this Agreement whose election, or nomination for
election by the Company's equityholders, was approved by Martha Stewart
and her controlled affiliates at a time when such entities controlled
at least a majority of the Outstanding Company Voting Power or by a
vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination: (1) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Equity and Outstanding Company
Voting Power immediately prior to such Business Combination
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<PAGE> 9
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more Subsidiaries),
(2) in the event that Martha Stewart and her controlled affiliates do
not own or control at least 50% of the Outstanding Company Equity upon
the commencement of the Business Combination, no Person (excluding any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such person had such ownership of the Outstanding Company Equity
or Outstanding Company Voting Power immediately prior to the Business
Combination and (3) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; provided, that, the conversion of the Company
whether by merger, share exchange or otherwise, into a corporation in
anticipation of an IPO shall not be deemed a Change in Control; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
"Code" has the meaning set forth in Section 3.
"Committee" has the meaning set forth in Section 8.
"Common Stock" has the meaning set forth in Section 7(b)(i).
"Class A LLC Unit" means a Class A LLC Unit of the Company.
"Company" means Martha Stewart Living Omnimedia LLC, or any
successor entity.
"Disability" means the permanent and total inability of the
Executive by reason of mental or physical infirmity, or both, to perform the
work customarily assigned to her, if a medical doctor selected or approved by
the Board, and knowledgeable in the field of such infirmity, advises the
Committee either that it is not possible to determine when such Disability will
terminate or that it appears probable that such Disability will be permanent
during the remainder of the Executive's lifetime.
"Employment Letter" means the Employment Letter between the
Company and the Executive, dated September 3, 1999.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive" has the meaning set forth in the preamble hereof.
"Fair Market Value" of a Class A LLC Unit means the amount
determined by the Board, in its sole discretion, on a semiannual basis, to the
extent necessary, based on consultation with investment bankers or other
financial advisors. In the event a transaction prior to an IPO that requires a
determination of Fair Market Value falls between the semiannual valuation
dates, the determination of Fair Market Value made on the semiannual valuation
date immediately preceding such a transaction shall be used. The Board's
determination of Fair Market Value, including without limitation the method to
be applied, shall be binding on both the Company and the Executive.
"Initial Public Offering" or "IPO" means the completion of the
initial public sale of shares of the common stock of the Company pursuant to an
effective registration statement under the Securities Act, following which
shares of Common Stock with a market value of at least $50 million are publicly
held and freely transferable.
"Option" has the meaning set forth in Section 1.
"Permitted Transferees" has the meaning set forth in Section 9.
"Retirement" means retirement from the employ of the Company or
its Subsidiaries or Affiliates at the normal or early retirement date as set
forth in any tax-qualified retirement/pension plan of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Start Date" has the meaning set forth in the Employment Letter.
"Subsidiary" means any corporation, partnership, joint venture
or other entity during any period in which at least a 50% voting or profits
interest is owned, directly or indirectly, by the Company or any successor to
the Company.
"Termination of Employment" means the termination of the
Executive's employment with, or performance of services for, the Company and
any of its Subsidiaries or Affiliates. Temporary absences from employment
because of illness, vacation or leave of absence and transfers among the
Company and its Subsidiaries and Affiliates shall not be considered
Terminations of Employment. For purposes of this Agreement, the Executive's
employment shall be deemed to have terminated at the close of business on the
day preceding the first date on which she is no longer for any reason
whatsoever employed by the Company or any of its Subsidiaries or Affiliates.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its duly authorized officer and the Executive has hereunto
signed this Agreement on her own behalf, thereby representing that she has
carefully read and understands this Agreement as of the day and year first
written above.
MARTHA STEWART LIVING OMNIMEDIA LLC
By: /s/ Martha Stewart
-----------------------------------------------
Name: Martha Stewart
Title: Chairman and Chief Executive Officer
EXECUTIVE
/s/ Helen Murphy
----------------------------------------------------
Helen Murphy
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EXHIBIT A
The Executive has made the following representations, warranties
and agreements with respect to the Class A LLC Units (for the purpose of this
Exhibit A only, the term "Affiliate" shall mean affiliate as such term is
defined in Rule 12b-2 under the Exchange Act):
1. No Registration. The Executive understands and
acknowledges that the Class A LLC Units have not been registered under the
Securities Act or the securities laws of any state or foreign jurisdiction and,
unless so registered, may not be offered, sold, transferred or otherwise
disposed of except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1934, as
amended (the "Securities Act") and any applicable securities laws of such other
jurisdictions.
2. Nature of Executive.
(a) the Executive either
(i) is an "accredited investor," as defined in Regulation D
under the Securities Act; or
(ii) has such knowledge and experience in financial and
business matters that she is capable of evaluating the merits and risks
of an investment in the Class A LLC Units on the basis of her
investment, business or professional experience and/or education; and
(iii) has discussed with her "purchaser representative" (as
defined in Regulation D under the Securities Act) whether such
investment is appropriate in light of her financial circumstances, has
received the advice of such purchaser representative with respect to the
merits and risks of such investment, and together with such purchaser
representative, and with the benefit of such purchaser representative's
advice, has such knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of such
investment;
(b) the Executive is able to bear the economic risk of an
investment in the Class A LLC Units for an indefinite period of time, including
the risk of a complete loss of her investment.
3. Purchase for Investment. The Executive is acquiring the
for her own account for investment purposes and not with a view to, or for
offer or sale on behalf of or herself or for the Company in connection with,
the distribution or resale thereof.
4. Receipt of, Access to and Reliance on Information. (a) The
Executive acknowledges that (i) she has received a copy of the preliminary
Prospectus of Martha Stewart Living Omnimedia, Inc. included in the
registration statement on Form S-1 filed with the Securities and Exchange
Commission on July 29, 1999 (the "Prospectus"); (ii) the
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<PAGE> 13
Company has given her, at a reasonable time prior to the date of purchase or
grant, an opportunity to ask questions and receive answers concerning the terms
and conditions of the Option; (iii) the Company has given her at a reasonable
time prior to the date of purchase or grant, an opportunity to obtain any
additional information that the Company possesses or can acquire without
unreasonable effort or expense deemed necessary by her to verify the accuracy
of the information provided, and she has received all such additional
information requested; and (iv) she has not relied on any of the Company or any
of its respective Affiliates, officers, employees or representatives in
connection with her investigation of the accuracy of the information provided
or her investment decision.
(b) The Executive acknowledges that no person has been
authorized to give any information or to make any representation concerning the
Class A LLC Units, written or oral, that does not conform to the information
included in the Prospectus and if given or made, such other information or
representation should not be relied on as having been authorized by any of the
Company or any of its respective Affiliates, officers, employees or
representatives.
5. No Misrepresentation; Notification of Any Change. The
Executive understands that the Company and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations and agreements, and
agrees that if any of the acknowledgments, representations and warranties
deemed to have been made by it upon its acquisition of Class A LLC Units are no
longer accurate at any time, she shall promptly notify the Company.
A-2
<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
September 22, 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 Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-84001) and related Prospectus of Martha
Stewart Living Omnimedia, Inc. for the registration of Class A common stock.
ERNST & YOUNG LLP
New York, New York
September 22, 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 Chief Financial and Administrative Officer 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 attorneys-in-fact and agents, 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 he might or could do if personally present, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or either
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 22nd day of September, 1999.
/s/ Helen Murphy
------------------------------------
Name: Helen Murphy
Title: Chief Financial and
Administrative Officer
<PAGE> 2
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 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 attorneys-in-fact and agents, 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 he might or could do if personally present, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or either
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 23rd day of September, 1999.
/s/ Naomi O. Seligman
------------------------------------
Name: Naomi O. Seligman
Title: Director
