MARTHA STEWART LIVING OMNIMEDIA INC, 424B4, 1999-10-19

MARTHA STEWART LIVING OMNIMEDIA INC
424B4, 1999-10-19
PERIODICALS: PUBLISHING OR PUBLISHING & PRINTING

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-84001

PROSPECTUS

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.

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 7.

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

PRICE $18 A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS THE COMPANY
------------ ------------- ------------
<S> <C> <C> <C>
Per Share..................................... $18.00 $1.26 $16.74
Total......................................... $129,600,000 $9,072,000 $120,528,000
</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 October 22, 1999.

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

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

DONALDSON, LUFKIN & JENRETTE BANC OF AMERICA SECURITIES LLC

October 18, 1999
<PAGE> 2

PROSPECTUS

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.

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

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 7.
------------------------

PRICE $18 A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS THE COMPANY
------------ ------------- ------------
<S> <C> <C> <C>
Per Share...................................... $18.00 $1.26 $16.74
Total.......................................... $129,600,000 $9,072,000 $120,528,000
</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.

Morgan Stanley & Co. Incorporated expects to deliver the shares of our Class A
common stock to purchasers on October 22, 1999.

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

MORGAN STANLEY DEAN WITTER MERRILL LYNCH INTERNATIONAL

BEAR, STEARNS INTERNATIONAL LIMITED

DONALDSON, LUFKIN & JENRETTE BANK OF AMERICA INTERNATIONAL LIMITED

October 18, 1999
<PAGE> 3
[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> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Recent Developments--Strategic
Investment.......................... 6
Risk Factors.......................... 7
Special Note With Respect to Forward-
Looking Information................. 16
Reorganization Transactions Occurring
Prior to This Offering.............. 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Historical and Pro Forma
Consolidated Financial Data......... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 33
Management............................ 53
Certain Relationships and Related
Transactions........................ 66
Principal Stockholders................ 70
Description of Capital Stock.......... 72
Shares Eligible for Future Sale....... 75
Material U.S. Federal Income Tax
Considerations for Non-U.S.
Holders............................. 76
Underwriters.......................... 79
Legal Matters......................... 82
Experts............................... 82
Additional Information................ 83
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 November 12, 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.

i
<PAGE> 5

(This page has been left blank intentionally.)
<PAGE> 6

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.

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<PAGE> 7

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.

2
<PAGE> 8

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 15,459,985 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..... 14,379,985 shares

Class B common stock..... 34,126,831 shares
-----------------

Total.......... 48,506,816 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 $41.8 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 69,224 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."

3
<PAGE> 9

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.

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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................................. 48,506,816 48,506,816
</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 $134,797
Total assets....................................... 123,845 117,845 236,373
Long-term debt (including current maturities)...... 15,000 -- --
Members'/Stockholders' equity...................... 49,559 58,559 177,087
</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>

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<PAGE> 11

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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<PAGE> 13

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.
This agreement expires in February 2000 and has recently been renewed by Kmart
for an additional three years. If Kmart was to experience a significant downturn
in its businesses or was otherwise unable to honor its obligations to us, our
business would be disrupted and our revenues and results of operations would be
materially adversely affected.

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 entertainment and
information. The Martha Stewart Living television program has experienced a
decline in ratings, from a 2.4 household rating for the 1997-98 season to a 1.9
household rating for the 1998-99 season, according to AC Nielsen Corporation. In
addition, in the first three weeks of the 1999-2000 season, which

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began on September 6, 1999, we believe we experienced an additional decline in
the ratings although comparable statistics are not yet available. Although early
season ratings are not necessarily indicative of the ratings for the full
season, 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 $14.86 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 14,379,985 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 $118.5 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 $41.8
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."

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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.

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REORGANIZATION TRANSACTIONS OCCURRING PRIOR TO THIS OFFERING

From December 1996 until immediately prior to completion of this offering,
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 plus cash in lieu of fractional shares based on the
initial public offering price. We will issue an aggregate of 7,110,761 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., Charlotte Beers and Naomi O. Seligman, each a director of
Martha Stewart Living Omnimedia, 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 69,224
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 $41.8 million, or approximately $16.16 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.

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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 $118.5
million, after deducting underwriting discounts and commissions and estimated
offering expenses of approximately $11.1 million. We plan to use approximately
$41.8 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.

18
<PAGE> 24

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; 14,379,985
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........................................ 58,559 176,602
------- --------
Total stockholders' equity............................. 58,559 177,087
------- ------- --------
Total capitalization................................... $64,559 $58,559 $177,087
======= ======= ========
</TABLE>

19
<PAGE> 25

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 the initial public offering price of $18.00 per share, our
net tangible book value as of June 30, 1999 would have been $152.5 million, or
$3.14 per share. This represents an immediate dilution of $14.86 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>
Initial public offering price per share..................... $18.00
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....................................... 2.59
------
Pro forma net tangible book value per share after the
reorganization and this offering.......................... 3.14
------
Dilution per share to new investors......................... $14.86
======
</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 $18.00, 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... 39,175,714 80.9% $ 21,666 -- --
Kleiner Perkins......... 2,061,878 4.2 24,750,000 16.0% $12.00
New investors........... 7,200,000 14.9 129,600,000 84.0 18.00
---------- ------- ------------ ------- ------
Total.............. 48,437,592 100.0% $154,371,666 100.0%
========== ======= ============ =======
</TABLE>

20
<PAGE> 26

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 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.

21
<PAGE> 27

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................... 48,506,816 48,506,816

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>

22
<PAGE> 28

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
23
<PAGE> 29

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.

24
<PAGE> 30

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

25
<PAGE> 31

$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.

26
<PAGE> 32

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.

27
<PAGE> 33

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> 34

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

29
<PAGE> 35

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.

30
<PAGE> 36

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.

31
<PAGE> 37

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.

32
<PAGE> 38

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 currently
available in 86% 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

33
<PAGE> 39

impressions is the sum of our monthly magazine readership and the number of
times our television programs and website are viewed, and the number of times
people listen to our radio program, during the course of a typical month.

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

34
<PAGE> 40

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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<PAGE> 41

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,

36
<PAGE> 42

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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<PAGE> 43

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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<PAGE> 44

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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<PAGE> 45

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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<PAGE> 46

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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<PAGE> 47

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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<PAGE> 48

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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<PAGE> 49

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.

The program can currently be seen by 86% of all U.S. television households.
As of August 1999, the first half-hour of 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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<PAGE> 50

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
amount of revenues attributable to each strategic partner, other than Kmart, is
not material to Martha Stewart Living Omnimedia. 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,

45
<PAGE> 51

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, with
three-year renewals at Kmart's and Zellers' option. The Kmart bed and bath
agreement, scheduled to expire in February 2000, has recently been renewed by
Kmart for three additional years. The Kmart garden agreement expires in October
2003 and the Kmart housewares agreement expires in October 2004.

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
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line, consisting of 256 colors and 69 SKUs, was sold in the United States
through Kmart at mass market discount and, in the national department store
channel, Sears, and in Canada through Sears and Canadian Tire. Our agreement
with Sherwin-Williams expires in December 2000.

Specialty Store Channel

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

Martha Stewart Home Collection. The Martha Stewart Home collection
consists of decorative fabrics that we design and license to P/Kaufmann for
manufacture and distribution to retailers. Under our agreement with P/Kaufmann,
which runs through December 2000, we receive guaranteed minimum royalties and
reimbursement of 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.............. 37 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., homestore.com, Inc., Healtheon Corporation,
Intuit, Inc., Epicor Software Corp. 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. and its affiliates, including serving as
Chief Financial Officer of PolyGram Holding, Inc. from 1997 to December 1998,
Senior Vice President, Worldwide Investor Relations and United States Mergers
and Acquisitions from 1995 to 1997, Senior Vice President, Corporate Finance and
Treasurer from 1992 to 1995 and Vice President and Treasurer from 1990 to 1992.
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 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.

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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 -- 2,356,030
Gael Towey............ -- -- -- 382,782 -- 6,660,407
Stephen Drucker....... -- -- -- 32,646 -- 568,040
Suzanne Sobel......... -- -- -- 65,295 -- 1,136,133
</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 initial offering price of $18.00 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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<PAGE> 65

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

We have adopted and approved our Non-Employee Director Stock and Option
Compensation Plan. 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 69,224 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

We have adopted and approved our 1999 Stock Incentive Plan. 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, interest and special efforts our
business is largely dependent. Our officers, employees and
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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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<PAGE> 70

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.

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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

-- 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 respect of taxes paid by the
members relating to the profits of the LLC in an aggregate amount of
approximately $6.0 million, as of June 30, 1999, which amount will be increased
to reflect earnings since that date through the date of the reorganization. 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 2,020,228 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 2,342,951 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.

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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.

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 October 18, 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. Shares of Class B
common stock owned by The Martha Stewart Family Limited Partnership are included
under the Class A common stock column because the shares of Class B common stock
are convertible at any time into shares of Class A common stock on a
share-for-share basis.

<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 82.8 34,126,831 100 98.0 34,126,831 70.4 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)........... 2,020,228 28.4 -- -- * 2,020,228 14.0 -- -- *
2750 Sand Hill Road
Menlo Park,
California 94025
L. John Doerr(4)..... 2,020,228 28.4 -- -- * 2,020,228 14.0 -- -- *
Charlotte Beers(5)... 20,825 * -- -- * 20,825 * -- -- *
Sharon Patrick(6).... 2,342,339 32.9 -- -- * 2,356,491 16.4 -- -- *
Naomi O.
Seligman(7)........ 20,825 * -- -- * 20,825 * -- -- *
Gael Towey(8)........ -- -- -- -- -- 192,003 1.3 -- -- *
Stephen Drucker(9)... -- -- -- -- -- 3,877 -- -- -- *
Suzanne Sobel(10).... -- -- -- -- -- 7,142 -- -- -- *
All directors and
executive officers
as a group (15
persons)(11)....... 38,531,048 93.4% 34,126,831 100% 99.2% 38,535,944 79.4% 34,126,831 100% 97.2%
</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 solely of shares of Class B common stock held by The Martha
Stewart Family Limited Partnership, which shares are convertible into Class
A common stock on a share-for-share basis.

(3) Consists of 2,585,597 shares held by Time Publishing Ventures, Inc., a
wholly owned subsidiary of Time Inc.

(4) Consists of 2,020,228 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.

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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.

(6) Includes 612 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 612 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 612 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 612 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 4,896 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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<PAGE> 77

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 7,110,761
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
14,379,985 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 and registrar for our 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
14,379,985 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, other than shares received under our phantom
performance unit plan by persons who are not our affiliates, 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, 143,800
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
2,342,951 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
2,020,228 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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<PAGE> 81

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 their own tax advisors.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to U.S.
withholding tax at a rate of 30% 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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<PAGE> 82

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 provides 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
77
<PAGE> 83

-- 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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<PAGE> 84

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......................... 1,257,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................ 1,257,000
Bear, Stearns & Co. Inc................................... 1,047,500
Donaldson, Lufkin & Jenrette Securities Corporation....... 419,000
Banc of America Securities LLC............................ 209,500
Advest, Inc. ............................................. 50,000
Robert W. Baird & Co. Incorporated........................ 50,000
Sanford C. Bernstein & Co., Inc. ......................... 50,000
Blaylock & Partners, L.P. ................................ 50,000
Chatsworth Securities LLC ................................ 50,000
CIBC World Markets Corp. ................................. 80,000
Crowell, Weedon & Co. .................................... 50,000
D.A. Davidson & Co. Incorporated.......................... 50,000
A.G. Edwards & Sons, Inc.................................. 80,000
Fahnestock & Co. Inc. .................................... 50,000
First Union Securities, Inc. ............................. 80,000
Gabelli & Company, Inc. .................................. 50,000
Gerard Klauer Mattison & Co., Inc. ....................... 50,000
Goldman, Sachs & Co. ..................................... 80,000
Janney Montgomery Scott LLC............................... 50,000
Edward D. Jones & Co., L.P. .............................. 80,000
Legg Mason Wood Walker, Incorporated...................... 50,000
McDonald Investments Inc., a Keycorp Company.............. 50,000
Monness, Crespi, Hardt & Co. Inc. ........................ 50,000
PaineWebber Incorporated.................................. 80,000
Ramirez & Company, Inc.................................... 50,000
</TABLE>

79
<PAGE> 85

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Raymond James & Associates, Inc. ......................... 50,000
Schroder & Co. Inc........................................ 80,000
Muriel Siebert & Co., Inc................................. 50,000
Salomon Smith Barney Inc.................................. 80,000
Wasserstein Perella Securities, Inc....................... 80,000
---------
Subtotal............................................. 5,760,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited................ 432,000
Merrill Lynch International............................... 432,000
Bear, Stearns International Limited....................... 360,000
Donaldson, Lufkin & Jenrette International................ 144,000
Bank of America International Limited..................... 72,000
---------
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 $0.76 per share under the
public offering price. Any underwriter may allow, and these dealers may reallow,
a concession not in excess of $0.10 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.

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 $149,040,000, the total underwriting
discounts and commissions would be $10,432,800 and the total proceeds to Martha
Stewart Living Omnimedia would be $138,607,200.

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

80
<PAGE> 86

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

-- 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

81
<PAGE> 87

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. The initial public offering price was determined by negotiations
between the U.S. representatives and us. Among the numerous factors we and the
U.S. representatives considered in determining the initial public offering price
were 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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<PAGE> 88

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.

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<PAGE> 89

(This page has been left blank intentionally.)
<PAGE> 90

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> 91

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> 92

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> 93

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> 94

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> 95

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> 96

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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104

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> 105

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> 106

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> 107

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> 108

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.

F-19
<PAGE> 109
MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

PAPER INVENTORY

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

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> 110
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

F-21
<PAGE> 111
MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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>

F-22
<PAGE> 112
MARTHA STEWART LIVING
(A WHOLLY OWNED OPERATION OF TIME INC.)

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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-23
<PAGE> 113

(This page has been left blank intentionally.)
<PAGE> 114

(This page has been left blank intentionally.)
<PAGE> 115
[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> 116

[Martha Stewart Logo]