SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Martha Stewart Living Omnimedia, Inc.
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[Martha Stewart Living Omnimedia Logo]
April 3, 2002
Dear Stockholder:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
of Martha Stewart Living Omnimedia, Inc., which will be held at The Equitable
Auditorium located at 787 Seventh Avenue, New York, New York, on Thursday, May
9, 2002, at 2:00 p.m., New York time.
At this year's stockholders meeting, you will be asked to re-elect six
directors to our Board of Directors, to approve our Martha Stewart Living
Omnimedia, Inc. 2002 Performance-Based Executive Bonus Plan and to ratify our
1999 Stock Incentive Plan. Our Board of Directors unanimously recommends a vote
for each of the nominated directors, for the approval of the Martha Stewart
Living Omnimedia, Inc. 2002 Performance-Based Executive Bonus Plan and for the
ratification of the 1999 Stock Incentive Plan.
It is important that your shares be represented and voted at the Annual
Meeting regardless of the size of your holdings. Whether or not you plan to
attend the Annual Meeting, you may vote your shares by using the enclosed proxy
card, by telephone or via the internet, as described in the enclosed materials.
Attendance at the Annual Meeting will be limited to stockholders of record
as of the close of business on March 18, 2002, and to invited guests of the
company. I look forward to greeting those of you who attend the meeting.
Sincerely,
[Martha Stewart signature]
MARTHA STEWART
Chairman and
Chief Executive Officer
11 West 42nd Street New York, New York 10036 212.827.8000
MARTHA STEWART LIVING OMNIMEDIA, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2002
To the Stockholders:
The Annual Meeting of Stockholders of Martha Stewart Living Omnimedia,
Inc., a Delaware corporation, will be held at The Equitable Auditorium located
at 787 Seventh Avenue, New York, New York, on Thursday, May 9, 2002, at 2:00
p.m., New York time, for the following purposes:
1. To re-elect six directors to our Board of Directors, each to hold office
for a one-year term ending on the date of our next succeeding annual
meeting of stockholders or until such director's respective successor
shall have been duly elected and qualified;
2. To consider and act upon a proposal to approve the Martha Stewart Living
Omnimedia, Inc. 2002 Performance-Based Executive Bonus Plan;
3. To consider and act upon a proposal to ratify our 1999 Stock Incentive
Plan; and
4. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Only holders of record of our Class A Common Stock and Class B Common Stock
as of the close of business on March 18, 2002, are entitled to notice of, and to
vote at, the Annual Meeting. You may examine a list of such stockholders for any
purpose germane to the meeting, during the 10-day period preceding the meeting
at our offices located at 11 West 42nd Street, New York, New York 10036 during
ordinary business hours.
By order of the Board of Directors,
[Greg Blatt signature]
GREGORY R. BLATT
Secretary
New York, New York
April 3, 2002
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN
PERSON, WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AT YOUR
EARLIEST CONVENIENCE IN THE POSTAGE-PAID ENVELOPE PROVIDED. IN THE ALTERNATIVE,
SHAREHOLDERS MAY VOTE VIA THE INTERNET OR TELEPHONE AS DESCRIBED IN THE ENCLOSED
MATERIALS.
MARTHA STEWART LIVING OMNIMEDIA, INC.
11 WEST 42ND STREET
NEW YORK, NEW YORK 10036
PROXY STATEMENT
In this Proxy Statement, the terms we, us, our, and MSO refer to Martha
Stewart Living Omnimedia, Inc., a Delaware corporation, and, unless the context
requires otherwise, to Martha Stewart Living Omnimedia LLC ("MSLO LLC"), the
legal entity that prior to October 22, 1999, operated many of the businesses we
now operate, and their respective subsidiaries.
This Proxy Statement (first mailed on or about April 3, 2002) is being
furnished to holders of our Class A Common Stock and Class B Common Stock in
connection with the solicitation of proxies by our Board of Directors (the
"Board") for use at our Annual Meeting of Stockholders (the "Annual Meeting") to
be held for the purposes described in this Proxy Statement. Each copy of this
Proxy Statement mailed to holders of our Class A Common Stock and Class B Common
Stock is accompanied by a form of proxy for use at the Annual Meeting.
At the Annual Meeting, our stockholders will be asked:
1. To re-elect six directors to our Board, each to hold office for a
one-year term ending on the date of our next succeeding annual meeting
of stockholders or until such director's respective successor shall have
been duly elected and qualified;
2. To consider and act upon a proposal to approve the Martha Stewart Living
Omnimedia, Inc. 2002 Performance-Based Executive Bonus Plan;
3. To consider and act upon a proposal to ratify our 1999 Stock Incentive
Plan; and
4. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
DATE, TIME AND PLACE OF MEETING
The Annual Meeting will be held on Thursday, May 9, 2002, at 2:00 p.m. New
York time, at The Equitable Auditorium located at 787 Seventh Avenue, New York,
New York.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
Only holders of record of our Class A Common Stock and Class B Common Stock
at the close of business on March 18, 2002 (the "Record Date") are entitled to
notice of, and will be entitled to vote at, the Annual Meeting. Each share of
our Class A Common Stock entitles its holder to one vote and each share of our
Class B Common Stock entitles its holder to ten votes. Holders of our Class A
Common Stock and Class B Common Stock will vote together as a single class on
all matters to be voted upon at the Annual Meeting. As of the Record Date, there
were 18,419,451 shares of Class A Common Stock, and 30,619,375 shares of Class B
Common Stock, outstanding. All of our outstanding shares of Class B Common Stock
are beneficially owned by Martha Stewart, our Chairman and Chief Executive
Officer.
VOTING AND REVOCATION OF PROXIES
The proxy card accompanying this Proxy Statement is solicited on behalf of
our Board for use at the Annual Meeting. You are requested to complete, date and
sign the accompanying proxy card and promptly return it in the accompanying
envelope or otherwise mail it to us pursuant to the directions on the card. In
the alternative, shareholders may vote via the internet or telephone as
indicated on the enclosed materials. All proxies that are properly executed and
returned to us and that are not subsequently revoked will be voted at the Annual
Meeting in accordance with the instructions indicated thereon. If no
instructions are indicated, such proxies will be voted FOR the proposals
described in this Proxy Statement.
1
Our Board does not presently intend to bring any business before the Annual
Meeting other than the specific proposals referred to in this Proxy Statement
and specified in the Notice of the Annual Meeting. So far as is known to our
Board, no other matters are to be brought before the stockholders at the Annual
Meeting. If any other business properly comes before the stockholders at the
Annual Meeting, however, it is intended that proxies, in the form enclosed, will
be voted on such matters in accordance with the judgment of the persons voting
such proxies.
A stockholder who has given a proxy may revoke it at any time before it is
exercised at the Annual Meeting by
- delivering to Mellon Investor Services LLC a written notice, bearing a
date later than that indicated on the proxy, stating that the proxy is
revoked;
- signing and delivering a subsequently dated proxy relating to the same
shares prior to the vote at the Annual Meeting; or
- attending the Annual Meeting and voting in person (although attendance at
the Annual Meeting will not, by itself, revoke a proxy).
You should send any written notice or new proxy card to Martha Stewart
Living Omnimedia, Inc. c/o Mellon Investor Services LLC, Overpeck Centre, 85
Challenger Road, Ridgefield, New Jersey 07660. You may request a new proxy card
by calling Mellon Investor Services LLC at 1-800-851-9677.
QUORUM AND VOTING REQUIREMENTS
The required quorum for the transaction of business at our Annual Meeting
is a majority of the collective voting power represented by our Class A Common
Stock and Class B Common Stock issued and outstanding on the Record Date (the
"Total Voting Power"), which shares must be present in person or represented by
proxy at the Annual Meeting.
The election of directors requires a plurality of the votes represented, in
person or by proxy, at the Annual Meeting be voted in favor of the proposal,
assuming that a quorum is present. Accordingly, the six directorships to be
filled at the Annual Meeting will be filled by the six nominees receiving the
highest number of votes. In the election of directors, votes may be cast in
favor of or withheld with respect to any or all nominees; votes that are
withheld, although counted for purposes of determining whether there is a quorum
at the Annual Meeting, will have no effect on the outcome of the vote.
The affirmative vote of the holders of a majority of the Total Voting Power
present in person or represented by proxy and entitled to vote at the Annual
Meeting is required for the approval of Proposals 2 and 3. Only votes cast "for"
a proposal constitute affirmative votes. Votes of "abstain" or abstentions from
voting are counted for quorum purposes but, because they will not be votes cast
"for" the particular matter, they will have the same effect as negative votes or
votes "against" that matter.
Since Martha Stewart, our Chairman and Chief Executive Officer,
beneficially owns shares representing a majority of the Total Voting Power and
is expected to vote her shares in favor of all our Board's proposals, we expect
such proposals to be approved, regardless of the vote of any of our other
stockholders.
SOLICITATION OF PROXIES AND EXPENSES
We will bear the costs of the preparation of proxy materials and the
solicitation of proxies from our stockholders. In addition to the solicitation
of proxies by mail, our directors, officers and employees may solicit proxies
from stockholders by telephone, telegram, letter, facsimile, in person or by
other means of communication. Directors, officers and employees will receive no
additional compensation for such solicitation. Following the original mailing of
the proxies and other soliciting materials, we will request brokers, custodians,
nominees and other record holders to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of common stock and to
request authority for the exercise of proxies. In such cases, we will, upon the
request of the record holders, reimburse such holders for costs incurred by them
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in mailing proxy materials to beneficial owners in accordance with applicable
rules. We will not employ the services of an independent proxy solicitor in
connection with our Annual Meeting.
PROPOSAL 1: ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
At the Annual Meeting, a Board of six directors will be elected, to hold
office until our next Annual Meeting or until their successors are elected and
qualified. Although our management does not anticipate that any of the persons
named below will be unable or unwilling to stand for election, in the event of
such an occurrence, proxies that are not revoked will be voted for a substitute
designated by the Board. All of the Board's nominees are incumbent directors.
Background information about the Board's nominees for election is set forth
below.
Martha Stewart, age 60, is the founder of our company and the author of
numerous books on the domestic arts, including Entertaining and Martha Stewart's
Gardening. Ms. Stewart has served as our Chairman of the Board and Chief
Executive Officer since our creation in 1996. Ms. Stewart is the creator of
Martha Stewart Living magazine and was its Editor-in-Chief and Editorial
Director from 1990 until 1997. Ms. Stewart is a member of the board of directors
of Revlon, Inc.
Arthur C. Martinez, age 62, has served as one of our directors since
January 2001. Until December 2000, Mr. Martinez served as Chairman of the board
of directors of Sears Roebuck and Co., and was its Chief Executive Officer from
August 1995 until October 2000. Mr. Martinez joined Sears, Roebuck and Co. in
September 1992 as the Chairman and Chief Executive Officer of Sears Merchandise
Group, Sears's former retail arm. From 1990 to 1992, he was Vice Chairman of
Saks Fifth Avenue and was a member of Saks Fifth Avenue's board of directors.
Mr. Martinez is currently a member of the board of directors of PepsiCo, Inc.,
Liz Claiborne, Inc. and International Flavors & Fragrances, Inc., and is the
Chairman of the Federal Reserve Bank of Chicago.
Darla D. Moore, age 47, has served as one of our directors since September
2001. Ms. Moore has been a partner of Rainwater, Inc., a private investment
firm, since 1994. Prior to that, Ms. Moore was a Managing Director of Chase
Bank. Ms. Moore is also a trustee of Magellan Health Services, Inc.
Sharon L. Patrick, age 59, has served as our President and Chief Operating
Officer and as one of our directors since 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,
during which time she served as a consultant to Martha Stewart Living. 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 at McKinsey and Company
and the Partner in charge of the Media and Entertainment practice.
Naomi O. Seligman, age 63, has served as one of our directors since
September 1999. Ms. Seligman was a co-founder of Cassius Advisers, an e-commerce
consultancy, where she has served as a senior partner since 1999, and is a
co-founder of the Research Board, Inc., an information technology research
group, where she served as a senior partner from 1975 until 1999. Ms. Seligman
currently serves as a director of Akamai Technologies, Inc., The Dun &
Bradstreet Corporation, John Wiley & Sons and Sun Microsystems, Inc.
Jeffrey W. Ubben, age 40, has served as one of our directors since January
2002. Mr. Ubben is the founder and Managing Partner of ValueAct Capital
Partners, L.P., an investment partnership. From 1995 to 2000, Mr. Ubben was a
Managing Partner of Blum Capital Partners. Prior to that, he was a portfolio
manager for Fidelity Investments from 1987 to 1995. Mr. Ubben is also a director
of Insurance Auto Auctions, Inc.
OUR BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF ITS NOMINEES
FOR DIRECTOR NAMED ABOVE.
3
MEETINGS AND COMMITTEES OF THE BOARD
Our Board met five times during 2001 and considered matters in connection
with actions taken by unanimous written consent on three additional occasions.
All then-incumbent directors attended at least 75% of the meetings of the Board
and the Board committees on which they served.
Our Board currently has an Audit Committee and a Compensation and
Management Development Committee. It does not currently have a Nominating
Committee.
AUDIT COMMITTEE
Our Audit Committee currently consists of Mr. Martinez, who serves as its
chairman, and Ms. Moore and Ms. Seligman. The primary function of the Audit
Committee is to assist the Board in fulfilling its oversight responsibilities by
reviewing: (1) our financial reports; (2) our systems of internal controls
regarding finance and accounting that management and the Board have established;
and (3) our accounting and financial reporting processes generally. Consistent
with this function, the Audit Committee encourages continuous improvement of,
and fosters adherence to, our policies, procedures and practices at all levels.
In fulfilling these responsibilities, the Audit Committee is authorized to,
among other things:
- review our annual and quarterly financial statements and discuss with
management and the independent auditors the financial statements included
in our annual report;
- recommend annually to the Board the appointment of our independent public
accountants, considering auditor independence and effectiveness;
- review on a periodic basis written reports from the independent auditors
regarding their independence, discuss such reports with the auditors,
consider the compatibility of any non-audit services with their
independence, and, if so determined by the Audit Committee, recommend
that the Board take appropriate action to satisfy itself of the continued
independence of the auditors;
- review the fees and other compensation to be paid to our independent
auditors and establish guidelines for the retention of the independent
auditor for any non-audit service;
- discuss and review in advance the scope and staffing of our annual audit
and review the results thereof with our independent public accountants;
- review with our independent public accountants and independently with
management the integrity of our internal and external financial reporting
processes and the quality and acceptability of our accounting policies;
- review with management and auditors the effect of regulatory and
accounting initiatives on our financial statements as well as any
off-balance sheet structures utilized by us;
- meet periodically with management to review our major financial risk
exposures and the steps management has taken (or intends to take) to
monitor and control such expenditures;
- review and, if appropriate, update the Audit Committee charter, at least
annually; and
- prepare the report required by the Securities and Exchange Commission to
be included in this Proxy Statement under the caption, "REPORT OF THE
AUDIT COMMITTEE."
The Audit Committee met five times during 2001. The Audit Committee
operates pursuant to a charter that was last amended and restated by our Board
on February 15, 2002, a copy of which is attached to this Proxy Statement as
Annex A. The Board, in its business judgment, has determined that all members of
the Audit Committee are "independent", as required by applicable listing
standards of the New York Stock Exchange.
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COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
Our Compensation and Management Development Committee (the "Compensation
Committee") currently consists of Mr. Martinez and Mr. Ubben. The primary
function of the Compensation Committee is to assist the Board in fulfilling its
oversight responsibilities in the areas of compensation and management
development. Consistent with these responsibilities, the Compensation Committee
is authorized to, among other things:
- periodically review our compensation policies and programs to endeavor to
ensure they best facilitate our objective of maximizing shareholder
value;
- approve increases and decreases in base salaries and bonus targets for
the Chief Executive Officer, the President and Chief Operating Officer
and our other executive officers;
- approve the material terms of employment, severance and change-of-control
agreements for our executive officers;
- approve bonus pools for executive and non-executive level employees under
our bonus programs and bonus awards for our executive officers;
- approve the adoption of new compensation and equity plans, and approve
amendments and modifications to our compensation and equity incentive
plans, subject in each case to any required stockholder approvals;
- administer our compensation and equity incentive plans;
- approve equity-based grants under our equity incentive plans;
- periodically review our executive level organizational structure, hiring
practices, and succession planning; and
- prepare the report required by the Securities and Exchange Commission to
be included in this Proxy Statement under the caption, "COMPENSATION AND
MANAGEMENT DEVELOPMENT COMMITTEE REPORT ON EXECUTIVE COMPENSATION."
The Compensation Committee met three times during 2001 and considered
matters in connection with actions taken by unanimous written consent on two
additional occasions.
COMPENSATION OF OUTSIDE DIRECTORS
We pay our non-employee directors an annual retainer of $20,000 for serving
on our Board, payable quarterly in equal installments. These directors each also
receive a meeting fee of $1,000 for each in-person meeting of our Board that
they attend and a fee of $500 for each committee or telephonic Board meeting in
which they participate. The chairman of a Board committee receives an additional
annual retainer of $5,000. Twenty-five percent of a director's fees are paid in
shares of our Class A Common Stock, and the remaining 75% of such fees may be
paid either in such shares or in cash, at the election of the director, under
our Non-Employee Director Stock and Option Compensation Plan described below.
All directors receive reimbursement of expenses incurred in connection with
participation in our Board and Board committee meetings. Directors who also are
our employees do not receive additional compensation for their services as a
director.
THE NON-EMPLOYEE DIRECTOR STOCK AND OPTION COMPENSATION PLAN
The purpose of this plan is to align the interests of our non-employee
directors and our stockholders and to attract and retain highly qualified
individuals to serve as directors. The plan authorizes issuance of 300,000
shares of our Class A Common Stock.
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COMMON STOCK
Each non-employee director receives 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 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
is equal to the fees payable in equity to the director, divided by the fair
market value of a share on the last business day of the period for which payment
is being made. We round the number of shares granted to the director down to the
nearest whole share 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 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
Each eligible new director is granted options to purchase 5,000 shares of
Class A Common Stock upon being elected or appointed to our Board. The exercise
price for all options is 100% of the fair market value of a share of Class A
Common Stock on the date of grant. Additionally, after each annual meeting of
stockholders, a continuing director is granted options to purchase 2,000 shares
of Class A Common Stock.
Each option vests and becomes exercisable on the first anniversary of the
date of grant, if the director remains a member of our Board at that time. Each
vested option will terminate one year after the director's service on our Board
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 ceases for any reason. All options become fully vested and exercisable
upon a change in control.
The foregoing plan summary is subject in all respects to the plan itself, a
copy of which is on file with the SEC as an exhibit to our Annual Report on Form
10-K.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Background information about our executive officers who are not nominees
for election as director is set forth below.
Gael Towey, age 50, has served as our Senior Executive Vice President and
Creative Director since January 2001, and prior to that time as our Executive
Vice President, Art and Style and Creative Director 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.
Gregory R. Blatt, age 33, has served as our Executive Vice President,
Business Affairs and General Counsel since January 2001. Previously, he served
as our Executive Vice President and General Counsel from September 1999 until
January 2001, and as our Senior Vice President, General Counsel between May and
September 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 prior to that was an associate at Wachtell, Lipton, Rosen & Katz,
the New York law firm. Mr. Blatt has served as our corporate secretary since
1999.
Dora Braschi Cardinale, age 45, has served as our Executive Vice President,
Print Production since May 1999 and prior to that as our Senior Vice President,
Print Production from 1997 until 1999. Previously, Ms. Cardinale served as
Production Director of Martha Stewart Living from 1992 until 1997. Ms. Cardinale
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has an additional 15 years of experience in the publishing industry, including
positions with Art & Antiques, Geo, Viva and Omni magazines.
James Follo, age 42, has served as our Executive Vice President, Chief
Financial Officer since March 2001. Prior to that, he served as our Senior Vice
President, Finance and Controller from March 1999 to March 2001 and, previously,
as our 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.
Shelley S. Nandkeolyar, age 44, has served as our Executive Vice President,
President, Internet/Direct Commerce since February 2002. Prior to that, he
served as Vice President, eCommerce Division at Williams-Sonoma, Inc. from May
1999 to January 2002 where he oversaw the start-up and development of the
eCommerce/Internet businesses for Williams-Sonoma, Pottery Barn and Pottery Barn
Kids. From May 1998 until May 1999, Mr. Nandkeolyar served as Director of
Customer Relations for Levi Strauss & Co (Canada), Inc. He has a total of over
20 years experience in marketing, advertising, general management and brand
building, including positions with DDB Needham, Leo Burnett, Lintas Advertising,
Proctor & Gamble and American Home Products.
Margaret Roach, age 47, has served as our Executive Vice President,
Editor-in-Chief since February 2002. From March 2001 until February 2002, Ms.
Roach was Executive Vice President, Internet/Direct Commerce. Prior to that, she
was Senior Vice President, Internet Production and Operations from October 2000
to March 2001. From January 1, 2000 to October 2000, she was our Senior Vice
President, Garden Editor. From 1998 until 1999, she served as our Vice
President, Gardening. 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 10 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.
Suzanne Sobel, age 45, has served as our Executive Vice President,
Advertising Sales since January 1999 and as our Senior Vice President,
Advertising Sales & Marketing during 1998. Additionally, Ms. Sobel has served as
Publisher of Martha Stewart Living since 1997 and as its Associate Publisher
from 1996 to 1997. Prior to that, Ms. Sobel served as our 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, age 40, has served as our Executive Vice President,
President, Publishing since October 2000, and prior to that as our Executive
Vice President, Consumer Marketing from January 1999 until October 2000, and as
our Senior Vice President, Consumer Marketing from 1997 until 1999. Ms. Stanich
worked as our Consumer Marketing Director and Book Publisher from 1995 to 1997,
and as Consumer Marketing Director for Martha Stewart Living from 1991 to 1995.
Ms. Stanich has an additional seven years of experience in marketing and
publishing with Time Warner.
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EXECUTIVE COMPENSATION
GENERAL
The following table sets forth certain information pertaining to
compensation of our Chief Executive Officer and our four other most highly
compensated executive officers for 2001 (the "Named Executives"). The following
table presents information concerning total compensation earned by the Named
Executives for services rendered to us during 1999, 2000 and 2001.
<Table>
<Caption>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------- -------------------------
SECURITIES
UNDERLYING LTIP ALL OTHER
SALARY BONUS OPTION PAYMENTS(1) COMPENSATION
FISCAL YEAR ($) ($) AWARDS(#) ($) ($)
----------- --------- --------- ---------- ----------- ------------
Martha Stewart............... 2001 900,000 1,156,666 -- -- 647,737(2)
Chairman and Chief 2000 900,000 1,770,000 150,000(3) -- 2,322(4)
Executive Officer 1999 1,055,044 300,000 -- -- 2,270(4)
Sharon Patrick............... 2001 700,000 280,000 130,000(3) -- 2,322(4)
President and Chief 2000 580,288 696,400 152,000(3) -- 2,322(4)
Operating Officer 1999 580,288 696,400 362,022(3) 11,000 3,524(4)
Gael Towey................... 2001 387,498 135,800 38,000(3) -- 5,946(5)
Executive Vice President, 2000 375,000 337,500 38,000(3) -- 49,181(6)
Creative Director 1999 375,000 337,500 333,333(3) 11,000 49,440(6)
Suzanne Sobel................ 2001 310,411 108,850 38,000(3) -- 5,910(5)
Executive Vice President, 2000 269,219 289,700 38,000(3) -- 5,910(5)
Advertising Sales 1999 259,312 240,700 178,553 11,000 5,806(5)
James Follo.................. 2001 301,731 97,500 118,000(3) -- 5,618(5)
Executive Vice President, 2000 215,000 96,800 16,000(3) -- 5,556(5)
Chief Financial Officer 1999 185,868 83,500 140,000(3) -- 5,483(5)
</Table>
- ---------------
(1) Payments made in connection with our Phantom Performance Unit Plan, which
has now been terminated.
(2) Represents $3,564 paid by us on Ms. Stewart's behalf pursuant to a group
term life policy, as well as a reportable benefit to Ms. Stewart of $644,173
relating to premiums paid by us pursuant to a split-dollar arrangement
between Ms. Stewart, a partnership controlled by her and MSO. As required by
the Securities and Exchange Commission, the reported split-dollar benefit
reflects the economic benefit Ms. Stewart would have received if we had
loaned her the amount of the insurance premium on an interest-free basis
through the date we expect the premium to be repaid to us or, if earlier,
the date on which interest would begin to accrue for our benefit on such
amount. See "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS -- Agreements with Ms. Stewart."
(3) Options granted pursuant to the 1999 Stock Incentive Plan.
(4) Represents the value of life insurance premiums paid by us on behalf of the
executive.
(5) Consists of payments of life insurance premiums on the executive's behalf
and matching contributions to the executive's 401(k) account.
(6) Consists of $43,121 payable under Time Inc.'s Phantom Equity Plan, for which
Time Inc. reimbursed us, life insurance premiums paid by us on Ms. Towey's
behalf, and matching contributions made by us to Ms. Towey's 401(k) account.
8
OPTION GRANTS
The following table presents information with respect to options to
purchase our Class A Common Stock granted to our Named Executives during the
year ended December 31, 2001.
OPTIONS GRANTED IN 2001
<Table>
<Caption>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM($)(1)
OPTIONS EMPLOYEES IN EXERCISE OR --------------------------
NAME GRANTED(#) FISCAL YEAR BASE PRICE EXPIRATION DATE 5% 10%
- ---- ---------- ------------- ----------- ----------------- ----------- ------------
Martha Stewart....... -- -- -- -- -- --
Sharon Patrick....... 130,000(2) 4.9% $18.90 December 9, 2011 1,545,194 3,915,825
Gael Towey........... 38,000(2) 1.4% $15.57 April 9, 2011 372,092 942,954
Suzanne Sobel........ 38,000(2) 1.4% $15.57 April 9, 2011 372,092 942,954
Jim Follo............ 118,000(2) 4.5% $15.57 April 9, 2011 1,155,443 2,928,119
</Table>
- ---------------
(1) Potential realizable value is reported net of the option exercise price, but
before taxes associated with exercise. These amounts represent assumed rates
of appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of our Class A Common Stock, as well as
on the option holder's continued employment through applicable vesting
periods. The amounts reflected in this table may not necessarily be
achieved.
(2) Options granted pursuant to the 1999 Stock Incentive Plan. Grants made in
2001 are not necessarily indicative of the levels of future grants under the
plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below presents information concerning the exercise of stock
options by the Named Executives during the year ended December 31, 2001 and the
fiscal year-end value of all their unexercised options.
AGGREGATED OPTION EXERCISES IN 2001 AND OPTION VALUES AS OF DECEMBER 31, 2001
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/31/01(#) AT 12/31/01($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Martha Stewart....... -- -- 37,500(2) 112,500(2) 0 0
Sharon Patrick....... -- -- 273,173(3) 349,173(4) 913,568 1,023,768
Gael Towey........... -- -- 520,948(5) 233,167(2) 5,478,570 74,765
Suzanne Sobel........ 13,059 278,287 111,835(6) 181,895(7) 220,760 488,735
James Follo.......... -- -- 64,000(2) 210,000(2) 5,800 121,240
</Table>
- ---------------
(1) Calculated using the closing price of a share of our Class A Common Stock on
December 31, 2001, $16.45.
(2) Consists of options to acquire shares of Class A Common Stock granted under
the 1999 Stock Incentive Plan.
(3) Consists of options to acquire 54,162 shares of Class A Common Stock granted
under the Martha Stewart Living Omnimedia LLC Nonqualified Class A LLC Unit
/ Stock Option Plan (the "1997 Plan"), and options to acquire 219,011 shares
granted under the 1999 Stock Incentive Plan.
9
(4) Consists of options to acquire 54,162 shares of Class A Common Stock granted
under the 1997 Plan, and options to acquire 295,011 shares granted under the
1999 Stock Incentive Plan.
(5) Consists of options to acquire 344,782 shares of Class A Common Stock
granted under the 1997 Plan, and options to acquire 176,166 shares granted
under the 1999 Stock Incentive Plan.
(6) Consists of options to acquire 13,059 shares of Class A Common Stock granted
under the 1997 Plan, and options to acquire 98,776 shares granted under the
1999 Stock Incentive Plan.
(7) Consists of options to acquire 26,118 shares of Class A Common Stock granted
under the 1997 Plan, and options to acquire 155,777 shares granted under the
1999 Stock Incentive Plan.
PENSION PLAN
Our subsidiary, Martha Stewart, Inc., sponsors The Martha Stewart, Inc.
Defined Benefit Pension Plan. The plan was frozen as of June 26, 1995, and no
benefits have accrued since that date. Ms. Stewart is the only Named Executive
who participated in the plan during 2001. If Ms. Stewart had begun to receive
benefits at year-end 2001, her annual straight life annuity would have been
$61,541. On February 26, 2002, Ms. Stewart received a lump sum payment from the
plan equal to the present value of her accrued retirement benefit under the
plan, thereby terminating her plan participation.
10
PROPOSAL 2: APPROVAL OF THE MARTHA STEWART LIVING
OMNIMEDIA, INC. 2002 PERFORMANCE-BASED EXECUTIVE BONUS PLAN
On March 25, 2002, our Compensation Committee adopted the Martha Stewart
Living Omnimedia, Inc. 2002 Performance-Based Executive Bonus Plan (the "Bonus
Plan"). The Bonus Plan's aim is to attract and retain key executive officers of
the Company and to compensate such officers based on performance goals
consisting of achievement of the objective measures set forth below, including
earnings per share targets, revenue targets and cash flow targets, in each case
for MSO and its consolidated subsidiaries.
The Bonus Plan has been designed to meet the requirements of Section 162(m)
of the Internal Revenue Code of 1986, as amended ("Section 162(m)"). Section
162(m) precludes us from taking a tax deduction for individual compensation in
excess of $1 million to each of our five most highly compensated employees.
There are, however, certain exceptions to this limitation, specifically for
compensation that is performance-based within the meaning of Section 162(m) and
approved by the stockholders.
Pursuant to a transition rule in the regulations promulgated under Section
162(m) that applies to companies, such as MSO, that become subject to Section
162(m) by reason of becoming publicly held, our compensation payments have
historically been deductible to us. Our stockholders are being requested to
approve the Bonus Plan in order to permit us to deduct for federal income tax
purposes all of the compensation paid under the Bonus Plan to our five most
highly compensated employees.
In order to qualify the Bonus Plan under Section 162(m) and maximize the
deductibility to us of bonus payments made to executive officers, our Board and
Compensation Committee directed that the Bonus Plan be submitted to our
stockholders for their approval at the 2002 Annual Meeting. If our stockholders
do not approve the Bonus Plan, bonus payments will not be made under the Bonus
Plan.
A summary of the essential features of the Bonus Plan is set forth below
and a copy of the Bonus Plan is attached as Annex B to this Proxy Statement.
The Bonus Plan will be approved upon a majority of the Total Voting Power
duly represented at the Annual Meeting being cast in favor of the proposal.
OUR BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE MARTHA STEWART
LIVING OMNIMEDIA, INC. 2002 PERFORMANCE-BASED EXECUTIVE BONUS PLAN.
THE MARTHA STEWART LIVING OMNIMEDIA, INC. 2002 PERFORMANCE-BASED EXECUTIVE BONUS
PLAN
PURPOSE
The purpose of the Bonus Plan is to increase shareholder value and our
success by motivating our key executives to perform to the best of their
abilities and achieve our objectives. The Bonus Plan's goals are to be achieved
by providing such executives with incentive awards based on the achievement of
goals relating to our performance. The Bonus Plan is intended to permit the
grant of awards that qualify as performance-based compensation under Section
162(m).
ADMINISTRATION BY THE COMPENSATION COMMITTEE
The Bonus Plan will be administered by the Compensation Committee, which
shall consist of at least two members of the Board, each of whom will qualify as
an "outside director" within the meaning of Section 162(m).
11
COVERED INDIVIDUALS
Participants in the Bonus Plan for any performance period (a fiscal year,
unless otherwise designated) are chosen solely at the discretion of the
Compensation Committee, but may include any of our executives. No person is
automatically entitled to participate in the Bonus Plan in any plan year.
AMOUNT AND PAYMENT OF BONUS
The Compensation Committee shall establish, at its discretion, the
performance goals for each participant in any given performance period. The
performance goals for any award applicable to a participant may provide for a
targeted level or levels of achievement using one or more of the following
measures: (a) earnings per share, (b) individual objectives, (c) net income, (d)
operating cash flow, (e) operating income, (f) return on assets, (g) return on
equity, (h) return on sales, (i) revenue, and (j) total shareholder return. Our
Compensation Committee may establish, in its sole discretion, additional
measures to be used in determining the performance goals for any award
applicable to a participant. The performance goals may differ from participant
to participant and from award to award. The performance goals and the maximum
award permissible for each participant shall be set forth in writing. No
participant will receive more than $2.1 million under the Bonus Plan with
respect to any fiscal year.
A participant's bonus payment is determined based on whether the specified
performance objectives for the performance period were met. Annual bonus
payments are made in cash (or its equivalent) following determination of the
amount of the bonus. The Compensation Committee shall certify in writing that
all performance goals are met or exceeded prior to the payment of any bonus
amounts under the Bonus Plan. The Compensation Committee retains the discretion
to reduce awards otherwise payable under the Bonus Plan.
ESTIMATE OF BENEFITS
Due to the fact that the performance criteria under the Bonus Plan relate
to measurements that are only determinable at the end of fiscal year 2002, the
amounts that will be paid pursuant to the Bonus Plan in 2002, or that would have
been paid in 2001 had the Bonus Plan been in effect during the last fiscal year,
are not determinable.
AMENDMENT AND TERMINATION
The Board or the Compensation Committee, in their sole discretion, may
terminate the Bonus Plan, in whole or in part, and may amend the Bonus Plan from
time to time.
FEDERAL INCOME TAX CONSEQUENCES
Under present federal income tax law, participants will realize ordinary
income equal to the amount of the award received in the year of receipt. We will
receive a deduction for the amount constituting ordinary income to the
participant, provided that the Bonus Plan satisfies the requirements of Section
162(m). It is our intention that the Bonus Plan be adopted and administered in a
manner that maximizes the deductibility of compensation for us under Section
162(m).
EQUITY COMPENSATION PLANS
PROPOSAL 3: RATIFICATION OF THE 1999 STOCK INCENTIVE PLAN
The 1999 Stock Incentive Plan is designed to promote our success and
enhance our value by linking the interests of our officers and employees to
those of our stockholders and by providing participants with an incentive for
outstanding performance. This plan is further intended to provide flexibility in
our ability to
12
motivate, attract and retain employees upon whose judgment, interest and special
efforts our business is largely dependent.
Section 162(m) prohibits the deduction of compensation to certain
individuals in excess of $1 million annually unless certain criteria are met.
There are, however, certain exceptions to this limitation, specifically for
compensation that is performance-based within the meaning of Section 162(m) and
approved by the stockholders.
Pursuant to a transition rule in the regulations promulgated under Section
162(m) that applies to companies, such as MSO, that become subject to Section
162(m) by reason of becoming publicly held, compensation resulting from option
grants made to date has been and will continue to be deductible by us. In order
to maximize the deductibility by us of compensation realized from future option
awards, the Board and our Compensation Committee directed that the 1999 Stock
Incentive Plan be submitted to our stockholders for their ratification at the
2002 Annual Meeting. If the 1999 Stock Incentive Plan is not so ratified, no
further grants will be made under the plan following the expiration of our
transitional exemption from Section 162(m).
A summary of the plan and the grants made under it in 2001 are set forth
below and a copy of the plan is attached as Annex C to this Proxy Statement.
The 1999 Stock Incentive Plan will be ratified upon a majority of the Total
Voting Power duly represented at the Annual Meeting being cast in favor of this
proposal.
OUR BOARD RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE 1999 STOCK
INCENTIVE PLAN
THE 1999 STOCK INCENTIVE PLAN
GENERAL
The plan is administered by the Compensation Committee and their designees
and provides for the grant of non-qualified and incentive stock options and
other types of equity-based awards. Our executives, employees and consultants,
as well as those of any subsidiaries, are eligible to receive awards under the
plan. Our non-employee directors are not eligible to participate. As of March 8,
2002, we had 612 employees.
The plan provides that the maximum number of shares of Class A Common Stock
available for grant under the plan is 10,000,000. No participant may be granted
stock options or stock appreciation rights (without relationship to stock
options) covering in excess of 1,000,000 shares of Class A Common Stock in any
calendar year.
OPTIONS
The term of options granted under the plan may not exceed 10 years. Unless
otherwise determined by our Compensation Committee, options granted under the
plan vest ratably on each of the first four anniversaries of the grant date and
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
our 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
13
exercised only by the participant, any such permitted transferee or a guardian,
legal representative or beneficiary.
As of March 18, 2002, we had outstanding options to purchase 8,078,383
shares of Class A Common Stock under this plan. All grants under this plan have
been made at an exercise price equal to the fair market value of our common
stock at the time of the grant. We have only granted non-qualified options under
this plan.
OTHER AWARDS
A stock appreciation right, or SAR, permits a participant to receive cash
or shares of our Class A Common Stock, or a combination thereof, as determined
by 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 our 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 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. As of March 18, 2002, only nonqualified stock options had been granted
under the plan.
CHANGE IN CONTROL
In the event of a "Change in Control", any option 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 under the plan generally means
- the acquisition of an amount of our common stock greater than the amount
held, directly or indirectly, by Ms. 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, unless approved by
the incumbent directors or Ms. Stewart
- the completion of a merger involving MSO in which, among other things,
our stockholders do not retain more than 50% of the common stock and
voting power, or
- approval by our stockholders of a liquidation, dissolution or sale of
substantially all of our assets.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTION GRANTS
Nonqualified Stock Options. Under federal income tax law as currently in
effect, the grant of a nonqualified stock option will not be a taxable event for
the recipient nor a deductible event for us. Upon the exercise of a nonqualified
stock option, the option holder will realize ordinary compensation income
measured by the excess of the fair market value of the acquired shares of our
Class A Common Stock at the time of exercise over the exercise price, and we are
generally entitled to a deduction in a corresponding amount. If an option holder
pays the exercise price in cash, the holder's basis in the shares for
determining future gain or loss is the sum of the exercise price and the
compensation income realized upon exercise. If the holder pays the exercise
price, in full or in part, with previously acquired shares of our Class A Common
Stock ("Payment Shares"), a number of shares of our Class A Common Stock
resulting from the exercise that is equal to the number of Payment Shares will
have the same basis and holding period as the Payment Shares, and the shares of
Class A Common Stock resulting from the exercise in excess of the number of
Payment Shares will have a basis equal to the fair market value of the
additional shares on the exercise date. The holding period of such additional
shares will begin on the date of exercise. When a stockholder sells or otherwise
disposes of the
14
shares acquired by exercise of a nonqualified option, the stockholder will
generally have taxable gain or loss equal to the excess of the amount realized
in the sale or disposition over the stockholder's basis in the shares, which
will be a long-term or short-term capital gain or loss depending upon the
stockholder's holding period for the shares.
Incentive Stock Options. Generally, an option holder will not recognize
any taxable income, and we will not be allowed a tax deduction, upon the
granting of an incentive stock option. Upon the exercise of an incentive stock
option, the holder will generally not realize ordinary taxable income and we
will not be allowed a tax deduction, as long as the holder is employed with us
or a participating subsidiary from the time of the grant through the date three
months before the incentive stock option was exercised. If the foregoing
requirement is not met, the exercise of an incentive stock option is treated in
the same manner as the exercise of a nonqualified stock option. In addition, the
excess of the fair market value at exercise of the resulting shares over the
exercise price will be an item of tax preference for purposes of determining the
alternative minimum tax.
If an option holder holds the shares acquired by exercise of the incentive
stock option for a period of at least two years from the date of grant and one
year from the exercise date, any gain or loss recognized will be long-term
capital gain or loss, and we will not be entitled to any deduction upon
subsequent sale or other disposition of the shares. The basis for the shares
acquired by exercising an incentive stock option equals the exercise price, and
the holding period for the shares begins on the day after the date the shares
are received. If the option holder disposes of the shares acquired by exercise
of an incentive stock option before the end of either of the two-year or
one-year holding periods described above, the holder will recognize ordinary
compensation income, and we will be entitled to a corresponding deduction equal
to the excess of the amount realized in the disposition or, if less, the fair
market value of the shares at the time the option was exercised, over the
exercise price. Any further gain or loss on the disposition generally will be a
capital gain or loss.
Generally, payment of the incentive stock option price, in full or in part,
with Payment Shares will not affect the treatment of the exercise. Except as
noted below, no gain or loss will be recognized with respect to the Payment
Shares, and shares received by the option holder equal in number to the Payment
Shares will have the same basis and holding period as such Payment Shares.
Shares received by an option holder in excess of the number of Payment Shares
will have a basis equal to any cash paid upon exercise and will have a holding
period which will commence on the exercise date. If a holder pays the exercise
price by using shares of our common stock acquired upon an earlier exercise of
an incentive stock option, the delivery of these Payment Shares to us will be
considered a disposition of the shares for the purpose of determining whether a
disqualifying disposition has occurred.
AMENDMENTS
Our Board may at any time amend or terminate the 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 plan will be
made without the approval of our stockholders to the extent such approval is
required by law or stock exchange rule.
The foregoing plan summary is subject in all respects to the plan itself, a
copy of which is on file with the SEC as an exhibit to our Annual Report on Form
10-K.
OPTION GRANTS UNDER THE PLAN IN 2001
Since the benefits or amounts that will be received by or allocated to our
executive officers, directors and non-executive officer employees in 2002 are
not determinable at this time, the table below sets forth the benefits granted
under the plan to such individuals and groups during 2001 and the value of such
benefits.
15
<Table>
<Caption>
DOLLAR NUMBER OF
NAME AND POSITION VALUE ($)(1) OPTIONS (#)(2)
- ----------------- ------------ --------------
Martha Stewart, Chairman and Chief Executive Officer........ -- --
Sharon Patrick, President and Chief Operating Officer....... 0 130,000
Gael Towey, Senior Executive Vice President, Creative
Director.................................................. 33,440 38,000
Suzanne Sobel, Executive Vice President, Advertising
Sales..................................................... 33,440 38,000
James Follo, Executive Vice President, Chief Financial
Officer................................................... 103,840 118,000
All current executive officers as a group(3)................ 170,640 324,000
All current directors as a group............................ 0(4) 130,000(4)
All current employees as a group other than executive
officers.................................................. 1,472,834 1,908,600
</Table>
- ---------------
(1) Because options are granted with an exercise price equal to the fair market
value of the underlying shares at the time of grant, the options have no
readily identifiable value at such time, and the value of such options
thereafter fluctuates with that of our stock price. However, we have set
forth the value of such options as of December 31, 2001, as measured by the
difference between the exercise price of the options and $16.45, the closing
price of our Class A Common Stock on The New York Stock Exchange on that
day.
(2) Grants made in 2001 are not necessarily indicative of the levels of future
grants under the plan.
(3) Includes the Named Executives listed individually above.
(4) Consists solely of options granted in 2001 to Ms. Patrick and the value of
such options as of December 31, 2001. Non-employee directors are ineligible
to participate in the plan.
MSLO LLC NONQUALIFIED CLASS A LLC UNIT/STOCK OPTION PLAN
We adopted and made grants under the MSLO LLC Nonqualified Class A LLC
Unit/Stock Option Plan in November 1997. In connection with our initial public
offering, the 509,841 LLC unit options then outstanding were converted into
options to purchase 1,997,374 shares of our Class A Common Stock. Options
granted under the 1997 Plan generally vest pursuant to the following schedule:
10% at December 31, 1998 and December 31, 1999, 20% at December 31, 2000 and
December 31, 2001, and 40% on December 31, 2002. Each option expires 10 years
after the date of grant, 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, as defined in the plan, 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. No
additional options may be granted under this plan.
In connection with the plan, Ms. Stewart periodically returns to us a
number of shares of our common stock beneficially owned by her, corresponding,
on a net treasury basis, to the number of option exercises under this plan
during the relevant period. Under the net treasury method, we subtract from the
number of shares resulting from each option exercise the number of shares we
could purchase, at the then-current market price, with the option proceeds from
such exercise. Ms. Stewart returns to us a number of shares of our common stock
equal to the sum of the results of these calculations for the relevant period.
Accordingly, options outstanding under the plan are not dilutive.
The foregoing plan summary is subject in all respects to the plan itself, a
copy of which is on file with the SEC as an exhibit to our Annual Report on Form
10-K.
16
EMPLOYMENT ARRANGEMENTS
EMPLOYMENT AGREEMENT WITH MARTHA STEWART
Prior to completion of our initial public offering, we entered into an
employment agreement with Ms. Stewart. The employment agreement replaced an
existing agreement between us and Ms. Stewart. The employment agreement provides
for Ms. Stewart's employment as our Chairman of the Board and Chief Executive
Officer through October 22, 2004. Under the employment agreement, Ms. Stewart
receives an annual base salary of $900,000 and annual bonus payments based upon
our performance, with a guaranteed annual bonus of $300,000. Our Compensation
Committee determines the relevant performance goals, which include targets based
on our profitability as well as other performance measures, and the amount of
the bonus payment.
During the employment period, Ms. Stewart receives employee benefits no
less favorable than those provided to our other executive officers and receives
perquisites and fringe benefits consistent with past practice.
The employment agreement provides that if Ms. 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; and
- 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 Ms.
Stewart's employment is terminated due to disability, or in the event of death,
Ms. 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 Ms. 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 Ms. 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 Ms. Stewart to relocate;
- the failure of a successor entity to assume the employment agreement; or
- any other material breach of the employment agreement.
Cause, for purposes of the employment agreement, means:
- Ms. Stewart's willful and continued failure to perform her duties after
written notice from our Board 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
- Ms. 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.
17
Under the employment agreement, Ms. Stewart cannot compete with us, or
solicit our employees, during her term of employment. In addition, if Ms.
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 four-year severance agreement with Ms.
Patrick. Under the agreement, if Ms. Patrick resigns within 30 days following a
Change in Control, or if we terminate her employment without Cause, each 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, with respect to the prior year, any declared but unpaid
bonus, or if such bonus was not yet declared, a bonus equal to her target
bonus, and
- an amount equal to her annual base salary and target bonus
The agreement also provides that if Ms. Patrick terminates her employment
for Good Reason, she will receive the above lump sum payment. Good Reason
generally occurs if Ms. 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 or 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.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board, currently consisting of Mr.
Martinez and Mr. Ubben, neither of whom is employed by MSO, furnished the
following report on executive compensation for the 2001 fiscal year.
COMPENSATION PHILOSOPHY
MSO's executive compensation program is designed to encourage and reward
exceptional performance and to align the financial interests of its senior
executives and key employees with those of our stockholders. To achieve this
end, MSO has developed and implemented a compensation program designed to
attract and retain highly skilled executives and key employees with the business
experience and creative talent necessary for MSO to achieve its long-term
business objectives.
MSO's executive compensation generally consists of three components: base
salary, an annual performance-based bonus and equity-based compensation. MSO's
compensation goal is to target its executives to be paid at competitive levels
when performance expectations are met and above competitive levels when
expectations are exceeded. MSO periodically utilizes outside consultants to
perform competitive market-matching analyses on a position-by-position basis
against companies in businesses similar to those of MSO and with comparable
revenue levels. Once the market-matching analyses has been completed, an
executive's salary, bonus and/or equity-based compensation may be adjusted
upward or downward based on a number of subjective factors, including past
performance, prior experience, differences in job responsibilities from the jobs
against which the match was performed, and tenure. Additionally, although the
market-matching study is
18
periodically updated, individual compensation levels may be adjusted from time
to time based upon, among other factors, past performance and increases in
responsibilities.
MSO's Chairman and CEO, Ms. Stewart, is compensated pursuant to an
employment agreement with the company which is discussed below under the caption
"Chief Executive Officer Compensation".
BASE SALARIES AND ANNUAL BONUSES
The Compensation Committee believes that compensation should be weighted
toward bonuses and equity-based compensation. Accordingly, base salaries paid to
MSO's executives tend to constitute a smaller percentage of total compensation
than they do for many comparable executives of MSO's competitors. Each executive
is assigned a bonus target, which is set as a percentage of annual base salary.
Depending on MSO's performance against its growth objectives and the individual
performance of a particular executive, such executive's actual bonus generally
ranges from 50% to 150% of the relevant bonus target, as set by the Compensation
Committee with input from senior management. This system provides MSO the
ability to use bonuses as an incentive to drive corporate performance and to
align the interests of executives with those of our stockholders.
EQUITY-BASED COMPENSATION
In 1997, MSO executives who had, in the view of the board of directors of
MSLO LLC, played a significant role in the company's development received
options to purchase MSLO LLC equity under the 1997 Plan. Individual grants were
made taking into account years of service, level of responsibility, contribution
to the enterprise and other factors. At the time of MSO's initial public
offering, new option grants were made to executives and most of our employees
under the 1999 Stock Incentive Plan. Since the initial public offering, grants
have been made to new executives and employees upon commencement of employment
with MSO, and to existing employees upon the achievement of certain promotions.
Additionally, MSO has made option grants to executives and other employees on an
annual basis since the initial public offering. Individual grants under the 1999
Stock Incentive Plan have been determined by the Compensation Committee after
taking into account a market study prepared by an independent consulting firm,
the size of previous option grants, tenure, past performance, responsibility
levels, competitive practices and other relevant factors. All options granted
have been non-qualified stock options and have had exercise prices equal to the
fair market value of the underlying stock at the time of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Ms. Stewart is compensated pursuant to her employment agreement with MSO.
The employment agreement became effective prior to the time of MSO's initial
public offering and provides for an annual salary of $900,000, as well as
bonuses payable upon the achievement of performance targets established by the
Compensation Committee, with a guaranteed payment of $300,000. The terms of Ms.
Stewart's employment agreement were established based on a number of
considerations, including Ms. Stewart's contribution to the company as its
founder, her services as on-air talent for MSO's television and radio programs,
and her ongoing services as MSO's Chairman and Chief Executive Officer. Under
the employment agreement, the Compensation Committee awarded Ms. Stewart a bonus
of $1,156,666 for her services in 2001. In determining Ms. Stewart's
compensation, the Compensation Committee considered quantitative factors such as
MSO's 2001 revenue and earnings growth and qualitative factors such as Ms.
Stewart's multi-faceted contributions to MSO described above. The Compensation
Committee believes that Ms. Stewart's compensation under her employment
agreement and her considerable ownership of MSO equity provide her with
significant incentives to maximize stockholder value.
19
TAX MATTERS
Section 162(m) limits the tax deductibility by a company of compensation in
excess of $1 million paid to any of its five most highly compensated executive
officers. However, compensation which qualifies as performance-based is excluded
from the limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by the stockholders.
To date, compensation paid by us in excess of $1 million has been
deductible under transition rules relating to our status as a newly public
company. However, the Compensation Committee has approved the Martha Stewart
Living Omnimedia, Inc. 2002 Performance-Based Executive Bonus Plan for
submission to stockholders for the purpose of qualifying certain bonus payments
to our five most highly paid employees under Section 162(m), thereby preserving
the deductibility of such payments. The Compensation Committee, however,
reserves the right to award compensation to its executives in the future that
may not qualify under Section 162(m) as deductible compensation if it determines
that doing so would be in the best interest of the stockholders.
SUMMARY
The Compensation Committee believes that the present compensation structure
is one that is well-designed to attract and retain talented executives and key
employees, align these individuals' interests with those of our stockholders,
and maximize stockholder value, and believes that the actions of the
Compensation Committee with respect to 2001 executive compensation were
consistent with that focus. The Compensation Committee is currently reviewing
MSO's compensation policies for executives and other employees to ensure that
they continue to best serve these objectives.
MEMBERS OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
Arthur C. Martinez
Jeffrey W. Ubben
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Mr. Martinez and Mr. Ubben each
of whom is a non-employee director.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents, as of March 18, 2002, information relating to
the beneficial ownership of our common stock by (1) each person known by us to
own beneficially more than 5% of the outstanding shares of either class of our
common stock, (2) each of our directors, (3) each of the Named Executives, and
(4) all of our executive officers and directors as a group.
Unless another address is indicated, beneficial owners listed here may be
contacted at our corporate address. Under the rules of the Securities and
Exchange Commission, a person is deemed to be a beneficial owner of a security
if that person has or shares voting power, which includes the power to vote or
to direct the voting of such security, or investment power, which includes the
power to dispose of or to direct the disposition of such security. A person is
also deemed to be the beneficial owner of any securities with respect to which
that person has the right to acquire beneficial ownership within 60 days. Under
these rules, more than one person may be deemed to be beneficial owner of the
same securities. For each listed person or entity, the information listed
assumes the exercise of any options exercisable by such person or entity on or
prior to May 17, 2002, but not the exercise of any options held by any other
parties. Additionally, we have assumed the conversion of shares of Class B
Common Stock into shares of Class A Common Stock for purposes of listing Ms.
Stewart's ownership of Class A Common Stock, but for no other purpose. Shares of
Class B Common
20
Stock may be converted on a one-for-one basis into shares of Class A Common
Stock at the option of the holder.
The percentage of votes for all classes is based on one vote for each share
of Class A Common Stock and ten votes for each share of Class B Common Stock.
BENEFICIAL OWNERSHIP
<Table>
<Caption>
CLASS B COMMON
CLASS A COMMON STOCK STOCK % TOTAL
-------------------- ---------------- VOTING
NAME SHARES % SHARES % POWER
- ---- ------------- ---- ---------- --- -------
Martha Stewart............................... 30,713,475(1) 62.6 30,619,375 100 94.4(2)
VA Partners, L.L.C. ......................... 4,100,000(3) 22.3 -- -- *
One Maritime Plaza, Suite 1400
San Francisco, CA 94111
AOL Time Warner, Inc. ....................... 1,219,597(4) 6.6 *
75 Rockefeller Plaza
New York, NY 10019
Capital Group International, Inc. ........... 1,408,300(5) 7.6 *
11100 Santa Monica Blvd.
Los Angeles, CA 90025
Arthur Martinez.............................. 10,663(6) * -- -- *
Darla Moore.................................. 62(7) * -- -- *
Sharon Patrick............................... 1,889,764(8) 10.3 -- -- *
Naomi Seligman............................... 24,422(9) * -- -- *
Jeffrey Ubben................................ 4,100,000(10) 22.3 -- -- *
Gael Towey................................... 496,060(11) 2.7 -- -- *
Suzanne Sobel................................ 131,947(12) * -- -- *
James Follo.................................. 98,250(13) * -- -- *
All directors and executive officers as
a group(14 persons)........................ 37,868,932(14) 77.2 30,619,375 100% 96.6(2)
</Table>
- ---------------
* The percentage of shares or voting power beneficially owned does not exceed
1%.
(1) Consists of 5,100 shares of Class A Common Stock held by Ms. Stewart, 14,000
shares of Class A Common Stock held by a partnership controlled by Ms.
Stewart, vested options held by Ms. Stewart to acquire 75,000 shares of
Class A Common Stock and 30,619,375 shares of Class B Common Stock held by a
partnership controlled by Ms. Stewart, which shares are convertible into
Class A Common Stock on a share-for-share basis, and excludes unvested
options to acquire 75,000 shares of Class A Common Stock.
(2) Assumes no shares of Class B Common Stock are converted into shares of Class
A Common Stock.
(3) VA Partners, L.L.C. beneficially owns 4,100,000 shares of Class A Common
Stock as general partner of ValueAct Capital Partners, L.P. and ValueAct
Capital Partners II, L.P., and as investment advisor of ValueAct Capital
International, Ltd. This amount excludes unvested options to acquire 5,000
shares of Class A Common Stock granted to Mr. Ubben on January 8, 2002. This
information is based on information filed with the Securities and Exchange
Commission by VA Partners, L.L.C. and ValueAct Capital Partners, L.P. as of
March 19, 2002.
21
(4) AOL Time Warner, Inc. beneficially owns these shares indirectly through its
ownership of Time Publishing Ventures, Inc., a wholly owned indirect
subsidiary of AOL Time Warner Inc. This information is based on information
filed with the Securities and Exchange Commission by AOL Time Warner, Inc.
as of January 22, 2001.
(5) Capital Group International, Inc. beneficially owns these shares through its
ownership of Capital Guardian Trust Company, a bank which holds the shares
as the investment manager of various institutional accounts. This
information is based upon information filed with the Securities and Exchange
Commission by Capital Group International, Inc. as of February 11, 2002.
(6) Consists of 3,663 shares of Class A Common Stock and vested options to
acquire 7,000 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 1,578,591 shares of Class A Common Stock and vested options held
by Ms. Patrick to acquire 311,173 shares of Class A Common Stock. This
amount excludes unvested options to acquire 311,174 shares of Class A Common
Stock.
(9) Consists of 15,422 shares of Class A Common Stock and vested options to
acquire 9,000 shares of Class A Common Stock.
(10) Consists of 4,100,000 shares of Class A Common Stock beneficially owned by
VA Partners, L.L.C. as general partner of ValueAct Capital Partners, L.P.
and ValueAct Capital Partners II, L.P., and as investment advisor of
ValueAct Capital International, Ltd, but excludes unvested options to
acquire 5,000 shares of Class A Common Stock granted to Mr. Ubben on
January 8, 2002. Mr. Ubben disclaims beneficial ownership of the shares
held on behalf of ValueAct Capital Partners, L.P., ValueAct Capital
Partners II, L.P., and ValueAct Capital International, Ltd., except to the
extent of his pecuniary interest therein.
(11) Consists of 6,112 shares of Class A Common Stock, of which 5,000 shares are
held directly by Ms. Towey's spouse, and vested options to acquire 489,948
shares of Class A Common Stock. This amount excludes unvested options to
acquire 214,167 shares of Class A Common Stock.
(12) Consists of 1,112 shares of Class A Common Stock and vested options to
acquire 130,835 shares of Class A Common Stock. Does not include unvested
options to acquire 162,895 shares of Class A Common Stock.
(13) Consists of 500 shares of Class A Common Stock and vested options to
acquire 97,750 shares of Class A Common Stock. Does not include unvested
options to acquire 176,250 shares of Class A Common Stock.
(14) Consists of 36,348,236 shares of our Class A Common Stock (including
30,619,375 shares resulting from assumed conversion of all outstanding
Class B Common Stock) and vested options to acquire 1,520,696 shares of
Class A Common Stock. Does not include unvested options to acquire
1,579,068 shares of Class A Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors, and persons who own more than 10% of a
registered class of our equity securities, to file initial statements of
beneficial ownership (Form 3) and statements of changes in beneficial ownership
(Forms 4 and 5) of our common stock with the SEC. Such persons are required by
SEC rules to furnish us with copies of all such forms they file. Based solely on
a review of the copies of such forms furnished to us, and/or written
representations that no additional forms were required, we believe that, except
as noted below, our officers, directors and greater than 10% beneficial owners
filed all such required forms in 2001. As a result of inadvertent administrative
errors within MSO, a Form 3 filing for Darla D. Moore relating to her initial
election to our Board and a Form 4 filing for Martha Stewart reflecting her
conversion of certain shares of Class B Common Stock into shares of Class A
Common Stock were each filed late.
22
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH TIME PUBLISHING VENTURES AND ITS AFFILIATES
ONGOING SERVICE AGREEMENTS
In February 1997, Time Inc., Time Customer Service, Inc. ("TCS"), Oxmoor
House, Inc. and Time Distribution Services, Inc. ("TDS"), each an affiliate of
Time Publishing Ventures, Inc. ("TPV"), entered into agreements with us to
provide us with various services. We entered into these agreements in connection
with a transaction in which we acquired the assets relating to TPV's Martha
Stewart related businesses, including the Martha Stewart Living magazine and
television program, from TPV. Through this transaction, TPV became an affiliate
of MSO by virtue of its acquisition of MSO equity. We believe that the terms of
these agreements, in the aggregate, are at least as favorable to us as we would
be able to obtain with unrelated third parties.
Under our newsstand distribution agreement, TDS provides newsstand
distribution services for our magazines. We compensate TDS on the basis of net
sales. This agreement expires in December 2007, but we have the right to
terminate effective December 2004 on one year's notice. In 2001, we incurred
fees of $2.3 million under this agreement.
Under two fulfillment agreements with TCS, TCS has provided 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 is renewable at our
option for two additional three-year terms. The fulfillment agreement with
respect to our Internet/Direct Commerce businesses was terminated in February
2002 upon our conversion to a new fulfillment provider. In 2001, we incurred
fees of approximately $21.8 million under these agreements.
Under a services agreement with Time Inc., we receive administrative,
editing and sales services, as well as purchase our paper. These administrative,
editing and sales services automatically renew for six-month or one-year
periods, depending on the service. Subject to certain limited exceptions, the
paper purchasing portion of the agreement extends through the end of 2004,
provided that we may terminate the service on 180 days written notice. In 2001,
we incurred expenses of approximately $32.0 million, including $31.3 million for
paper purchases, under this agreement.
Under our agreement with Oxmoor House, we granted Oxmoor House an exclusive
license to use the mark Martha Stewart Living in connection with books and
continuity card and binder programs. Under the agreement, we generally produce
two Best of Martha Stewart Living books and one Christmas with Martha Stewart
Living book each year. Oxmoor House also has the right to publish other
materials bearing the mark Martha Stewart Living as mutually agreed by us and
Oxmoor House. We receive production grants on a per page basis for each of these
publications, an annual payment to cover staff costs and receive 50% of the net
profit. We earned approximately $2.3 million in income under this agreement in
2001. This agreement terminated in December 2001, and Oxmoor House exercised its
right to renew the agreement for an additional three-year term.
AGREEMENTS WITH STOCKHOLDERS
STOCKHOLDERS AGREEMENT; TPV SHARE BUYBACK AGREEMENT
Immediately prior to our initial public offering, we entered into a
stockholders agreement with the members of MSLO LLC. Under the terms of this
agreement, TPV, Ms. Stewart, and Ms. Patrick have the right to require us to
register shares of our Class A Common Stock owned or controlled by them, subject
to customary terms and minimum amounts. Registration of these shares of common
stock will result in such shares becoming freely tradeable without restriction
under the Securities Act of 1933. We will bear all registration expenses, other
than any underwriting discounts, incurred in connection with the above registra-
23
tions. These registration rights continue as long as these stockholders continue
to hold any of our common stock that they received in the merger of MSLO LLC
into MSO.
As part of a February 18, 2000 agreement with TPV pursuant to which we
purchased 1,366,000 shares of our Class A Common Stock held by TPV, TPV agreed
to continue, subject to certain limited exceptions, to hold shares of our Class
A Common Stock until 2003, and to allow us to place advertisements in Time Inc.
magazines and websites through 2004 at discounted rates, subject to annual
limitations.
VALUEACT INVESTMENT AGREEMENT
On January 8, 2002, we entered into an investment agreement with ValueAct
Capital Partners, L.P. (and certain of its affiliates)("ValueAct") and a
partnership controlled by Ms. Stewart (the "Partnership"). ValueAct is an
affiliate of Mr. Ubben. Under the terms of the investment agreement, MSO and the
Partnership appointed Mr. Ubben to the Board and further agreed that, subject to
the Board's fiduciary duties, Mr. Ubben would be included in the slate of
nominees recommended by the Board for election as directors at the Annual
Meeting. The Partnership agreed to vote all shares of our common stock
beneficially owned by it in favor of Mr. Ubben's election to the Board at the
Annual Meeting if Mr. Ubben was nominated for such position by the Board.
Under the terms of the agreement, ValueAct also has the right to require us
on up to three occasions to register certain shares of our Class A Common Stock
owned or controlled by it, subject to customary terms and minimum amounts.
Registration of these shares of common stock will result in such shares becoming
freely tradeable without restriction under the Securities Act of 1933. We will
bear all registration expenses, other than any underwriting discounts, incurred
in connection with the above registrations.
AGREEMENTS WITH MARTHA STEWART
LOCATION RENTAL AGREEMENT
We have entered into a location rental agreement with Ms. Stewart relating
to our use of various properties owned by her. The agreement has a five-year
term, provides for annual payments of $2.0 million to MS Real Estate Management
Company, a corporation owned by Ms. Stewart that operates Ms. Stewart's real
estate, and permits us to use the properties currently owned by Ms. Stewart for
any purpose relating to our businesses. We make extensive use of these
properties for television filming, photography, research and development of
content and products and various other commercial purposes. This location rental
agreement became effective at the time of our initial public offering and
replaced an agreement that paid Ms. Stewart an annual rental fee of $1.5
million. The increased fee reflects our access to additional properties,
increased property values and additional usages of these properties since the
initial agreement was effected in 1997. We believe this rate is at least as
favorable to us as what we would have to pay to locate and use similar
properties owned by a third party. In the event that Ms. 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.
INTELLECTUAL PROPERTY LICENSE AGREEMENT
We have entered into an intellectual property license and preservation
agreement with Ms. Stewart that, as of the time of our initial public offering,
replaced a prior non-perpetual license agreement entered into in February 1997.
Under the terms of this new license agreement, Ms. Stewart granted 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 license
agreement, generally have the right to develop and register in our name
trademarks that incorporate the Martha Stewart name, such as Martha Stewart
Living, and to use exclusively these marks in our business. If Ms. Stewart
ceases to be our Chairman or Chief Executive Officer and no longer controls our
company, we will continue to have those rights, including the right to use those
marks for any new business as long as such
24
new business is substantially consistent with the image, look and goodwill of
the licensed marks at the time that Ms. Stewart ceases to be such an officer or
to control us.
In the event that we terminate Ms. 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, Ms. 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 Ms.
Stewart's employment terminates under these circumstances, Ms. 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 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. The term of the license is perpetual;
however, Ms. Stewart may terminate the license if we fail to make the royalty
payments described above.
SPLIT DOLLAR LIFE INSURANCE AGREEMENT WITH MS. STEWART
In February 2001, we entered into an agreement with Ms. Stewart and the
Partnership pursuant to which we agreed to pay a significant portion of the
annual premiums on a whole life insurance policy insuring Ms. Stewart and owned
by and benefiting the Partnership. We will be repaid the cumulative premium
payments made by us under the arrangement at the earlier of Ms. Stewart's death
or the voluntary termination of the arrangement by Ms. Stewart, and the
underlying insurance policies have been assigned to us as collateral for this
repayment obligation. If the arrangement lasts longer than sixteen years, we
will no longer be obligated to make premium payments and will receive interest
on the cumulative premiums paid by us to date until the time such premiums are
repaid to us. Premium payments made by us under this arrangement in 2001 were
approximately $1.1 million and the value of the policies collateralizing the
Partnership's repayment obligation exceeds this amount.
OTHER RELATIONSHIPS AND INDEBTEDNESS
In 2001, we reimbursed MS Real Estate Management Company approximately
$255,000 for various expenses it incurred in connection with our businesses.
We loaned Shelley Nandkeolyar, Executive Vice President, President,
Internet/Direct Commerce, $225,000 upon his commencement of employment with us
on February 4, 2002. The loan accrues interest at the prime rate plus 2%.
Provided that Mr. Nandkeolyar's employment continues with us through December
31, 2002, the loan will be forgiven.
Ms. Margaret Christiansen, Ms. Stewart's sister-in-law, is a Senior Vice
President, Business Manager of MSO. Mr. Randy Plimpton, Ms. Stewart's
brother-in-law, is our property manager, responsible for MSO property management
and support services. In 2001, each of these individuals received compensation
under our standard compensation policies and programs described elsewhere in
this proxy statement.
25
PERFORMANCE GRAPH
The following graph compares the performance of our Class A Common Stock
with that of the S&P 500 Index and the stocks included in the Media General
Financial Services database under the Standard Industry Code 2721
(Publishing-Periodicals) (the "Publishing Index") during the period commencing
on October 19, 1999, the date on which our Class A Common Stock began trading on
The New York Stock Exchange, and ending on December 31, 2001. The graph assumes
that $100 was invested in each of our Class A Common Stock*, the S&P 500 Index
and the Publishing Index** at the beginning of the relevant period, is
calculated as of the end of each calendar month and assumes reinvestment of
dividends. The performance shown in the graph represents past performance and
should not be considered an indication of future performance.
COMPARE CUMULATIVE TOTAL RETURN
AMONG MARTHA STEWART LIVING OMNIMEDIA, INC.,
S&P 500 INDEX AND PUBLISHING INDEX
[PERFORMANCE GRAPH]
ASSUMES $100 INVESTED ON OCT. 19, 1999
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 2001
- ---------------
* The hypothetical investment price in our Class A Common Stock is $18.00 per
share, our initial public offering price.
** The Publishing Index consists of companies that are primarily publishers of
periodicals, although many also conduct other businesses, including owning
and operating television stations and cable networks, and is weighted
according to market capitalization of the companies in the index. The
hypothetical investment assumes investment in a portfolio of equity
securities that mirror the composition of the Publishing Index. Since the
Publishing Index is only calculated at the end of each month, we have
interpolated the return on the index from October 19, 1999 through October
31, 1999 on a straight-line basis.
26
REPORT OF THE AUDIT COMMITTEE
The Audit Committee's purpose is to assist the Board in its oversight of
MSO's internal controls and financial statements and the audit process. The
Board, in its business judgment, has determined that all members of the
Committee are "independent", as required by applicable listing standards of the
New York Stock Exchange. The Committee operates pursuant to a charter that was
last amended and restated by the Board on February 15, 2002. A copy of the
current charter is attached to this Proxy Statement as Annex A.
Management is responsible for the preparation, presentation and integrity
of MSO's financial statements, accounting and financial reporting principles and
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The independent auditors for
MSO's 2001 fiscal year, Arthur Andersen LLP, were responsible for performing an
independent audit of the consolidated financial statements in accordance with
generally accepted auditing standards.
In performing its oversight role, the Audit Committee has, among other
things covered in its charter, reviewed and discussed the audited financial
statements with management and the independent auditors. The Committee has also
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit Committees, as
currently in effect. The Committee has received the written disclosures and the
letter from the independent auditors required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, as currently in
effect. The Committee has also considered whether the provision of non-audit
services by the independent auditors is compatible with maintaining the
auditors' independence and has discussed with the auditors the auditors'
independence.
Based on the reports and discussions described in this Report, and subject
to the limitations on the role and responsibilities of the Committee referred to
in this report and in the charter, the Audit Committee recommended to the Board
that the audited financial statements be included in the Annual Report on Form
10-K for the fiscal year ended December 31, 2001.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Committee rely without independent verification on the information provided
to them and on the representations made by management and the independent
auditors. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal controls
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations, efforts and discussions referred to above do not assure that the
audit of MSO's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
Arthur Andersen LLP is in fact "independent."
MEMBERS OF THE AUDIT COMMITTEE
Arthur C. Martinez
Darla D. Moore
Naomi O. Seligman
27
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP acted as our independent public accountants for the
fiscal year ended December 31, 2001. Arthur Andersen LLP has served as our
independent accountants since 1996. Our Audit Committee has not yet made a
determination whether Arthur Andersen LLP will be retained as our independent
accountants for the fiscal year ending December 31, 2002. In performing its
oversight role, the Audit Committee will review whether to retain Arthur
Andersen LLP as our independent accountants as part of its regular process of
recommending an independent auditor to the Board. A representative of Arthur
Andersen LLP is expected to be present at the Annual Meeting and will be given
an opportunity to make a statement if he or she so chooses and is expected to be
available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed by Arthur Andersen LLP for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended December 31, 2001 and for the reviews of the financial statements included
in our Quarterly Reports on Form 10-Q for that fiscal year were $300,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Arthur Andersen LLP billed no fees for professional services rendered to us
for information technology services relating to financial information systems
design and implementation for the fiscal year ended December 31, 2001.
ALL OTHER FEES
The aggregate fees billed by Arthur Andersen LLP for services rendered to
us, other than the services described above under Audit Fees, for the fiscal
year ended December 31, 2001 were $522,516. The majority of these fees were
billed for tax work.
ANNUAL REPORTS
Upon written request to the Corporate Secretary, Martha Stewart Living
Omnimedia, Inc., 11 West 42nd Street, New York, New York 10036, we will provide
without charge to each person solicited a copy of our 2001 Annual Report on Form
10-K, including the financial statements and financial statement schedules filed
therewith. We will furnish a requesting securityholder with any exhibit not
contained therein upon specific request. Our Annual Report and Form 10-K are not
proxy soliciting materials.
PROPOSALS OF STOCKHOLDERS
We currently intend to hold our next annual meeting in May of 2003.
Stockholders who intend to have a proposal considered for inclusion in our proxy
materials for presentation at the 2003 Annual Meeting of Stockholders must
submit the proposal to us at our principal executive offices, addressed to our
Corporate Secretary, no later than December 6, 2002. Stockholders who intend to
present a proposal at the 2003 Annual Meeting of Stockholders without inclusion
of such proposal in our proxy materials are required to provide us notice of
such proposal no later than February 10, 2003. We reserve the right to reject,
rule out of order, or take other appropriate action with respect to any proposal
that does not comply with these and other applicable requirements contained in
our by-laws and applicable laws.
28
OTHER MATTERS
Our Board has no knowledge of any other matters to be presented at the
Annual Meeting other than those described herein. If any other matters should
properly come before the meeting, it is the intention of the persons designated
in the proxy to vote on them according to their best judgment.
YOUR VOTE IS IMPORTANT. OUR BOARD URGES YOU TO MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
IN THE ALTERNATIVE, SHAREHOLDERS MAY VOTE VIA THE INTERNET OR TELEPHONE AS
DESCRIBED IN THE ENCLOSED MATERIALS.
If you have any questions or need assistance in voting your shares, please
contact Mellon Investor Services LLC at 1-800-851-9677.
New York, New York
April 3, 2002
29
ANNEX A
MARTHA STEWART LIVING OMNIMEDIA, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE; AUTHORITY; COMPOSITION
The Board of Directors of Martha Stewart Living Omnimedia, Inc. (the
"Corporation") has established an Audit Committee with authority, responsibility
and specific duties as described below.
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: (1) the
financial reports of the Corporation; (2) the Corporation's systems of internal
controls regarding finance and accounting that management and the Board have
established; and (3) the Corporation's accounting and financial reporting
processes generally. Consistent with this function, the Audit Committee should
encourage continuous improvement of, and should foster adherence to, the
Corporation's policies, procedures and practices at all levels. The Audit
Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system;
- Review and appraise the audit efforts of the Corporation's independent
auditor; and
- Provide an open avenue of communication among the independent auditor,
financial and senior management, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section III of this Charter. The Audit
Committee has the authority to investigate any activity of the Corporation. The
Audit Committee is empowered to retain persons having special competence as
necessary to assist the Audit Committee in fulfilling its responsibilities.
The Audit Committee shall be composed of Directors that meet the
independence, financial literacy and other eligibility requirements of the New
York Stock Exchange. The chairman of the Audit Committee will have accounting or
related financial management expertise.
II. MEETINGS
The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. As part of its job to foster open communication, the
Committee should meet with management and the independent auditors in separate
executive sessions to discuss any matters that the Committee or any of these
groups believe should be discussed privately. The Audit Committee shall also
regularly communicate its activities and findings to the entire Board of
Directors. In addition, the Committee, or its Chair, if any, should hold
discussions with the independent auditor and management as needed regarding the
Corporation's financial statements (consistent with III.2., 3. and 4. below).
III. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
DOCUMENTS AND REPORTS
1. Review and, if appropriate, update, this Charter periodically, at least
annually, as conditions dictate.
A-1
2. Review the Corporation's annual and quarterly financial statements. The
Audit Committee shall have discussions with management and the independent
auditor with respect to financial statements to be included in the Corporation's
Annual Report on Form 10-K to be filed with the United States Securities and
Exchange Commission.
3. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Corporation's annual proxy statement.
INDEPENDENT AUDITORS
4. Recommend to the Board of Directors the selection of the independent
auditor, considering independence and effectiveness. The Audit Committee shall
review the performance of the independent auditor and approve any proposed
discharge of the independent auditor when circumstances warrant. The independent
auditor is ultimately accountable to the Board of Directors and the Audit
Committee shall convey this accountability to the independent auditor. On a
periodic basis, the Committee shall receive written reports from the independent
auditor regarding its independence, discuss such reports with the independent
auditor, consider the compatibility of any non-audit services with its
independence, and, if so determined by the Audit Committee, recommend that the
Board take appropriate action to satisfy itself of its continued independence.
The Audit Committee shall also review the fees and other compensation to be paid
to the independent auditor.
5. Review the experience and qualifications of the senior members of the
independent auditor team and the quality control procedures of the independent
auditor.
6. Establish guidelines for the retention of the independent auditor for
any non-audit service and the fee for such service.
7. Periodically evaluate whether it is appropriate to adopt a policy of
rotating the independent auditor on a regular basis.
8. Recommend guidelines for the Corporation's hiring of employees of the
independent auditor who were engaged on the Corporation's account.
FINANCIAL REPORTING PROCESS
9. In consultation with management and the independent auditors, review the
integrity of the Corporation's financial reporting processes, both internal and
external.
10. Discuss with the independent auditor both the quality and the
acceptability of the Corporation's accounting policies.
11. Consider and approve, if appropriate, major changes to the
Corporation's accounting principles and practices as suggested by the
independent auditor or management.
12. Review analysis of alternative GAAP methods relating to Company's
financial statements and description of any transactions as to which Statement
on Auditing Standard No. 50 letters were issued.
13. Review with management and the independent auditor the effect of
regulatory and accounting initiatives on the Corporation's financial statements
as well as any off-balance sheet structures utilized by the Corporation.
14. Obtain from the independent auditor assurance that the audit:
a) contains procedures designed to provide reasonable assurances of
detecting illegal acts that would have a direct and material effect on the
financial statements;
b) contains procedures designed to identify related party transactions
that are material to the financial statements or otherwise require
financial statement disclosure; and
A-2
c) includes an evaluation of the Corporation's ability to continue as
a going concern during the ensuing fiscal year.
15. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct of
the audit.
16. Following completion of the audit, review with each of management and
the independent auditor any significant difficulties encountered during the
course of the audit, including any restrictions on the scope of work or access
to required information.
OTHER
17. Meet periodically with management to review the Corporation's major
financial risk exposures and the steps management has taken (or intends to take)
to monitor and control such exposures.
18. Review with management and the independent auditor any correspondence
with regulators or governmental agencies and any employee complaints or
published reports which raise material issues regarding the Corporation's
financial statements or accounting policies, and establish with management a
procedure to provide the Audit Committee with prompt access to any such
correspondence, complaints or reports.
19. Review, with the Corporation's counsel, any legal matter that could
have a significant impact on the Corporation's financial statements.
20. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board deems
necessary or appropriate.
IV. LIMITATION ON RESPONSIBILITY
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Corporation's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. Nor is it the duty of the Audit Committee to conduct investigations
or to assure compliance with laws and regulations and the Corporation's internal
policies.
A-3
ANNEX B
MARTHA STEWART LIVING OMNIMEDIA, INC.
2002 PERFORMANCE-BASED EXECUTIVE BONUS PLAN
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 EFFECTIVE DATE. Martha Stewart Living Omnimedia, Inc. (the "Company")
hereby establishes the 2002 Executive Officer Performance-Based Bonus Plan (the
"Plan") effective as of March 25, 2002. Effectiveness of the Plan is subject to
ratification by an affirmative vote of the holders of a majority of the Shares
that are present in person or by proxy and entitled to vote at the 2002 Annual
Meeting of Stockholders of the Company.
1.2 PURPOSE OF THE PLAN. The Plan is intended to increase shareholder
value and the success of the Company by motivating the Company's key executives
(1) to perform to the best of their abilities, and (2) to achieve the Company's
objectives. The Plan's goals are to be achieved by providing such executives
with incentive awards based on the achievement of goals relating to the
performance of the Company. The Plan is intended to permit the grant of awards
to qualify as performance-based compensation under section 162(m) of the Code.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "ACTUAL AWARD" means as to any Performance Period, the actual award
(if any) payable to a Participant for the Performance Period. Each Actual Award
is determined by the Payout Formula for the Performance Period, subject to the
Committee's authority under Section 3.6 to eliminate or reduce the award
otherwise determined by the Payout Formula.
2.2 "AFFILIATE" means any corporation or other entity (including, but not
limited to, partnerships and joint ventures) controlled by or under common
control with the Company.
2.3 "BASE SALARY" means as to any Performance Period, the Participant's
annualized salary rate on the last day of the Performance Period. Such Base
Salary shall be before both (a) deductions for taxes or benefits, and (b)
deferrals of compensation pursuant to Company-sponsored plans.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated thereunder, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
2.6 "COMMITTEE" means the Compensation and Management Development
Committee appointed by the Board.
2.7 "COMPANY" means Martha Stewart Living Omnimedia, Inc., a Delaware
corporation, or any successor thereto.
B-1
2.8 "DETERMINATION DATE" means the latest possible date that will not
jeopardize an Actual Award's qualification as performance-based compensation
under section 162(m) of the Code.
2.9 "DISABILITY" means a permanent and total disability determined in
accordance with uniform and nondiscriminatory standards adopted by the Committee
from time to time.
2.10 "EARNINGS PER SHARE" means as to any Performance Period, the
Company's or a business unit's Net Income, divided by a weighted average number
of common shares outstanding and dilutive common equivalent shares deemed
outstanding, determined in accordance with generally accepted accounting
principles.
2.11 "EMPLOYEE" means any employee of the Company or of an Affiliate,
whether such employee is so employed at the time the Plan is adopted or becomes
so employed subsequent to the adoption of the Plan.
2.12 "FAIR MARKET VALUE" means the closing per share selling price for
Shares, as quoted on the New York Stock Exchange for the date in question.
2.13 "FISCAL YEAR" means the fiscal year of the Company.
2.14 "INDIVIDUAL OBJECTIVES" means as to a Participant for any Performance
Period, the objective and measurable goals approved by the Committee (in its
discretion).
2.15 "MAXIMUM AWARD" means as to any Participant for any Performance
Period, the lesser of (i) the maximum award payable under the Plan to a
Participant for the Performance Period expressed as a percentage of his or her
base salary as determined by the Committee in accordance with Section 3.3, or
(ii) $2.1 million.
2.16 "NET INCOME" means as to any Performance Period, the Company's or a
business unit's income after taxes, determined in accordance with generally
accepted accounting principles.
2.17 "OPERATING CASH FLOW" means as to any Performance Period, the
Company's or a business unit's sum of Net Income plus depreciation and
amortization less capital expenditures plus changes in working capital comprised
of accounts receivable, inventories, other current assets, trade accounts
payable, accrued expenses, product warranty, advance payments from customers and
long-term accrued expenses, determined in accordance with generally acceptable
accounting principles.
2.18 "OPERATING INCOME" means as to any Performance Period, the Company's
or a business unit's income from operations but excluding any unusual items,
determined in accordance with generally accepted accounting principles.
2.19 "PARTICIPANT" means as to any Performance Period, an Employee who has
been selected by the Committee for participation in the Plan for that
Performance Period.
2.20 "PAYOUT FORMULA" means as to any Performance Period, the formula or
payout matrix established by the Committee pursuant to Section 3.4 in order to
determine the Actual Awards (if any) to be paid to Participants. The formula or
matrix may differ from Participant to Participant.
2.21 "PERFORMANCE PERIOD" means any Fiscal Year or such other period, as
determined by the Committee in its sole discretion.
2.22 "PERFORMANCE GOALS" means the goal(s) (or combined goal(s))
determined by the Committee (in its discretion) to be applicable to a
Participant for a Performance Period. As determined by the Committee, the
Performance Goals for any award applicable to a Participant may provide for a
targeted level or levels of achievement using one or more of the following
measures: (a) Earnings per Share, (b) Individual Objectives, (c) Net Income, (d)
Operating Cash Flow, (e) Operating Income, (f) Return on Assets, (g) Return on
Equity, (h) Return on Sales, (i) Revenue, and (j) Total Shareholder Return. The
Performance Goals may differ from Participant to Participant and from award to
award. Prior to the
B-2
Determination Date, the Committee shall determine whether any significant
element(s) shall be included in or excluded from the calculation of any
Performance Goal with respect to any Participants.
2.23 "PLAN" means the Martha Stewart Living Omnimedia, Inc. 2002
Performance-Based Executive Bonus Plan, as set forth in this instrument and as
hereafter amended from time to time.
2.24 "RETIREMENT" means, with respect to any Participant, a Termination of
Service after attaining at least (a) age 65, (b) age 60 and 5 years of service
with the Company or an Affiliate, or (c) age 55 and 10 years of service with the
Company or an Affiliate.
2.25 "RETURN ON ASSETS" means as to any Performance Period, the percentage
equal to the Company's or a business unit's Operating Income before incentive
compensation, divided by average net Company or business unit, as applicable,
assets, determined in accordance with generally accepted accounting principles.
2.26 "RETURN ON EQUITY" means as to any Performance Period, the percentage
equal to the Company's Net Income divided by average stockholder's equity,
determined in accordance with generally accepted accounting principles.
2.27 "RETURN ON SALES" means as to any Performance Period, the percentage
equal to the Company's or a business unit's Operating Income before incentive
compensation, divided by the Company's or the business unit's, as applicable,
Revenue, determined in accordance with generally accepted accounting principles.
2.28 "REVENUE" means as to any Performance Period, the Company's or
business unit's net sales, determined in accordance with generally accepted
accounting principles.
2.29 "SHARES" means shares of the Company's common stock.
2.30 "TERMINATION OF SERVICE" means a cessation of the employee-employer
relationship between an Employee and the Company or an Affiliate for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, Disability, Retirement, or the disaffiliation of an Affiliate
or the sale of a business unit or division, but excluding any such termination
where there is a simultaneous reemployment by the Company or an Affiliate.
2.31 "TOTAL SHAREHOLDER RETURN" means as to any Performance Period, the
total return (change in share price plus reinvestment of any dividends) of a
Share.
SECTION 3
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1 SELECTION OF PARTICIPANTS. The Committee, in its sole discretion,
shall select the Employees of the Company who shall be Participants for any
Performance Period. Participation in the Plan is in the sole discretion of the
Committee, and on a Performance Period by Performance Period basis. Accordingly,
an Employee who is a Participant for a given Performance Period in no way is
guaranteed or assured of being selected for participation in any subsequent
Performance Period.
3.2 DETERMINATION OF PERFORMANCE GOALS. The Committee, in its sole
discretion, shall establish the Performance Goals for each Participant for the
Performance Period. Such Performance Goals shall be set forth in writing.
3.3 DETERMINATION OF MAXIMUM AWARDS. The Committee, in its sole
discretion, shall establish a Maximum Award for each Participant (subject to the
limit set forth in Section 2.15(ii)). Each Participant's Maximum Award shall be
set forth in writing.
3.4 DETERMINATION OF PAYOUT FORMULA OR FORMULAE. On or prior to the
Determination Date, the Committee, in its sole discretion, shall establish a
Payout Formula for purposes of determining the Actual Award (if any) payable to
each Participant. Each Payout Formula shall (a) be in writing, (b) be based on a
B-3
comparison of actual performance to the Performance Goals, and (c) provide for
the payment of a Participant's Actual Award based on whether the Performance
Goals for the Performance Period are achieved. Notwithstanding the preceding, in
no event shall a Participant's Actual Award for any Performance Period exceed
his or her Maximum Award.
3.5 DATE FOR DETERMINATIONS. The Committee shall make all determinations
under Section 3.1 through 3.4 on or before the Determination Date.
3.6 DETERMINATION OF ACTUAL AWARDS. After the end of each Performance
Period, the Committee shall certify in writing the extent to which the
Performance Goals applicable to each Participant for the Performance Period were
achieved or exceeded. The Actual Award for each Participant shall be determined
by applying the Payout Formula to the level of actual performance that has been
certified by the Committee. Notwithstanding any contrary provision of the Plan,
in determining the Actual Award, the Committee, in its sole discretion, may
reduce the award payable to any Participant below that which otherwise would be
payable under the Payout Formula.
SECTION 4
PAYMENT OF AWARDS
4.1 RIGHT TO RECEIVE PAYMENT. Each Actual Award that may become payable
under the Plan shall be paid solely from the general assets of the Company.
Nothing in this Plan shall be construed to create a trust or to establish or
evidence any Participant's claim of any right to payment of an Actual Award
other than as an unsecured general creditor with respect to any payment to which
he or she may be entitled.
4.2 TIMING OF PAYMENT. Payment of each Actual Award shall be made after
the end of the Performance Period during which the Award was earned.
4.3 FORM OF PAYMENT. Each Actual Award shall be paid in cash (or its
equivalent).
4.4 PAYMENT IN THE EVENT OF DEATH. If a Participant dies prior to the
payment of an Actual Award earned by him or her prior to death for a prior
Performance Period, the Award shall be paid to his or her estate.
SECTION 5
ADMINISTRATION
5.1 COMMITTEE IS THE ADMINISTRATOR. The Plan shall be administered by the
Committee. The Committee shall consist of not less than two (2) members of the
Board. The members of the Committee shall be appointed from time to time by, and
serve at the pleasure of, the Board. Each member of the Committee shall qualify
as an "outside director" under section 162(m) of the Code. If it is later
determined that one or more members of the Committee do not so qualify, actions
taken by the Committee prior to such determination shall be valid despite such
failure to qualify.
5.2 COMMITTEE AUTHORITY. It shall be the duty of the Committee to
administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees shall be granted awards, (b) prescribe the terms
and conditions of awards, (c) interpret the Plan and the awards, (d) adopt such
procedures and subplans as are necessary or appropriate to permit participation
in the Plan by Employees who are foreign nationals or employed outside of the
United States, (e) adopt rules for the administration, interpretation and
application of the Plan as are consistent therewith, and (f) interpret, amend or
revoke any such rules.
B-4
5.3 DECISIONS BINDING. All determinations and decisions made by the
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
5.4 DELEGATION BY THE COMMITTEE. The Committee, in its sole discretion
and on such terms and conditions as it may provide, may delegate all or part of
its authority and powers under the Plan to one or more directors and/or officers
of the Company; provided, however, that the Committee may delegate its authority
and powers only with respect to awards that are not intended to qualify as
performance-based compensation under section 162(m) of the Code.
SECTION 6
GENERAL PROVISIONS
6.1 TAX WITHHOLDING. The Company shall withhold all applicable taxes from
any Actual Award, including any federal, state and local taxes (including, but
not limited to, the Participant's FICA, FUTA and SDI obligations).
6.2 NO EFFECT ON EMPLOYMENT OR SERVICE. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only. The Company expressly reserves the right, which may
be exercised at any time and without regard to when during a Performance Period
such exercise occurs, to terminate any individual's employment with or without
cause, and to treat him or her without regard to the effect which such treatment
might have upon him or her as a Participant.
6.3 PARTICIPATION. No Employee shall have the right to be selected to
receive an award under this Plan, or, having been so selected, to be selected to
receive a future award.
6.4 INDEMNIFICATION. Each person who is or shall have been a member of
the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any award, and (b) from any and all amounts
paid by him or her in settlement thereof, with the Company's approval, or paid
by him or her in satisfaction of any judgment in any such claim, action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under
any power that the Company may have to indemnify them or hold them harmless.
6.5 SUCCESSORS. All obligations of the Company under the Plan, with
respect to awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business or assets of the Company.
6.6 BENEFICIARY DESIGNATIONS. If permitted by the Committee, a
Participant under the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate.
B-5
6.7 NONTRANSFERABILITY OF AWARDS. No award granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the laws of descent and distribution, or to the limited
extent provided in Section 6.6. All rights with respect to an award granted to a
Participant shall be available during his or her lifetime only to the
Participant.
6.8 DEFERRALS. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash that would otherwise be
delivered to a Participant under the Plan. Any such deferral elections shall be
subject to such rules and procedures as shall be determined by the Committee in
its sole discretion.
SECTION 7
AMENDMENT, TERMINATION AND DURATION
7.1 AMENDMENT, SUSPENSION OR TERMINATION. The Board, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. The amendment, suspension or termination of the Plan shall
not, without the consent of the Participant, materially alter or impair any
rights or obligations under any Actual Award theretofore granted to such
Participant. No award may be granted during any period of suspension or after
termination of the Plan. Nothing contained in this Plan shall prevent the
Company or any Affiliate from adopting other or additional compensation
arrangements for its employees.
7.2 DURATION OF THE PLAN. The Plan shall commence on the date specified
herein, and subject to Section 7.1 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter.
SECTION 8
LEGAL CONSTRUCTION
8.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
8.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
8.3 REQUIREMENTS OF LAW. The granting of awards under the Plan shall be
subject to all applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
8.4 GOVERNING LAW. The Plan and all awards shall be construed in
accordance with and governed by the laws of the State of Delaware, but without
regard to its conflict of law provisions.
8.5 CAPTIONS. Captions are provided herein for convenience only, and
shall not serve as a basis for interpretation or construction of the Plan.
B-6
ANNEX C
MARTHA STEWART LIVING OMNIMEDIA, INC.
AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Company a competitive advantage in
attracting, retaining and motivating officers, employees and/or consultants and
to provide the Company and its Subsidiaries and Affiliates with a stock plan
providing incentives directly linked to the profitability of the Company's
businesses and increases in the Company's shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
(a) "Affiliate" means a corporation or other entity controlled by,
controlling or under common control with the Company and designated by the
Committee from time to time as such.
(b) "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock, Performance Unit, or other stock-based award.
(c) "Award Agreement" means a written agreement setting forth the terms and
conditions of an Award.
(d) "Award Cycle" shall mean a period of consecutive fiscal years or
portions thereof designated by the Committee over which Performance Units are to
be earned.
(e) "Board" means the Board of Directors of the Company.
(f) "Business Combination" has the meaning set forth in Section 10(b)(iii).
(g) "Cause" means, unless otherwise provided by the Committee, (1) "Cause"
as defined in any Individual Agreement to which the participant is a party, or
(2) if there is no such Individual Agreement or, if it does not define Cause,
any of the following on the part of the participant: an intentional failure to
perform assigned duties; willful misconduct in the course of the participant's
employment; breach of a fiduciary duty involving personal profit; or acts or
omissions of personal dishonesty, any of which results in material loss to the
Company or any of its Subsidiaries or Affiliates. The Committee shall, unless
otherwise provided in an Individual Agreement with the participant, have the
sole discretion to determine whether "Cause" exists, and its determination shall
be final.
(h) "Change in Control" has the meaning set forth in Section 10(b).
(i) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(j) "Commission" means the Securities and Exchange Commission or any
successor agency.
(k) "Committee" means the Committee referred to in Section 2.
(l) "Common Stock" means Class A common stock, par value $.01 per share, of
the Company.
(m) "Company" means Martha Stewart Living Omnimedia, Inc., a Delaware
corporation.
(n) "Covered Employee" means a participant designated prior to or at the
time of the grant of Restricted Stock or Performance Units by the Committee as
an individual who is or may be a "covered employee" within the meaning of
Section 162(m)(3) of the Code in the year in which Restricted Stock or
Performance Units are expected to be taxable to such participant.
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(o) "Disability" means, unless otherwise provided by the Committee, "Total
Disability" as defined in the Group Long Term Disability Insurance contract
between Martha Stewart Living Omnimedia LLC (the predecessor of the Company)
with First Reliance Standard Life Insurance Company, effective February 4, 1997,
or if not so defined or otherwise defined in an Individual Agreement, shall mean
the permanent and total inability of a participant by reason of mental or
physical infirmity, or both, to perform the work customarily assigned to him or
her, if a medical doctor selected or approved by the Board, and knowledgeable in
the field of such infirmity, advises the Committee either that it is not
possible to determine when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
participant's lifetime.
(p) "Eligible Individuals" means officers, employees and consultants of the
Company or any of its Subsidiaries or Affiliates, and prospective employees and
consultants, who have accepted offers of employment or consultancy from the
Company or its Subsidiaries or Affiliates, and who are or will be responsible
for or contribute to the management, growth or profitability of the business of
the Company, or its Subsidiaries or Affiliates.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
(r) "Fair Market Value" of the Common Stock means, as of any given date,
the price of the Common Stock on the composite transaction tape of the New York
Stock Exchange as of the close of the regular business hours of the New York
Stock Exchange, without regard to any after-hours trading that may hereinafter
be commenced on such exchange, on the most recent prior date for which such
closing price is available, or, if the Common Stock is not listed on the New
York Stock Exchange, the analogous closing price on the most recent prior date
on any other national securities exchange on which the Common Stock is listed or
on The Nasdaq Stock Market. If there is no regular public trading market for the
Common Stock, the Fair Market Value of the Common Stock shall be determined by
the Committee in good faith.
(s) "Freestanding Stock Appreciation Right" has the meaning set forth in
Section 6(a).
(t) "Incumbent Board" has the meaning set forth in Section 10(b)(ii).
(u) "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
(v) "Individual Agreement" means an employment, consulting or similar
agreement between a participant and the Company or one of its Subsidiaries or
Affiliates.
(w) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(x) "Outstanding Company Common Stock" has the meaning set forth in Section
10(b)(i).
(y) "Outstanding Company Voting Power" has the meaning set forth in Section
10(b)(i).
(z) "Qualified Performance-Based Award" means an Award of Restricted Stock
or Performance Units designated as such by the Committee at the time of grant,
based upon a determination that (i) the recipient is a Covered Employee and (ii)
the Committee wishes such Award to qualify for the Section 162(m) Exemption.
(aa) "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock or Performance Units.
In the case of Qualified Performance-Based Awards, (i) such goals shall be based
on the attainment of specified levels of one or more of the following measures:
return on equity, return on assets, operating income, earnings per share, net
income and/or achievement of pre-determined, objectively defined strategic
performance goals, and (ii) such Performance Goals shall be set by the Committee
within the time period prescribed by Section 162(m) of the Code and related
regulations. Performance Goals may be stated in the alternative or in
combination.
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(bb) "Performance Units" means an Award granted under Section 8.
(cc) "Performance Units Agreement" means a written agreement setting forth
the terms and conditions of an award of Performance Units.
(dd) "Person" has the meaning set forth in Section 10(b)(i).
(ee) "Plan" means the Martha Stewart Living Omnimedia, Inc. 1999 Stock
Incentive Plan, as set forth herein and as hereinafter amended from time to
time.
(ff) "Restricted Stock" means an Award granted under Section 7.
(gg) "Restricted Stock Agreement" means a written agreement setting forth
the terms and conditions of an award of Restricted Stock.
(hh) "Restriction Period" has the meaning set forth in Section 7(c)(ii).
(ii) "Retirement" means retirement from the employ of the Company or its
Subsidiaries or Affiliates at the normal or early retirement date as set forth
in any tax-qualified retirement/pension plan of the Company.
(jj) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
(kk) "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section
162(m)(4)(C) of the Code.
(ll) "Stock Appreciation Right" means an Award granted under Section 6.(mm)
"Stock Option" means an Award granted under Section 5.
(nn) "Subsidiary" means any corporation, partnership, joint venture or
other entity during any period in which at least a 50% voting or profits
interest is owned, directly or indirectly, by the Company or any successor to
the Company.
(oo) "Tandem Stock Appreciation Right" has the meaning set forth in Section
6(a).
(pp) "Termination of Employment" means the termination of the participant's
employment with, or performance of services for, the Company and any of its
Subsidiaries or Affiliates. A participant employed by, or performing services
for, a Subsidiary or an Affiliate shall also be deemed to incur a Termination of
Employment if the Subsidiary or Affiliate ceases to be such a Subsidiary or an
Affiliate, as the case may be, and the participant does not immediately
thereafter become an employee of, or service-provider for, the Company or
another Subsidiary or Affiliate. Temporary absences from employment because of
illness, vacation or leave of absence and transfers among the Company and its
Subsidiaries and Affiliates shall not be considered Terminations of Employment.
For purposes of the Plan, a participant's employment shall be deemed to have
terminated at the close of business on the day preceding the first date on which
he or she is no longer for any reason whatsoever employed by the Company or any
of its Subsidiaries or Affiliates.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board
or such other committee of the Board as the Board may from time to time
designate (the "Committee"), which shall be composed of not less than two
directors, and shall be appointed by and serve at the pleasure of the Board.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to Eligible Individuals.
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Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) To select the Eligible Individuals to whom Awards may from time to time
be granted;
(b) To determine whether and to what extent Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Units and other stock-based awards or any combination thereof are to
be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)), any
vesting condition, restriction or limitation (which may be related to the
performance of the participant, the Company or any Subsidiary or Affiliate) and
any vesting acceleration or forfeiture waiver regarding any Award and the shares
of Common Stock relating thereto, based on such factors as the Committee shall
determine;
(e) To modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including but not limited to Performance Goals;
provided, however, that the Committee may not (i) subject to the last paragraph
of Section 3, reduce the exercise price or cancel and regrant a Stock Option
theretofore granted or (ii) adjust upwards the amount payable with respect to a
Qualified Performance-Based Award or waive or alter the Performance Goals
associated therewith;
(f) To determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in cash
or Common Stock under Sections 5(j), 6(b) and 8(b)(iv).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the Committee may, except to the extent prohibited by applicable law
or the applicable rules of a stock exchange, allocate all or any portion of its
responsibilities and powers to any one or more of its members and may delegate
all or any part of its responsibilities and powers to any person or persons
selected by it; provided, that no such delegation may be made that would cause
Awards or other transactions under the Plan to cease to be exempt from Section
16(b) of the Exchange Act or cause an Award designated as a Qualified
Performance-Based Award not to qualify for, or to cease to qualify for, the
Section 162(m) Exemption. Any such allocation or delegation may be revoked by
the Committee at any time.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any appropriately
delegated officer pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Plan participants.
Any authority granted to the Committee may also be exercised by the full
Board, except to the extent that the grant or exercise of such authority would
cause any Award or transaction to become subject to (or lose an exemption under)
Section 16(b) of the Exchange Act or cause an Award designated as a Qualified
Performance-Based Award not to qualify for, or to cease to qualify for, the
Section 162(m) Exemption. To the extent that any permitted action taken by the
Board conflicts with action taken by the Committee, the Board action shall
control.
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SECTION 3. COMMON STOCK SUBJECT TO PLAN
The maximum number of shares of Common Stock that may be delivered to
participants and their beneficiaries under the Plan shall be 10,000,000. No
participant may be granted Stock Options and Freestanding Stock Appreciation
Rights covering in excess of 1,000,000 shares of Common Stock in any calendar
year. No participant may be granted more than 1,000,000 shares of Restricted
Stock or Performance Units covering in excess of 1,000,000 shares of Common
Stock under this Plan. Shares subject to an Award under the Plan may be
authorized and unissued shares or may be treasury shares.
If any Award is forfeited or if any Stock Option (and related Stock
Appreciation Right, if any) terminates, expires or lapses without being
exercised, or if any Stock Appreciation Right is exercised for cash, shares of
Common Stock subject to such Awards shall again be available for distribution in
connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or an extraordinary corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, the Committee or
Board may make such substitution or adjustments to reflect such change or
transaction in (i) the aggregate number and kind of shares reserved for issuance
under the Plan; (ii) the limitation upon Stock Options and Stock Appreciation
Rights to be granted to any participant, to the extent such adjustment does not
cause any Qualified Performance-Based Award to fail to qualify for the Section
162(m) Exemption; (iii) the number, kind and option price of shares subject to
outstanding Stock Options, Stock Appreciation Rights and Restricted Stock; (iv)
the number and kind of shares subject to other outstanding Awards granted under
the Plan; and/or (v) such other equitable manner, in each case, as it may
determine to be appropriate in its sole discretion; provided, however, that the
number of shares subject to any Award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount payable by the
Company upon the exercise of any Tandem Stock Appreciation Right.
SECTION 4. ELIGIBILITY
Awards may be granted under the Plan to Eligible Individuals. No grant
shall be made under this Plan to a director who is not an officer or a salaried
employee of the Company or its Subsidiaries or Affiliates.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and Nonqualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Company and its subsidiaries (within the meaning of Section
424(f) of the Code). To the extent that any Stock Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an Incentive
Stock Option on or subsequent to its grant date, it shall constitute a
Nonqualified Stock Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Nonqualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an Eligible Individual to receive a grant of
a Stock Option, determines the number of shares of Common Stock to be subject to
such Stock Option to be granted to such Eligible Individual and specifies the
terms and provisions of the Stock Option. The Company shall notify an Eligible
Individual of any grant of
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a Stock Option, and a written option agreement or agreements shall be duly
executed and delivered by the Company to the participant. Such agreement or
agreements shall become effective upon execution by the Company and the
participant.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set forth in the
option agreement, and shall not be less than the Fair Market Value of the Common
Stock subject to the Stock Option on the date of grant unless otherwise
determined by the Committee at the time of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein or as determined
by the Committee at the time of grant, each Stock Option shall be exercisable in
four equal annual installments, beginning on the first anniversary of the date
of grant. The Committee may at any time waive such installment exercise
provisions, in whole or in part, based on such factors as the Committee may
determine. In addition, the Committee may at any time accelerate the
exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5, Stock
Options may be exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the Company specifying the number
of shares of Common Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase price
by certified or bank check or such other instrument as the Company may accept.
If approved by the Committee, payment, in full or in part, may also be made in
the form of unrestricted Common Stock (by delivery of such shares or by
attestation) already owned by the optionee of the same class as the Common Stock
subject to the Stock Option (based on the Fair Market Value of the Common Stock
on the date the Stock Option is exercised); provided, however, that, in the case
of an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Stock Option may be authorized only at the time the Stock Option is granted;
and provided, further, that such already owned shares have been held by the
optionee for at least six months at the time of exercise or had been purchased
on the open market.
If approved by the Committee, payment in full or in part may also be made
by delivering a properly executed exercise notice to the Company, together with
a copy of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds necessary to pay the purchase price,
and, if requested, reduced by the amount of any federal, state, local or foreign
withholding taxes. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
In addition, if approved by the Committee, payment in full or in part may
also be made by instructing the Committee to withhold a number of such shares
having a Fair Market Value on the date of exercise equal to the aggregate
exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. Except as otherwise provided in Section 5(j), an optionee shall have
all of the rights of a shareholder of the Company holding the Common Stock that
is subject to such Stock Option (including, if applicable, the right to vote the
shares and the right to receive dividends), when the optionee has given written
notice of exercise, has paid in full for such shares and, if requested, has
given the representation described in Section 13(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) in the case of a Nonqualified Stock Option, as
otherwise expressly permitted by the Committee including, if so permitted,
pursuant to a transfer to such
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optionee's immediate family, whether directly or indirectly or by means of a
trust or partnership or otherwise. For purposes of the Plan, unless otherwise
determined by the Committee, "immediate family" shall mean, except as otherwise
defined by the Committee, any child, sibling, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, sister-in-law or brother-in-law,
including adoptive relationships, of the optionee. All Stock Options shall be
exercisable, subject to the terms of the Plan, only by the optionee, the
guardian or legal representative of the optionee, or any person to whom such
option is transferred pursuant to this paragraph, it being understood that the
terms "holder" and "optionee" include such guardian, legal representative and
other transferee.
(f) Termination by Death. Unless otherwise determined by the Committee or
as set forth in an Award Agreement, if an optionee incurs a Termination of
Employment by reason of death, any Stock Option held by such optionee may
thereafter be exercised, to the extent then exercisable, or on such accelerated
basis as the Committee may determine, for a period of one year (or such other
period as the Committee may specify in the option agreement) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is shorter.
(g) Termination by Reason of Disability or Retirement. Unless otherwise
determined by the Committee or as set forth in an Award Agreement, if an
optionee incurs a Termination of Employment by reason of Disability or
Retirement, any Stock Option held by such optionee may thereafter be exercised
by the optionee, to the extent it was exercisable at the time of termination, or
on such accelerated basis as the Committee may determine, for a period of one
year (or such other period as the Committee may specify in the option agreement)
from the date of such Termination of Employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter; provided,
however, that if the optionee dies within such period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
period, continue to be exercisable to the extent to which it was exercisable at
the time of death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is
shorter. If an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code, such Stock
Option will thereafter be treated as a Nonqualified Stock Option.
(h) Other Termination. Unless otherwise determined by the Committee or as
set forth in an Award Agreement: (A) if an optionee incurs a Termination of
Employment for Cause, all Stock Options held by such optionee shall thereupon
terminate; and (B) if an optionee incurs a Termination of Employment for any
reason other than death, Disability, Retirement or for Cause, any Stock Option
held by such optionee, to the extent it was then exercisable at the time of
termination, or on such accelerated basis as the Committee may determine, may be
exercised for the lesser of three months from the date of such Termination of
Employment or the balance of such Stock Option's term; provided, however, that
if the optionee dies within such three-month period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-month period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of such
death or until the expiration of the stated term of such Stock Option, whichever
period is shorter. Notwithstanding any other provision of this Plan to the
contrary, in the event an optionee incurs a Termination of Employment other than
for Cause during the 24-month period following a Change in Control, any Stock
Option held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of termination, including on such
accelerated basis as provided in Section 10(a), for (x) the longer of (i) one
year from such date of termination or (ii) such other period as may be provided
in the Plan for such Termination of Employment or as the Committee may provide
in the option agreement, or (y) until expiration of the stated term of such
Stock Option, whichever period is shorter. If an Incentive Stock Option is
exercised after the expiration of the post-termination exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Nonqualified Stock Option.
(i) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of the shares of
Common Stock for which a Stock Option is being exercised by paying the optionee
an amount, in cash or Common Stock, equal to the excess of the Fair Market Value
of
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the Common Stock over the option price times the number of shares of Common
Stock for which the Option is being exercised on the effective date of such
cash-out.
(j) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of an Option, receipt of all or a portion
of the shares of Common Stock subject to such Option and/or to receive cash at
such later time or times in lieu of such deferred shares, all on such terms and
conditions as the Committee shall determine. If any such deferrals are
permitted, then notwithstanding Section 5(d) above, an optionee who elects such
deferral shall not have any rights as a stockholder with respect to such
deferred shares unless and until shares are actually delivered to the optionee
with respect thereto, except to the extent otherwise determined by the
Committee.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) Grant and Exercise. Stock Appreciation Rights may be granted without
relationship to a Stock Option (each, a "Freestanding Stock Appreciation Right")
or in conjunction with all or part of any Stock Option granted under the Plan
(each, a "Tandem Stock Appreciation Right"). In the case of a Nonqualified Stock
Option, Tandem Stock Appreciation Rights may be granted either at or after the
time of grant of such Stock Option. In the case of an Incentive Stock Option,
Tandem Stock Appreciation Rights may be granted only at the time of grant of
such Stock Option. A Tandem Stock Appreciation Right shall terminate and no
longer be exercisable upon the termination or exercise of the related Stock
Option.
(b) Terms of Freestanding Stock Appreciation Rights. Freestanding Stock
Appreciation Rights shall be subject to such terms and conditions as shall be
determined by the Committee, including the following:
(i) a Freestanding Stock Appreciation Right shall be exercisable as
determined by the Committee, but in no event after ten years from the date
of grant;
(ii) the base price of a Freestanding Stock Appreciation Right shall
be the Fair Market Value of a share of Common Stock on the date of grant. A
Freestanding Stock Appreciation Right shall entitle the holder, upon
exercise of such right, to an amount in cash, shares of Common Stock or
both (as determined by the Committee), with a value equal to the product of
(A) the excess of the Fair Market Value of a share of Common Stock on the
date of exercise of the Stock Appreciation Right over the base price of the
Stock Appreciation Right and (B) the number of shares of Common Stock as to
which such Stock Appreciation Right shall have been exercised with the
Committee having the right to determine the form of payment;
(iii) a Freestanding Stock Appreciation Right shall be exercised by
giving written notice of exercise to the Company or its designated agent
specifying the number of shares of Common Stock as to which such Stock
Appreciation Right is being exercised; and
(iv) a Freestanding Stock Option shall not be transferable other than
by will or laws of descent and distribution.
(c) Terms of Tandem Stock Appreciation Rights. Tandem Stock Appreciation
Rights shall be subject to such terms and conditions as shall be determined by
the Committee, including the following:
(i) Tandem Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
are exercisable in accordance with the provisions of Section 5 and this
Section 6;
(ii) upon the exercise of a Tandem Stock Appreciation Right, an
optionee shall be entitled to receive an amount in cash, shares of Common
Stock or both, in value equal to the excess of the Fair Market Value of one
share of Common Stock over the option price per share specified in the
related Stock Option multiplied by the number of shares in respect of which
the Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment;
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(iii) a Tandem Stock Appreciation Right may be exercised by an
optionee in accordance with this Section 6(c) by surrendering the
applicable portion of the related Stock Option in accordance with
procedures established by the Committee, and upon such exercise and
surrender, the optionee shall be entitled to receive an amount determined
in the manner prescribed in this Section 6(c); and Stock Options which have
been so surrendered shall no longer be exercisable to the extent the
related Tandem Stock Appreciation Rights have been exercised;
(iv) upon the exercise of a Tandem Stock Appreciation Right, the Stock
Option or part thereof to which such Tandem Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 on the number of shares of Common Stock
to be issued under the Plan, but only to the extent that the number of
shares covered by the Tandem Stock Appreciation Right at the time of
exercise is based on the value of the Tandem Stock Appreciation Right at
such time; and
(v) Tandem Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
SECTION 7. RESTRICTED STOCK
(a) Administration. Shares of Restricted Stock may be awarded either alone
or in addition to other Awards granted under the Plan. The Committee shall
determine the Eligible Individuals to whom and the time or times at which grants
of Restricted Stock will be awarded, the number of shares to be awarded to any
Eligible Individual, the conditions for vesting, the time or times within which
such Awards may be subject to forfeiture and any other terms and conditions of
the Awards, in addition to those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced
in such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate
issued in respect of shares of Restricted Stock shall be registered in the name
of such participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Award, substantially in the
following form:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Martha Stewart Living Omnimedia, Inc. 1999 Stock
Incentive Plan and a Restricted Stock Agreement. Copies of such Plan and
Agreement are on file at the offices of Martha Stewart Living Omnimedia,
Inc., 20 West 43rd Street, New York, NY 10036.
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) the Committee may, prior to or at the time of grant, designate an
Award of Restricted Stock as a Qualified Performance-Based Award, in which
event it shall condition the grant or vesting, as applicable, of such
Restricted Stock upon the attainment of Performance Goals. If the Committee
does not designate an Award of Restricted Stock as a Qualified
Performance-Based Award, it may also condition the grant or vesting thereof
upon the attainment of Performance Goals. Regardless of whether an Award of
Restricted Stock is a Qualified Performance-Based Award, the Committee may
also condition the grant or vesting thereof upon the continued service of
the participant. The conditions for grant or vesting and the other
provisions of Restricted Stock Awards (including without limitation any
applicable Performance Goals) need not be the same with respect to each
recipient. The Committee may at any time, in its sole discretion,
accelerate or waive, in whole or in part, any of the foregoing
restrictions;
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provided, however, that (except as otherwise provided in Section 7(c)(iv)
or 10(a)(ii)) in the case of Restricted Stock that is a Qualified
Performance-Based Award, the applicable Performance Goals have been
satisfied;
(ii) subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vi), during the period, if any, set
by the Committee, commencing with the date of such Award for which such
participant's continued service is required (the "Restriction Period"), and
until the later of (i) the expiration of the Restriction Period and (ii)
the date the applicable Performance Goals (if any) are satisfied, the
participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock;
(iii) except as provided in this paragraph (iii) and Sections 7(c)(i)
and 7(c)(ii) and in the Restricted Stock Agreement and except as otherwise
determined by the Committee, the participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a stockholder of the
Company holding the class or series of Common Stock that is the subject of
the Restricted Stock, including, if applicable, the right to vote the
shares and the right to receive any cash dividends. If so determined by the
Committee in the applicable Restricted Stock Agreement and subject to
Section 13(e) of the Plan, (A) cash dividends or distributions of property
other than Common Stock with respect to the class or series of Common Stock
that is the subject of the Restricted Stock Award shall be automatically
deferred and reinvested in additional Restricted Stock, held subject to the
vesting of the underlying Restricted Stock, or held subject to meeting
Performance Goals applicable only to dividends, and (B) dividends payable
in Common Stock shall be paid in the form of Restricted Stock of the same
class as the Common Stock with which such dividend was paid, held subject
to the vesting of the underlying Restricted Stock, or held subject to
meeting Performance Goals applicable only to dividends;
(iv) except to the extent otherwise provided in the applicable
Restricted Stock Agreement or Section 7(c)(i), 7(c)(ii), 7(c)(v) or
10(a)(ii), upon a participant's Termination of Employment for any reason
during the Restriction Period or before the applicable Performance Goals
are satisfied, all shares still subject to restriction shall be forfeited
by the participant; provided, however, that the Committee shall have the
discretion to waive, in whole or in part, any or all remaining restrictions
(other than, in the case of Restricted Stock which is a Qualified
Performance-Based Award, satisfaction of the applicable Performance Goals
unless the participant's employment is terminated by reason of death or
Disability) with respect to any or all of such participant's shares of
Restricted Stock;
(v) if and when any applicable Performance Goals are satisfied and the
Restriction Period expires without a prior forfeiture of the Restricted
Stock, unlegended certificates for such shares shall be delivered to the
participant upon surrender of the legended certificates; and
(vi) each Award shall be confirmed by, and be subject to, the terms of
a Restricted Stock Agreement.
SECTION 8. PERFORMANCE UNITS
(a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the Eligible Individuals to whom and the time or times at which Performance
Units shall be awarded, the number of Performance Units to be awarded to any
Eligible Individual, the duration of the Award Cycle and any other terms and
conditions of the Award, in addition to those contained in Section 8(b).
(b) Terms and Conditions. Performance Units Awards shall be subject to the
following terms and conditions:
(i) the Committee may, prior to or at the time of the grant, designate
Performance Units as Qualified Performance-Based Awards, in which event it
shall condition the settlement thereof upon the attainment of Performance
Goals, except as otherwise provided in Section 8(b)(ii) or 10(a)(iii). If
the
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Committee does not designate Performance Units as Qualified
Performance-Based Awards, it may also condition the settlement thereof upon
the attainment of Performance Goals. Regardless of whether Performance
Units are Qualified Performance-Based Awards, the Committee may also
condition the settlement thereof upon the continued service of the
participant. The provisions of such Awards (including without limitation
any applicable Performance Goals) need not be the same with respect to each
recipient. Subject to the provisions of the Plan and the Performance Units
Agreement referred to in Section 8(b)(v), Performance Units may not be
sold, assigned, transferred, pledged or otherwise encumbered during the
Award Cycle;
(ii) except to the extent otherwise provided in the applicable
Performance Unit Agreement or Section 8(b)(iii) or 10(a)(iii), upon a
participant's Termination of Employment for any reason during the Award
Cycle or before any applicable Performance Goals are satisfied, all rights
to receive cash or stock in settlement of the Performance Units shall be
forfeited by the participant; provided, however, that the Committee shall
have the discretion to waive, in whole or in part, any or all remaining
payment limitations (other than, in the case of Performance Units that are
Qualified Performance-Based Awards, satisfaction of the applicable
Performance Goals unless the participant's employment is terminated by
reason of death or Disability) with respect to any or all of such
participant's Performance Units;
(iii) a participant may elect to further defer receipt of cash or
shares in settlement of Performance Units for a specified period or until a
specified event, subject in each case to the Committee's approval and to
such terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must generally be made prior to
commencement of the Award Cycle for the Performance Units in question;
(iv) at the expiration of the Award Cycle, the Committee shall
evaluate and certify the Company's performance in light of any Performance
Goals for such Award, and shall determine the number of Performance Units
granted to the participant which have been earned, and the Committee shall
then cause to be delivered (A) a number of shares of Common Stock equal to
the number of Performance Units determined by the Committee to have been
earned, or (B) cash equal to the Fair Market Value of such number of shares
of Common Stock to the participant, as the Committee shall elect (subject
to any deferral pursuant to Section 8(b)(iii)); and
(v) each Award shall be confirmed by, and be subject to, the terms of
a Performance Unit Agreement.
SECTION 9. OTHER STOCK-BASED AWARDS
Other Awards of Common Stock and other Awards that are valued in whole or
in part by reference to, or are otherwise based upon, Common Stock, including
(without limitation) dividend equivalents and convertible debentures, may be
granted either alone or in conjunction with other Awards granted under the Plan.
In the event that an Award is granted under this Section 9 to a participant who
is an officer, the Award shall be granted in lieu of additional cash
compensation to the officer for services.
SECTION 10. CHANGE IN CONTROL PROVISIONS
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, except as otherwise provided in the applicable Award Agreement, in
the event of a Change in Control:
(i) any Stock Options and Stock Appreciation Rights outstanding as of
the date such Change in Control is determined to have occurred, and which
are not then exercisable and vested, shall become fully exercisable and
vested to the full extent of the original grant;
(ii) the restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free
of all restrictions and become fully vested and transferable to the full
extent of the original grant;
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(iii) all Performance Units shall be considered to be earned and
payable in full, and any deferral or other restriction shall lapse and such
Performance Units shall be settled in cash as promptly as is practicable;
provided, that, if such cash settlement would make a Change in Control
transaction ineligible for pooling-of-interests accounting under APB No. 16
(that but for the nature of such payment would otherwise be eligible for
such accounting treatment), the Committee shall have the ability to
substitute Common Stock with a Fair Market Value (as of the effective date
of the Change in Control) equal to the cash that would otherwise be payable
hereunder for such cash settlement or, if necessary to preserve such
accounting treatment, otherwise modify or eliminate such right; and
(iv) the Committee may also make additional adjustments and/or
settlements of outstanding Awards as it deems appropriate and consistent
with the Plan's purposes and shall, with respect to any right granted under
this Plan that would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. 16 (that but for the nature
of such grant would otherwise be eligible for such accounting treatment),
equitably adjust such Award or, if necessary to preserve such accounting
treatment, otherwise modify or eliminate such right (as determined by the
Committee in its sole discretion).
(b) Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of both (A) 30% or more of either (1) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (2) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Power") and (B) more than
both the Outstanding Company Common Stock and the Outstanding Company
Voting Power owned or controlled directly or indirectly by Martha Stewart
and/or her controlled affiliates, heirs, estate, legal representative
and/or beneficiaries (collectively, "Stewart"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control: (1) any acquisition directly from the
Company, (2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (4) any acquisition
by any corporation pursuant to a transaction which complies with clauses
(1), (2) and (3) of subsection (iii) of this Section 10(b); or
(ii) individuals who, as of the effective date of the Plan, constitute
the Board (the "Incumbent Board") cease for any reason not to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the effective date of the Plan whose
election, or nomination for election by the Company's stockholders, was
approved by Martha Stewart and her controlled affiliates (so long as such
affiliates are controlled by her) at a time when such entities controlled
at least a majority of the Outstanding Company Voting Power or by a vote of
at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination: (1) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Power immediately prior
to such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election
C-12
of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries), (2) in the event that Stewart does not own or control at
least 50% of the Outstanding Company Voting Power upon the consummation of
the Business Combination, no Person (excluding any employee benefit plan
(or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation (and
such amount exceeds the amount owned or controlled by Stewart) except to
the extent that such person had such ownership of the Outstanding Company
Common Stock or Outstanding Company Voting Power immediately prior to the
Business Combination and (3) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
SECTION 11. TERM, AMENDMENT AND TERMINATION
The Plan will terminate on the tenth anniversary of the effective date of
the Plan. Awards outstanding under the Plan as of such date shall not be
affected or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award, Performance Unit Award or other stock-based Award
theretofore granted without the optionee's or recipient's consent, except such
an amendment made to comply with applicable law, stock exchange rules or
accounting rules. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by applicable law or stock exchange rules; provided, however, that stockholder
approval shall be required for any amendment which (i) increases the maximum
number of shares for which Stock Options may be granted under the Plan (subject,
however, to the provisions of Section 3 hereof), (ii) reduces the exercise price
at which Awards may be granted (subject, however, to the provisions of Section 3
hereof), (iii) extends the period during which Stock Options may be granted or
exercised beyond the times originally prescribed, (iv) changes the persons
eligible to participate in the Plan, or (v) materially increases the benefits
accruing to participants under the Plan.
Subject to the repricing restrictions in Section 2(e)(i), the Committee may
amend the terms of any Stock Option or other Award theretofore granted,
prospectively or retroactively, but no such amendment shall be permitted that
would cause an Award that is, or is intended to be, a Qualified
Performance-Based Award to fail or cease to qualify for the Section 162(m)
Exemption, nor shall any such amendment impair the rights of any holder without
the holder's consent except such an amendment made to cause the Plan or Award to
comply with applicable law, stock exchange rules or accounting rules.
Subject to the above provisions, the Board shall have the authority to
amend the Plan to take into account changes in law and in tax and accounting
rules as well as other developments, and to grant Awards which qualify for
beneficial treatment under such rules without stockholder approval.
SECTION 12. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; provided, however, that
C-13
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 13. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to the distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Company shall not be required to issue or deliver any certificate
or certificates for shares of Common Stock under the Plan prior to fulfillment
of all of the following conditions:
(1) listing or approval for listing upon notice of issuance of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) any registration or other qualification of such shares of the
Company under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Committee
shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary
or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any
Subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) The Plan shall not constitute a contract of employment, and adoption of
the Plan shall not confer upon any employee any right to continued employment,
nor shall it interfere in any way with the right of the Company or any
Subsidiary or Affiliate to terminate the employment of any employee at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Company regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the participant. The Committee may establish such
procedures as it deems appropriate, including making irrevocable elections, for
the settlement of withholding obligations with Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time of
any dividend payment shall only be permissible if sufficient shares of Common
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid or by whom any rights of the
participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of a Subsidiary of
the Company, the Company may, if the Committee so directs, issue or transfer the
shares of Common Stock, if any, covered by the Award to the Subsidiary, for such
lawful consideration as the Committee may specify, upon the condition or
understanding that the Subsidiary will transfer the shares of Common Stock to
the employee in accordance
C-14
with the terms of the Award specified by the Committee pursuant to the
provisions of the Plan. All shares of Common Stock underlying Awards that are
forfeited or canceled shall revert to the Company.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
(i) Except as otherwise provided in Section 5(e) or 6(c)(v) or by the
Committee, Awards under the Plan are not transferable except by will or by the
laws of descent and distribution.
(j) In the event an Award is granted to an Eligible Individual who is
employed or providing services outside the United States and who is not
compensated from a payroll maintained in the United States, the Committee may,
in its sole discretion, modify the provisions of the Plan as they pertain to
such individual to comply with applicable foreign law.
SECTION 14. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is adopted by the Board,
subject to the approval of the Company's stockholders.
C-15
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MARTHA STEWART LIVING OMNIMEDIA, INC.
The undersigned hereby appoints Gregory Blatt, James Follo and Brian Burns
as proxies, each with power to act without the other and with power of
substitution, and hereby authorizes them to represent and vote, as designated on
the other side, all the shares of Common Stock of Martha Stewart Living
Omnimedia, Inc. (the "Company") held of record by the undersigned on March 18,
2002, standing in the name of the undersigned with all powers which the
undersigned would possess if present at the Annual Meeting of Stockholders of
the Company to be held on May 9, 2002 or at any adjournment or postponement
thereof. Receipt of the Notice of the 2002 Annual Meeting of Stockholders and
Proxy Statement is hereby acknowledged.
This proxy, when properly executed, will be voted in the manner directed by
you. IF YOU DO NOT GIVE ANY DIRECTION, THIS PROXY WILL BE VOTED "FOR" PROPOSALS
(1), (2) AND (3) AND IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
In order for your vote to be submitted by proxy, you must (i) properly
complete the telephone or Internet voting instructions or (ii) properly complete
and return this proxy in order that in either case, your vote is received no
later than 5:00 p.m. Eastern Standard Time on May 8, 2002. Submitting your proxy
via the Internet or by telephone will not affect your right to vote in person
should you decide to attend the Annual Meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PLEASE MARK [X]
PROPOSALS (1), (2) AND (3) REGARDING: YOUR VOTES AS
INDICATED IN
THIS EXAMPLE
WITHHOLD
Authority to
THE BOARD RECOMMENDS -----> FOR vote for all
ALL NOMINEES Nominees
(1) The election to the [ ] [ ]
Board of Directors of
the 6 nominees named
below:
01 Arthur C. Martinez
02 Darla D. Moore
03 Sharon L. Patrick
04 Naomi O. Seligman
05 Martha Stewart
06 Jeffrey W. Ubben
THE BOARD RECOMMENDS ------> FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) Approval of the Martha Stewart
Living Omnimedia, Inc. 2002
Performance-Based Executive
Bonus Plan
THE BOARD RECOMMENDS ------> FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(3) Ratification of the Company's
1999 Stock Incentive Plan
I consent to future access of the Annual Reports, Proxy [ ]
Statements, Prospectuses and other communications
electronically via the Internet. I understand that the
Company may no longer distribute printed materials to me
for any future shareholder meetings until such consent
is revoked. I understand that I may revoke my consent at
any time by contacting the Company's transfer agent,
Mellon Investor Services, LLC, Ridgefield Park, New
Jersey, and that costs normally associated with
electronic access, such as usage and telephone charges,
will be my responsibility.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE
INDIVIDUAL NOMINEES, WRITE THE NAME(S) OF SUCH PERSON(S) HERE:
- --------------------------------------------------------------
-------
|
| IMPORTANT: PLEASE SIGN THIS PROXY CARD EXACTLY AS
| YOUR NAME OR NAMES APPEARS ELSEWHERE ON THIS CARD.
| JOINT TENANTS SHOULD EACH SIGN. WHEN SIGNING AS
EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN OR
OTHER SIMILAR CAPACITY, PLEASE GIVE YOUR FULL
TITLE AS SUCH. IF THIS SIGNATURE IS BY A
CORPORATION, A DULY AUTHORIZED OFFICER OF THE
CORPORATION SHOULD SIGN IN FULL THE CORPORATION'S
NAME. IF THE SIGNATURE IS BY A PARTNERSHIP, A
PARTNER SHOULD SIGN THE FULL PARTNERSHIP NAME.
SIGNATURE SIGNATURE DATE
-------------------- ---------------------- ----------------
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 4PM EASTERN TIME ON
MAY 8, 2002
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED
PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU
MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
- ------------------------------------------ ---------------------------------------- --------------------------------
INTERNET TELEPHONE MAIL
HTTP://WWW.EPROXY.COM/MSO 1-800-435-6710
Use the Internet to vote your proxy. Use any touch-tone telephone to vote Mark, sign and date
Have your proxy card in hand when you your proxy. Have your proxy card in your proxy card
access the web site. You will be OR hand when you call. You will be OR and
prompted to enter your control number, prompted to enter your control number, return it in the
located in the box below, to create and located in the box below, and then enclosed postage-paid
submit an electronic ballot. follow the directions given. envelope.
- ------------------------------------------ ---------------------------------------- --------------------------------
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.